Securities Fraud

The NASAA Announces New Initiative to Focus on Senior Investor Abuse

October 9, 2014 | by Staff Attorney

As we have reported previously, financial abuse of seniors is a significant problem in the United States. In our firm’s representation of clients, seniors comprise the vast majority of clients that seek our firm’s assistance as securities attorneys.

Recently the North American Securities Administrators Association (NASAA) announced the formation of a new Board committee to address a wide range of challenges confronting senior investors. The announcement came on the heels of the agencies disclosure that at least a third of its members’ enforcement actions by state securities regulators since 2008 have involved senior victims among states that track victims by age. Of the 10,526 enforcement actions initiated between 2008 and 2013, 3,548 involved victims age 62 and older. Further, the NASAA stated that this amount is a conservative estimate since it does not include cases from states that do not report the age of victims and many senior victims simply do not come forward.

As long-time readers of this blog post know, we have frequently wrote the issue of scams and fraud targeting the elderly. See How Elderly Investors Can Protect Their Retirement Savings and The Problem of Senior Investor Abuse – A Securities Attorney’s Perspective.

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).

B. C. Ziegler and Company Sanctioned Over Allegations of False and Misleading Advertising

September 11, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm B. C. Ziegler and Company (B. C. Ziegler) and ordering the brokerage firm to pay $150,000 in connection with allegations that from January 1, 2009, through May 30, 2012 B. C. Ziegler failed to implement a supervisory system reasonably designed to ensure that material economic information regarding Church Bonds, including information concerning delinquent sinking fund payments, was disclosed to the firm’s brokers, trading desk, and customers, and was factored into the pricing of Church Bonds sold to customers in secondary market transactions. In addition, it was alleged that B. C. Ziegler used Church Bond sales material with customers that was not fair and balanced. The sales material prominently promoted the yields associated with Church Bonds without balancing the presentations by disclosing the risks. FINRA also alleged that B. C. Ziegler distributed unbalanced internal-use-only Church Bond sales material to its registered representatives, causing the firm to violate NASD Rule 2211(d)(1) and FINRA Rule 2010.

B. C. Ziegler has been a registered broker-dealer since 1948 and is a full service brokerage firm headquartered in Chicago, Illinois. A primary business of the firm is the underwriting and sale of fixed income products, including debt issued by religious institutions known as “Church Bonds” and senior living facilities (Senior Living Bonds). The firm has approximately 22 branch offices and 200 registered representatives.

According to FINRA, B. C. Ziegler specializes in underwriting and selling Church Bonds for religious institutions. Church Bonds are generally issued by nonprofit religious entities and as such are exempt from registration as a security with the SEC. While there is no established secondary market for Church Bonds, FINRA found that B. C. Ziegler frequently facilitated secondary trading among its customers for Church Bonds it underwrote. A Church Bond sinking fund is a pool of money funded with periodic payments by an issuer for the purpose of accumulating money to make annual or semi-annual coupon payments due to investors of Church Bonds. A Church Bond issuer behind on its sinking fund payments is not in strict compliance with its trust indenture and may be a sign of an issuer’s financial distress.

Investor Alert: Brokers Matthew Bell and Craig Josephberg Indicted in CodeSmart Holdings (OTC: ITEN) Scam

July 23, 2014 | by Staff Attorney

Gana Weinstein LLP is investigating claims were brought by securities and exchange commission (SEC) against Matthew Bell (Bell) and Craig Josephberg (Josephberg) in connection with participation in a $300 million securities fraud market manipulation scheme. The SEC brought charges against Abraxas J. Discala (Discala), Marc E. Wexler (Wexler), and Ira Shapiro (Shapiro), for manipulating the stock price of sale of CodeSmart Holdings (OTC: ITEN), Cubed, Inc. (OTC: CRPT), StarStream (OTC: SSET) and The Staffing Group, Ltd. (OTC: TSGL).

