Investor Lawyers Blog

Securities Fraud: FINRA Bars Two Ex-Wells Fargo Brokers Over Unsuitable Securities Sales, Pennsylvania-Registered Representative is Accused of $2.35M Ponzi Scam, and Digital Display Ad Company Allegedly Stole Over $2M from Retail Investors

Published on: December 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Wells Fargo Brokers Barred Over Unsuitable Energy Securities Sales
The Financial Industry Regulatory Authority has barred brokers Charles Lynch and Charles Frieda for making unsuitable recommendations to investors, resulting in substantial financial losses to the latter. Lynch and Frieda are former Wells Fargo (WFC) representatives who were based in Southern California. Both Lynch and Frida were fired from the firm. Previous to working at Wells Fargo, both men worked at Citigroup (C) and Morgan Stanley (MS).

According to the self-regulatory organization, between 11/12 and 10/15, the former brokers recommended an investment strategy revolving around certain speculative energy stocks to over 50 customers. These securities were volatile. Because investors became very concentrated in these energy securities, they were placed at risk of substantial losses.

FINRA contends that the two brokers did not do a proper job of making sure these investments were suitable for the customers to whom they were recommending these securities.

Chicago Investment Manager Indicted Over $10M Fraud

Published on: December 12, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Shawn Baldwin, a Chicago investment manager, is charged with eight counts of wire fraud. Baldwin, who owns a number of investment-related firms, is accused of fraudulently obtaining over $10M from at least 17 individual investors and corporate lenders between 2006 and May 2017.

According to the criminal indictment accusing him of financial fraud, Baldwin made false claims about his professional success and connections, including that his firm was affiliated with professional advisors and compliance officers with whom it, in fact, had no ties. He also allegedly misrepresented the seriousness of disciplinary actions that he had been subject to by regulators. Among these were that he was permanently barred from offering investment advice or securities in the state of Illinois, as well as that the Financial Industry Regulatory Authority had taken away his professional registrations eight years ago. In 2006, the National Association of Securities Dealers barred his firm, CMG Institutional Trading, for failing to meet the US Securities and Exchange Commission’s requirements regarding capital.

Baldwin is accused of telling investors that their money would go into investment products when, in reality, he allegedly used their funds for his own use. He purportedly tried to hide his investment scam by generating fraudulent account statements that didn’t accurately reflect the value of customers’ funds. He also made it appear as if he was involved in profitable business deals and was setting up new contacts that would lead to money from IPOs. In truth, claim prosecutors, Baldwin knew he wouldn’t be able to pay back investors because he had either spent or lost their money.

Westport Capital Markets LLC is Accused of Undisclosed Markups as Investors Lose Over $1M

Published on: December 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed civil charges against Westport Capital Markets LLC and principal Christopher E. McClure. The Connecticut-based, dually registered brokerage firm and investment adviser and its principal are accused of defrauding clients, costing them over $1M in losses.

According to the regulator’s securities fraud complaint, the investment advisory firm and McClure invested clients’ money in risky securities on numerous occasions, resulting in hundreds of thousands of dollars in undisclosed mark-ups that went to Westport even as the clients lost more than $1M. The broker-dealer would allegedly buy securities from underwriters at a reduced rate and later re-sell them to its own clients at the full public offering price while keeping the difference.

Westport and McClure are accused of making false and misleading representations to clients about the compensation that the financial firm received from their accounts. Also, the brokerage firm is accused of receiving 12b-1 fees, which are mutual fund distribution fees, when clients’ money was placed in certain mutual fund share classes and again not telling clients about these fees. The SEC said that the fees created a conflict. McClure and Westport allegedly invested clients in mutual fund shares that charged these fees even when less expensive shares that didn’t carry the fees could have been purchased instead.

Securities Cases : Ex-Stock Trader Allegedly Made Over $1M from Insider Trading, Investment Advisers Accused of Conflicted Transactions & Misleading Investors, and Ex-Pro Football Player Gets 40 years Behind Bars over $10M Scam

Published on: December 11, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Philadelphia Eagles Player Who Bilked Former Coaches is Sentenced to 40 Years
Merrill Robertson Jr., a former Philadelphia Eagles football player, will serve 40 years in prison for a $10M fraud that bilked investors. Among his investor fraud victims were coaches he knew from when he played football at the University of Georgia and the Fork Union Military Academy.

The SEC also filed a case against him in a parallel civil case. According the regulator, Robertson, Sherman C. Vaughn Jr., and their Cavalier Union Investments diverted almost
$6M of investors’ money to pay for their own expenses and repay earlier investors.

Investment Advisers Accused of Mislead Investors About Conflicted Transactions
The US Securities and Exchange Commission has filed charges against Mohlman Asset Management, LLC, Mohlman Asset Management Fund, LLC, and Louis G. Mohlman, accusing them of misleading investors and engaging in conflicted transactions. Mohlman and the two investment advisers managed two private funds.

