Investor Lawyers Blog

CapWest Loses $940,000 Dallas Securities Case in FINRA Arbitration

Published on: August 15, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Financial Industry Regulatory Authority (FINRA) has ordered CapWest Securities Incorporated to pay nearly $940,000 in a Texas securities fraud case filed by a group of investors over the recommendation and sale of numerous illiquid, risky, convertible debentures. The claimants had accused CapWest of breach of fiduciary duty, breach of contract, state and federal securities law violations, fraud, gross negligence, negligence, and other actions.

Last month, the FINRA arbitration panel ordered CapWest to pay claimant Robert E. Lee, both as an individual and as a Robert Earl Lee Revocable Trust trustee, $137,000 in compensatory damages. CapWest was also ordered to pay $478,500 in compensatory damages to Beatrice M. McCrae and Buford E. McCrae, both as individuals and on behalf of B.E. McCrae Family Limited Partnership. Robert E. Lee was also to receive $37,330 in interest for the period of October 25, 2008 through July 15, 2011 at a 5% per annum rate. For Buford E. McCrae and Beatrice E. McCrae, the interest of 5% per annum was $95,180 for the period of October 16, 2006 through July 15, 2011. Under the Texas Deceptive Trade Practices Act, Robert E. Lee is to receive $17,450 in punitive damages. Buford E. McCrae and Beatrice M. McCrae are to get paid $57,370. Payment of the claimants’ costs, legal fees, and other fees were also granted.

Convertible Debentures

AIG Files $10 Billion Mortgage-Backed Securities Lawsuit Against Bank of America

Published on: August 13, 2011 | by Shepherd Smith Edwards & Kantas, LLP

American International Group (AIG) is seeking to recover over $10 billion in mortgage-backed securities-related losses from Bank of America (BAC). The losses were allegedly sustained on $28 billion in investments.

In what may be the largest MBS-related action filed by one investor, the complaint accuses Bank of America and its units Countrywide Financial and Merrill Lynch of misrepresenting the quality of the mortgages that were in the securities that investors bought. AIG also claims that Bank of America used false data to persuade the credit rating agencies to give the MBS high ratings.

Bank of America, which contends that the disclosures that were made were robust enough for sophisticated investors and that AIG is a “seasoned investor,” is denying AIG’s allegations against it. According to Bank of America spokesperson Lawrence Di Rita, the reason AIG suffered the financial losses at issue is because it was reckless in pursing profits and high yields in the “mortgage and structured finance markets.”

Bank of America’s 2008 acquisition of Countrywide for $4 billion has cost the financial firm much more in mortgage-related fines, losses, loan buybacks, and litigation expenses. Courthouse News Service database reports that Countrywide and Bank of America have been named as defendants in 1300 lawsuits in 2011 alone. Recently, Bank of America agreed to settle investor MBS claims for $8.5 billion. Parties to the settlement included the Bank of NY Mellon, BlackRock, the Federal reserve Bank of New York, and PIMCO. However, the New York Attorney General is now calling that settlement inadequate.

As for AIG, which is still largely owned by taxpayers following its 2008 government bailout, the New York Times says that the insurer is preparing similar securities fraud complaints against JPMorgan Chase, Goldman Sachs, and Deutsche Bank to try to recover some of the billions that it lost during the economic crisis.

Government Not Proving Helpful In Pursuing Investment Banks
Contrary to investors, who are seeking to hold big banks accountable in civil court, the Justice Department closed many of its investigations into Wall Street’s big banks without filing any criminal charges. Although it has brought cases against three employees at big financial banks, no executives have been charged. However, a spokesperson for the Justice Department says that the government has pursued the cases were appropriate and that it is much more difficult to prove that a crime has been committed beyond a reasonable doubt than to find a party liable in civil court.

