Securities Lawyers Blog

FINRA Files Complaint Against Gopi Vungarala and Purshe Kaplan Sterling Over Fraudulent Commission Charges

February 9, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating a complaint filed by The Financial Industry Regulatory Authority (FINRA) against broker Gopi Krishna Vungarala (Vungarala) and his brokerage firm Purshe Kaplan Sterling Investments (Purshe Kaplan). FINRA alleged that from at least June 2011 through January 2015, Vungarala regularly lied to his customer who is a Native American tribe regarding commissions paid to the broker and firm on non-traded real estate investment trusts (Non-Traded REITs) and business development companies (BDCs).

Vungarala served the tribe as both a financial advisor and was employed by the tribe as its Treasury Investment Manager and participated in decisions regarding the tribe’s investments. According to FINRA, Vungarala knew that the tribe prohibited employees such as Vungarala from engaging in business activities that could constitute a conflict of interest with the tribe. In order to induce the tribe to make purchases in Non-Traded REITs and BDCs in light of the prohibition against conflicts of interests Vungarala falsely represented to the tribe that he would not receive any commissions on the purchases. Despite the prohibition and the representations, FINRA alleged that Vungarala fraudulently induced the tribe to invest $190 million of dollars in Non-Traded REITs and BDCs without revealing that he and his firm received commissions on the sales at a typical rate of 7% generating $11.4 million in commissions for Purshe Kaplan of which $9.6 million was paid to Vungarala.

Worse still, FINRA alleged that the tribe was eligible to receive volume discounts on the products purchased but instead paid full commission. FINRA alleged that Purshe Kaplan’s supervisory failures led to the volume discounts not being applied. FINRA alleged that the tribe failed to receive more than $3.3 million in volume discounts and that these funds funds were instead paid to Purshe Kaplan and Vungarala in the form of commissions.

Investor Recovery Options for RAAM Global Energy Company Losses

February 8, 2016 | by Staff Attorney

The investment attorneys with Gana Weinstein LLP continue to report on investor related losses in oil and gas and commodities related investments. Investors may have potential legal remedies due to unsuitable recommendations by their broker to invest in this speculative and volatile area. RAAM Global Energy Company (RAAM), on October 26, 2015, and its subsidiaries filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. According to the disclosures made at that time, RAAM’s producing assets are located in the Gulf of Mexico and in Louisiana, Texas, Oklahoma, and California. RAAM’s drilling program is focused on the Breton Sound offshore from Louisiana. For the first half of 2015 RAAM’s estimated revenue was approximately $33.4 million. However, RAAM’s indebtedness was approximately $300 million.

Our firm continues to file complaints on behalf of investors who have been overconcentrated in oil and gas investments. Oil and gas and commodities related investments have been recommended by brokers under the assumption that commodities prices would continue to go up. Some experts are saying that if production volume continues to be as high as it currently is and demand growth weak that the return to $100 a barrel is years away.

Before recommending investments in oil and gas and commodities related investments, brokers and advisors must ensure that the investment is appropriate for the investor and conduct due diligence on the company in order to understand the risks and prospects of the company. Oil and gas and commodities related investments have been recommended by brokers under the assumption that commodities prices would continue to go up. However, brokers who sell oil and gas and commodities products are obligated to understand the risks of these investments and convey them to clients.

Broker Investigation: Customer Complaints Against Broker Stanley Keyes

February 8, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Stanley Keyes (Keyes). According to BrokerCheck records Keyes is subject to 5 customer complaints, 1 regulatory action, and 2 employment separations. The customer complaints against Keyes allege securities law violations that including unsuitable investments, unauthorized trading, misrepresentations, and breach of fiduciary duty among other claims.

The most recent regulatory action was filed by FINRA in November 2010 and alleged that Keyes borrowed a total of $214,000 from customers and used that money to meet personal financial obligations. FINRA alleged that Keyes failed to disclose the existence of these loans to his firm. FINRA fined Keyes $5,000 and suspended the broker for three months. Prior to that FSC Securities Corporation terminated Keyes alleging that the broker had borrowed money from firm customers in violation of the firm’s policies.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client. In order to make a suitable recommendation the broker must meet certain requirements. First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors. Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

Investor Recovery Options for Energy Transfer Partners, L.P. (ETP) Losses

February 6, 2016 | by Staff Attorney

The investment attorneys with Gana Weinstein LLP continue to report on investor related losses in oil and gas and commodities related investments. Investors may have potential legal remedies due to unsuitable recommendations by their broker to invest in this speculative and volatile area. Energy Transfer Partners, L.P. (Ticker Symbol: ETP) is a Master Limited Partnership (MLP). About 86% of the total MLP securities market, a $490 billion sector, can be attributed to energy and natural resource companies. Energy Transfer Partners has declined about 52% in value in the last year and is trading at only $29.74 a share. Energy Transfer Partners business focuses in the natural gas midstream sector.