Ameriprise Ordered to Pay $8M Over F-Squared Alpha Sector Strategy Sales

Published on: December 8, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has imposed a $1.75M penalty on Ameriprise (AMP) related to its sale of F-Squared Alpha Sector strategies. The financial firm must also disgorge $7.3M.

According to the regulator, F-Squared Investments made mistakes when calculating the historical performance of its Alpha Sector investment strategies. These sector rotation strategies were predicated upon the use of an algorithm that gave off a “signal” noting whether to sell or purchase certain exchange-traded funds that collectively comprised the industries in the S & P 500 Index.

However, claimed the regulator, F-Squared erred when it implemented these signals prior to when they could have happened. The Commission accused the firm of employing back-tested and hypothetical historical performance data that was inflated, rather than using what the AlphaSector’s performance would have been if there hadn’t been any signal-related errors, to come up with the investment’s track record.

Ameriprise Ordered to Pay $8M Over F-Squared Alpha Sector Strategy Sales

Published on: December 8, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has imposed a $1.75M penalty on Ameriprise (AMP) related to its sale of F-Squared Alpha Sector strategies. The financial firm must also disgorge $7.3M.

According to the regulator, F-Squared Investments made mistakes when calculating the historical performance of its Alpha Sector investment strategies. These sector rotation strategies were predicated upon the use of an algorithm that gave off a “signal” noting whether to sell or purchase certain exchange-traded funds that collectively comprised the industries in the S & P 500 Index.

However, claimed the regulator, F-Squared erred when it implemented these signals prior to when they could have happened. The Commission accused the firm of employing back-tested and hypothetical historical performance data that was inflated, rather than using what the AlphaSector’s performance would have been if there hadn’t been any signal-related errors, to come up with the investment’s track record.

Ex-Financial Adviser Settles Private Equity Fund Fraud Charges in Texas

Published on: December 8, 2017 | by Shepherd Smith Edwards & Kantas, LLP

James C. Tao, an ex-financial adviser, has settled civil charges accusing him of bilking investors in a private equity fund. It was the US Securities and Exchange Commission that brought the Texas investment fraud charges against him.

Among the allegations was that Tao misappropriated investor money and made material misstatements in offering documents for the Presidio Venture Capital fund. Donna Boyd, Tao’s ex-partner, also settled SEC charges in this case.

The regulator’s complaint contends that the two of them set up the fund four years ago to invest in Houston-based technology startups. They raised about $860K.

10 Four Points Capital Partners Customers Lose $574K Because of Alleged Broker Fraud

Published on: December 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against two brokers for allegedly carrying out broker fraud in the form of unsuitable trades that made them money while costing investors. According to the regulator’s complaint, Zachary Berkey and Daniel Fischer engaged in in-and-out trading—a strategy that was “almost certain” to cause customers losses.

As a result, contends the SEC, 10 Four Points Capital Partners LLC customers collectively lost almost $574K while Fischer earned $175K in commissions and Berkey earned $106K. Four Points is a Texas LLC headquartered in NYC.

The Commission accused the two brokers of churning customer accounts while hiding material information from clients, including facts about commissions, fees, and other costs. Because the securities were only held for a brief time and the costs for these transactions were “significant,” the investments’ share prices would have had to go up substantially for even a “minimal profit” to be made.

Securities News: Whistleblower is Awarded $4.1M, FINRA Bars Former UBS Broker Who Managed High Net Worth Investor, and Microcap Company Is Accused of Fraud

Published on: December 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

SEC Awards Whistleblower $4.1M
A company insider who notified the US Securities Exchange Commission about a “widespread, multi-year securities law violation” involving the employer, is getting a $4.1M whistleblower award. The individual, who is a foreign national employed abroad, also provided information and help during the regulator’s probe. Further details about the case have been kept confidential so as to protect the confidentiality and anonymity of the whistleblower.

This is the third whistleblower award issued this month by the SEC. The regulator awarded two other people $8M each for their help in another successful enforcement action.

To date, the SEC whistleblower program has awarded 50 whistleblowers over $179M.

Hedge Fund Managers Settle SEC Charges Accusing Them of Sharing Confidential Investment Information with Each Other

Published on: December 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Nehal Chopra, founder of the hedge fund Ratan Capital Management, and her husband Paritosh Gupta have settled US Securities and Exchange Commission charges alleging that they acted improperly: He, by sharing confidential investment recommendations with her and she, by not disclosing to her clients that her husband was the one who gave her this information.

Gupta worked at Brahman Capital, a hedge fund firm. He later launched Adi Capital Management, also a hedge fund firm. Brahman and Ratan are competitors in their field.

According to the SEC, Gupta provided Chopra with information developed for Brahman’s own clients, as well as the timing of Brahman’s sizes and positions, and he advised her about certain investments. In one example noted by the regulator, Gupta asked his wife about the size of her firm’s position in one security. After she responded, he advised her to increase that position. Ratan would go on to buy more shares that day.