Investor Lawyers Blog

FINRA Warns About Cryptocurrency Related-Fraud

Published on: December 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is warning investors interested in buying shares in companies touting potentially high returns related to cryptocurrency-related activities, but that are unable to “back up such claims,” to be on the lookout for potential financial fraud.

The self-regulatory organization provided a number of “tips” for avoiding a stock scam involving cryptocurrencies, including:
• Conduct your own research before making any investments.
• Watch out for “unrealistic predictions” or claims of results even if they are published online or issued via press release.
• Be wary of “aggressive” cold caller-sourced solicitations, especially if the stocks being recommended are “very low-priced.”
• Be careful of anyone promising guaranteed or specific returns.
• Consider “pushy sales pitches” or pressure to “act now” mandates to be red flags.
• Check FINRA’s BrokerCheck to see if the representative or firm is registered or to find out of they have been sanctioned for any alleged violations in the past.
• Look at the Securities and Exchange Commission’s Edgar database to see if the company that is selling the stock has submitted filings with the regulator. That said, registration of a security with the SEC is no guarantee that the investment is a good one.
• Watch out for stocks that see big price jumps because fraud or stock rigging may be involved.

Already, the US Securities and Exchange Commission has suspended trading in different securities over uncertainties regarding the accuracy of activities related to cryptocurrencies. Just this week, the regulator temporarily halted trading in shares of The Crypto Co. after its stock price increased by over 2,700 this month amidst concerns about “potentially manipulative transactions” and the “accuracy and adequacy of information” provided to investors and regulators.

UBS Did Not Fully Disclose the Risks Involved in Puerto Rico Bond Funds to Investors and Brokers, Reports CNBC

Published on: December 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to a recent CNBC investigation, not only did UBS Puerto Rico (UBS-PR) fail to disclose to investors the risks involved in the bond funds UBS pushed on the island’s residents, but also the brokerage firm neglected to fully apprise its own brokers of the incredible risks. While these findings are not new, the CNBC probe digs deeper into the matter.

The majority of these investors were island locals, who have now also been further devastated as a result of Hurricane Maria. Already, UBS has come under fire and paid hundreds of millions of dollars in securities settlements and awards from FINRA arbitration panels over losses investors sustained when these investments failed dramatically more than four years ago. UBS also has settled with regulators, including the U.S. Securities and Exchange Commission and FINRA, and paid over $60 million for its wrongful conduct and abuse of investors. The firm did not, however, deny or admit to wrongdoing.

UBS Executives Purportedly Knew Puerto Rico Bonds Would Fail
CNBC’s investigative team obtained approximately “2,000 pages of confidential documents” that display conversations and the “inner workings” between UBS executives in Puerto Rico and the U.S. mainland prior to the funds’ collapse. According to the documents, as far back as a year before the Puerto Rico funds failed, UBS management already knew that problems were brewing and they discussed what could happen if the firm did not deal with these issues immediately.

Woodbridge Group and Owner Accused of $1.2B Ponzi Scam that Targeted Over 8,400 Investors, Including Senior Investors

Published on: December 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed financial fraud charges against the Woodbridge Group of Companies, LLC and its owner Robert H. Shapiro. The Woodbridge Group is comprised of unregistered investment companies. According to the regulator, Woodbridge and Shapiro ran a $1.2B Ponzi Scam that bilked over 8,400 investors, many of whom where older investors. At least 2,600 investors collectively spent close to $400M that came from their IRAs.

The civil fraud charges include other alleged federal securities law violations. The SEC also announced an asset freeze to keep more investor funds from dissipating. The regulator wants restoration of allegedly ill-gotten gains plus interest, as well as financial penalties.

Senior Financial Fraud

The Commission’s complaint accused Woodbridge and its owner of defrauding seniors using a “sham” business model that involved selling investments in unregistered Woodbridge funds. The company presented its main business as giving loans to third-party commercial property owners that were paying 11-15% in yearly interest for “’hard money’ short-term financing.” In fact, claims the SEC, the property owners were not third-parties but were companies belonging to Shapiro. Not only that but they had no income streams and never paid interest on these supposed loans. Woodbridge and Shapiro are said to have used investor money to buy nearly 200 commercial and residential properties in California and Colorado.

UBS Group Ordered to Pay Former CMBS Strategist Turned Whistleblower $903K

Published on: December 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A jury in Manhattan federal court found that UBS Group (UBS) owes ex-commercial mortgage-backed securities strategist Trevor Murray $903K after he turned whistleblower on the Swiss lender. Murray contends that he was fired after reporting that CMBS traders had tried to affect his research reports, which were supposed to be independent.

