Investor Lawyers Blog

Texas Securities: Investment Adviser Suspended by State Commissioner, Lawyer Ordered to Pay Almost $180K in Disgorgement Plus Interest, and Houston Man Must Pay Almost $3.8M & Serve 46 Months in Prison for $6.4M Diamond Investment Scam

Published on: November 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Texas Investment Adviser Suspend for Violating Earlier Securities Agreement
The Texas State Securities Board has suspended investment adviser John Michael McDonough for 90 days after he violated a past agreement that limited his business activities and required 212 Advisory Group to enhance its supervision of him. The undertaking agreement was a requirement for him to be approved as a registered investment adviser in Texas in 2015 while he worked with the Georgia-based firm.

At the time, the Financial Industry Regulatory Authority had already sanctioned McDonough, who used to be registered with AXA Advisors, LLC, over allegations that he engaged in “outside business activities” and a number of undisclosed private securities transactions. He was fined $10K and suspended by the self-regulatory organization.

Earlier this year, the Texas State Securities Board found that McDonough was in total violation of the undertaking agreement. Meantime, 212 Advisory was found to have failed in making sure that McDonough did not engage in any supervisory-like acts nor did it ensure that a firm principal was appointed as his direct supervisor.

SEC Cases: Biotech Company Accused of Misleading Investors & Accounting Fraud, Millennium Management Resolves Illegal Short Selling Charges, Day Trader Alleged Engaged in Unauthorized Trades in Over 100 Brokerage Accounts, and Multiple Traders Allegedly Insider Traded Based on One Tip

Published on: November 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Day Trader is Accused of Unauthorized Trades to Inflate Stock Prices and Make Illegal Profits
The US Securities and Exchange Commission has filed civil charges against Joseph P. Willner accusing him of accessing over 100 brokerage accounts and making unauthorized trades. Meantime, prosecutors in NY, as well as the US Justice Department, have filed criminal charges against him.

The SEC contends that Willner used the allegedly unauthorized trades to inflate a number of companies’ stock prices. He then traded in these same securities in his accounts and made at least $700K in illicit profits.

Willner is accused of fraud and market rigging. The Commission wants back ill-gotten gains in addition to interest, penalties, and a permanent injunction.

Credit Suisse Resolves NY Regulator’s Forex Rigging Probe for $135M

Published on: November 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Credit Suisse AG (CS) has agreed to settle currency rigging charges brought by New York’s Department of Financial Services by paying $135M. According to the state regulator, from at least ’08 to ’15, the Zurich-based bank violated NY banking law and engaged in other “unlawful conduct” that “disadvantaged customers.”

The consent order states that Credit Suisse did not put into place controls over its FX business that were “effective.” Also, its traders are accused of the “inappropriate sharing” of information with other banks that could have resulted in exchange rate rigging, coordination of trades, and a rise in the “ bid/ask spreads” that were offered to the bank’s forex customers. The DFS probe said that these actions were geared toward creating more profit for Credit Suisse, while decreasing its losses and harming not just its own customers but the marketplace. Meantime, other banks that it may have colluded with also sought to profit.

Credit Suisse is one of several banks whose traders are accused of gathering in chat rooms to rig currency prices. According to Bloomberg, traders from Barclays PLC (BARC), JPMorgan Chase & Co. (JPM), and Citigroup (C) are waiting for their trials over allegations that they sought to manipulate currencies. To date, banks accused of currency rigging have paid $5.8M to the US Justice Department to settle charges.

Singer Financial Corp. Accused of Making Illegal Securities Offering of Promissory Notes to Unsophisticated Investors

Published on: November 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against Singer Financial Corp. and its owner Paul Singer accusing them of illegally offering unregistered securities. The regulator’s complaint contends that they raised about $3.4M from at least 70 investors via unsecured promissory notes that were not registered while failing to qualify for an exemption from registration.

According to the Commission, Singer and his financial firm had at first tried for registration exemption for investment certificates that were almost identical to the promissory notes, but they gave up on their attempt and engaged in the illegal offering of the unregistered promissory notes instead. The SEC said that by not registering the promissory note offering with the regulator or obtaining qualification for registration exemption, investors were “deprived” of “critical information” about the risks involved in their investments. Also, investors in a previous offering ended up trading in their securities with promissory notes that had terms favoring Singer and his firm more than it did them. The notes also generally stretched out “repayment obligations.”

The SEC claims that Singer and his firm used marketing collateral that did not include financial statements, pervious performance facts, and other documents that are usually provided in such instances.

Ex- Investment Adviser is Accused of Defrauding Retirees of Over $1.85M

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

The US Securities and Exchange Commission has filed civil charges against a former broker and investment adviser. According to the regulator’s investment adviser fraud complaint, Jay Costa Kelter defrauded three retirees of over $1.856M. Meantime, prosecutors in Tennessee have filed a criminal case against him related to one of the clients. A federal grand jury indicted him on multiple counts of wire fraud, mail fraud, and security fraud.

The SEC contends that from 9/2013 through last year, Kelter, who owns insurance and investment firm BEK Consulting Partners LLC (known in the past as Kelter & Company LLC), made misrepresentations to the older investors, whom he’d persuaded in 2013 to transfer their accounts to TD Ameritrade (AMTD) after he left his former employer. The former broker had access to their new accounts and was authorized to keep giving them investment advice and make trades on their behalf while, meantime, he allegedly used the funds for himself.

