Investor Fraud

FINRA Suspends Broker Lucian Hodgman Over Misleading Advertising and Dishonest Statements

October 26, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Lucian Hodgman (Hodgman) has been the subject of at least 4 customer complaints, 4 regulatory action, and three employment terminations. Customers have filed complaints against Fladell alleging securities law violations including churning and excessive trading, unsuitable investments, and unauthorized trades among other claims.

Nearly all of the regulatory actions and brokerage firm terminations revolve around allegations of dishonest conduct. For instance in 2001, UBS Financial Services Inc. (UBS) discharged Hodgman stating that he mpurchased a mutual fund in a client’s account without the client’s authority. In April 2002, the NASD alleged that Hodgman effected transactions in a customer’s account without the customer’s knowledge. In 2013, brokerage firm Moors & Cabot, Inc terminated Hodgman stating that the broker failed to cooperate with the firm’s investigation of marketing materials that were sent out to customers without the firm’s knowledge or approval. Thereafter, in December 2013, the Maine Office of Securities alleged that Hodgman made false statements in a record filed with the office in connection with his application to apply to the brokerage firm, Investors Capital Corp. In March 2014, Investors Capital Corp. discharged Hodgman stating that the firm determined that Hodgman was not truthful to the Maine Office of Securities. Thereafter, the state of Massachuestts initiated an action against Hodgman concerning his advertising in the state.

With this history in mind in June 2015, FINRA suspended Hodgman for 18 months alleging that between May and July 2013, Hodgman caused approximately 40,000 copies of advertisement postcards to be sent out through a third-party marketing company without approval of Moors & Cabot. According to FINRA, the postcards contained information about investing in fixed annuities that violated industry standards by failing to provide a sound basis for evaluating an investment in fixed annuities. In addition, FINRA alleged that in July and August 2013, Hodgman falsely represented to his firm that the marketing company had mailed the postcards prematurely and without Hodgman’s knowledge or authorization. To bolster this story, FINRA claims that Hodgman made a telephone call to a Moors & Cabot compliance officer impersonating a representative of the marketing company.

Broker Spotlight: Claims Against Former AXA Advisors Broker Dennis Lee

September 11, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Dennis Lee (Lee) has been the subject of one customer complaint, four financial disclosures, and one employment separation. The customer complaint against Lee alleges that the broker made unsuitable investments, transferred funds to a new account without the client’s knowledge or consent, engaged in unauthorized trading, and submitted forged documents. The client alleges over $1,000,000 in damages due to the misconduct. Approximately two months after disclosing the customer complaint AXA Advisors, LLC (AXA) terminated Lee. The termination was for cause and stated that Lee was discharged for failing to disclose financial issues that required the broker to file a U4 amendment, mismarking trade tickets, and placing securities trades away from the firm, otherwise referred to as “selling away.”

Lee entered the securities industry in 1993 and since that time Lee has been associated with AXA until his termination in April 2015.

Advisers have an obligation to deal fairly with investors and that obligation includes making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its costs, benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

Cabot Investment Properties Principals Carlton Cabot and Timothy Kroll Arrested in $17 Million Fraud

July 20, 2015 | by Staff Attorney

According to the United States Attorney for the Southern District of New York and several other government agencies, Carlton Cabot (Cabot) and Timothy Kroll (Kroll) the former Chief Executive Officer and Chief Operating Officer of Cabot Investment Properties LLC (Cabot Investment), were arrested on charges of defrauding investors in numerous Cabot Investment-sponsored real estate investments by misappropriating over $17 million to pay for personal and business expenses and thereafter covering up their fraud with manipulated financial statements. Regulators stated that the two’s greed overcome honest business practices. In the end, the regulators say that the defendants stole from their investors to fund their lavish lifestyle.

According to the release, from 2003 through 2012, Cabot Investment – which was controlled by Cabot and Kroll – sponsored approximately 18 tenants-in-common (TIC) securities offerings to investors. Those investments included:

20 North Orange

Larry M. Phillips of The Phillips Group, Sanctioned For Overcharging Customers

July 8, 2015 | by Staff Attorney

On April 27, 2015, the Financial Industry Regulatory Authority (FINRA) published a Letter of Acceptance, Waiver, and Consent (AWC), whereby Larry M. Phillips of The Phillips Group, in Woodland Hills, California, was sanctioned for his misconduct related to Phillips’ unlawful overcharging of several of his customers.

In December 2009, Phillips became registered as a general securities representative through Purshe Kaplan Sterling Investments (“PKS”). From January 2010 through August 2010, while registered with PKS, Phillips overcharged several customers by charging both markups and investment advisory fees. First, Phillips purchased securities, including Steepener CDs, Floating Rate Notes, Principal Protected Notes, and Municipal Securities for several of his investment advisory clients. Next, Phillips allocated the marked-up products to those same clients’ investment advisory accounts. In doing so, Phillips charged advisory fees on the very same securities for which he had already charged a markup. FINRA found that by assessing both markups and investment advisory fees, Phillips’ was in violation of FINRA Rule 2010 and MSRB G-17.

