Investor Fraud

WFG Investments Sanctioned Over Failure to Review Transactions for Suitability Part II

February 9, 2015 | by Staff Attorney

This article continues our prior post concerning The Financial Industry Regulatory Authority (FINRA) recent sanctions of brokerage firm WFG Investments, Inc. (WFG) alleging a host of supervisory failures from March 2007, through January 2014.

In one supervisory failure example involving suitability, FINRA found that between 2009, and 2013, a broker by the initials “MC” (1) traded with discretion in several of his customers’ accounts without their written authorization; and (2) also excessively traded in at least one of his customer’s accounts in light the customer’s investment objectives and risk tolerance. FINRA also alleged that many of the securities traded were also qualitatively unsuitable in light of the customers’ age, objectives, risk tolerance, and financial situation. In addition, several of the customer’s accounts were charged both commissions and management fees and this problem was not identified or corrected even after it was detected.

FINRA also alleged that MC used unapproved charts and provided consolidated statements to a customer without the firm’s knowledge or approval. Moreover, allegedly there were exception reports that highlighted the problem trading activity in several of these accounts that were simply not reviewed or not properly processed. In fact, FINRA found that one of the customers who complained about unsuitable activity in her accounts was not contacted by the firm until after she had complained despite the fact that her accounts had appeared on numerous exception reports. Similarly, FINRA found that broker SGD was also permitted by the WFG to engage in unsuitable trading in one of his customer’s accounts which included the recommendation and sale of numerous high risk equity and ETF purchases for a retired client with a conservative risk tolerance.

FINRA and SEC Release Guidance on Avoiding Penny Stock Schemes

November 30, 2014 | by Staff Attorney

Recently, FINRA and the SEC’s Office of Investor Education and Advocacy issued an alert to warn investors that some low-priced “penny” stocks are being aggressively promoted to engage in investment fraud schemes. In many cases the stocks of dormant shell companies, businesses with nominal business operations, are susceptible to market manipulation. To help prevent these types of fraud, the SEC suspended trading in 255 dormant shell companies in February 2014.

The typical investment scheme concerns pump-and-dump frauds in which a fraudster deliberately buys shares of a very low-priced, thinly traded stock and then spreads false or misleading information to promote and inflate the stock’s price. The fraudster then dumps his shares causing a massive sell off and leaving his victims with worthless shares of stock. Among the more common schemes is a fraudsters who uses a dormant shell company to buy its shares and then claim that the company has developed a “new” product that has caused the price to jump higher or the company will announce new management.

The SEC provided 5 tips to avoid becoming a victim of a penny stock scheme.

Top 10 Signs of Investment Fraud

October 20, 2014 | by Staff Attorney

Every year dozens of investors contact our firm seeking to recover losses due to sham or bogus investments. Only a fraction of those defrauded people were fortunate enough to working with a licensed broker who wasn’t being properly supervised by their brokerage firm and have recourse to avenues of redress. The other investors are often left with little to no recourse other than to spend additional sums of money on the off chance for recovery.

Recently, the Securities and Exchange Commission published its “10 Red Flags That an Unregistered Offering May Be a Scam” Most investors do not realize that each and every investment out there must be registered with the SEC or offered through a registration exemption to be legally sold to investors. Yet, billions of dollars are continually pumped into fraudulent and unregistered offerings. The SEC published these top 10 red flags that every investor should be on the look out for.

Claims of High Returns with Little or No Risk – A classic red flag that high returns are around the corner with little or no risk. Every investment carries some degree of risk, and if your advisor can’t point that out to you, then you need to find another broker.

Gana LLP is Investigating LPL Financial broker, Kenneth W. Schulz for Improper Conduct

September 30, 2014 | by Staff Attorney

On September 11, 2014, FINRA, permanently barred Kenneth W. Schulz, a former broker of LPL Financial from associating with any FINRA member. According to the Letter of Acceptance, Waiver and Consent, in June 2013, Kenneth W. Schulz directed a registered assistant to impersonate six of Schulz’s former customers in phone calls to his prior firm requesting that the customers’ accounts be liquidated so that they could invest through Schulz at his new firm Commonwealth Financial network.

Schulz informed each of his customers that their securities holdings could be transferred “in kind” to accounts with Commonwealth. The customers agreed to transfer their securities to Commonwealth and authorized Schulz to initiate the transfers.

After the customers agreed to transfer the securities, Schulz learned that the customers’ securities could not be transferred in kind because the managed funds were proprietary to LPL Financial. Rather than inform his customers that the securities had to be liquidated before their funds could be transferred, Schulz had his assistant pretend to be the customers and had the accounts liquidated without customer consent.

