Investor Lawyers Blog

Investor Fraud: Boston Hedge Fund Manager Pleads Guilty in Ponzi Scam Case, Ex-State Street Executive is Sentenced to 18 Months, and Willow Creek Fund Manger Must Forfeit $13M

Published on: October 29, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Man Who Ran RMA Strategic Opportunity Fund Ponzi Scam Pleads Guilty

Raymond K. Montoya, a Boston hedge fund manager, has pleaded guilty to operating a multi-billion dollar Ponzi scam involving the RMA Strategic Opportunity Fund, LLC. Montoya pleaded guilty to multiple counts of mail fraud, wire fraud, and conducting an unlawful monetary transaction.

Montoya was charged and arrested last year. His victims included relatives, friends, and people he knew. They invested millions of dollar, including their savings and retirement funds.

UBS to Pay $19.8M in Puerto Rico Bond Fraud Case

Published on: October 25, 2018 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel is ordering UBS Financial Services Inc. (UBS) to pay restitution of almost $19.8M in an arbitration case involving Puerto Rico bonds and closed-end funds that were sold to investors. This is the largest amount that UBS has paid to date to claimants in a Puerto Rico bond fraud case.

The arbitration ruling involved not only the sale of the Puerto Rico bonds but also how credit lines were used as part of the investing strategies involving the investor accounts. Of the $19.8M: $14.9M is for compensatory damages, $745K is interest, $3.9M is legal fees, and $215K is for other costs.

This is just one of several Puerto Rico bond and closed-end bond fraud awards that UBS and its affiliated financial firm, UBS Financial Services of Puerto Rico (UBS-PR), have been ordered to pay in the last few years. In December 2016, A FINRA arbitration panel ordered UBS to pay $18.6M to two UBS clients who had alleged breach of contract, breach of fiduciary duty, and other violations over their Puerto Rico securities losses.

Texas Oil and Gas Businessman Settles $80M Fraud Case Involving Breitling Energy Shares

Published on: October 24, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission announced this week that Christopher Faulkner, a Texas businessman, will pay $23.8M to settle oil and gas charges involving an alleged over $80M securities scam that bilked hundreds of investors. Faulkner, who called himself the “Frack Master” and claimed to be an expert in hydraulic fracturing, is accused of setting up several companies and then selling interests in oil and gas prospects to investors in Texas and other US states.

The regulator contends that Faulkner:

“Systematically deceived” investors through offering materials that were “false and misleading.”

HSBC and Nomura to Pay $765M and $480M, Respectively to Settle RMBS Fraud Claims

Published on: October 19, 2018 | by Shepherd Smith Edwards & Kantas, LLP

HSBC will pay a $765M penalty over claims involving its packaging, marketing, and sale of residential mortgage-backed securities prior to the 2008 economic crisis. According to the US Attorney Bob Troyer, from the beginning HSBC employed a due diligence process that it knew was ineffective, “chose” to place faulty mortgages in deals, and disregarded these problems even as it sold the RMBSs to investors. As a result, contends the US government, investors, including federally-insured financial institutions that bought the HSBC Residential Mortgage-Backed Securities that were backed by faulty loans, sustained “major losses.”

HSBC had touted using a proprietary model that would choose 20% of the riskiest loans for further examination and another 5% that would be randomly chosen. The government, however, claims that the financial firm’s trading desk exerted undue influence on which loans would be securitized and sometimes failed to employ a random sample. Outside vendors then studied the chosen loans.

The US alleges that even when a number of loans were marked as low grade, HSBC “waived” them through or regraded them, and concerns about loans that had defaulted right away were purportedly disregarded. The bank even allegedly continued to buy loans from an originator who was found to likely be providing loans that were fraudulent.

Investment Advisor Fraud: Dawn Bennett is Convicted in $20M Ponzi Scam, Guilty Plea Reached in $6.1M Fraud, and Genesis Advisory Services Operator Settles SEC Charges

Published on: October 18, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Former Financial Adviser Now Facing Years in Prison for $20M Investor Fraud

Dawn Bennett, an ex-financial adviser and the operator of Bennett Financial Group Services, has been convicted of 17 criminal charges, including securities fraud, conspiracy, bank fraud, wire fraud, and making false statements on a loan application. It took a federal jury less than five hours to convict her for a $20M ponzi scam that defrauded nearly four dozen investors, including many older investors and retirees. Some of her advisory clients took money out of their retirement accounts to invest with Bennett.

