Investor Lawyers Blog

Former Investment Adviser Gets Five Years in Prison for Stealing Over $600K From Clients

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

Aaron J. Johnson, a former registered investment adviser who ran Capital Advisors until state regulators took back his firm’s registration in 2013, is sentenced to five years behind bars for financial fraud. Johnson, 37, claimed that he stole over $600K from clients because he suffered a mental health breakdown.

According to prosecutors, Johnson took money from middle-class clients’ retirement accounts and charged them excessive fees to the point that he’d practically drained their funds. After Capital Advisors lost its registration, Johnson became affiliated with Trade PMR, a Florida-based firm that offers custody and brokerage services for investment advisers that are registered. Prosecutors contend that even then Johnson kept stealing from clients despite the fact that he was now under investigation. Prosecutors said that after Trade PMR began to question the fees that Johnson charged clients, including $3200 in client fees for an account that only held $13K in assets, the ex-adviser generated fraudulent documents as proof that his actions were warranted. He drained the account of the client, who was a single mom with three kids, until there was only $5 left.

Johnson has been ordered to pay back everyone that he defrauded.

US Bank Sued by Pension Funds Over $25B Tribal Bond Fraud Involving Jason Galanis

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

In South Dakota federal court, a number of public employee retirement funds are suing US Bank NA (USB) for not identifying certain “red flags” as the signs of a tribal bond fraud. The plaintiffs say they lost $25M in the offering scam and they believe that the bank decided to ignore the warnings that something was amiss.

The plaintiffs in the tribal bond fraud lawsuit include the Washington Suburban Sanitary Commission Employees’ Retirement Plan, which invested $4.1M, the Water Works Board of the City of Birmingham, which invested $4.3M, and the Omaha School Employees’ Retirement System affiliates, which invested $16.2M. According to the pension funds, their investment advisers were bought by fraudsters who put their money in bonds that a Native American tribe had issued.

US Bank served as the tribal bond offerings’ indenture trustee. This meant that it was the bondholder and handled the funds. The plaintiffs want damages for a number of violations, including negligence and breach of contract.
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Ex-Financial Adviser Dawn Bennett Faces SEC and Criminal Charges Over Alleged $20M Investor Fraud

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

The US Securities and Exchange Commission has filed charges against ex-financial adviser Dawn Bennett accusing her of bilking investors, making Ponzi-like payments, and spending clients’ funds on herself. According to the regulator, Bennett and her DJB Holdings LLC raised over $200M through the sale of notes issued to at least 46 investors by the luxury sports apparel company. Many of her victims were unsophisticated and older investors.

During the sales, Bennett allegedly claimed that the notes were safer than they actually were, as well as that her firm could pay yearly returns of up to 15%. Investors were purportedly told that their money would go toward company use but instead she paid back earlier investors in a Ponzi-like manner and used some of the funds to pay for her expenses. Meantime, contends the SEC’s complaint, Bennett hid the alleged fraud, lied to regulators, used sham promissory notes instead of actual convertible notes, and inflated her net worth.

Now, the Commission has charged Bennett and her company with violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The regulator wants disgorgement, interest, and penalties for the alleged senior financial fraud.

Securities Cases: Bank of America and Deutsche Bank Settle Agency Bond Rigging Litigation for $65.5M & Pension Funds Sue Citigroup, JP Morgan, and Other Big Banks Over Stock Lending Market Rigging Allegations

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

In the U.S. District Court in Manhattan, preliminary settlements have been submitted in which Deutsche Bank (DB) will pay $48.5M and Bank of America (BAC) will pay $17M to resolve investor lawsuits accusing them of manipulating the agency bond market for years. A judge must still approve the settlements.

Despite settling, both banks maintain they did not engage in any wrongdoing. The lead plaintiff investors include the Sheet Metal Workers Pension Plan of Northern California and the Iron Workers Pension Plan of Western Pennsylvania, and KBC Asset Management NV.

According to court papers and as reported by Reuters, Bank of America and Deutsche Bank are two of the 10 banks accused of rigging the $9 trillion agency bond market for supranational, sub-sovereign and agency bonds, also known as SSA bonds. The plaintiffs contend that from 2005 to 2015 the banks shared price information with one another, worked as a “super-desk” together, and allowed traders to coordinate strategies in the name of profit. Meantime, customers had to accept bond prices that were unfair to them.

Securities Fraud: Ponzi Scammer Tim Duncan Must Pay $1. 3M, Former ArthroCare CEO is Convicted Again in $750M Scheme, & Former Summit Wealth Management CEO is Sentenced to Eight Years

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

Federal Judge Orders Tim Durham to Pay $1. 3M in Securities Fraud Case

Five years after he was convicted of securities fraud, businessman Tim Durham has been ordered by a federal judge to pay $1.3M in the US Securities and Exchange Commission’s civil case against him. Durham bilked over 5,000 investors in his Ponzi Scam involving his company Fair Finance. He is serving 50 years behind bars.

The Commission had wanted the judge to order Durham to pay back over $200M in ill-gotten gains. Instead, Judge Jane Magnus-Stinson ordered him to pay a $130K penalty for each criminal conviction, of which there were 10. After Fair Finance shut down in 2009, its bankruptcy trustee repaid investors $18M.