Our firm continues to file complaints on behalf of investors who have been overconcentrated in MLPs like Energy Transfer Partners. Our clients tell us similar stories that their advisors hyped MLPs as high yielding investments without significant discussion of risk. In a recent Associated Press article, common stories of how investors are pitched by their financial advisors on oil and gas private placements were reported on. Often times these products are pitched as ways to ride the boom in U.S. oil and gas production and receive steady streams of income.

In the past year, investors have lost $20 billion in publicly traded in master limited partnerships, publicly traded oil funds. This amounts to an astonishing $8 of every $10 they had invested, according to a report prepared for The Associated Press article. The research does not include losses from $37 billion of bonds sold by the partnerships in the five years since 2010 or losses from private placement partnerships. However, banks like Citigroup, Barclays, and Wells Fargo made an estimated $1.1 billion in fees for selling these products to investors.

Broker Investigation: Customer Complaints Against McNally Financial Broker Marshall Cassedy

February 6, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Marshall Cassedy (Cassedy). According to BrokerCheck records Cassedy is subject to 17 customer complaints, 3 regulatory actions, and one employment separation. The customer complaints against Cassedy allege securities law violations that including unsuitable investments, churning (excessive trading), unauthorized trading, misrepresentations, and breach of fiduciary duty among other claims.

The most recent regulatory action was filed by the State of Florida in 2010 and alleged unauthorized trading and unregistered activity. Prior to that, Capitol Securities Management, Inc. terminated Cassedy alleging that the broker had customer complaints concerning violations of the firm’s policies with respect to the handling of their accounts. In 2006, the State of Georgia filed a regulatory action against Cassedy alleging that the broker failed to disclose another regulatory investigation by the State of Florida. That investigation was filed in 2005 and alleged unsuitable securities.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client. In order to make a suitable recommendation the broker must meet certain requirements. First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors. Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

Investment Investigation: Sales of Adageo Energy Private Placements

February 5, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating potential unsuitable investments and recommendations in a number of oil and gas related ventures including Adageo Energy. According to the company’s website Adageo Energy specializes in high-growth, high-return opportunities in the energy sector. The company’s focus includes the identification, acquisition, drilling, development, and operation of oil and gas properties. Adageo Energy is a sponsor of several oil and gas private placements.

One such issuance is Adageo Energy Partners, LP which according to SEC filings sought to raise $50 million and raised at least $31 million of that amount through brokerage firms including Direct Capital Securities, Inc., Madison Avenue Securities, Inc., WFP Securities, Inc., Arete Wealth Management, LLC, Newbridge Securities Corporation, Charter Pacific Securities, LLC, ePLANNING Securities, Inc., Sunset Financial Services, Inc., Jesup & Lamont Securities Corp., and Capital Guardian, LLC.

As reported in Reuters for issuers other than Adageo Energy, many of these types of private placement deals fail and investors take outsized risks compared to the scant compensation they are likely to receive. The issue with oil and gas private placements is two fold. First the much of the investor’s funds are eaten up by fees and costs and are never used for investment purposes. For instance and analysis of Atlas Energy LP found that the issuer typically charged between 15 percent and 20 percent in upfront fees from investors and paid brokers an additional 10 percent of the total offering in sales commissions. According to Reuters, investors only get to see 65-70% of their capital actually put to work on oil and gas projects.

LPL Financial Broker Alfred Talens Accused of Selling Unregistered Securities

February 5, 2016 | by Staff Attorney

The investment fraud lawyers of Gana Weinstein LLP are investigating customer complaints and the termination by LPL Financial, LLC (LPL) of broker Alfred Talens (Talens). There is at least one customer complaint against Talens alleging that the broker made unsuitable investments in connection with the sale of a variable annuity. The customer also alleges that the broker sold an unregistered security and claimed damages of $500,000. The conduct allegedly engaged in by Talens is also referred to as “selling away” in the industry. It is unclear from public disclosures the nature of the outside business but Talens public disclosures disclose that the broker has outside business activities including Ascension Wealth Management, a DBA for insurance and tax preparation, and AWM Consulting.

