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A $60M settlement has been reached between The US Securities and Exchange Commission (SEC) and AR Capital, the real estate investment trust (REIT) manager’s founder Nicholas Schorsch, and American Realty Capital Properties Inc. (ARCP) ex-CFO Brian Block. The three of them are accused of “wrongfully obtaining” millions of dollars related to two mergers involving REITS that AR Capital managed and sponsored.

According to the regulator’s complaint, between the latter part of 2012 and the beginning of 2014, AR Capital took steps so that ARCP, a publicly traded REIT, would merge with American Realty Capital Trust III and American Realty Capital Trust IV, two non-traded REITS that were publicly held. Schorsch was the principal owner and CEO of all three REITs during the time of the merger, while Block was the CFO and a minority shareholder.

The Commission contends that without their board’s permission, the REIT manager, Schorsch, and Block “inflated an incentive fee” during the mergers, which made it possible for them to get another $2.92M in ARCP operating partnership units as a portion of their “incentive-based” compensation.” The SEC is also accusing the three defendants of “wrongfully obtaining” at least $7.2M in charges that were not supported from the sale and asset purchase agreements that were related to the mergers.

Investors who lost money after investing in Aequitas Management LLC, which is accused of running a $350M Ponzi scam, have arrived at a $234M settlement in their fraud case against EisnerAmp LLP, Deloitte & Touche LLP, TD Ameritrade, Duff & Phelps, Sidley Austin LLP, Integrity Bank and Trust of Colorado, and Tonkon Torp. The defendants are accused of playing a part in the plaintiff’s losses because of their purported involvement in the sale of Aequitas securities.

More than 1,500 investors collectively invested over $350M in Aequitas securities while thinking that they were backing trade receivables in healthcare, education, transportation, and other areas. This investor fraud case, Ciuffitelli et al v. Deloitte & Touche LLP et al, was brought as a proposed class action and filed over three years ago by claimants in Oregon and California.

Based on a complaint brought also in 2016 by the US Securities and Exchange Commission (SEC), Aequitas is accused of misleading investors about the extent their money became involved in for-profit education company Corinthian Colleges, which filed for bankruptcy in 2015. The regulator accused Aequitas of becoming a Ponzi scam after Corinthian failed, with the company continuing to sell securities for the purposes of paying back earlier investors and to support its executives’ expensive lifestyles.

Over the last several months, it has come to light that brokers from some of the largest firms on Wall Street firms sold Collateral Yield Investment Strategies (CYES Strategies) that may not have been suitable for many investors, causing them to suffer devastating losses. Offered through registered investment adviser Harvest Volatility Management, LLC, the CYES Strategy is a type of Yield Investment Strategy (YES Strategy), only even more risky and complex.

YES Strategy Investments

Reportedly, UBS (UBS), Credit Suisse (CS), Bank of America’s (BAC) Merrill Lynch, Morgan Stanley (MS), and other brokerage firms brokers sold YES Strategies to many wealthy investors, touting the approach as safe way to increase returns on conservative portfolios. These were supposed to be small returns at a low risk, using a strategic approach that involved the purchasing and selling of SPX index options spreads.

Kristofor R. Behn and his Fieldstone Financial Management are now facing US Securities and Exchange Commission (SEC) charges accusing them of defrauding retail investors. Behn and the firm, which was a registered investment adviser until March, recommended that their clients invest in Aequitas Management LLC-issued securities. In 2016, Aequitas and four of its affiliates were accused of defrauding over 1500 investors of around $350M–although that figure could be as high as around $600M.

The Commission contends that between 2014 and early 2016, Behn and Fieldstone advised about 40 individuals to invest over $7M in Aequitas securities, while failing to disclose that the company had given Fieldstone a $2M credit line and a $1.5M loan. Both were reasons for him and his firm to recommend the investments to clients seeing as, per the terms:

  • If $25M of the assets of Fieldstone’s clients went into Aequitas securities, then Behn could pay back the loan by “converting the debt into an equity interest” in Fieldstone, with the interest belonging to Aequitas.

For alleged supervisory failures and excessive trading by one of its former brokers, Summit Brokerage Services, Inc. has been ordered to pay over $880K– $558K in restitution with interest to customers that were harmed,  as well as a $325K fine to the Financial Industry Regulatory Authority (FINRA). The broker-dealer consented to the entry of the findings but did not admit to or deny wrongdoing.

According to the SRO, from 1/2012 to 3/2017, Summit neglected to review certain automated alerts for the trading activities of its registered representatives, of which there are more than 700. Because of this, one of its brokers, was able to excessively trade in accounts belonging to 14 clients, including 533 trades on behalf of one customer. This compelled her to pay over $171K in commissions.

