Investor Lawyers Blog

Former Financial Adviser to Chicago Bull’s Scottie Pippen Goes to Prison for Fraud

Published on: March 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Robert Lunn, the financial adviser who bilked former NBA star Scottie Pippen, has been sentenced to three years behind bars. Lunn was convicted in 2014 of multiple counts of bank fraud.

According to prosecutors, he obtained $3M in loans from Leaders Bank, $1.4M of which he claimed was for Pippen to invest in a private jet. Instead, Lunn used the majority of funds for himself, including to pay for mortgage bills. He also used the money to pay other investment clients.

District Judge Charles Norgle, who imposed the prison term, said during trial that Lunn lied about forging the NBA legend’s signature, as well a claimed he’d received permission to apply for a second loan on behalf of Robert Geras, a retired venture capitalist. Norgle said that Lunn’s scam wasn’t your “garden variety fraud” and that he used “skills and connivance” when presenting himself to his victims.

Pippen was close to retirement when he invested over $20M with Lunn, who came highly recommended by the Bulls. He and his wife Larsa said less than a year after investing with Lunn, that they received a call from their accountant telling them that their adviser may have taken their money.

Pippen testified at Lunn’s criminal trial. He said that he hired Lunn in 1999 and signed papers that the financial adviser sent him for a loan in 2002. As his relationship with Lunn deteriorated, however, he refused to sign documents that would have extended the loan. Pippin claims that the adviser forged his name on the paperwork.

NY Broker –Dealer Owner Charged in $17.2M Ponzi Scam

Published on: March 25, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Guy Gentile, who owns a New York-based brokerage firm, is charged with fraudulently inflating two micro-cap stocks’ prices before selling them to investors. His alleged actions purportedly allowed him to make $17.2M in gross trading proceeds.

Gentile was indicted in federal court. He and co-conspirators Itamar Cohen and Michael Taxon, both Canadian stock promoters, are accused of buying Kentucky USA Energy Inc. and Raven Gold Corp. shares from 4/07 to 6/08 and then using misleading marketing collateral and manipulative trading to inflate the shares. Taxon and Cohen have already pleaded guilty to their involvement in the Ponzi scheme. Gentile, who is charged with securities fraud and conspiracy to commit securities fraud, could be facing twenty years in prison.

Running a Ponzi scam is not the only way to get in trouble for it. Connecticut fund manager Marlon Quann has been ordered to surrender nearly $81M in profit for helping Thomas Petters run his $3.5B Ponzi scheme. The U.S. Securities and Exchange Commission said that Quann hid evidence of the fraud in part with $187M in “round trip” transactions.” The SEC also sued Quan’s Acorn Capital Group LLC, Stewardship Investment Advisors LLC, and ACG II LLC.

Michigan Pension Plan Sues LPL Financial for $115M

Published on: March 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

The Charter Township of Clinton Police and Fire Retirement System is suing LPL Financial Holdings Inc. (LPLA) for $115M. In the class action securities case, the plaintiff contends that a stock buyback program cost the firm and its shareholders that amount.

Company shares closed trading at $42.91 on October 29 when LPL announced the $500M program. Less than two months later, its stock began to drop in price. The stock was trading at $25.08/share yesterday morning.

The program was supposed to improve shareholder value. The following month, LPL said it had entered into $700M of new term loans while extending $631M of existing debt to pay for the share repurchase plan. Then, in December, the company said it had arrived at an early completion of the plan.

Elder Investors: Morgan Stanley Must Pay Home Shopping Network’s Estate Over $34M, Broker Accused of Making Over $1.7M From Churning at Craig Scott Capital, and $10M Ponzi Scam Involving Jamaican Businesses Targets Older Investors

Published on: March 24, 2016 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Panel Awards Estate Over $34M from Morgan Stanley in the Wake of Churning Allegations
A Financial Industry Regulatory Authority arbitration panel awarded the estate of Home Shopping Network Roy M. Speer over $34M in its case against Morgan Stanley (MS). The panel ruled that the firm, branch manager Terry McCoy, and broker Ami Forte were jointly liable for breach of fiduciary duty, negligence, unauthorized trading, constructive fraud, unjust enrichment, and negligent supervision. The alleged negligence would have occurred from 1/09 to 6/12 and involved investments in the financial services and banking sectors.

According to Mrs. Speer’s lawyer, in six of Mr. Speer’s accounts, about 12,000 transactions took place, most of them involving municipal bond trading and corporate trading. Many of these trades were unauthorized.

