Fiduciary Duties

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.

SEC Sanctions Colorado-Based Portfolio Manager for Forging Documents and Misleading Chief Compliance Officer

August 19, 2013 | by Staff Attorney

August 27, 2013 – The Securities and Exchange Commission sanctioned a former portfolio manager at a Boulder, Colo.-based investment adviser for forging documents and misleading the firm’s chief compliance officer to conceal his failure to report personal trades.

An SEC investigation found that Carl Johns of Louisville, Colo., failed to pre-clear or report several hundred securities trades in his personal accounts as required under the federal securities laws and the code of ethics at Boulder Investment Advisers (BIA). Johns concealed the trades in quarterly and annual trading reports that he submitted to BIA by altering brokerage statements and other documents that he attached to those reports. Johns later tried to conceal his misconduct by creating false documents that purported to be pre-trade approvals, and misled the firm’s chief compliance officer in her investigation into his improper trading.

To settle the SEC’s charges – which are the agency’s first under Rule 38a-1(c) of the Investment Company Act for misleading and obstructing a chief compliance officer (CCO) – Johns agreed to pay more than $350,000 and be barred from the securities industry for at least five years.