Failure to Supervise

John S. Turo Settles With Regulatory Agency Concerning Allegations of Selling Unregistered Securities

August 30, 2013 | by Staff Attorney

John S. Turo (a/k/a James S. Turo) recently reached a settlement with the Financial Industry Regulatory Authority (FINRA) concerning allegations that he sold unregistered, nonexempt securities through general solicitation of the public in violation of Section 5 of the Securities Act of 1933 and in violation of NASD Rule 2110 and FINRA Rule 2010. The FINRA settlement result in a fine of $20,000. Turo became a registered securities representative and principal in 2003. From May 2005 until April 2007, Turo was associated with Innovation Capital, LLC. Starting in 2001, Turo was also associated with GT Securities, Inc. (GT Securities a/k/a Growthink Securities, Inc., Growthink, Inc., GTK Partners). Turo is the Managing Director and Chief Compliance Officer of GT Securities.

From 2008 and through 2010, Growthink issued securities to raise capital for GT Securities. In order to raise the capital, Turo sold private placements investments in Growthink to approximately 46 investors totaling $2,611,124. FINRA alleged that the private placement sales were nonexempt securities offerings that violated Rule 506 of Regulation D requiring registration and prohibits general solicitation of the investment to the public.

In order to sell the Growthink securities, FINRA alleges that Turo held webinars online on topics such as strategic business planning, entrepreneurship, and private equity investing that included general solicitations for investments in Growthink. The webinars were open to the general public. In addition, investors did not need a pre-existing relationship with Growthink or Turo in order to register and participate in the webinars. Thus, the webinars lacked a pre-screening process in order to limit the participants to only those who would qualify as accredited investors under the securities laws governing the sale of private placements. FINRA’s complaint alleged that the foregoing sales practices and the private placement offering itself violated various securities laws.

Karl Hahn Ordered by FINRA to Pay An Investor $11 Million

August 28, 2013 | by Staff Attorney

Former Merrill, Lynch Pierce, Fenner & Smith, Inc. (Merrill Lynch), Deutsche Bank Securities (Deutsche Bank), Inc., and Oppenheimer & Co., Inc. (Oppenheimer), broker Karl Edward Hahn (Hahn) was ordered by the Financial Industry Regulatory Authority (FINRA) to pay former clients over $11 million for misconduct in April 2013. Hahn was accused of common law fraud, negligent misrepresentations, and breach of fiduciary duties.

Hahn worked at Merrill Lynch from 2004 until 2008, at Deutsche Bank from 2008 to mid-2009, and at Oppenheimer from 2009 to early 2011. Hahn allegedly recommended various unsuitable investments to customers including covered calls, a premium financed life insurance policy, and $2.3 million fraudulent real estate financing project “involving East Coast” properties. Hahn allegedly recommended the life insurance policy for the the large commissions he stood to earn. Hahn also allegedly pocketed the money that was supposedly going to finance the East Coast properties.

Other claims made against Hahn include churning of investment accounts. Churning is a type of financial fraud where the broker engages in excessive trading in a client’s account for the purpose of generating commission but does not provide the investor with suitable investment strategy.

FINRA Charged Commonwealth Capital Securities Corp. and Kimberly Springsteen-Abbott With Misusing Investor Funds

August 27, 2013 | by Staff Attorney

On May 3, 2013 the Financial Industry Regulatory Authority (FINRA) filed a complaint against Commonwealth Capital Securities Corp. (CCSC) and Kimberly Springsteen-Abbott, owner, chief executive, and head of compliance for CCSC, for misusing investor funds. CCSC employs about 22 registered representatives and sells private placements and direct investments. Since 1993, CCSC marketed and sold 13 different equipment leasing funds raising $240 million for various technology equipment leases. The technology leases were supposed to have durations of 12 to 36 months.

Instead, according to FINRA, from December 2008 until February 2012, Kimberley Springsteen-Abbot misused investor funds to pay for various personal credit card charges and other expenses totaling at least $334,798. Some of those personal expenses include a $1,971 family vacation in 2010, and a $12,414 board of directors meeting in Hawaii in 2010. In total, FINRA alleges that 2,272 credit card charges related to misuse of funds.

