Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) recently barred broker Jeffrey Schrader (Schrader) concerning allegations that the broker engaged in private securities transactions and failed to cooperate with FINRA’s investigation.
Schrader entered the industry in June 1998. From November 2005, until March 2009, Schrader was associated with Merrill Lynch, Pierce, Fenner & Smith Inc. In March 2009, Schrader became associated with Western International Securities, Inc. (Western). Schrader conducts securities transactions on through his own business, Schrader Wealth Management.
FINRA found that between 2009 and 2010 Schrader, while associated with Western, engaged in over $145,000 worth of private securities transactions with three investors without providing written notice or receiving approval from Western. FINRA alleged that two of the nine investors were customers of Western at the time that their investment was made away from the firm.
The securities sold away from the firm were three-year corporate notes issued by Liberty State Benefits of Pennsylvania, Inc. (LSB). The LSB investments were purportedly secured by in-force life insurance policies owned by LSB. LSB investors were promised a 12% return rate. However, FINRA found that LSB was part of a Ponzi scheme perpetrated by the company’s senior management.
According to its LSB’s Private Placement Memorandum (PPM), the LSB notes offered investors an ”opportunity to invest in a company that purchases in-force life insurance policies and interest in trusts owning such policies, from the owners thereof who are 70 years of age or older (so-called ‘life settlement’ transactions).” According to FINRA, the PPM stated that each life insurance policies purchased by LSB had a face value of between $2 million and $20 million and whose life expectancy ranged between 24 and 180 months. The minimum subscription amount for an investment in the LSB notes was $50,000.
According to FINRA, Schrader’s commission for the sale of each LSB note was approximately 10 percent of the investment principal. FINRA found that Schrader received approximately $14,500 in commissions and fees in connection with the LSB transactions and an additional $97,100 from the same issuer.
FINRA also found that Schrader failed to conduct adequate due diligence investigation of the LSB notes that he recommended and sold. FINRA concluded that Schrader lacked a reasonable basis to recommend the purchase of the LSB notes because of his failure to conduct due diligence.
On September 19, 2011, investors who purchased the LSB notes from Schrader complained to Western about the securities. Thereafter, Schrader made false statements to the Western concerning his involvement in the sales of LSB notes and the compensation he received from LSB. Additionally, FINRA found that Schrader provided false information to FINRA during a January 28, 2013 on-the-record interview concerning the LSB transactions.
The attorneys at Gana Weinstein LLP are experienced in representing investors to recover their financial losses through broker misconduct including the selling away of securities. Our consultations are free of charge and the firm is only compensated if you recover.