For example, Kelter is accused of misappropriating $1.467M from a 75-year-old widow who was nearly totally financial dependent on her investments by engaging in fraud and forgery. The SEC’s complaint said that the client had told him she was only interested in making conservative investments.

SEC Orders Wells Fargo Advisors to Pay $3.5M Penalty

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

The US Securities and Exchange Commission is ordering Wells Fargo & Co.’s (WFC) wealth management unit to pay $3.5M for alleged anti-money laundering reporting violations. Wells Fargo Advisors agreed to pay the penalty. It is settling the charges but without denying or admitting to the regulator’s findings.

According to the SEC, starting in early 2012, new bank managers started pressing compliance officials to cease in their submission of suspicious activity reports. The failure to file these SARs reports, or delay them, reportedly occurred 50 times in a little over a year and involved accounts for international customers who were previously named in such reports.

Federal law mandates that broker-dealers notify the U.S. Treasury Department’s Financial Crimes Enforcement Network about any transactions of at least $5K that they believe may involve illegal activity. The regulator blames a “new senior manager” that was hired in the brokerage firm’s compliance group and placed in charge of the anti-money laundering program.

CFTC Cases: Commodity Investor Fraud Case Results in $4.5M Default Ruling and Federal Court Orders Arizona Company & Its Owner to Pay Over $2.2M in Anti-Fraud Case

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

CFTC Secures $4.5M Default Ruling in Investor Fraud Case Against STA Opus
The US Commodity Futures Trading Commission was able to get a default judgment that orders Gerard Suite and his STA Opus to pay over $1.1M in restitution and almost $3.4M in penalties for an alleged commodity pool fraud. Another defendant, Frank Collins, agreed to pay a $50K penalty and $50K in restitution over allegations that he misappropriated at least $50K from investors.

According to court filings, from 2013 through July 2016, Suite marketed an STA Opus commodity pool that touted yearly returns of 57% to almost 133% despite that nearly all of the money traded was lost. The CFTC said that Suite concealed the losses by sending investors bogus account statements.

The investors were purportedly told that they could invest even more if they sent over personal checks that were voided. Suite allegedly used the routing and account information to get new checks. This made it possible for his company to make withdrawals that were not authorized from the account of at least one customer.

Texas Securities Fraud: Houston Investment Advisor Gets Five Years for Defrauding Investors and Prison Sentences are Rendered in $6.4M Diamond Investor Fraud Case

Published on: November 10, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Lawrence Allen DeShetler will serve 60 months in federal prison for Texas investor fraud. The Houston man pleaded guilty to mail fraud earlier this year after he fraudulently solicited $1.9M from five clients.

Starting in 2014, the former investment advisor, certified planner, and head of DeShetler & Company started persuading clients that if they let him invest their funds they would make higher returns. These clients took money from their investment accounts and gave them to him. Unfortunately, DeShetler used the money on himself.

He has since admitted to using some of investors’ funds to build a house abroad. DeShetler also admitted that he persuaded one widow who was an octogenarian to liquidate a trust and transfer nearly $190K to him. He even stayed in her home while she went away. Upon her return DeShetler was gone and so were her investment documents.

FINRA Bars NY Broker For Excessive Trading in Blind Senior Investor’s Accounts

Published on: November 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority hearing panel has barred New York broker Hank Mark Werner for excessive trading and churning in the accounts of an elderly, blind widow. Now, Werner must pay over $155K in restitution to his former client, disgorge more than $10K for commissions from recommending that she buy a variable annuity (VA) that was not suitable for her, and pay an $80K fine.

Werner is accused of employing an “active trading strategy” that allowed him to charge high commissions while making it “impossible” for her to “make money.” He was the broker of the widow and her blind husband, who died in 2012, for two decades.

According to the panel, the widow was in poor health and 77 years of age when he started churning her accounts after her husband passed away. FINRA, in its 2016 complaint, said that only was the client blind, but also she required in-home care. She relied on Werner to keep her abreast of her accounts.
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Criminal Securities Fraud: Ex-ARCP CFO Sentenced to 18 Months for REIT Scam, Former Merrill Lynch Broker Pleads Guilty Over Excessive Commissions, and Businessman Convicted For Defrauding Washington Mutual Bank

Published on: November 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-American Reality CFO to Go to Prison for 18 Months

In Manhattan, a US District Court Judge has sentenced Brian Block to 18 months behind bars. Block, who was the CFO of American Realty Capital Properties, was found guilty of fraud when he inflated the financial statements of the real estate investment trust.

Prosecutors accused Block of inputting bogus figures when preparing the REIT’s financial reporting. He allegedly did this to hide a calculation mistake that occurred in an earlier financial report.

Following the disclosure of the accounting misstatements, American Realty’s share price plunged, taking with it over $3B of the REIT’s market worth. It was in late 2014 that the REIT announced that employees had purposely hidden accounting errors.

The REIT’s ex-chief accounting officer, Lisa McAlister, has also pleaded guilty to charges over this matter.