The New York Times reports that a person familiar with the case says that the Justice Department has concluded its investigation into Countrywide’s actions heading into the financial crises and that there will be no charges filed. The government also recently closed its probe into Washington Mutual, with the finding that there was no evidence of criminal wrongdoing. The Washington bank almost failed because of high-risk mortgages.

Related Web Resources:

AIG sues Bank of America for $10 billion over mortgages, USA Today/AP, August 8, 2011

Investors Working with Incompetent Registered Investment Advisers Have Few Protections, Reports Bloomberg

Published on: August 11, 2011 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg.com, the registered investment adviser industry may offer little protection to investors who end up with an incompetent adviser. This, even though investment advisers, unlike brokers, are upheld to a fiduciary standard to make their clients’ interests a priority and charge fees rather than commissions.

With over 14,000 independent RIA firms controlling about $1.5 trillion of assets (says Aite Group), this is important for investors to know. Problems they could face include too high fees, inappropriate investments, and a hard time collecting on legal awards. Unfortunately, many investors would rather deal with their losses rather than spend the time and money to take legal action against a negligent registered investment adviser.

Currently, advisers who manage at least $25 million have to register with the SEC. If the amount under management is less than that then they must register with the states where they do business. On June 28, 2012, however, the threshold will go up to $100 million, which means that approximately 3,200 advisers will be subject to state rather than SEC oversight.

It was just this January that the U.S. Securities and Exchange Commission recommended that traditional brokers also be upheld to the fiduciary standard that RIAs must meet. Currently, the nation’s approximately 632,000 brokers have to fulfill a suitability standard requiring them to offer advice that meets a client’s needs at the time that the sale of the product is made.

Yet even with the fiduciary standard, advisers don’t have to disclose their performance history to prospective clients. Because SEC-registered advisers don’t have to deal with net capital requirements, some of those that are ordered to pay an investor award cannot afford to and don’t. Unlike brokers, who may face suspension of their registration suspended if they don’t pay, advisers must only disclose that they have unpaid judgment.

The nonprofit firm Sunlight Foundation says that more than 1 in 10 RIAs is subject disciplinary actions, including convictions for felony crimes. Last year, the SEC took 113 enforcement actions against investment firms and investment advisers. That said, legal settlements and arbitration awards have to be disclosed on an adviser’s ADV form, which an RIA must register with the states or the SEC. Customer disputes involving investment adviser representatives can also be found on the SEC Web site.

Advisers will usually include arbitration clauses in agreements requiring clients to work through disputes through JAMS private arbitration of the American Arbitration Association. However, standard initial filing fees can start in the high hundreds and go into the thousands of dollars. Additional fees that may follow run into the tens of thousands of dollars.

Consumer Federation of America investor protection director Barbara Ropers says that because the majority of advisers don’t accept commissions, they may have less conflicts of interests than brokers. However, where there can be a conflict interest is in the charging of adviser fees (usually range from under 1% to 2%) of assets under management, which can compel an adviser to plays clients in higher-fee or –risk investments.

The SEC reports that most federally registered investment advisers charge client fees based on the percentage of assets under management (just 9% of them get commissions). Some advisers, however, may be charging fees that are too high.

Our securities fraud lawyers represent clients who have suffered losses because an investment adviser or a broker dealer was negligent.

Related Web Resources:
Safeguards Scant for U.S. Investors as Registered Advisers Increase by 39, Bloomberg, July 6, 2011
Investment Advisers Could Arbitrate Through Finra Under New Plan, The Wall Street Journal, April 11, 2011
Protect Your Money: Check Out Brokers and Investment Advisers, SEC

More Blog Posts:
SEC Extends Temporary Rule Allowing Principal Trades by Investment Advisers Registered as Broker-Dealers, Institutional Investor Securities Blog, January 13, 2011 Financial Services Institute Wants FINRA to Serve as SRO for RIAs, Stockbroker Fraud Blog, January 3, 2011
Most Investors Want Fiduciary Standard for Investment Advisers and Broker-Dealers, Say Trade Groups to SEC, Stockbroker Fraud Blog, October 12, 2010 Continue Reading ›

Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts

Published on: August 10, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The SEC is charging Stifel, Nicolaus & Co. and its former Senior Vice President David W. Noack with securities fraud over the sale of unsuitable, high-risk complex investments to 5 Wisconsin school districts. Stifel and Noack allegedly misrepresented the risks involved in investing $200 million in synthetic collateralized debt obligations (CDOs) and did not disclose certain material facts. The investments proved a “complete failure.”