In addition, FINRA alleges that during the agency’s examination in 2011, Kimberley Springsteen-Abbot and CCSC falsified and backdated a memo accounting for tickets to Disney World. Kimberley Springsteen-Abbot’s and CCSC’s manipulations of the records caused the brokerage firm’s books and records to be inaccurate.

vFinance Investments Inc. Settles Dispute Concerning Private Placements

August 26, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has settled a dispute with vFinance investments, Inc. (vFinance) concerning several violations of the securities laws including selling private placements in violation of the securities laws, failure to supervise, failure to disclose that the firm had worked with a statutorily disqualified person, and failure to retain and review email communications.

vFinance has been a FINRA member since 1998 has approximately 8 branch offices and employs about 40 registered representatives. The recent settlement is not the first time vFinance has been investigated by regulators. According to CRD records, there have been a total of 16 SEC, state, and FINRA regulatory actions initiated against vFinance in the past ten years.

The recent FINRA allegations concern several alleged violations. First, FINRA alleged that vFinance violated Regulation M. Regulation M is intended to prevent manipulative practices in the course of a securities offering by persons with an interest in the outcome by preventing conduct that could artificially influence a security’s market. In this case, FINRA alleged that vFinance representatives solicited nearly $6 million from investors for the PERF Go-Green Holdings, Inc. (PGOG) private placement. During the offering period, vFinance placed the PGOG’s common stock on the firm’s restricted list in order to avoid any potential conflict. However, despite the PGOG being placed on the firm’s restricted list, 22 customers of two representatives have been accused of selling 255,300 shares of the common stock of PGOG when the issuer was on the firm’s restricted list.

Broker-Dealers Settle with Massachusetts Securities Division Over the Alleged Improper Sales of Non-traded REITs

August 25, 2013 | by Staff Attorney

The Massachusetts Securities Division reached a settlement of $9.6 million with five independent broker dealers concerning allegations that the firms improperly sold non-traded real estate investments trusts (REITs) to hundreds of investors within the state. The firm’s fined include Ameriprise Financial Services Inc., Commonwealth Financial Network, Royal Alliance Associates, Inc. Securities America, Inc., and Lincoln Financial Advisors Corp. The Secretary of the Commonwealth of Massachusetts William Galvin announced that a part of the settlement would be used to distribute $6.1 million to investors as restitution.

A REIT is a security that invests in real estate directly either through properties or mortgages. REITs can be publicly traded on a national exchange or privately held. Private REITs are often referred to as non-traded REITs. Non-traded REITs have become increasingly popular as increased volatility in the stock market has led many investors to look for investment products that offer more stable returns. However, non-traded REITs may not be as safe and stable as advertised. Because non-traded REITs do not trade publicly the REIT itself determines its own asset values and only publishes updated valuations sporadically. Thus, a REITs volatility includes not only real estate market volatility but also management decisions and potentially leverage positions that investors may simply not be informed about.

Massachusetts alleged that the firms engaged in a “pattern of impropriety” selling these “popular but risky investments.” Massachusetts alleged significant and widespread problems with the firms’ compliance policies, practices, and procedures in the sale of non-traded REITs. In addition, Massachusetts alleged that the firms failed to only sell non-traded REITs to qualifying investors. Massachusetts allegations concerning each firm are as follows:

FINRA Files Complaint Against David Mickelson Over Private Placement Sales

August 24, 2013 | by Staff Attorney

David Mickelson has been accused by the Financial Industry Regulatory Authority (FINRA) of improperly selling approximately $8.3 million worth of various private placements to at least 71 customers without informing his brokerage firm (a practice known as “selling away“).

From 2004 through May 2011, Mickelson was associated with NFP Securities, Inc. (NFP). Mickelson’s private placement sales during this time included investments in Micro Pipe Fund I, LLC (Micro Pipe Fund), The Nutmeg Fund/Michael Fund LLLP, The Nutmeg/Fortuna Fund, LP, the Nutmeg/Patriot Fund, LLLP, and Lone Wolf, Inc. FINRA alleged that Mickelson created Micro Pipe Capital Management, LLC, Mickelson Investment Management, LLC, Hannahlu Ventures, LP, and DFM Agency, LLC in order to manage the various private placement offerings.

In order to promote his private placements, Mickelson allegedly marketed Micro Pipe Fund and other investments using misleading websites and advertisements communicated to customers using email accounts not monitored by NFP. Mickelson’s websites included: mickelsoninvestmentmanagement.com/mickinvest.com; astuteasset.com; and mickelsonlife.com. These websites contained securities-related communications including detailed discussions of private investment in public equity (PIPE) funds.