As a consequence of Phillips’ misconduct, FINRA fined Phillips $7,500, suspended him from the securities industry for 45 days, and ordered him to pay over $3,000 in restitution to the customers that he took advantage of. This is not the first time that Phillips has been sanctioned. For example, in April 2005, Phillips executed an AWC with NASD, where he agreed to a ten-day suspension and $20,000 fine for failing to adequately disclose material facts regarding investment products and strategies in written communications that he disseminated. Then again, in October 2006, Phillips was sanctioned—this time by the State of Illinois based on these same improper communications discovered by the NASD. Illinois sanctioned Phillips by prohibiting from serving as a principal in Illinois for a period of two years in addition to requiring him to pay a $1,000 fine.

Why Professional Athletes are Common Victims of Investment Fraud

June 29, 2015 | by Staff Attorney

Certain groups have been particularly vulnerable to advisors who engage in investment fraud. Among those groups well known are senior citizens who may have diminished capacity. Another group that serves as a common target are affinity frauds. In an affinity fraud the scammer preys upon members of a group or community such as members of certain religions or ethnic communities.

However, lessor known common victims of investment fraud schemes are professional athletes. Athletes are often preyed upon by bad advisors because they possess attributes that tend to allow the advisor to take advantage of their client. Athletes tend to be unsophisticated in the area of securities and investing often never having previous investment experience prior to going pro. In addition, athletes have busy schedules and demands on their time that do not allow the athlete to closely monitor or investigate each recommendation being made to them. Accordingly, athletes tend to place their trust in their professional advisor that they know what they are doing. Finally, athletes represent large, multi-million dollar opportunities to fraudsters.

In a recent OnWallStreet article, the unfortunate tales of several athletes were told. Among those athletes whose story were mentioned was Doug Mirabelli who recently won his arbitration dispute with Merrill Lynch where the firm was ordered to pay more than $1.2 million. The award came after Mirabelli and his wife claimed that their income portfolio, comprised of equities pledged against Merrill Lynch-owned mortgages, suffered losses that caused a liquidation. Their financial advisor Phil Scott was accused of providing “inappropriate investment advice” for securities including investments in Alliance Resource Partners, Apollo Investment Corp. and Copano Energy LLC.

Former Merrill Lynch Advisor Roderick Yzaguirre Accused of Stealing Millions From Clients

June 28, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Roderick Yzaguirre (Yzaguirre) has been the subject of at least 10 customer complaints and one firm termination. Customers have filed complaints against Yzaguirre alleging that the broker made misrepresentations concerning investments and misappropriated their funds among other claims. To date investors have accused Yzaguirre of misappropriating approximately $3,000,000 in client funds with the true extent of Yzaguirre alleged misconduct still unknown.

Yzaguirre has been a FINRA broker since 1994. From October 2009, through April 2015, Yzaguirre has been associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) out of their Ontario, California branch. Merrill Lynch accused Yzaguirre of conduct involving potential misappropriation of client funds and misrepresentations of securities at the time of his termination from the firm.

Under the FINRA rules, a brokerage firm owes a duty to properly monitor and supervise its employees in order to detect and prevent brokers from engaging in illegal investments activity. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Investment schemes often occur where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct.

Former RBS Securities Advisor Matthew Katke Plead Guilty For RMBS and CLO Fraud

April 25, 2015 | by Staff Attorney

According to the Department of Justice (DOJ), Matthew Katke (Katke) recently waived his right to indictment and pleaded guilty today in Hartford federal court to participating in a multimillion securities fraud scheme. Katke was registered with RBS Securities, Inc. (RBS Securities), during the time of the DOJ’s investigation. Currently, Katke is associated with Nomura Securities International, Inc. and has been since August 2013.

According to the DOJ, Katke also entered into an agreement to cooperate in the government’s ongoing investigation. Allegedly, between April 2008 and August 2013, Katke was a managing director at RBS Securities, a global securities firm with headquarters in Stamford, Connecticut. Katke and other members of RBS’s Asset Backed Products division traded fixed income investment securities in residential mortgage-backed securities (RMBS) and collateralized loan obligations (CLOs) through RBS trading floor. Katke admitted in his guilty plea that he and others conspired to increase RBS’s profits on CLO bond trades at the expense of their own customers by, among other things, making misrepresentations to induce customers to pay inflated prices and selling customers to accept deflated prices for CLO bonds. Katke misrepresented the CLO seller’s asking price to the buyer and kept the difference between the price paid by the buyer and the price paid to the seller for RBS. In another device used by Katke he misrepresented to the CLO buyer that bonds were held in RBS’s inventory were being offered for sale by a fictitious third-party seller invented by Katke allowing Katke to charge extra commission.