The Five Wisconsin School Districts:
• Kimberly Area School District • Kenosha Unified School District No. 1 • School District of Waukesha • School District of Whitefish Bay • West Allis-West Milwaukee School District

All five school districts are suing Stifel and Royal Bank of Canada in civil court. Robert Kantas, partner of Shepherd Smith Edwards & Kantas LTD LLP, is one of the attorneys representing the school districts in their civil case against Stifel and RBC. Attorneys for the school districts issued the following statement:

“We believe that Stifel, Royal Bank of Canada and the other defendants defrauded the five Wisconsin school districts, along with trusts set up to make these investments. In 2006, these defendants devised, solicited and sold $200 million ‘synthetic collateralized debt obligations’ (CDOs), which were both volatile and complex, to these districts and trusts. While represented as safe investments, these were in fact very high risk securities, which were wholly unsuitable for the districts and trusts. In an attempt to protect taxpayers and residents, the districts hired attorneys and other professionals to investigate the investments and the potential for fraud. Then, with a goal of seeking full recovery of the monies lost in this scheme, a lawsuit was filed in Milwaukee County Circuit Court in 2008 to seek fully recovery of the losses and maintain and protect valuable credit ratings of these districts. To date, more than 3 million pages of documents have been obtained and examined by the attorneys for the districts. The districts also properly reported to the SEC the nature and extent of the wrongdoing uncovered. Over the past year, they have provided the SEC with volumes of documents and information to facilitate its investigation.”

In its complaint filed in federal court today, the SEC says that Stifel and Noack set up a proprietary program to assist the school districts in funding retiree benefits through the investments of notes linked to the performance of CDOs. The school districts invested $200 million with trusts they set up in 2006. $162.7 million was paid for with borrowed funds.

The SEC contends that Stifel and Noack, who both earned substantial fees even though the investments failed completely, took advantage of their relationships with the school districts and acted fraudulently when they sold financial products that were inappropriate for the latter. The brokerage firm and its executive also likely were aware that the school districts weren’t experienced or sophisticated enough to be able to evaluate the risks associated with investing in the CDOs. Both also likely knew that the school districts could not afford to suffer such catastrophic losses if their investments were to fail. Despite this, says the SEC, Noack and Stifel assured the school districts that for the investments to collapse there would have to be “15 Enrons.” They also allegedly failed to reveal certain material facts to the school districts, including that:

• The first transaction in the portfolio did poorly from the beginning.
• Within 36 days of closing, credit rating agencies had placed 10% of the portfolio on negative watch.
• There were CDO providers who said they wouldn’t participate in Stifel’s proprietary program because they were worried about the risks involved.

The SEC claims that Stifel and Noack violated the:

• Securities Exchange Act of 1934 (Section (10b))
• The Securities Act of 1933 (Section 17(a))
• The Securities Act of 1934 (Section 15(c)(1)(A))

The Commission is seeking, permanent injunctions, disgorgement of ill-gotten gains, financial penalties, and prejudgment interest.