The arbitrators awarded $32.8M in compensatory damages to Speer’s widow, Lynnda Speer, and $1.5M for the costs involved in the arbitration process. The panel said that Morgan Stanley violated a law in Florida that prohibits the exploitation of vulnerable adults. Mr. Speer had dementia. Forte, who was his broker, is said to have been in a relationship with him.

Former Craig Scott Capital Broker Accused of Elder Financial Fraud
FINRA is accusing broker Edward Beyn of making over $1.7M in commissions and fees by engaging in excessive trading in client accounts while he was a registered representative at Craig Scott Capital. He is now with Rothschild Liberman. Beyn is accused of churning nine accounts of six customers, all of them over the age of 60, from 3/12 through 5/15. They all sustained losses.

Texas Adviser Barred by State Over Fraudulent Life Settlement Sales

Published on: March 22, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Fort Worth-based investment adviser James Poe has been barred by the Texas State Securities Board from serving as a financial representative or broker in the state. According to the Board, Poe engaged in fraudulent sales practices involving life settlements.This is Texas securities fraud.

The Texas adviser, who is the president of Jim Poe & Associates, Inc., was the recipient of undisclosed payments through International Alternatives PR, which he also owns. The state says that firm consulted on life insurance policy selections and represented activity that was fraudulent.

Poe is also accused of getting paid 10% commission for product sales from ’11 to ’15 even though he was an unregistered agent at the firm. Such payments would be a violation of Texas law. During that period he purportedly recommended investments to certain individuals, who were promised a 75% return. What these investors didn’t know is that in addition to paying for the policy and its premiums, the “associated costs” they agreed to take on included the 10% commission to Poe and undisclosed payments (20% of what they invested) to International Alternatives PR, which consulted and identified which policies to choose.

The Texas State Securities Board’s order said that failure to disclose that 20% of what investors paid went to the firm, which Poe owned, was a failure by the firm to disclose material facts and that this type of activity was fraudulent. The state said that seeing as 30% of investor money went to Poe and his company, this posed a material risk to what an investor could potentially make.
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Financial Firms and Securities Cases: BNY Mellon to Pay $3M Over Computer Glitch that Affected Mutual Funds, Wedbush Fined $675K by FINRA and Nasdaq, and Triad Advisers Settles UIT Charges

Published on: March 21, 2016 | by Shepherd Smith Edwards & Kantas, LLP

BNY Mellon to Pay Massachusetts $3M Over Computer Problem That Impacted Mutual Funds

Bank of New York Mellon (BK) will pay $3 million to the state of Massachusetts to resolve a probe that found that a computer glitch did not calculate net asset values for over 1,000 mutual funds. Although the bank hired SunGard InvestOne to calculate these values, there was one-weekend last year when a malfunction occurred.

The Massachusetts Securities Division conducted an investigation and discovered that BNY Mellon lacked a back-up plan to deal with such a malfunction. Because of this, non-uniform and untimely information was sent to clients and funds. As Secretary of the Commonwealth William F. Galvin noted, it is the job of financial institutions like BNY Mellon to oversee third-party vendors and put into place a back-up plan in the event a vendor’s system fails. The bank says that in the wake of the outage, it took action to protect client interests and ensure that the daily net asset values were issued.

BNY Mellon said that it has since made investors and the funds that sustained losses because of the computer error whole. The bank has made changes to supervisory procedures.

WedBush to Pay $675K Fine to Nasdaq and FINRA over Trading and Clearing Errors Involving Exchange-Traded Funds

Wedbush Securities Inc. will pay a $675K fine to the Nasdaq Stock Market and the Financial Industry Regulatory Authority Inc. over clearing and trading mistakes involving redemption and trading activities related to leveraged ETFs. Wedbush served as Scout Trading, LLC’s clearing firm.

According to FINRA, from 1/10 to 2/12, Scout Trading was not long enough in the shares that made up the redemption orders. Scott Trading turned in more than 250 naked redemption orders via Wedbush. These involved nearly a dozen ETFS that totalled over 295 million shares. This activity and ETF short-selling on the second market by Scout Trading led to Wedbush’s failure to deliver on a number of occasions. (This could have led to a naked short sale in which the seller does not arrange to borrow the securities in a manner timely enough for the buyer to receive the delivery within the standard three days.)

$2.5B in Investor Money from Madoff Ponzi Scam Went Unclaimed

Published on: March 19, 2016 | by Shepherd Smith Edwards & Kantas, LLP

According to Fortune and Bloomberg, victims of Bernard Madoff’s Ponzi Scam were able to recover 57 cents for every dollar they invested in his fake funds because there were investors who never filed claims for $2.5B of the $20B lost in the fraud.

Seeing as the deadline to file claims to recover losses from Madoff’s scheme passed nearly seven years ago, it would be too late for any of these parties to try to get that money back now.

