Investor Lawyers Blog

Dallas Financial Adviser Indicted in $3M Texas Investment Fraud

Published on: March 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Carlton Chadbourne Sayers has been indictment in district court. The 51-year-old is accused of Texas investment fraud and he is charged with mail fraud, wire fraud, aggravated identity fraud, and bank fraud. The scam caused dozens of investors to lose over $3M.

According to the indictment, Sayers allegedly sought to bilk a number of fraud victims by asking that they lend or invest funds with him and Wellington & Franklin Financial. He allegedly promoted that their funds would go toward buying or renovating residential real property and would be securitized by interest in these properties. He also is accused of promising a significant return rate.

Instead, states the indictment, rather than invest the funds the way he represented they would be invested, Sayers failed to secure interests in actual property or, in instances when he and Wellington & Franklin Financial actually owned a residential property, it was one that had already been bought with a pre-existing loan from an experienced investor and to whom the property was already acting as a security. Sayers is accused of bilking dozens of inexperienced investors who thought they were getting involved in secure investments that were giving them an opportunity to make higher returns than they would have with other investments.

FINRA Headlines: Dawn Bennett Loses $1M Gold ETF Claim, Regulator Bars NJ Broker-Dealer, and Investors Are Warned About Binary Options Follow-Up Fraud

Published on: March 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Investment Adviser Loses Arbitration Claim Over Gold Exchange-Traded Fund
Ex-financial adviser Dawn Bennett is on the losing end of a $1M securities arbitration claim brought by a former client who claims that she recommended he invest in a gold exchange-traded fund. Steven Santagati brought his ETF securities case to the Financial Industry Regulatory Authority. He alleged failure to supervise, breach of fiduciary duty, and negligence.

InvestmentNews reports that in an interview this week, Santagati accused Bennett of taking advantage of his lack of understanding about “financial details.” Santagati said that Bennett leveraged his account and invested in risky investments, including the SPDR Gold Shares exchange traded fund.

Finra awarded Santagati $746K. Western International Securities, which was Bennett’s ex-brokerage firm, and her Bennett Group Financial Services are additional respondents in this case. They were found “jointly and severally” liable for the violations. In addition to Santagati’s award, they must pay $27K in expert witness fees and $252K in legal fees.

US Attorney’s Office Charges Two Ex-China Medical Technologies Executives in $400M Securities Fraud

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

China Medical Technologies Inc. founder and ex-CEO Xiaodong Wu and Ex-CFO Tak Yung Samson Tsang are charged with securities fraud, wire fraud conspiracy, and securities fraud conspiracy. The two men are accused of bilking the company’s noteholders and investors of over $400M. They are now fugitives and live in China.

Investors thought they were getting involved in a medical device company that was listed on NASDAQ. Funds were supposed to be invested in China Medical or used to buy back existing debt. However, according to the US Attorney’s Office for the Eastern District of New York, Tsang and Wu misrepresented how proceeds raised via two note offerings would be used and then stole investors’ money. They sent the funds to entities that they were either affiliated with or controlled.

The indictment said that between 1/2005 and 11/2012, Tsang, Wong, and a co-conspirator ran this securities scam and made material misrepresentations and omissions about the investments. To facilitate their fraud, the then-executives caused a China Medical outside auditor and independent director to step down, ceased issuing public disclosures about how material events were impacting security values, and stopped paying interest on the notes.

Rhode Island Investment Adviser Goes To Prison Over $21M Ponzi Scam

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

ClearPath Wealth Management owner and president Patrick Churchville has been sentenced to seven years in prison for bilking investors in a $21M Ponzi scam. He also must pay restitution and perform 2,000 hours of community service.

Churchville also was charged by the Securities and Exchange Commission in 2015 over the scam, which the regulator said cost investors at least $11M in losses. According to the SEC, Churchville and his company used newer investors’ money to pay earlier investors, used investor funds as loan collateral for investments, for paying back the loans, and for investments that would benefit ClearPath. He also stole about $2.5M of investors’ money to buy a waterfront home. Churchville employed misleading accounting tactics and engaged in deceptive actions to hide the fraud.

In 2013, when a lot of ClearPath investors began asking for distributions on their investments, he delayed the scam by lying to them about the investments. Meantime, investors were persuaded that at least part of their investments were still fine even though the funds were gone.

Insider Trading Cases: Ex-Oppenheimer Adviser Sentenced to Six Months, Las Vegas Sports Gambler is on Trial, and SEC Files Civil Case Against Ex-Home Security Guard

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

Ex-Oppenheimer Stockbroker Pleads Guilty in Insider Trading Case
David Hobson, an ex-Oppenheimer Holdings (OPY) investment adviser, was sentenced to six months behind bars for insider trading using information provided to him by a friend who was employed with Pfizer Inc. at the time.

Hobson pleaded guilty to the criminal charges against him. He was ordered to forfeit over $385K. His friend, Michael Maciocio, reached a plea deal with prosecutors for his part last year.

Hobson started insider trading in 2008 while employed at RBC Capital Markets and he continued with his illicit activities at Oppenheimer. He was Maciocio’s stockbroker.

Stifel Ordered to Pay Back Retired Couple More Than $100K For their Puerto Rico Bond Fraud Losses

Published on: March 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) panel said that Stifel, Nicolaus & Co. (“Stifel”) must pay June and Perry Burns over $100K for losses they sustained from Puerto Rico bonds and oil and gas investments. The Burns are in their eighties and they invested a “substantial” amount of their life savings with Stifel.