Related Web Resources:
SEC Charges Stifel, Nicolaus & Co. and Executive with Fraud in Sale of Investments to Wisconsin School District, SEC.gov, August 10, 2011
SEC Sues Stifel Over Wisconsin School Losses Tied to $200 Million of CDOs, Bloomberg, August 10, 2011
Read the SEC Complaint (PDF)

School Lawsuit Facts

More Blog Posts:
Wisconsin School Districts Sue Royal Bank of Canada and Stifel Nicolaus and Co. in Lawsuit Over Credit Default Swaps, Stockbroker Fraud Blog, October 7, 2008
SEC Inquiring About Wisconsin School Districts Failed $200 Million CDO Investments Made Through Stifel Nicolaus and Royal Bank of Canada Subsidiaries, Stockbroker Fraud Blog, June 11, 2010 Continue Reading ›

SEC Charges Filed Against Stifel, Nicolaus & Co. and Former Sr. VP David Noack Over CDO Sales to Wisconsin School Districts

Published on: August 10, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Three years after five Wisconsin school districts filed their securities fraud lawsuit against Stifel, Nicolaus & Company and the Royal Bank of Canada, the Securities and Exchange Commission has filed charges against the brokerage firm and former Stifel Senior Vice President David W. Noack over the same allegations. The charges stem from losses related to the sale of $200 million in high-risk synthetic collateralized debt obligations (CDOs) to the Wisconsin school districts of West Allis-West Milwaukee School District, the School District of Whitefish Bay, the Kimberly Area School District, the School District of Waukesha, and the Kenosha Unified School District No. 1.

The SEC says that not only were the CDOs inappropriate for the school districts that would not have been able to afford it if the investments failed, but also the brokerage firm did not disclose certain material facts or the risks involved. The school districts are pleased that the SEC has decided to file securities charges.

Robert Kantas, partner of Shepherd Smith Edwards & Kantas LTD LLP, is one of the attorneys representing the school districts in their civil case against Stifel and RBC. Attorneys for the school districts issued the following statement:

“It is our belief that the five Wisconsin school districts and the trusts established to make these investments were defrauded by Stifel, Royal Bank of Canada and the other defendants. Contrary to the way they were represented, the $200 million CDOs that were devised, solicited, and sold by the defendants to our clients in 2006 were volatile, complex, extremely high risk, and totally inappropriate for them. To protect residents and taxpayers, the districts later hired lawyers and others to investigate the investments and their fraud risk. Unfortunately, the failure of the investments did result in losses for the school districts, which in 2008 filed their Wisconsin securities fraud complaint in Milwaukee County Circuit Court. The school districts’ goal was to obtain full recovery of the monies lost in this scheme, while protecting and maintaining the districts’ valuable credit ratings. The districts’ lawyers have already examined three million pages of documents regarding in this matter. Meantime, the districts have taken the proper steps to report to the SEC the nature and extent of the wrongdoing uncovered. In the past year, the districts have given the SEC volumes of documents and information for its investigation.”

The school districts had invested the $200 million ($162.7 million was borrowed) in notes that were tied to the performance of synthetic CDOs. This was supposed to help them fund retiree benefits. According the SEC, however, Stifel and Noack set up a proprietary program to facilitate all of this even though they knew that they were selling products that were inappropriate for the school districts and their investment needs.

Stifel and Noack allegedly told the school districts it would take “15 Enrons” for the investments to fail, while misrepresenting that 30 of the 105 companies in the portfolio would have to default and that 100 of the world’s leading 800 companies would have to fail for the school districts to lose their principal. The SEC claims that the synthetic CDOs and the heavy use of leverage actually exposed the school districts to a high risk of catastrophic loss.

By 2010, the school districts’ second and third investments were totally lost and the lender took all of the trusts’ assets. In addition to losing everything they’d invested, the school districts experienced downgrades in their credit ratings because they didn’t put more money in the funds that they had set up. Meantime, despite the fact that the investments failed completely, Stifel and Noack still earned significant fees.

The SEC is alleging that Noack and Stifel violated the:
• The Securities Act of 1933 (Section 17(a))
• Securities Exchange Act of 1934 (Section (10b))
• The Securities Act of 1934 (Section 15(c)(1)(A))

The Commission wishes to seek disgorgement of ill-gotten gains along with prejudgment interest, permanent injunctions, and financial penalties.