Choosing the Right Securities Arbitration Attorney

September 29, 2014 | by Staff Attorney

When to Call a Securities Arbitration Attorney

Securities arbitration attorneys, sometimes referred to as investment attorneys, FINRA attorneys, or securities attorneys, should be contacted whenever an investor believes he or she has been a victim of broker misconduct. An investor may have cause to retain a securities fraud attorney to file a lawsuit or arbitration claim if his or her broker failed to create a suitable investment strategy. An investor may also want to contact an attorney case if a broker made false or misleading statements about a security or omitted negative information about the risk of a security in order to persuade the investor to invest.

An investor may also want to seek legal counsel the investor’s broker bought or sold securities without prior consent (unauthorized trading) or excessively traded securities for the purpose generating commissions (churning).

FINRA Sanctions B. C. Ziegler and Company For Failure to Supervise Church Bond Sales (Part II)

September 12, 2014 | by Staff Attorney

This post picks up on our first article on The Financial Industry Regulatory Authority (FINRA) sanctioning brokerage firm B. C. Ziegler and Company (B. C. Ziegler) and ordering the brokerage firm to pay $150,000 on allegations that the firm failed to implement a supervisory system reasonably designed to ensure that material economic information regarding Church Bonds was disclosed to the firm’s brokers, trading desk, and customers.

FINRA found that while the firm maintained a Credit Watch List to check for delinquent and missed Church Bond payments, this list was only produced periodically and not every time a Church Bond issuer fell five weeks behind on its sinking fund payments. Accordingly, FINRA found that B. C. Ziegler violated NASD Rule 3010 by failing to establish and maintain a supervisory system reasonably designed to ensure that material economic information, such as delinquent sinking fund payments, was disclosed to the firm’s brokers and customers who were sold Church Bonds in secondary market transactions.

FINRA found that prior to September 2010, B. C. Ziegler did not inform its brokers, trading desk, or customers when an issuer was more than 30 days behind on its sinking fund payments, an indicator of financial distress. Further, it was alleged that from September 2010, through at least May 2012, B. C. Ziegler’s registered representatives and trading desk were informed only periodically when a Church Bond issuer fell five weeks behind on its sinking fund payments through the Credit Watch List causing B.C. Ziegler’s supervisory system to not be reasonably designed to consider material economic information in the pricing of Church Bonds in secondary market transactions. The result, FINRA found, was that the firm had similar pricing for secondary market trades in Church Bonds that were current and delinquent with sinking fund payments.

Gana LLP Investigates Craig Josephberg’s Alleged $300 Million Market Scheme

July 21, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating the July 17, 2014, claims brought by securities and exchange commission (SEC) against Craig Josephbergin connection with his participation in a $300 million securities fraud market manipulation scheme. According to the SEC, Abraxas J. Discala (Discala), Marc E. Wexler (Wexler), Matthew A. Bell (Bell), Craig L. Josephberg (Josephberg), and Ira Shapiro (Shapiro), assisted in manipulating the stock price of four publically traded companies, CodeSmart Holdings, Inc. (CodeSmart), Cubed, StarStream Entertainment Inc., and the Staffing Group, Ltd.

According to the complaint, in 2013, Discala and Wexler served as the CEO and President of OmniView Capital Advisors LLC (OmniView) conspired with registered representatives Bell and Josephberg to inflate the price of the stock of CodeSmart. The SEC found that Discala, Wexler, Bell, and Josephberg then profited by selling their shares at inflated values at the expense of Bell’s clients and Josephberg’s customers.

The SEC alleged that defendants accomplished their scheme following CodeSmart’s reverse merger into a public shell company in May 2013, whereby Discala and his associates, including Wexler, Bell, and Josephberg, obtained control of 3,000,000 shares of CodeSmart. Later in May 2013, the SEC found that Discala and Wexler flooded the market with CodeSmart’s shares and found ready buyers in Bell’s advisory clients and Josephberg’s brokerage customers.

Claus Foerster Barred Over Allegations Concerning Fictitious “S.G. Investments”

July 8, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has sanctioned and barred broker Claus Foerster (Foerster) concerning allegations that Foerster solicited firm customers to invest in a fictitious fund “S.G. Investments” and converted approximately $3 million in funds from 13 customers for his personal use. FINRA rules provide that no person associated with a member shall make improper use of a customer’s securities or funds.

Foerster entered the securities industry in 1988 when he associated with J.C. Bradford & Co. Between 1997 and 2008, Foerster was associated with Citigroup Global Markets, Inc. (Citigroup). From 2008 until February 2013, Foerster was associated with Morgan Keegan & Co. Inc. Thereafter, and until June 2014, Foerster was last associated with Raymond James & Associates, Inc., (Raymond James) when his registration was terminated based on the conduct described by FINRA in the AWC.

