Securities Lawyers Blog

Gana LLP Investigates Investor Losses In Oil-Linked Structured Notes

November 18, 2015 | by Staff Attorney

The law offices of Gana Weinstein LLP are announcing their investigation into potential securities claims against brokerage firms over sales practices related to the recommendation of structured notes linked to oil & gas. These structured products are issued by Barclays (NYSE:BCS), Morgan Stanley (NYSE:MS), Deutsche Bank (NYSE:DB), UBS (NYSE:UBS), Citigroup (NYSE:C), Bank of America Merrill Lynch (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Credit Suisse (NYSE:CS), and BNP Paribas among others firms. The structured notes are issued under the names Principal Protected Notes, Principal Protected Booster Notes, Buffered Bullish Notes, Accelerated Return Notes, Strategic Return Notes, Capped Leverage Return Notes, Target Term Securities, Market Linked Notes, E-Tracs, Return Optimization Notes, Auto-Callable Securities, Performance Leveraged Upside Securities (PLUS), and Equity Linked Securities (ELKs).

Brokers often pitch structured products as providing “downside protection” against losses to a related index while allowing modest up side gain potential. However, today investors are waking up to the fact that structured products linked to the oil market are offering no protection. According to Bloomberg, retail structured notes meant to protect against a drop in crude failed to do so. Of the $437.1 million in oil related structured products that have matured this year, 44 percent, or $194.3 million of principal has been lost. The largest deal in the oil space is a $104.6 million Barclays issuance in April 2014 that has lost 42 percent of its value.

Indeed, Bloomberg found that all but three of the 39 notes examined protected against a certain percentage of losses, typically in the range of 10 percent to 20 percent. These notes quickly breached these loss limits as crude oil prices have declined more than 60 percent. Once the securities breached the “soft barriers” investors became exposed to the full loss at maturity and the value of the notes became wholly dependent on the change in oil prices.

Broker Investigation: Oppenheimer Advisor Matthew Giannone

November 18, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Matthew Giannone (Giannone) has been the subject of at least 6 customer complaints. The customer complaints against Giannone allege securities law violations that claim churning and excessive trading, unsuitable investments, unauthorized trading, fraud, misrepresentations, and inappropriate loans among other claims. The most recent claim filed against Giannone claims $1,200,000 in damages due to churning and an inappropriate loan. The complaint was denied and closed.

Giannone entered the securities industry in 1997. From June 1997, until June 2005, Giannone was associated with Citigroup Global Markets Inc. From May 2005, until March 2013, Giannone was associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated. Finally, since May 2013, Giannone has been registered with Oppenheimer & Co. Inc. out of the firm’s New York, New York branch office location.

Churning is investment trading activity in the client’s account that serves no reasonable purpose for the investor and is transacted solely to profit the broker. The elements to establish a churning claim, which is considered a species of securities fraud, are excessive transactions of securities, broker control over the account, and intent to defraud the investor by obtaining unlawful commissions. A similar claim, excessive trading, under FINRA’s suitability rule involves just the first two elements. Certain commonly used measures and ratios used to determine churning help evaluate a churning claim. These ratios look at how frequently the account is turned over plus whether or not the expenses incurred in the account made it unreasonable that the investor could reasonably profit from the activity.

Broker John Galinsky Suspended For Failing to Pay Arbitration Award

November 17, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker John Galinsky (Galinsky) has been the subject of at least 4 customer complaints, 2 regulatory actions, 2 employment separations for cause, and two criminal matters. In the most recent action, eleven claimants brought claims against Matrix Capital Group, Inc., John W. Eugster, Fintegra LLC, and Galinsky, alleging numerous securities law violations including breach of fiduciary duty, unsuitable investments, and misrepresentations relating to the sale of MiaSole Investments II LLC.

At an arbitration hearing, the arbitrators found that Galinsky and Fintegra were liable and asked them to buy back the investor’s securities in MiaSole totaling over $1.19 million in compensatory damages, and awarding $308,000 in attorneys’ fees and over $35,000 in costs. Since the award, Fintegra filed for bankruptcy.

Subsequently, Galinsky failed to pay the arbitration award. On August 7, 2015, FINRA suspended Galinsky’s broker license for failing to comply with the arbitration award and failing to provide FINRA information concerning status of compliance with the award.

Spruce Alpha Hedge Fund Investors Suffer Massive Losses

November 17, 2015 | by Staff Attorney

According to the New York Times, the Spruce Alpha hedge fund was pitched to investors as providing large returns in periods of market turbulence through the implementation of a complex trading strategy. According to the Spruce Alpha fund, during the 2008 financial crisis investors should have had made gains of more than 600 percent. But what Wall Street pitches in theory almost always goes wrong in practice. Thus when markets turned volatile in August 2015, Spruce Alpha, which had only just started up in April 2014, did not turn the volatility into gains for investors. Instead, the fund turned in one of the worst performances losing 48 percent of their money.