Related Web Resources:
SEC Charges Stifel, Nicolaus & Co. and Executive with Fraud in Sale of Investments to Wisconsin School Districts, SEC.gov, August 10, 2011

SEC Sues Stifel Over Wisconsin School Losses Tied to $200 Million of CDOs, Bloomberg, August 10, 2011

Read the SEC Complaint

School Lawsuit Facts

More Blog Posts:
Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts, Stockbroker Fraud Blog, August 10, 2011

JP Morgan Settles for $153.6M SEC Charges Over Its Marketing of Synthetic Collateralized Debt Obligation, Institutional Investor Securities Blog, June 18, 2011

Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2, Institutional Investor Securities Blog, April 7, 2011

Texas Securities Fraud: Insurance Agent Could Get 100 Years Behind Bars for Using Fraudulent Annuities to Bilk Elderly Seniors of Over $5M

Published on: August 9, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A 76-year-old Amarillo insurance agent has pleaded guilty to 15 counts of Texas securities fraud over the sale of bogus investments and unregistered securities that resulted in over $5 million in losses for primarily elderly investors. The Texas State Securities Board won’t sentence John F. Langford until next month, but he faces up to 100 years in prison for running this Ponzi scam.

Meantime, Langford’s business partner, Jimmy Don King, has been indicted on 10 criminal counts, including selling securities despite not having a license, selling unregistered securities, and acting as an agent/dealer but without the appropriate registration. King was the voice and face of Langford & Associates’ commercials on TV and commercials guaranteeing “not to make you poor.” (Langford also did business as Langford Funding and Langford Investments.)

The two men came under suspicion after an elderly woman sued them for securities fraud. She said that they persuaded her to invest $941,756 in private annuities. Later, a court found that the woman who suffered from dementia had been incompetent and therefore wasn’t fit to make a decision about whether investing in bogus annuities that weren’t going to be due until her 90’s-a decade from when she signed on-was a good decision to make.

Investors in Oppenheimer Mutual Funds Considering Opting Out of $100M Class Action Settlement Have Until August 31

Published on: August 6, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Recently, our stockbroker fraud law firm reported on the $100 million class action settlement that Massachusetts Mutual Life Insurance Co.’s OppenheimerFunds Inc. has agreed to pay to settle allegations that it did not properly manage its Oppenheimer Core Bond Fund (OPIGX) and Oppenheimer Champion Fund (OCHBX, OPCHX and OCHCX). The securities case was brought by investors who claimed that the offering documents and sales pitches misrepresented the risks involved in credit default swaps (CDS), mortgage-backed securities (MBS), and other complex securitized financial instruments. Instead, they contend that the funds were marketed and sold as high yielding, diversified, and conservative investments.

The Champion Fund would go on to lose about 80% of its value in 2008. (55% was lost just in November of that year.) The Core Bond Fund lost 33%. (Compare that to the rest of its peer group, which lost 5%.) As a result, Champion Fund investors sustained extremely significant financial losses and Core Bond investors also suffered.

The class action settlement distributes the $100 million between the two groups of mutual fund investors. While Core Bond investors will get $47.5 million, Champion investors are slated to receive $52.5 million. The Boards of Trustees for the funds have already given their approval. However, even in settling, OppenheimerFunds is not admitting to any wrongdoing. Its spokesperson has said that the proposed settlement is in the best interests of its Funds’ shareholders.

SEC’s Proxy Access Rule is Rejected by Appeals Court

Published on: August 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Court of Appeals for the District of Columbia Circuit has struck down a Securities and Exchange Commission rule that would have let company shareholders nominate one or two director nominees to their boards. The proxy access rule would have allowed groups with possession of a minimum 3% voting power of a company’s stock for a minimum of three years to nominate board candidates. Companies would have had to include information about these shareholder-nominated director candidates in their proxy materials.

