Investor Lawyers Blog

FINRA Cases: Ex-Morgan Stanley Broker and Former Western International Securities Broker Are Barred, Questar Capital Ordered to Pay $797K Restitution Over Mutual Fund Sales, and Morgan Stanley Smith Barney is Accused of Not Sending Millions of Margin Disclosures

Published on: January 16, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Two Brokers Barred After Not Appearing at FINRA Hearings

Guillermo Valladolid, an ex-Morgan Stanley (MS) broker, has been barred by the Financial Industry Regulatory Authority. According to the regulator, Valladolid did not show up at a hearing into whether, according to InvestmentNews, he “sold investments away from his employer” and neglected to disclose certain outside business activities.

Morgan Stanley terminated Vallodolid’s employment. Previous to that he worked with Merrill Lynch.

In a different FINRA case, the regulator barred another broker, Bradley C. Mascho, also after he did not appear at his hearing. Some of Mascho’s activities while at Western International Securities had come under question. The firm fired him last month, which is also when the US Securities and Exchange Commission filed fraud charges against Mascho and Dawn Bennett of the Bennett Group Financial and DJP Holdings. Mascho was CFO of the latter.

US Supreme Court to Hear Challenge Against SEC Over In-House Judges

Published on: January 12, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Supreme Court has agreed to hear the appeal of an investment adviser who is challenging the liability findings against him in a securities fraud case presided over by a US Securities and Exchange Commission (SEC) administrative law judge. Raymond Lucia, also a former radio host, was accused of misleading prospective investors about his “Buckets of Money” investment strategy by claiming the methodology he used was back-tested when that was not the case. This created a false sense of security especially among retirees who were told that their money would grow.

An SEC ALJ found him liable for fraud, including that he violated the Investment Advisers Act. Lucia was not only barred from the securities industry but also ordered to pay a $300K fine. He appealed the ruling.

Lucia also questioned whether it was constitutional for the SEC to hire administrative law judges and if they should instead be appointed rather than brought in through human resources. In 2016, The U.S. Court of Appeals for the District of Columbia Circuit turned down Lucia’s appeal, finding that contrary to his contention, SEC judges are not officers with the power to make decisions but are, in fact, employees. Also, the Commission has to approve their rulings.

Securities Fraud: Attorney Ordered To Pay Disgorgement in Alleged $15.8M Investor Fraud, and Investment Adviser Accused of Bilking Professional Athletes Pleads Guilty, as Does Hedge Fund Manager In A Separate Investor Scam

Published on: January 11, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Investment Adviser Accused of Scamming Pro Athletes and Church Members Admits to Securities Fraud
Richard Wyatt Davis Jr., a North Carolina-based investment adviser,has pleaded guilty to tax evasion and securities fraud charges. Davis was indicted for securities fraud, wire fraud, and tax evasion in 2017. He initially pleaded not guilty.

According to the criminal indictment, Davis used investor funds to repay other investors in Ponzi-like fashion, as well as to pay for vacation homes, a personal chef, and other lavish expenses. Investors were solicited at events attended for people who distrusted the banking system and the stock market.

Documents contend that Davis made misrepresentations to more than six dozen investors, costing them about $12.8M as a result. Among his victims were people he knew from church, as well as professional athletes. Of the money that Davis solicited, he paid back investors about $3.5M.

Securities News: Meyers Associates Fined $75K for Sales Literature, Former Royal Bank of Scotland Trader is Banned For Rigging Libor, and Ex-Credit Union CEO is Sentenced in Bank Fraud Case

Published on: January 10, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Meyers Associates is Fined by FINRA Over Misleading Sales Literature
The Financial Industry Regulatory Authority is ordering Meyers Associates, now called Windsor Street Capital, to pay a $75K fine for a number of securities violations, including sending sales literature that was misleading via email and not supervising books and records preparations. The firm’s principal, Bruce Meyers, is now barred from working as a firm supervisor or principal.

According to the regulator’s National Adjudicatory Council, Meyers Association has been named in 16 disciplinary actions this century. It paid about $390K in sanctions for different issues, including issuing false statements, supervisory deficiencies, omissions related to a securities offering, improper review of emails, inadequate maintenance of books and records, and not reporting customer complaints in a timely manner. Last year, the US Securities and Exchange Commission turned down Meyers’ appeal of a FINRA securities ruling that prevented him from serving as firm CEO.

Ex-RBS Trader Banned and Fined £250,000 for Manipulating Libor
The UK’s Financial Conduct Authority has banned ex-Royal Bank of Scotland Group (RBS) trader Neil Danzinger from the securities industry and ordered him to pay a $338,000 over allegations that he rigged the London interbank offered rate (Libor). According to the regulator, Danziger, a former RBS interest rate derivatives trader, “routinely” asked RBS Libor submitters to modify the rate to benefit his trading positions. He also allegedly factored in certain trading positions when serving as a submitter and on more than one occasion got a broker to help him to rig other banks’ yen Libor submissions.

Malachi Financial Products is Accused of Defrauding The City of Rolling Fork, Mississippi

Published on: January 8, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In its complaint, the US Securities and Exchange Commission has submitted a civil junctive action accusing Malachi Financial Products, Inc. and its principal Porter B. Bingham, of municipal bank fraud targeting Rolling Fork, Mississippi. According to the regulator, Malachi and Bingham charged the city too much for municipal advisory services involving a muni bond offering from October 2015.

Rolling Fork had hired Malachi in the capacity of municipal adviser in 2015 because of a proposed bond offering to pay for a number of improvement projects in the city. The SEC contends that after the closing of the offering, the firm and its principal submitted two invoices to the bond trustee, one—for $33,000—was for services that were never rendered and had never been authorized by the Mississippi city. The other, for $22K, was in line with what Malachi and Rolling Fork had agreed upon.