According to the complaint, in 2013, Discala and Wexler conspired with Bell and Josephberg, both registered representatives with different brokerage firms, 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.

Bell was taken into custody by the FBI and appeared in federal court in San Antonio. In Court, Bell was informed of a 10-count indictment returned in Brooklyn, New York, and was released on bond. Bell has a long history of customer complaints and two firm terminations.

SEC Alleges Broker Craig Josephberg Involved in a $300 Million Market Scheme of CodeSmart Stock (Part II)

July 22, 2014 | by Staff Attorney

In our prior post, our offices, Gana Weinstein LLP, noted its investigation of the July 17, 2014, claims brought by securities and exchange commission (SEC) against Craig Josephberg in connection with his participation in a $300 million securities fraud market manipulation scheme. The SEC brought charges against Abraxas J. Discala (Discala), Marc E. Wexler (Wexler), Matthew A. Bell (Bell), Craig L. Josephberg (Josephberg), and Ira Shapiro (Shapiro), for 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 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.

Josephberg has a long and troubled regulatory, criminal activity, debts, customer complaints, among a host of other supervisory “red flags” of potential misconduct in the handling of his clients. Josephberg entered the securities industry in 1996. Thereafter, he was associated with eight different firms including Maxim Group LLC, ICM Capital Markets, LTD, vFinance Investments, Inc., Halcyon Cabot Partners, LTD. (Halcoyon), and most recently Meyers Associates, L.P. (Meyers Associates). Indeed, when Josephberg was terminated from Halcoyon he was under investigation by the firm for sales practice violations including the selling of unsuitable securities, unauthorized trades, and securities fraud in connection with the sale of penny stocks including VHGI and Cell Therapeutics.

Gana LLP Investigates Broker Patricia Miller’s Ponzi Scheme

June 6, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are currently investigating an alleged Ponzi scheme run by financial advisor Patricia S. Miller (Miller) of McMurray, Pennsylvania. According to allegations made against Miller by investors, she convinced customers to invest in purportedly safe mix of securities including corporate and municipal bonds. However, it is becoming increasingly clear that these investments may not exist at all.

Miller was a registered broker with several brokerage firms including Janney Montgomery Scott LLC and Investors Capital Corp. (Investors Capital). According to Miller’s BrokerCheck, on May 19, 2014, Investors Capital received a complaint alleging that an investor provided Miller with $80,000 that had been misappropriated by Miller. Two days later Investors Capital discharged Miller alleging that the broker has been accused of misappropriating funds, borrowing money from customers, fraudulent investment activity, and creating false documents.

According to investor complaints, Miller may have used various entities, including KS Investments, KS Investment Partnership, K Squared Development, K Squared Investments, Buck Harbor Investments, Buck Harbor Investment Club, and Buck Harbor Investment Partnership in order to carry out her scheme. Investors in these vehicles may have received false statements listing securities holdings and values of securities that may not truly exist. For instance some investors may have been misled into believing that they owned bonds issued by companies like General Electric, McDonald’s Corporation, Ford Motor Company, and other municipal bonds.

Ameriprise Broker Jeffrey Davis Barred Accused of Converting Client Funds

June 5, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred Ameriprise Financial Services (Ameriprise) broker Jeffrey Davis (Davis) concerning allegations that the broker committed securities fraud by converting client funds. FINRA alleged that from May 2012, through June 2013, Davis converted $116,976 from five Ameriprise customers for his personal use and benefit. According to FINRA, Davis initiated 71 unauthorized electronic Automated Clearing House (ACH) payments from the customers’ brokerage accounts to personal credit card accounts held in Davis’ name. FINRA found that these transfers converted customer funds and violated FINRA Rules 2150 and 2010.

Davis entered the securities industry in June 1998. Davis became associated with Ameriprise in September 2000 and remained with the firm until he was terminated on July 19, 2013. In a Form U5 Uniform Termination Notice dated July 24, 2013, Ameriprise reported that Davis was terminated for misappropriating customer funds to ‘pay personal credit cards.