Murray claims that UBS CMBS bond trading head and managing director David MacNamara insisted on screening drafts of the strategist’s reports in advance, which violates firm policy. The former UBS strategist accused Kenneth Cohen, his former boss, of being the one to instigate the pre-clearance process and calling his reports “off message.”

Testifying about one instance, Murray spoke about how Cohen instructed him not to put down anything negative regarding the hotel sector since UBS was engaged in financing for a Miami Beach hotel. The ex-UBS strategist said that he disregarded Cohen’s alleged instructions and notified clients about his worries.

SEC Suspends Trading in The Crypto Company After 2700% Rise in Its Stock Price

Published on: December 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has placed a temporary halt on trading in The Crypto Company (CRCQ) stock until January 3, 2018. The company’s stock has just seen a 2,700 percent rise in price. It recently agreed to purchase a German cryptocurrency data platform called Coin Tracking E. K.

Citing concerns regarding “accuracy and adequacy,” the SEC expressed concerns about the quality of information that was given to investors. The regulator also is looking into whether “potentially manipulative transactions” involving the stock took place last month.

The Crypto Co. provides digital assets, consulting services, and technologies to the “blockchain and cryptocurrency markets.” It doesn’t sell cryptocurrencies or other digital-type monies. The Crypto Co.’s stock price, at $3.50 a share in late September, rose to $575 earlier this week. As a result, The Crypto Co.’s stock value is now over $11B—that’s more than the market worth of some of the most renowned companies in the US, including Macy’s.

FINRA Cases: Ex-LPL Broker is Barred for Not Disclosing Role in Private Securities Transactions, Merrill Lynch is Fined $1.4M For Extended Settlement Transactions, and Noble Capital Markets Agrees to Pay $225K for Failing to Disclose Conflicts to Investors

Published on: December 19, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former LPL Broker is Barred For Not Disclosing Private Securities Sales

The Financial Industry Regulatory Authority announced a bar against Leslie Koonce, an ex-LPL(LPLA) broker. According to the self-regulatory organization, Koonce lied when he failed to disclose that he had engaged in private securities sales. Koonce allegedly pitched a private company’s convertible promissory notes to at least 30 potential investors.

The FINRA case contends that not only did Koonce help facilitate the transfer of $175K to at least three LPL customers so they could invest in the private securities, but also, he invested $50K of his own funds. All the while, said the SRO, Koonce failed to notify LPL in writing of his involvement in these transactions. When he filed out compliance questionnaires twice in 2012, Koonce denied any involvement in these types of transactions.

LPL fired Koonce in 2015. He later went to work with Cetera and then EK Riley Investments. The ex-broker no longer works in the securities industry.

Texas Real Estate Investor Scams Lead to Investor Losses and Criminal Cases

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

An Austin man convicted of Texas securities fraud has been sentenced to 15 years in prison. James Elton Warr was also convicted on other multiple first-degree felonies, including money laundering, theft, and misapplication of fiduciary property in Travis County.

According to prosecutors, Warr stole $1.1M from investors who purchased contracts in unregistered real estate notes through his Warr Investment Group. He and his firm were not registered to sell these securities. Still, Warr promised 8% yearly interest, compounded monthly, and he touted the investments as “no-risk.”

The real estate deals were marketed as a safe alternative to more traditional investments. Warr promoted them online, including on YouTube.

SEC Cases: Biopharmaceutical Company Accused of Not Disclosing Executives’ Perks, Therapist Allegedly Insider Traded In Zulily Stock, and Immigration Lawyer Faces Claims of EB-5 Investment Fraud

Published on: December 14, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Provectus Accused of Disclosure and Accounting Controls Violations Related to Executive Perks
The US Securities and Exchange Commission has filed civil charges against the biopharmaceutical company Provectus. According to the regulator, the Tennessee-based company committed violations related to disclosures and accounting controls. Among the alleged failures was that Provectus did not properly report that its then-CFO and former CEO made millions of dollars in perks as compensation.

The SEC contends that Provectus did not have “sufficient controls” in place regarding the reporting and disclosure of entertainment and travel expenses of executives. Ex-CEO Dr. H. Craig Dees is accused of using fabricated, limited or “non-existent expense documentation” for millions of dollars of benefits of which investors were not informed. Then-CFO Peter R. Culpepper is accused of receiving more than $199K in undisclosed and unauthorized benefits and perks.

The Commission has filed a separate securities fraud case against Dees. Not only did he allegedly get $3.2M in reimbursements and cash for business travel that he didn’t go on, but also, he is accused of hiding these perks, which personal expenses, including restaurant tips and cosmetic surgery for women friends.

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.