In their Puerto Rico bond fraud arbitration claim, the couple accused Stifel of negligence, unauthorized trading, and unsuitable investments, among other violations. For that portion of their case, the FINRA panel awarded the Burns $79,709, which was everything they lost, and also fees and interest. Despite the ruling, Stifel, in its own filings, continues to deny the couple’s allegations. The broker-dealer tried to have the case thrown out and removed from its FINRA records.

Senior Investors Sustained Losses From Investing in Puerto Rico Bonds
Unfortunately, the Burns are not the only senior investors whose retirement savings were seriously harmed because brokerage firms and their brokers recommended that retirees invest in Puerto Rico bonds and Puerto Rico bond funds even though these securities were too risky for their portfolios and/or not aligned with their investment objectives. For the past few years, our senior financial fraud lawyers at Shepherd Smith Edwards and Kantas have been working with older investors in the US mainland and the island of Puerto Rico to help them get their lost investments back. Aside from Stifel, other brokerage firms are accused of inappropriately recommending Puerto Rico bonds and close-end bond funds to investors, including UBS Puerto Rico (UBS-PR), Santander Securities (SAN), Banco Popular, Merrill Lynch, Morgan Stanley (MS) and others.

Securities News: SEC Orders Voya to Pay $3.1M For Not Disclosing Mutual Fund Sale-Related Payments, FINRA Bars Ex-Waddell & Reed Broker, and Alabama Pension Fund Loses Millions in Ponzi Scam

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

Voya Accused of Not Disclosing Revenue Received for Mutual Fund Sales
The US Securities and Exchange Commission said that Voya Financial Advisors (VOYA) would pay approximately $3.1M to regulators and investors for not telling customers about revenue the firm was paid related to a mutual fund program that didn’t bill transaction fees. Voya’s clearing broker-dealer paid the firm a percentage of the money made from the mutual fund sales. This was information that should have been shared with investors.

Also, since 2014, Voya and the third-party brokerage firm were involved in a separate agreement under which Voya provided certain administrative services in return for a percentage of service fees involving certain mutual funds. The regulator said that these payments were a conflict because they gave Voya incentive to preference these funds over other investments, which could have impacted what the firm recommended to advisory clients. As part of the settlement, Voya will pay about $2.6M of disgorgement, approximately $175K of interest, and a $300K penalty. The firm is not, however, denying or admitting to the SEC’s findings.

Fired Waddell & Reed Broker is Barred from the Securities Industry
The Financial Industry Regulatory Authority has barred an ex-Waddell & Reed Inc. broker from the industry. Paul D. Stanley was fired from the firm last year for allegedly violating its policies regarding supervision, compensation, and conduct.

Aegis Capital Under Investigation by FINRA, FINCEN and SEC

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

The US Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the US Treasury Department’s Financial Crimes Enforcement Network are investigating brokerage firm Aegis Capital Corp. The reason for the probe has not been disclosed.

In Aegis Capital’s latest audited financial statement, the firm said that it has responded to the joint inquiry. A lawyer for the broker-dealer said that it would not comment further. The attorney, however, did note that regulators have yet to file a complaint and that Aegis Capital is not in litigation at the moment with any of these agencies.

According to Aegis Capital’s BrokerCheck profile, the firm has 27 previous disclosures, including one in 2015 that the broker-dealer settled with FINRA, agreeing to pay $950K over the allegedly improper sales of billions of unregistered penny stock shares and purported lapses in anti-money-laundering supervision. Two ex-Aegis Capital chief compliance officers were suspended and ordered to pay related fines.

SEC May File Fraud Charges Against Navellier Over F-Squared Investments-Related ETF Strategies

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

The US Securities and Exchange Commission is expected to charge Navellier & Associates with fraud. The registered investment advisor, in a Form ADV brochure filing, disclosed that the regulator’s enforcement staff had preliminarily determined to recommend that the SEC file a case.

The Commission has been investigating advisory firms that marketed F-Squared Investments-related exchange-traded fund investment strategies. F-Squared Investments admitted that some of its marketing strategy performance records were inflated.

Last year, at least 13 brokerage firms and RIAs settled with the SEC for including the Boston-based firm’s claims in their own marketing collateral, including that the AlphaSector ETF strategy had been out-performing the S & P 500 for a number of years. F-Squared promoted the strategy as utilizing an algorithm that could indicate when it was time to sell.

Wells Fargo Advisors Must Pay $357K Securities Arbitration Award Over Unsuitable Investments

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

A Financial Industry Regulatory Authority securities arbitration panel ruled that Wells Fargo Advisors (WFC) must pay investor Anthony J. Pryor $357K related to purportedly unsuitable housing and energy investments. In his securities fraud claim, Pryor alleged negligent misrepresentation, negligent supervision, breach of fiduciary, and other causes. Wells Fargo denies Pryor’s allegations.

His advisor, Jeff Wilson, who was not named as a party in the securities arbitration case, has three customer disputes on his BrokerCheck record. One of the other claims that were settled for $250K also allegedly involving unsuitable investments.

Unsuitable Investments

Not every investment is suitable for every investor. Some investments may too be risky for certain investors or are not in alignment with their investment goals or financial needs. For example, many older retail investors that are about to retire will likely require a more conservative investment plan that a much younger, single investor.