First Allied Securities Has Been Accused of Selling Advanced Equities Securities By Misleading Investors

August 23, 2013 | by Staff Attorney

The brokerage firm Advanced Equities, Inc. (Advanced Equities) specialized in so called late-stage private equity private placements. Advanced Equities had been particularly active in the clean-tech space. Through First Allied Securities, Inc. (First Allied), Advanced Equities private placements including Advanced Equities GreenTech Investments, LLC, AEI 2007 Venture Investments, LLC, AEI 2010 Cleantech Venture, LLC, and AEI Fisker Investments, LLC, were sold to hundreds of investors. Customers have alleged that First Allied misrepresented the Advanced Equities private placements to investors and failed to conduct adequate due diligence concerning the offerings.

In 2007, First Allied was acquired by Advanced Equities Financial Corp. (AEF) and became a sister corporation to Advanced Equities. At the time of the merger, Advanced Equities employed about 80 registered representatives while First Allied employed over 1,000 brokers. Utilizing First Allied’s customer and broker resources, AEI vastly expanded marketing of private placements to First Allied customers.

Sales materials developed for Advanced Equities and presented to investors touted the private placements as “late stage equities” or companies that were 12-36 months from going public through an initial public offering (IPO). The private placements were also represented as providing “higher near-term investment returns than the public equity markets” while possessing “greater short-term liquidity and lower risk profiles.”

James Glover Settles Charges with FINRA Accepting a Ban From the Securities Industry

August 21, 2013 | by Staff Attorney

James R. Glover reached a settlement with the Financial Industry Regulatory Authority (FINRA) resulting in a permanent bar from the securities industry. Glover failed to appear and participate in FINRA’s investigation of his securities activities.

The FINRA complaint alleges that while Glover was employed by Signator Investors, Inc. (Signator), Glover misappropriated customer funds and sold unregistered securities products in violation of the securities laws.

From 1998 through May 2012, Glover was associated with Signtor. During this time, it has been alleged that Glover sold interests in private placements, limited liability companies, and real estate related ventures. Glover’s CRD lists that Glover is also employed by GW Financial Group, Inc. In addition to FINRA’s sanctions against Glover, at least 25 customer complaints have been filed against Signator for the firm’s failure to supervise Glover’s business activities. Nearly all of the customer complaints accuse Glover of selling fraudulent real estate related securities and of mishandling the customer’s accounts.

The SEC Accused Blake Richards of Stealing $2 Million from Clients

August 20, 2013 | by Staff Attorney

Blake Richards (Richards), a former Georgia representative of LPL Financial (LPL), was charged by the Securities and Exchange Commission (SEC) with defrauding investors and misappropriating $2 million dollars from at least seven clients. According to the complaint filed by the SEC in the Northern District Court of Georgia, Richards directed clients to write checks from retirement accounts or from life insurance policy proceeds in the name of investment businesses he owned, such as “Blake Richards Investments” and “BMO Investments.” However, according to the SEC, his clients’ money was not used for legitimate investing purposes as Richards siphoned off millions for his own personal use.

Richards was a registered representative of LPL from 2009 through May 2013 out of his company, Lanier Wealth Management LLC. According to the SEC’s complaint, Richards used a variety of devices to deceive investors and gain their trust. For instance, Richards is alleged to have created fictitious statements on LPL letterhead in order to continue and conceal his scheme. Richards also gave investors business cards with false professional designations, such as “AAMS”, standing for Accredited Asset Management Specialist, when Richards was not accredited. Finally, Richards even delivered pain medication during a snowstorm to one client’s husband who had been diagnosed with terminal pancreatic cancer in order to gain the client’s trust.

The SEC complaint seeks an order to disgorge Richard’s ill-gotten gains and to free his assets pending further investigation.

Oppenheimer Fined $ 1.4 Million by FINRA For Alleged Improper Sale of Penny Stocks

August 19, 2013 | by Staff Attorney

On May 6, 2013 the Financial Industry Regulatory Authority (FINRA) filed a complaint against Oppenheimer & Co. (Oppenheimer) for the sale of unregistered penny stock shares and for not having an adequate anti-money laundering (AML) compliance program to detect suspicious penny stock transactions.

On July 9, 2013 and August 5, 2013, Oppenheimer settled with FINRA agreeing to the sanctions and paying a fee of $1.4 million to resolve the charges brought in the complaint. In agreeing to the settlement Oppenheimer neither admits nor denies any of the allegations made against the firm.

The alleged penny stock sales took place from August 19, 2008, through September 20, 2010. According to the settlement, the stocks were sold through seven brokers out of five different branch offices around the country. These seven brokers reportedly sold over one billion shares of twenty penny stocks without registration or any applicable exemption from registration. Customers are said to have deposited “large blocks” of penny stock shortly after opening the accounts, then liquidated the accounts and transferred the proceeds out.