The SEC had approved the regulation last year. It would have gone into effect in November, but the Commission stayed it after the US Chamber of Commerce and the Business Roundtable filed their legal challenge asking for the stay. The Business groups had said the rule was in violation of the Administrative Procedure Act and would “handcuff directors and boards,” exclude the majority of retail shareholders, and worsen the “short-term focus” considered among the main causes of the economic crisis. There were also concerns that the proxy access rule would let hedge funds, union-connected pension funds, corporate raiders, and hedge funds elect directors who would do as they directed.

The Chamber of Commerce and Business Roundtable also accused the SEC of disregarding studies and evidence that revealed the” adverse consequences of proxy access,” attempting to restrict the ability of shareholders to stop special interest groups from starting up expensive election contests, and not giving full consideration to state laws about access to principles about and related to proxy that already exist.

SEC’s Retroactive Approach to Its Proposed Reg D ‘Bad Actor’ Rule Draws Criticism From Law Firms

Published on: August 4, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In comment letters sent to the Securities and Exchange Commission, numerous law firms wrote that the retroactive approach taken in a proposed rule to bar “bad actors” from Regulation D private offerings under the 1933 Securities Act sets up a number of fairness issues. The law firms also cautioned that the Dodd-Frank Wall Street Reform and Consumer Protection Act, which calls for the rulemaking, doesn’t require retroactivity.

The proposed rule would keep recidivist violators and felons from taking part in private offerings under Rule 506 of Reg D. Determining who is barred would be based on disqualifying events, including ones that occurred before the Dodd-Frank statute was passed. Some law firms have even said that a retroactive application would disrupt already negotiated administrative and civil settlements while chancing the “unwarranted disruption to private capital formation.” However, not all lawyers disapprove of applying the proposed Reg D ‘Bad Actor’ Rule retroactively. Shepherd Smith Edwards & Kantas LTD LLP founder and securities fraud lawyer William Shepherd said, “What kind of attorney thinks it is inherently unfair to ‘bar felons and recidivist violators from participating in private offerings’ of securities sold to the public? Stand in front of a mirror and say that to yourself out loud.”

SEC has been divided about the proposed application of the rule and
Commissioners Troy Paredes and Kathleen Casey, who are both Republicans, strongly oppose it. SEC Chairman Mary Schapiro, however, has said that the retroactive approach should help protect investors, which is part of Dodd-Frank’s intent.

Meantime, the New York City Bar Association’s securities regulation committee has said that “inherent fairness” requires a “prospective application” of any rule that would penalize a party on the basis of a past settlement or adjudication. The committee also cautioned that should the SEC move forward with its proposal, so many “waiver requests” might come in that this could place a further strain on the Commission’s already taxed staff resources.

Rule 506 of Regulation D under the 1933 Securities Act
Per the proposed Rule 506 of Regulation D under the 1933 Securities Act, recidivist violators that are subject to specific sanctions and proceedings and parties with felonies or misdemeanors involving the buying or selling of a securities would be barred from the sales and offerings of securities. They also wouldn’t be allowed to seek the benefits of the safe harbor act’s Rule 506. The rule, which allows issuers to get around the 1933 Act’s reporting requirements, also comprises some 93% of private securities offered under Reg. D.

The proposal also wouldn’t allow a private placement to avail of the rule if the person or issuer covered by the rule had a disqualifying event (restraining order, criminal conviction, court injunction, USPS false representation order, certain commission disciplinary orders, commission “stop orders” to suspend exemptions, expulsion or suspension from belonging to an SRO or associating with an SRO member, and/or final orders of insurance, credit union regulators, or state securities banking.)