Prosecutors contend that the former financial adviser, who is also an ex-radio show host, used investors’ money to pay back earlier investors in Ponzi-like fashion and to fund her luxury lifestyle. This purportedly included paying priests in India to conduct religious ceremonies to keep regulators away, a $500K luxury suite at the Dallas Cowboys’ stadium, and cosmetic surgery procedures.

Fidelity is Sued Over Alleged Retirement Plan Mismanagement Again

Published on: October 17, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Nearly years after settling two 401K lawsuits for $12 million, participants in Fidelity Investments’ retirement plan are once more suing the firm. The plaintiffs allege that self-dealing cost them money while allowing the financial firm and a number of its affiliated entities to turn a profit.

According to the complaint in Moitoso et al v. FMR LLC et al, Fidelity breached its fiduciary obligation to plan participants by including too many proprietary mutual funds in its $15B 401(K) plan. The plaintiffs claim that compared to 2014 and 2015, there was an increase in in-house funds in the 401(k) plan in 2016: 234 proprietary mutual funds with no non-proprietary funds in the plan, whatsoever.

Fidelity is accused of choosing proprietary investment products to promote its own interests even if they may not have been suitable for plan participants. As a result, contend plaintiffs, compared to the typical 401(k) plan, plan participants have lost $100M more annually because of poor performance and costly fund fees.

Another Ex-Morgan Stanley Broker is Barred by FINRA

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

The Financial Industry Regulatory Authority has barred another former Morgan Stanley (MS) broker. John Halsey Buck III consented to the industry bar after he did not provide the information and documents that the self-regulatory organization asked for related to its probe into his alleged involvement in unapproved private securities sales. Buck, who has over 50 years experience in the industry, was let go by the brokerage firm earlier this year.

Morgan Stanley reportedly fired him in the wake of disclosure-related issues, including those involving private investments that did not involve the broker-dealer. According to InvestmentNews, the allegations against Buck have to do with “selling away.” This is a practice that happens when a stockbroker, financial adviser, or a registered representative solicits the sale of or sells securities that his or her brokerage firm does not offer or hold. Broker-dealers usually have a list of approved products that its brokers are allowed to sell to firm clients.

Buck had been with the industry since 1965. Previous to working with Morgan Stanley, he was a registered broker with UBS Financial Services (UBS), Wachovia Securities, Prudential Securities Incorporated, Loeb Partners, and Hornblower, Weeks, Noyes & Trask.

Investor Fraud: Man Who Solicited Women He Dated is Convicted, Real Estate Developer is Accused in $16M Financial Scam Turns Himself In, and Couple Allegedly Promised Over 2200% in Investment Returns

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

Man is Convicted in $2.2M Investment Fraud

A federal jury has convicted a Pennsylvania man on 16 counts of securities fraud, 12 counts of wire fraud, four counts of money laundering, one count of mail fraud, and one count of tax evasion in a $2.2M investment scam. Thomas H. Connerton is accused of defrauding 50 people, including several women that he met through online dating. He was the CEO, president, and founder of Safety Technologies, LLC.

Founded in 2006, Safety Technologies was supposed to develop and commercialize materials that were resistant to cuts and punctures and which could be used to make surgical gloves and related products. Starting in 2009, Connerton began persuading investors to buy securities in Safety Tech. The investments were not registered with the US Securities and Exchange Commission.

FINRA Bars Former Morgan Stanley and Wells Fargo Brokers

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

The Financial Industry Regulatory Authority announced this week that it is barring three former brokers. They are ex-Morgan Stanley broker (MS) Kevin Smith and former Wells Fargo (WFC) brokers Wilfred Rodriquez Jr. and Thomas A. Davis.

According to the self-regulatory authority’s order, the bar against Smith comes after he wouldn’t appear before FINRA to testify regarding allegations involving a structured products trade in a family member’s trust that he may have executed without checking with the client first.

Morgan Stanley fired Smith in 2016 in the wake of the broker fraud allegations.

Financial Fraud: Massachusetts Mayor is Accused of Bilking Investors, Former Wells Fargo Broker Allegedly Stole $1M From Older Clients, and the LendingClub Asset Management Settles $4.27M Securities Case

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

26-Year Old Mayor is Arrested and Accused of Investor Fraud

Jasiel Correira, who is the mayor of Fall River, Massachusetts, has pleaded not guilty to multiple criminal counts of wire fraud and tax fraud. The 26-year-old was arrested this week following allegations that he defrauded investors of over $230K.

Correira maintains that the investor fraud allegations are false. He refuses to step down as city mayor.