Investor Lawyers Blog

Ex-Broker Ordered to Pay $550K For Bilking Modest Income Investors in ETN/ETF Fraud Had Previous Unsuitable Investment Claims Against Him

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

The US Securities and Exchange Commission has secured a final judgment by default in its broker fraud case against Demitrios Hallas. The former broker was charged by the regulator in April for allegedly trading unsuitable investment products in five customers’ accounts. The customers were unsophisticated investors with not much, if any, experience in investing. Their net worth and income levels were modest enough that risky investments were not a good fit for their portfolios.

According to the regulator’s complaint, in a period of a little over a year, Hallas traded 179 daily leveraged exchange traded funds and exchange traded notes in these accounts. (Both ETFs and ETNs products are considered high-risk, volatile, and only suitable for sophisticated investors.)

The SEC said that Hallas had no reasonable grounds for recommending these investments to customers. Meantime, the latter were charged fees and commissions of about $128K. The net loss sustained over all the positions was about $170K.

FINRA Charges Sandlapper Securities Over Fraudulent Private Placement Markups of Up to 270% Involving Texas Saltwater Disposal Wells

Published on: October 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has filed fraud charges against Sandlapper Securities. According to the self-regulatory organization, the small brokerage firm created and sold private placements in saltwater disposal wells in Texas while charging undisclosed markups of up to 270% that eventually totaled over $8M on numerous deals.

Also accused of fraud are Sandlapper CEO Trevor Gordon, firm executive Jack Bixler, and two ex-brokers. FINRA contends that in 2011, the four men set up Tiburon Saltwater Reclamation Fund to invest in these wells. They also established a development company to handle the investments in the wells. However, alleges the SRO, between 12/12 and 7/13, Bixler and Gordon utilized the development company to intervene between the fund and the saltwater disposal well deals and they charged markups ranging from 161-270%. Not only were these markups excessive but also they went undisclosed. This occurred even though the fund could have directly bought interest in the wells.

Also, claims FINRA, beginning in 2013, Gordon began using the development company to obtain ill-gotten profits from investors who bought interest in the saltwater disposal wells. The company bought the interests and then resold them to investors, again at high, undisclosed markups of 67% to 376%.

Puerto Rico Bond Fraud Cases Name Former Morgan Stanley Broker Angel Aquino-Velez

Published on: October 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, there are six pending FINRA arbitration claims against Morgan Stanley (MS) and its former broker Angel Aquino-Velez (Aquino-Velez) concerning his selling Puerto Rico investments. The claimants are alleging misrepresentation and unsuitability regarding the sale of Puerto Rico closed-end funds and bonds they purchased through Aquino-Velez, who is based in Miami, and the brokerage firm.

InvestmentNews also reports that according to FINRA’s BrokerCheck database, Morgan Stanley has already resolved four FINRA arbitration claims valued at $2.4 million related to Aquino-Velez and Puerto Rico municipal bond investments. Aquino-Velez, who left Morgan Stanley a few months ago, was recently selling Puerto Rico COFINA bonds, which are securities backed by the U.S. territory’s sales tax revenue. Prior to working at Morgan Stanley, Aquino-Velez was with UBS Financial Services (UBS) and Merrill Lynch (BAC).

Puerto Rico Bond Fraud Losses
At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico bond fraud lawyers have been working hard these past four years to help investors who sustained serious losses when the island’s municipal bonds began to fall in value in 2013. For many of our clients, their portfolios should not have been so heavily concentrated in Puerto Rico bond funds and bonds, if at all, except that they were given bad investment advice. Many investors lost everything.
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HSBC Ordered to Pay $175M Fine Over Forex Trading Oversight

Published on: September 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Federal Reserve is ordering HSBC Holdings PLC (HSBC) to pay a $175M fine, accusing the bank of engaging in practices that were “unsafe and unsound” in its foreign exchange trading business. According to the Fed, HSBC did not properly oversee chat rooms in which traders exchanged information about investment positions.

The authorities contend that the bank’s traders exchanged confidential information about client orders and coordinated trades to enhance profits. As part of the securities enforcement action, HSBC will have to improve its controls and compliance risk management as it pertains to FX Trading.

Ex-HSBC Forex Spot Trader Head Accused of Front Running
In a different case, Mark Johnson, the former head of HSBC’s foreign exchange cash trading desk, is on trial over allegations of “front-running” involving forex spot trading. He and co-conspirator Stuart Scott have been charged with wire fraud and conspiracy for allegedly defrauding Cairn Energy PLC in a multi-billion dollar transaction that occurred in 2011. Front-running involving forex markets usually refers to the making of a trade that is proprietary prior to a customer making a potentially market-moving trade in order to profit.

SEC Cases: Ex- IT Executive Accused in Stockholder Fraud, Regulator Stops E-B5 Scam in California, and Businessman is Accused of Using Investor Money to Buy Green Bay Packers Tickets

Published on: September 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

ServiceMesh Co-Founder Accused of Fraud
The US Securities and Exchange Commission has filed charges against Eric Pulier, the co-founder of ServiceMesh (SMI) and a former IT executive at Computer Sciences Corporation (CSC). According to the regulator, Pulier bilked CSC of $98M related to its acquisition of SMI.

The SEC contends that Pulier bribed an ex-Commonwealth Bank of Australia VP and another ex-bank executive so that Commonwealth would go into contracts with CSC that would allow SMI to get a $98M earn-out payment from the former as part of the acquisition. This meant that the contracts had to satisfy a $20M revenue threshold prior to a specific date.