The DOJ’s investigation revealed many fraudulent transactions that cost at least 20 victim millions of dollars. In a statement U.S. Attorney Deirdre M. Daly of the District of Connecticut said that “Broker-dealers, and the people who work for them, need to understand that a market practice that is at odds with the securities law is a crime that carries serious repercussions. We urge others to follow Mr. Katke’s example and cooperate with investigators. We want to thank SIGTARP and the FBI for their efforts to date in this continuing investigation. Additionally, we acknowledge our other partners at the Department of Labor Office of the Inspector General, the Federal Housing Finance Administration Office of Inspector General and the Fraud Section of the Department of Justice for their hard work in the numerous ongoing investigations into this market.”

Izak Zirk de Maison and Stephen Wilshinsky Charged in Gepco Pump-and-Dump Fraud

April 16, 2015 | by Staff Attorney

The Securities and Exchange Commission (SEC) recently charged a ring of eight individuals, including Izak Zirk de Maison (Zirk de Maison) who orchestrated the fraud (was named Izak Zirk Engelbrecht before taking the surname of his wife Angelique de Maison) for their roles in an alleged pump-and-dump scheme involving a penny stock. In a related action, the Federal Bureau of Investigation (FBI) and the United States attorney for the Northern District of Ohio announce the federal arrests of Izak Sirk De Maison and Stephen J. Wilshinsky (Wilshinsky).

The SEC alleges that Engelbrecht with others he enlisted to buy, sell, or promote stock in the Gepco Ltd (Gepco) company. Gepco is a Nevada corporation under the ticker symbol “GEPC.” Gepco was originally incorporated in June 2008, as Kensington Leasing, Ltd., a company that purported to “specialize in leasing equipment to a select clientele.” Thereafter, Gepco entered into a reverse merger with Gem Vest Ltd., in December 2013.

As part of the scheme, the SEC alleged that Zirk de Maison installed associates of his as officers and directors of Gepco. Collectively, the defendants controlled large blocks of shares of Gepco common stock while the de Maisons manipulated the market to create the appearance of genuine investor demand which allowed him and his associates to sell the stock at inflated prices making hundreds of thousands of dollars in profit.

Broker Investigation: Salvatore Gioe’s Sales Practices

April 6, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Salvatore Gioe (Gioe) has been the subject of at least 11 customer complaints, one judgment and lien of over $197,000, and one regulatory action over the course of his career. Customers have filed complaints against Gioe alleging a litany of securities law violations including that the broker made unsuitable investments, unauthorized trades, breach of fiduciary duty, misrepresentations and false statements, churning, margin fraud, among other claims. Many of the claims involve recommendations in penny stocks and other speculative securities.

Gioe was also suspended by the state of Arkansas for one year concerning allegation that in 2013, Gioe contacted an Arkansas resident through a cold call solicitation and recommended the purchase of Uni-Pixel, Inc. However, unfortunately for Gioe the cold caller turned out to be a securities examiner with the state of Arkansas. The examiner then sat and listed as Gioe allegedly told the examiner that he had information suggesting the price of Uni-Pixel would rise from its current price of $15.65 to about $25. The examiner asked Gioe if Uni-Pixel stock was a sure thing and Gioe allegedly responded saying that he did. However, according to Arkansas Uni-Pixel was a distressed company and this information was never disclosed to the examiner on the call.

An examination of Gioe’s employment history reveals that Gioe moves from troubled firm to troubled firm. The pattern of brokers moving in this way is sometimes called “cockroaching” within the industry. See More Than 5,000 Stockbrokers From Expelled Firms Still Selling Securities, The Wall Street Journal, (Oct. 4, 2013). In Gioe’s 14 year career he has worked at 13 different firms.

Gana LLP Broker Spotlight: Wade Lawrence

February 27, 2015 | by Staff Attorney

According to the records kept by the Financial Industry Regulatory Authority (FINRA) broker Wade Lawrence (Lawrence) has been suspended following the broker’s failure to comply with an arbitration award or settlement and by failing to comply with the regulator’s request for information concerning compliance. In addition, FINRA permanently barred Lawrence for failing to respond to requests for information concerning allegations that he misappropriated funds from customers.

Lawrence first became registered with FINRA in 2002 with MML Investors Services, LLC. Thereafter, from June 2008 through July 2011, Lawrence was registered with Oppenheimer & Co. Inc. (Oppenheimer) Finally from August 4, 2011, until December 2013, Lawrence was registered with Southwest Securities, Inc. (Southwest). On December 12, 2013, Southwest filed a Form U5 that terminated Lawrence’s registration.

In addition to the FINRA regulatory actions Lawrence has been the subject of at least nine customer disputes. These statistics are troubling because multiple customer complaints on a broker’s record are rare. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. FINRA’s disclosure records do not just cover customer complaints but also include IRS tax liens, judgments, and even criminal matters. The number of brokers with multiple customer complaints is far smaller.