FINRA alleged that beginning in 2000, Foerster solicited securities customers to invest in an entity called S.G. Investments. S.G. Investments was marketed by Foerster to investors as an income-oriented investment. As part of Foerster’s scheme, FINRA alleged that he instructed customers to move funds from their brokerage accounts to their personal bank accounts via wire or electronic funds transfer. After that, FINRA found that Foerster would then instruct the customers to write checks from their personal bank accounts payable to “S.G. Investments.” FINRA determined that S.G. Investments was not an investment fund but instead a bank account owned and controlled by Foerster. According to FINRA, Foerster hid his scheme by providing customers with fictitious account statements. In addition, FINRA found that in at least two instances Foerster provided customers with purported dividend payments on a monthly basis in typical Ponzi Scheme fashion. Through these actions, FINRA found that Foerster converted approximately $3 million from 13 customers.

Investment Fraud Update: Patricia Miller Charged in Ponzi Scheme

June 14, 2014 | by Staff Attorney

Our law firm is currently investigating an alleged Ponzi scheme run by financial advisor Patricia S. Miller (Miller) of McMurray, Pennsylvania. According to the United States Attorney Office, on June 6, 2014, Miller was arrested on charges that she orchestrated a massive Ponzi scheme and committed wire fraud.

Our attorneys encourage investors to contact our office if they have been an unfortunate victim of Miller’s. Our attorneys have significant experience recovering investor funds by holding brokerage firms and Ponzi schemer’s responsible. In a similar fraudulent investment scheme our attorneys obtained a $2.8 million award on behalf of a group of defrauded investors including $1.9 million in punitive damages. See Reuters, Arbitrator orders alleged Ponzi-schemer to pay $2.8 million (Aug. 8, 2013) and the Award here.

In Miller’s case, the United States has alleged that Miller used and abused her position of trust and her association with a Massachusetts broker dealer in order to obtain money from clients. While Miller represented to clients that their funds would be invested prudently, it is becoming clear that Miller never made such investments. According to the United States Attorney’s Office, Miller promised high returns in “investment clubs” called KS Investments and Buckharbor, among others. Miller represented, that the investment clubs would be placed in fixed-income notes and other investments. Instead, Miller has been accused of misappropriating the client’s funds for her own personal use. If convicted, Miller could face a maximum sentence of 20 years in prison and a $250,000 fine.

Two MetLife Advisors Alleged to Have Wrongfully Exchanged Variable Annuities

May 14, 2014 | by Staff Attorney

On March 27, 2014, the Financial Industry Regulatory Authority (FINRA) filed a regulatory complaint against two former brokers from MetLife Securities, Inc., a unit of MetLife Inc. According to the complaint, Christopher Birli (Birli) and Patrick Chapin (Chapin), who both worked for MetLife in Williamsville, New York, until 2012, participated in a seven-year scheme to inflate commissions. According to the allegations, the advisors preyed on the employees of the State University of New York, having these retirement-plan participants switch $21 million in annuities. The specific allegations claim that from a period spanning from 2004 to 2011, Birli and Chapin encouraged forty-five of their customers to switch the MetLife variable annuities that they held in their respective accounts in exchange for new variable annuities held in individual retirements accounts, which were outside of the university plan that the State University of New York employees should have adhered to.

MetLife has certain policies in place. One such policy prohibits exchanging certain types of variable annuities. It has been alleged that the two MetLife advisors deceptively designed the deals for their customers in a manner explicitly intended to circumvent this policy. Birli and Chapin allegedly evaded detection by utilizing a three-step process. First, they advised their clients to sell their retirement plan annuities and take the cash. Next, the two advisors had their clients purchase a different security within the retirement plan, which they were required to hold for ninety days. Finally, Birli and Chapin instructed their clients to sell that security in order to buy a variable annuity through an individual retirement account.

Over the seven-year period, a total of $21 million was craftily shifted from the MetLife retirement plan product into the TIAA-CREF plan product, then subsequently placed into the MetLife retail annuities. All the while, Birli and Chapin allegedly reaped commissions of 7.15% for transferring the money into the retail annuities. If the two brokers had followed protocol and sought an exception with MetLife to allow the internal exchange of the retirement plan annuity product for a retail variable annuity, they would have only earned the standard 2% gross dealer concessions. The advisors’ alledged improprieties essentially netted them nearly four times the commissions that they were rightfully entitled to, generating hundreds of thousands of dollars for their own pockets. According to the filings, MetLife terminated Birli and Chapin in 2012. Neither individual presently works in the securities industry, according to filings.