Related Web Resources:
Attorneys Decry Retroactive Approach Of SEC’s Reg D ‘Bad Actor’ Rule Proposal, BNA Securities Law Daily, July 21, 2011
Comments on Disqualification of Felons and Other “Bad Actors” From Rule 506 Offerings, SEC.gov

More Blog Posts:
SEC to Propose Rule Banning “Felons and Bad Actors” From Involvement in Private Offerings, Institutional Investor Securities Blog, May 29, 2011
SEC to Up Dollar Thresholds for When an Investment Adviser Can Charge Investors Performance Fees, Stockbroker Fraud Blog, May 24, 2011
FINRA Wants Brokers Selling Regulation D Private Placements to Take Part in Tougher Due Diligence Process, Stockbroker Fraud Blog, June 7, 2011 Continue Reading ›

Accused Texas Ponzi Scammer May Have Defrauded Investors of $2M

Published on: August 3, 2011 | by Shepherd Smith Edwards & Kantas, LLP

An El Paso man accused of running a Texas Ponzi scheme may in fact be a man who was convicted of fraud in Maryland more than 10 years ago. Scott Lindemann is now charged with wire fraud for allegedly defrauding at least 25 investors of $2 million.

Prosecutors say that Lindemann’s real name may actually be Scott Yermish, who left Maryland after serving time in jail. He left the state without finishing his probated time for a theft conviction.

It is in El Paso that Lindemann is accused of using his hedge fund to set up his Texas securities fraud scam. Per court records, he gained the trust of one person, who then assisted him in bringing in more investors. Lindemann allegedly gave some of the investors money so they would think they’d earned a profit. He also generated bogus documents that caused them to believe that their investments had grown substantially.

According to the San Antonio Express-News, one victim of the alleged Texas securities fraud says that she and her husband lost over $250,000. She also claims that other investors took out mortgages on their houses to invest with Lindemann.

The FBI is calling this a “quick investigation.” Lindemann was arrested a week after the complaint was made.

Ponzi Scam
This type of investment fraud generally involves investors receiving purported returns except that the money they are “making” is actually from new investors who think that these funds are being invested. To keep the scheme going, new investors must keep joining up so that scammers can use their money to pay the earlier-stage investors. Ponzi scams can collapse when too many investors ask to cash out or bringing in new investors starts to prove challenging.

Every year, there are investors that lose money because they placed their money in a Ponzi scam. Fortunately, there may be a way to recoup your losses. It is important that you speak with a Texas securities fraud law firm about your case.

Warning Signs that You May Be Investing in a Texas Ponzi Scheme:
• Watch out for “guaranteed” investment opportunities or the promise of high investment returns with little or no risk.
• Returns are too consistent. It is natural for investment returns to go up and down-especially if there is the hope of high returns.
• The investment that isn’t registered with the state or the SEC.
• The investment professional you are working with isn’t registered or licensed.
• The investment strategy involved is too complex for you to understand or you can’t get complete information about it.
• There isn’t enough information about your investment that can be found in writing.
• Account statement errors.
• You aren’t getting promised payments.
• Cashing out on your investment is proving to be a challenge.
• Your financial adviser tries to get you to “roll over” payments that are owed to you with the promise of even higher returns.

Many Ponzi scam victims have lost their life savings, retirement, and/or kids’ college fund because they placed their trust and their money in the hands of the wrong people.

Related Web Resources:
Man arrested by FBI may have scammed millions, San Antonio Express-News, August 2, 2011
Accused Texas Ponzi Schemer May Be Fugitive Md. Fraudster, FinAlternatives, August 3, 2011
Ponzi Scams, SEC

Ponzi Scams, FBI

More Blog Posts:
Houston Securities Fraud: Ex-Citigroup Broker Accused of Stealing Millions from Wealthy Mexican Investors is Barred from FINRA, Stockbroker Fraud Blog, July 29, 2011
Basketball Benefactor Accused of Texas Securities Fraud and Ponzi Scam that Targeted High-Profile Coaches Found Dead, Stockbroker Fraud Blog, July 19, 2011
Venezuelan Workers Fall Victim to Francisco Illarramendi’s Ponzi Scam, Stockbroker Fraud Blog, March 30, 2011 Continue Reading ›