In addition, there is one employment separation disclosed. LPL alleged that Talens violated firm policy regarding outside business activities and borrowed money from clients. Thereafter, FINRA sent Talens a request for documents and information which the broker refused to respond to. Accordingly, FINRA automatically barred Talens from the securities industry on July 7, 2015.

In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. However, even though when these incidents occur the brokerage firm claims ignorance of their advisor’s activities the firm is obligated under the FINRA rules to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. 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. Selling away misconduct often occurs 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 including selling away.

FINRA Sanctions William Watson Over False and Misleading Marketing of Securities

February 4, 2016 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating customer complaints and a FINRA action against broker William Watson (Watson). The Financial Industry Regulatory Authority (FINRA) brought an enforcement action (FINRA No. 2013038091901) against Watson. In addition, there are at least five customer complaints against Watson and four judgements or liens. In the FINRA regulatory action against Watson, the agency alleged that from March 2013 through June 2014 while employed at Finance 500, Inc. (Finance 500) Watson participated in securities offerings with four different issuers where he used marketing materials that were not fair and balanced because they failed to discuss each of the issuers poor financial performance and made misleading unwarranted or unsupported statements.

FINRA alleged that Watson was the Vice President of Corporate Finance at Finance 500 and identified companies that needed financing and worked with those companies to sell the companies’ securities to customers. FINRA found that Watson used or permitted issuers to use marketing presentations that were not fair and balanced, made misleading, unwarranted or unsupported statements, and failed to disclose Finance 500’s name and involvement in the offerings. FINRA determined that Watson also sent these presentations to retail customers through email and used them on telephone conference calls with retail investors. Watson also allegedly used, or permitted issuers to use, powerpoint presentations that contained inadequate risk disclosure and failed to provide a balanced presentation of the risks and rewards of the investment.

Specifically, FINRA alleged that for issuer by the initialed “BB” which upon information and belief refers to Bill the Butcher, Inc., (BB) the presentations failed to disclose BB’s accumulated deficits, net losses, or the fact that BB’s auditor had issued a “going concern” opinion. In addition, the BB presentations compared the sales-to-investment ratio of BB, a start-up company, to that of well established fast-food restaurants. Similar issues were cited by FINRA for presentations for issuers initialed CP, GE, and SC. FINRA found the lack of disclosures from the foregoing presentations to be in violation of industry rules.

Investor Recovery Options for Goldman Sachs MLP and Energy Renaissance Fund (GER) Losses

February 4, 2016 | by Staff Attorney

The investment fraud attorneys with Gana Weinstein LLP continue investigate oil and gas and commodities related investment losses. Investors may have potential legal remedies due to unsuitable recommendations by their broker to invest in this speculative and volatile area. Goldman Sachs MLP and Energy Renaissance Fund (Ticker Symbol: GER) is a Master Limited Partnership (MLP) closed-end mutual fund. The Fund opened at about $20 per share in September 2014. However, since that time, due to the fund’s holdings in MLPs, the value for the fund has plummeted to $4.19 representing an almost 80% loss.

About 86% of the total MLP securities market, a $490 billion sector, can be attributed to energy and natural resource companies. According to Bloomberg, many oil companies are in trouble and are going bankrupt as U.S. high-yield debt issued to junk-rated energy companies grew four-fold to $208 billion. The bankruptcies have been devastating causing forced selling at fire sale prices.

Moreover, our firm has been receiving an alarming number of complaints concerning how these speculative investments are being marketed and sold to investors. Often times these products are pitched as ways to ride the boom in U.S. oil and gas production and receive steady streams of income. However, in the past year, investors have lost $20 billion in publicly traded in master limited partnerships and publicly traded oil funds. This amounts to an astonishing $8 of every $10 they had invested, according to a report prepared for The Associated Press article. The research does not include losses from $37 billion of bonds sold by the partnerships in the five years since 2010 or losses from private placement partnerships. However, banks like Citigroup, Barclays, and Wells Fargo made an estimated $1.1 billion in fees for selling these products to investors.

Investor Recovery Options for High Yield Fund Investors

February 3, 2016 | by Staff Attorney

The investment attorneys of Gana Weinstein LLP are investigating potential recovery options for investors in various high yield “junk” bond funds. InvestmentNews recently published a list of 10 high yield funds that have a high level of exposure to distressed debt:

Federated High Yield Service (FHYTX)
Waddell & Reed High-Income A (UNHIX)