Bingham purportedly did not disclose to Rolling Fork that he had received $2,500 from Anthony Stovall, who worked for Bonwick Capital Partners. LLC, prior to Malachi recommending to the city that it retain Stovall’s firm as an underwriter for the bond offering. Rolling Fork went on to hire the underwriting firm because of the recommendation.

SEC Suspends Trading in UBI Blockchain After 900% Stock Jump from Cryptocurrency Craze

Published on: January 8, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has ordered the suspension trading in UBI Blockchain Internet Ltd.(UBIA) stock. The company’s stock rose over 900% last year in the wake of the popularity of digital currencies.

Now, the SEC has temporarily halted the sale and purchase of UBI BLockChain stock because of market activity that it describes as “unusual and unexplained” since at least November of last year involving the company’s Class A common stock.

It also has questions regarding the accuracy of claims that the company made in financial statements. Addressing the SEC’s move, UBI Blockchain CEO Tony Liu contended that his company, which touts blockchain technology, is not the same as bitcoin companies.

UBI Blockchain, which is based in Hong Kong, claims that it wants to utilize the decentralized-ledge technology of blockchain so that consumers can track the “original source” of a drug or food product. Two weeks ago, in a 3-to-1 trading split, the company’s market value hit over $1B. It’s current market value is more than $800M.

Securities Cases: Petrobras Will Pay $2.95B in Class Action Case, Ex-Och Ziff Hedge Fund Executive is Indicted Over Investment Scam, and Former Banker is Accused of Defrauding Excel Bank of Millions of Dollars

Published on: January 6, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Och Ziff Hedge Fund Executive Indicted in NY Over Alleged Africa Investment Fraud
A grand jury in Brooklyn, NY has indicted Michael Cohen, the ex-head of Och Ziff Capital Management’s European operations on fraud, conspiracy, and other criminal charges. According to prosecutors, Cohen hid a conflict of interest involving a mining company investment and defrauded an institutional client.

The ex-Och Ziff hedge fund executive and his former company are accused of making representations to a UK foundation that then agreed to invest up to $200M in a joint African venture in 2008. Cohen, who allegedly used the joint venture fund to purchase stock from someone who had borrowed money from him for a yacht, is accused of failing to disclose his own stake in the investment. Meantime, the person whom, CNBC reports, owed Cohen money, allegedly used funds from the stock purchase to pay him back $4M.

Cohen is accused of trying to conceal the investment scam by generating a bogus letter and making statements to the SEC, IRS, and FBI that were “materially false.”

Criminal Securities Fraud: Former ArthroCare CFO is Sentenced in $750M Scam, Ex-Lawyer of Marti Shkreli is Convicted for Concealing Financial Scheme, and former Bankrate CFO is Accused of Rigging The Firm’s Books

Published on: January 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Ex-CFO of ArthroCare Gets Prison Term for $750M Securities Fraud
Michael Gluck, the ex-CFO of ArthroCare Corp., is sentenced to over four years in prison for his role in a $750M financial fraud. Gluk pleaded guilty to securities fraud and conspiracy to commit wire fraud last year.

Gluk, ex-ArthroCare CEO Michael Baker, and others are accused of artificially inflating revenue and sales in an effort to keep the medical device company’s stock price up. As a result, shareholders sustained more than $750M in losses.

Baker was sentenced to 20 years behind bars. Gluk had previously been sentenced to 10 years in prison after he was convicted in 2014 for his role in the scam. However, a federal appeals court overturned the conviction, hence his new plea agreement and sentence. He also must forfeit nearly $678K and pay a $50K fine.

Texas Securities Regulator Orders BitConnect To Stop Allegedly Fraudulent Sales of Unregistered Bitcoin Investments

Published on: January 4, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In an Emergency Cease and Desist Order, the Texas State Securities Commissioner is demanding that BitConnect, which is based in the UK, stop a number of its investment programs, as well as its allegedly fraudulent sales of Bitcoin investments. According to the regulator, BitConnect sales agents are targeting prospective Texan investors, as well as investors in other parts of the US.

BitConnect issues its own currency, known as BitConnect Coins. As of earlier this month, the company was claiming that its market share for its cryptocurrency coins was $4.1B. It announced plans to issue up to 28 million coins.

According to the regulator’s order, BitConnect’s website BitConnect is an “open sourced, all-in-one Bitcoin and crypto-currency platform” that offers different investment opportunities. The site depicts BitConnect Coins as an “open source, peer-to-peer community-driven decentralized cryptocurrency” with which owners can “store and invest their wealth.”

Ex-ConvergEx Group Executive Accused of Defrauding Charities and Retirement Funds Settles Fraud Charges for $975K

Published on: January 3, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Group announced that Khaled Bassily, the ex-head of ConvergEx Groups’ transition management business, has settled institutional investor fraud charges accusing him of taking part in a scam to hide from certain clients, which included religious organizations, retirement funds, and charities, that they were paying substantially more than they thought for trading orders. Bassily, who agreed to pay more than $988K in disgorgement, prejudgment interest, plus a civil penalty, settled the case without denying or admitting to the charges.

The regulator brought the case against him in 2016. According to its complaint, over five years, Basily hid from transition management customers that their brokerage orders were being directed to an offshore affiliate where concealed charges were put into the price that they paid for selling and purchasing securities. These secret charges were an add on and frequently much higher than the commissions that customers paid for their orders. For example, stated the SEC’s complaint, one customer who paid $699K in commissions also paid $9.6M in these hidden fees.

Meantime, Bassily allegedly engaged in deceptive practices, including “false and misleading statements” to customers, working with traders to maximize theses hidden charges, and taking steps to hide these unauthorized charges from customers.