Meantime, claims the SEC, Pulier was the recipient of more than $30M of that $98M because he was a majority SMI shareholder. He allegedly used a nonprofit to funnel more than $2.5M to the two ex-Commonwealth Bank of Australia as kickbacks.

Securities Fraud: Ex-LPL Rep is Indicted in Colorado, 15 Convictions in Indiana Securities Case, North Carolina Analyst Faces Criminal Charges, and ex-Illinois Investment Banker is Accused of Insider Trading

Published on: September 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former LPL Broker Indicted for $850K Securities Fraud and Theft
Sonya Camarco, an ex-LPL (LPLA) financial broker, has been indicted in Colorado on seven counts of theft and six counts of securities fraud. She is accused of taking over $850K in client funds for her own use between 1/2013 and 5/2017.

Camarco was fired by LPL last month. Her BrokerCheck record on the FINRA database indicate that she was let go for depositing third-party checks for clients into an account she controlled. Camarco is accused of failing to disclose to clients, including one elderly investor who had dementia, that she was depositing the funds in this manner. If this is true then not only is this a matter of financial fraud but also this would be a case of senior financial fraud.

Securities Fraud Involving Earth Energy Exploration Bilks Investors of $3M
In Indiana, fifteen people were convicted and ordered to prison in a securities fraud case involving Earth Energy Exploration Inc. Investors in Texas and other states lost $3M.

Three Ex-Alexander Capital Brokers Charged with Making Unsuitable Recommendations That Cost Investors

Published on: September 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against former Alexander Capital brokers who are accused of making unsuitable recommendations that garnered them commissions while causing investors to sustain significant losses. All three men, Rocco Roveccio, William Gennity, and Laurence Torres, are based in New York.

Because there are costs associated with each transaction for the customer, the security’s price has to go up significantly during the short time it is in an account for even the smallest profit to be made. Instead, eleven customers lost $683K while the NY brokers made $280K and $206K, respectively, in fees and commissions. Some of the investors they bilked had little education and/or were inexperienced investors. In the SEC’s complaint against Gennity and Roveccio, the brokers are accused of recommending investments that required the “frequent buying and selling of securities” despite a lack of reasonable grounds to think that this would make money for their customers.

The two men allegedly engaged in churning in customers’ accounts, unauthorized trading, and hiding material information from them, including that the transaction expenses (markups, commissions, markdowns, fees, postage, and margin interest ) for the investment recommendations would most likely exceed any possible profits.

Appeals Court Upholds $839M MBS Fraud Judgment Against Royal Bank of Scotland Group & Nomura

Published on: September 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In a unanimous ruling, a U.S. Court of Appeals for the 2nd Circuit panel has turned down an appeal by Royal Bank of Scotland Group Plc (RBS) and Nomura Holdings Inc. (NMR) to overturn an order mandating that they pay $839M for the false statements, including misrepresentations, that they are accused of making while selling mortgage-backed securities to Freddie Mac (FMCC) and Fannie Mae (FNMA). The MBS fraud award was issued against the two banks in the Federal Housing Finance Agency’s securities lawsuit. FHFA has been the conservator for Fannie and Freddie ever since the US government took them over after the housing market failed in 2008.

Nomura sponsored $2B of securities that were sold to the mortgage companies. RBS was the underwriter on four of the deals. In a filing submitted to US securities regulators last month, RBS said it is looking to be indemnified by Nomura for the losses.

Ex-Investment Manager Gets 12-Years in $96M Ponzi Scam

Published on: September 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Brian R. Callahan, a former investment fund manager, has been ordered to serve 12 years in prison and three years of supervised release for his role in a $96M Ponzi scam. He also must pay $67.6M in restitution. Callahan pleaded guilty to wire fraud and securities fraud in 2014.

Between 12/2006 and 2/2012, Callahan raised over $118M from at least 40 investors related to four investment funds he oversaw. He told investors that their money would be placed in different securities, such as hedge funds and mutual funds. What happened instead was that the former investment manager misappropriated about $96M in a Ponzi scam.

Callahan is accused of diverting millions of dollars toward an unprofitable beachfront residence and resort development named Panoramic View that he co-owned with his brother-in-law, Adam Manson. The latter is a co-defendant in the Ponzi fraud.

Morgan Stanley to Pay $13M Over Improper Supervision of Unit Investment Trust Sales

Published on: September 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is ordering Morgan Stanley Smith Barney LLC (MS) to pay about $9.8M in restitution to and a $3.25M fine for purportedly not properly supervising hundreds of financial representatives who sold short-term trades of UITs. The firm settled without denying or admitting to the regulator’s charges.

According to the self-regulatory organization, from 2/2012 through 6/2015, the brokerage firm’s representatives effected short-term UIT rollovers, including a number of them more than 100 days prior to maturity, in customer accounts. FINRA said that the firm did not properly supervise these reps, when they engaged in the UIT sales, nor did it properly train them regarding the investments. It also purportedly failed to give supervisors adequate guidance about how to study transactions for signs of unsuitable short-term trading. Morgan Stanley is accused of failing to put into effect a system “adequate” enough to identify short-term UIT rollovers and of not providing supervisory assessment for UIT rollovers before execution.

UITs
Unit investment trusts are investment companies that offer units in a securities of a portfolio. They are subject to termination on a certain maturity date, usually after 15 months or 24 months. They typically come with certain fees, including a creation fee and a deferred sales charge. According to FINRA, when a new UIT compels a customer to be pay higher sales charges over time, this could be a red flag indicating suitability issues.