Fortune says no one even knows where this $2.5B is, as the Madoff’s trustee only sought to recover money from claims made. Bloomberg believes that almost half of this money is owned by feeder funds that invested with Madoff. The media outlet said that a couple of Caribbean-based hedge funds are the likely investors. Bloomberg speculated that the funds may have figured that whatever they recovered on the $1.2B would have been much smaller than what they might have had to give back had they stepped forward. The owners of the other $1.3B remain unknown, but could be individual investors who had reasons for not coming forward and filing their own claims.

To date, trustee Irving Picard has paid direct investors about $9.2B. There are tens of thousands of others who, unable to file directly with Picard because they’d invested in the feeder funds, are still waiting to get some money back.

SEC News: Municipal Adviser Allegedly Did Not Disclose Conflict, Microcap Company CEO is Accused of Making False Claims, and Whistleblowers are Awarded $3M

Published on: March 18, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Municipal Advisor Accused of Not Telling Client About Conflict
In the first case enforcing municipal advisor’s fiduciary duty under the 2010 Dodd-Frank Act, the SEC is filing charges against Central States Capital Markets, its CEO John Stepp, and two employees. The regulator claims that in 2011, David Malone and Mark Detter arranged for a brokerage firm to underwrite the municipal bond offerings. Both of them and Stepp were registered representatives at the firm. They did not tell one particular municipal client about this relationship or that they would benefit financially from the arrangement.

In three offerings, said the SEC, Central States was paid fees from “the City” for advisory work and also received 90% of the underwriting fees. The regulator said that Central States and the three men breached their duty to the client by not revealing the conflict even though they knew this was an issue. The SEC said this failure to disclose the conflict prevented the city from being able to obtain financial advice that was unbiased.

Central States and the three men consented to the SEC’s order without denying or admitting to the findings. Central States will pay $289,800 in disgorgement and interest and an $85K penalty. Detter will pay a $25K penalty and serve a two-year financial services industry bar, Malone will pay a $20K penalty and serve a one-year industry bar, and Stepp will pay a $17,500K penalty plus serve a suspension of six months from acting in a supervisory role with any brokerage firm, municipal advisor, or investment adviser.

Microcap Company CEO Charged With Making False Claims, Including Fake Clean Energy Contracts With Foreign Governments
The Securities and Exchange Commission is charging Cary Lee Peterson, who is the CEO of RVPlus Inc., with making false claims of having lucrative ties with the United Nations and billions of $2.8B of clean energy contracts with governmental bodies in Liberia, Haiti, and Nigeria. In truth, RVPlus had no connections with the U.N. and the contracts at issue never existed.

According to the regulator, Lee Peterson made bogus claims in public filings for the company and statements that he made to private investors, took control of over 90% of RVPlus’s free trading shares, and issued them to individuals who illegally sold them into the market. In SEC filings, Peterson claimed on more than one occasion that RVPlus had put out invoices and was owed millions of dollars from the contracts.

GL Capital Partners Ex-CEO Pleads Guilty to $15M Fraud

Published on: March 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

Daniel Thibeault, the ex-CEO of GL Capital Partners, has entered a guilty plea to criminal charges accusing him of bilking fund investors of $15M. According to the Securities and Exchange Commission, Thiebeault used funds that were in the GL Beyond Income Fund to make fake consumer loans.

Meanwhile, investors were led to believe that their money was going toward buying or making real consumer loans. They hoped to make a return from the interest. Instead, the fake loans were reported as GL Beyond Income Fund assets to hide the money that Thibeault was misappropriating.
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Two-Ex Rabobank Bankers Get Prison Sentences Over Libor Involvement

Published on: March 17, 2016 | by Shepherd Smith Edwards & Kantas, LLP

A U.S. district court judge has sentenced two former Rabobank bankers to time in prison for their involvement in rigging the London interbank offered rate. Anthony Allen received a two-year prison term and Anthony Conti was sentenced to a year and a day.

Conti and Allen were convicted by a jury in last year. Prosecutors accused them of conspiring to turn in fake rates for calculating Libor, which is based on submissions from over a dozen banks. They believed the two bankers sought to help other Rabobank traders make more money on trades. Meantime, their defense lawyers contended that the men’s submission to Libor were made in good faith.

Allen was the worldwide head of liquidity and finance at Rabobank and the supervisor of Conti, who was a senior money markets trader who made submissions to Libor daily. Libor plays a key role in determining the borrowing costs for trillions of dollars in loans.

The U.S. Justice Department has criminally charged 11 other individuals in its probe into Libor rigging. Four of them, three of them who were traders at Rabobank, have entered guilty pleas.