The broker’s excessive trading resulted in 150 alerts for this type of activity, none of which were purportedly reviewed by Summit. FINRA has since barred the former registered rep.

Ex-target=”_blank” rel=”noopener noreferrer”>LPL Financial (LPLA) broker, Kerry L. Hoffman, is now facing fraud charges brought by the US Securities and Exchange Commission (SEC). Hoffman is accused of fraudulently selling $3.3M of unregistered securities, along with childhood friend Thomas V. Conwell, who is also a defendant in the civil case. The latter was barred by the regulator from the industry in 2000 after a separate $800K fraud that harmed 19 investors. Conwell pleaded guilty to criminal fraud charges against him and was sentenced to time in prison.

According to the SEC’s current complaint, the two men defrauded at least 46 investors in a dozen states by selling GT Media, Inc. securities to them. Hoffman was a registered LPL Financial broker during most of the time of the fraud, which allegedly took place between July 2015 and July 2018. He resigned from the firm in the wake of allegations that he served as consultant to GT Media without getting LPL’s approval or notifying the firm about these outside activities. He also was accused of helping a number of LPL clients and his own family members to invest in the company.

Hoffman allegedly offered and sold $350K of GT Media convertible promissory notes and $500K of the company’s stock to five advisory clients, making $50K in commissions. The Commission is accusing him of soliciting some of his advisory clients to invest in the unregistered securities but without letting them know that he had a conflict of interest. Not only was GT Media  paying him compensation, but also the company was paying back money he had let it using investors’ money.

A Financial Industry Regulatory Authority (FINRA) panel is ordering Legend Securities, CEO Anthony Fusco, and three of the firm’s former brokers to pay one investor $966,708 in damages. Legend Securities was expelled by the self-regulatory authority two years ago and is no longer in operation.

The claimant, Frederick Blake, alleged the following:

The US Securities and Exchange Commission (SEC) is accusing Paul Andrews Rinfret, Plandome LLC, and Plandome Partners LP of defrauding investors in a securities offering scam. At least five investors were allegedly collectively bilked of $19.3M. Rinfret, who is a former New York trader, is now also facing parallel criminal charges.

The SEC, in its complaint, contends that Rinfret told investors they were backing an already successful trading strategy using a proprietary algorithm that had rendered returns in the triple digits—360% in a multiyear period, supposedly—when, in reality, money was being lost on a consistent basis. Meantime, Rinfret allegedly used investors’ money to fund his extravagant lifestyle.

The investors are five individuals who thought they were buying limited partnership interests in Plandome Partners, LP, which Rinfret claimed was an investment fund that he and Plandome Partners LLC ran. These investors thought their funds would be traded in S & P futures contracts and foreign currency.

An alternative investment fraud settlement has been reached between Purshe Kaplan Sterling Investments and the Saginaw Chippewa Indian Tribe of Michigan, in which the independent broker-dealer will pay $9.5M. The tribe had filed an arbitration claim contending that it didn’t know that it was paying the firm millions of dollars in commissions on $190M of alternative investments that were purchased through former Purshe Kaplan broker Gopi Krishna Vungarala between 2011 and 2015, including shares in business development companies and non-traded real estate investments trusts (REITs).

Vungarala was not only the Michigan tribe’s broker but also he served as its investment manager, tasked with overseeing its portfolio. He has been accused by the Financial Industry Regulatory Authority (FINRA), too, of to the tribe about the commissions.

The self-regulatory authority (SRO) recently sought to bar the Purshe Kaplan broker from the industry after the alleged fraud occurred—a motion that is on appeal. FINRA also ordered him to disgorge nearly $9.7M plus interest. The SRO said that Vungarala neglected to tell the tribe that it qualified to receive over $3.3M in volume discounts, which would have lowered how much he made in commissions from the sales.

Secretary of the Commonwealth of Massachusetts William Galvin has imposed a $1.1M fine on target=”_blank” rel=”noopener noreferrer”>LPL Financial (LPLA) after finding that the brokerage firm did not properly register 651 of its advisors in the state. Galvin’s office contends that for six years, LPL let these brokers work in Massachusetts despite the lack of registration and that this violates the state’s securities laws.

In Massachusetts, a brokerage firm is required to register its agents before they are allowed to engage in securities-related business in the state. As of May 9, LPL had 4,219 agents who were registered in the state.

However, the lack of registration by 651 of its agents between March 2013 and April 4, 2019 prevented Massachusetts securities regulators from being able to check their qualifications and histories to ensure that investors who worked with them were in safe hands. 441 of these unregistered agents acted as financial advisors to at least one or more state residents during the period at issue. The other 210 agents supervised the agents who were advisors to these customers.

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