FINRA Rule 2150(a) prohibits members or person associated with a member from making improper use of a customer’s funds. Improper use of customer funds constitutes conversion of the client’s funds when there is an intentional and unauthorized taking of or exercise of ownership by one who neither owns the property nor is entitled to possess it.

LPL Financial Broker Reniero Francisco Accused of Misappropriating Millions in Client Funds

May 19, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred LPL Financial, LLC (LPL) broker Reniero Francisco (Francisco) concerning allegations that the broker failed to cooperate with FINRA’s investigation of Francisco’s involvement with Arista LLC, a registered Commodity Pool Operator (CPO) with its principal place of business in Newport Coast, California. An order was entered on December 3, 2013, requiring Francisco and other parties to pay more than $8.25 million in restitution for the losses of defrauded investors. FINRA requested information from Francisco and also scheduled him to testify but Francisco failed to respond to FINRA’s requests for information and documents and also failed to appear for testimony.

In December 2012, the U.S. Commodity Futures Trading Commission (CFTC) brought action against Arista and Arista’s principals, Abdul Sultan Walji (a/k/a Abdul Sultan Valji) of San Juan Capistrano, California, and Francisco alleging that they carried out a fraudulent scheme to misappropriate millions of investors’ money through commodity futures and options, making false statements to the CFTC, and filing false quarterly reports with the National Futures Association (NFA).

Shortly thereafter, Judge Paul A. Engelmayer of the U.S. District Court for the Southern District of New York entered a consent judgment and permanent injunction order against Arista, Walji, and Francisco. The order requires the defendants to pay more than $8.25 million in restitution for the investor losses. In addition, the order imposed civil monetary penalties of $6.45 million on Walji, $5.925 million on Francisco, and $1.54 million on Arista. The order also permanently bans defendants from trading activity and prohibits them from violating provisions of the Commodity Exchange Act (CEA) and a CFTC regulation.

SEC Issues Largest Monetary Sanction for Rule 105 Short Selling Violations Ever

April 6, 2014 | by Staff Attorney

On March 5, 2014, the Securities and Exchange Commission (SEC) announced the largest monetary sanction for Rule 105 short selling violations. A Long Island-based proprietary trading firm, Worldwide Capital, and its owner, Jeffrey W. Lynn, agreed to pay $7.2 million to settle the charges against them.

According to the SEC, Rule 105 prohibits short selling of an equity security during a restricted period – generally five business days before a public offering – and the subsequent purchase of that same security through the offering. The rule applies, to all equity trades, regardless of the trader’s intent. The rule is designed to promote offering prices that are set naturally by market driven supply and demand.

According to the SEC’s order instituting settled administrative proceedings, Mr. Lynn created Worldwide Capital for the purpose of investing and trading in a strategy focused primarily on new shares of public issuers coming to market through secondary offerings. Mr. Lynn had traders execute trades on his behalf, seeking allocations of additional shares soon to be publicly offered, usually at a discount to the market price. He and his traders would then sell those shares short in advance of the public offerings. Lynn and Worldwide Capital improperly profited from the difference between the price paid to acquire the offered shares, and the market price on the date of the offering.

The Supreme Court May Limit Securities Fraud Suits

April 5, 2014 | by Staff Attorney

The Supreme Court on Wednesday, MArch 5, 2014, seemed poised to impose new limits on securities fraud suits – making it harder for investors to group together to bring claims that they were misled when they bought or sold securities.

Organizations facing fraud class actions prefer to have the case certified as late in the litigation as possible because once a class is certified, the damages can be so enormous that most companies settle. “Once you get the class certified, the case is over,” Justice Antonin Scalia said on Wednesday.

Several justices, including Justice Anthony Kennedy, suggested that this phenomenon could be partly addressed through a proposal by two law professors that argued plaintiffs should be required to show at an early stage “whether the alleged fraud affected market price.”