Ex-ArthroCare CEO is Convicted in $750M Scam For a Second Time
Michael Baker, the ex-CEO of ArthroCare Corp., has been convicted once again in a $750M securities fraud. An earlier conviction for the same scheme was vacated last year by the 5th U.S. Circuit Court of Appeals.

NASAA Survey Finds That Number of Senior Financial Fraud Incidents is Growing

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

A new survey conducted by the North American Securities Administrators Association found that there was been an increase in senior financial fraud incidents, with 97% of incidents going unreported until serious harm has occurred. The survey respondents, all state securities regulators, noted a 29% rise in complaints or cases involving older investors who were bilked or exploited.

The Pulse Survey took place between July 24 to August 4, 2017. Among other findings:

· Three-fourth of regulators that put into effect the Model Act to Protect Vulnerable Adults from Financial Exploitation were able to stop funds from going to fraudsters who had targeted older investors.

Five Cetera Broker-Dealers Settle With FINRA for $3.3M Overcharging Mutual Fund Sales Fees to Charitable Organizations and Retirement Plans

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

In a settlement with the Financial Industry Regulatory Authority, a number of Cetera Financial Group brokerage firms have agreed to collectively pay $3.3M for not properly supervising whether mutual fund sales charge waivers were applied correctly clients at charitable organizations and in retirement plans. The firms that have settled include Cetera Financial Specialists, Cetera Investment Services, Summit Brokerage Services, First Allied Securities, and Girard Securities.

The $3.3M is how much these clients were excessively charged plus interest for the mutual funds that they bought from July 2009 to July 2017. According to the self-regulatory organization, the brokerage firms either: charged front-end sales charges to charitable organization and retirement plan customers that bought A shares in mutual funds even though they were eligible to have these fees waived or sold them class C/B shares while charging them back-end sales charges and “higher ongoing fees and expenses.”

FINRA accused the Cetera firms of not reasonably supervising the way the sales charges waivers were applied to the mutual fund sales and leaving it up to financial advisers to decide whether the waivers should be applied. The SRO also contends that the broker-dealers did not maintain written policies and procedures that were adequate enough to help financial advisers in making such determinations.

Investment Adviser Accused of Bilking Pro Athlete

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

The US Securities and Exchange Commission has brought investment adviser against Jeremy Joseph Drake. He is accused of bilking a known professional athlete and his wife, making about $900K in compensation in the process. At the time of the purported financial fraud, Drake worked with HCR Wealth Advisers.

According to the regulator’s complaint, the couple entrusted over $35M of their assets to Drake to manage. As their investment adviser, he owed them a judiciary obligation.

The investment adviser fraud allegedly went on for over three years, during which time he allegedly told the couple that they were receiving a .15 to .20% fee rate on assets under management when they were actually paying a 1% fee. As a result, the athlete and his wife ended up paying $1.2M more in management fees than what they were told they had paid.

Despite FINRA Securities Arbitration Victory Against Wine Mogul, Fidelity is Accused of Prioritizing Its Own Interests

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

In the securities arbitration claim brought by a wine mogul against Fidelity Brokerage Services, a Financial Industry Regulatory panel may not have ordered the financial firm to pay claimant Peter Deutsch compensation but that doesn’t mean the panelists believe that the broker-dealer placed its former client’s interests before its own.

Deutsch’s family’s company, Deutsch Family Wine & Spirits, markets Yellow Tail and Beaujolais Nouveau wines. He is accusing Fidelity of not handling his account properly when he bet on Chinese shares. He claims that this cost him up to $436M.

Deutsch contends that he believed Fidelity unit Fidelity Family Office when it told him his best interests were the firm’s priority but they then allegedly proceeded to ignore what he wanted and lent out shares belonging to him. The brokerage unit also stopped Deutsch’s trading in China Medical Technology shares when it prevented him from buying an additional 50 million stock shares. Now he claims that this foiled his attempt to gain a controlling stake in the company.

Ruling on Deutsch’s bid for damages last month, the arbitrators turned down that request “in its entirety” on the grounds that they believe he would have lost money anyway even if Fidelity had dealt with his account differently. The panel agreed with the firm in that calculating damages could not be done in a way that wasn’t based on hypotheticals. The arbitrators didn’t weigh in on his claim that the broker-dealer acted inappropriately by lending his shares to short-sellers.

Massachusetts Regulator Galvin Investigates Whether Exchanges Are Giving Kickbacks to Brokers for Making Institutional Investor Trades

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

Massachusetts Secretary of the Commonwealth William Galvin is probing whether there are brokers who are getting paid kickbacks by exchanges in return for investor trades. The investigation comes in the wake of an op-ed article published in The New York Times last month alleging that there are financial representatives who have been sending orders to specific exchanges for these kickbacks, referred to as “rebates,” even if it means poorer results for their institutional investors.

The op-ed was written by Yale Law Professor Jonathan Macey and Yale University Chief Investment Officer David Swensen. Already, the state regulator has sent inquiry letters to Morgan Stanley & Co. (MS), E*TRADE Securities, Charles Schwab & Co. (SCHW), and Fidelity Brokerage Services LLC.

According to the article, because of these “rebates,” brokers are frequently selecting less favorable trades for their institutional investors clients to use these exchanges. If this is true, then it would be distressing considering that institutional brokers are legally bound to make trades on the exchange that has the terms that are most favorable for a client. Failure to do so could be grounds for a securities case. Meantime, it is supposed to be up to the exchanges, all 12 of them, to compete to provide the best trading opportunities.