The fund’s holdings at the time were under $100 million and was managed by the $1.5 billion Spruce Investment Advisors. Spruce Investment specializes in managing money for the wealthy and institutional investors. According to the New York Times, half of Spruce Investment’s assets under management come from three family offices, a corporation, and a pension plan. The Spruce Alpha fund was the asset management firm’s first direct hedge fund trading fund that was intended to raise a $500 million portfolio.

After the collapse the Spruce Alpha moved its positions into cash and told investors that they can redeem what remains of their money. The Spruce Alpha tale is only the latest example of how managers market hedge funds and complex investment products to investors that often turn out to be too good to be true. Using back-tested results in hedge fund marketing materials are fantasy recreations with all the benefits of hindsight knowledge that are then advertised as likely future performance. However, back-tested results are derived assuming optimum trading conditions, not what the fund will encounter in real life.

SEC Brings Fraud Charges Against Broker Lee Weiss Over FEP Fund I and Catamaran Fund Investments

November 16, 2015 | by Staff Attorney

The Securities and Exchange Commission announced fraud charges against a registered investment adviser and its owner on allegations of self-dealing and failing to disclose material facts to clients including conflicts of interest, use of investor funds, and the risks of the investments they recommended. The complaint filed in U.S. District Court for the District of Massachusetts, alleges that Lee D. Weiss (Weiss) and Family Endowment Partners, L.P. (FEP) and relief defendants MIP Global, Inc. (MIP Global), Mosaic Enterprises, Inc. (Mosaic Enterprises), Mosaic Investment Partners, Inc. (Mosaic), and Weiss Capital Real Estate Group, LLC (Weiss Capital) recommended their clients invest $40 million in illiquid securities issued by hedge fund FEP Fund I, LP (FEP Fund I) and the Catamaran Holding Fund, Ltd. (Catamaran Fund) without disclosing that Weiss had an ownership interest in the parent company of these entities and received payments from these entities.

The SEC’s complaint further alleges that FEP and Weiss recommended that their clients invest in entities that Weiss owned without disclosing that the investments would be used primarily to benefit FEP. The SEC also alleges that FEP and Weiss advised clients to invest in a consumer loan portfolio while concealing that Weiss would receive half of the clients’ profits from these investments.

Between 2010 and 2012, the SEC alleges that FEP and Weiss advised 11 FEP and caused two FEP affiliated hedge funds to invest more than $40 million in securities issued by subsidiaries of a French company that purportedly had designed methods to reduce the harmful effects of tobacco smoking. According to the SEC, FEP and Weiss had a financial interest in the French company and that Weiss and entities received more than $600,000 in payments from that company shortly after the FEP clients and hedge funds invested in it. However, the SEC stated that Weiss failed to disclose these conflicts of interest to investors.

Coal Investment Risk: Is this Industry Going Out of Business?

November 16, 2015 | by Staff Attorney

Coal related companies around the world are being pushed to the brink of bankruptcy due to the falling prices of commodities. For instance, the world’s third largest publicly traded coal company, Peabody Energy Corporation (Peabody) (Stock Symbol: BTU), has seen its stock price plummet from over $1,000 per share in 2011 to under $14 today. In addition, the largest U.S. coal producer, Alpha Natural Resources (Stock Symbol: ANRZ), filed Chapter 11 in the U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond. Commenters are speculating that unless there are restructurings for Arch Coal (Stock Symbol: ACI) and Peabody they could be the next two coal producers to file for bankruptcy protection.

Other bankruptcy filings this year include Walter Energy (Stock Symbol: WLTGQ), JW Resources, Patriot Coal’s second bankruptcy filing, Xinergy, and James River Coal Co. Berau Capital Resources submitted a Chapter 15 petition on July 10, and Glencore (Stock Symbol: GLEN) has undergone major restructuring amidst the collapse of its stock price.

According to Bloomberg, more than three dozen coal operations have filed bankruptcy in just over three years. Due to a combination of factors the combined market value of U.S. coal company shares shrank to $12 billion in late July 2015 from $78 billion in 2011.

Investigation: Dawson James Securities’ Great Basin Scientific Stock Underwriting

November 15, 2015 | by Staff Attorney

In a memo available online, Dawson James Securities, Inc. (Dawson James) stated that it acted as the sole underwriter for a February 25, 2015 offering for Great Basin Scientific, Inc. (Great Basin) (stock symbol: GBSN). Great Basin is a molecular diagnostics company that commercializes technologies that improve ease-of-use and delivers sample-to-result molecular diagnostic testing. According to Dawson James, at the time of the offering, Great Basin traded at $2.55 and had a market cap of approximately $15 million. Despite having only a market capitalization of only $15 million Dawson James rose $24 million of up to 2,724,000 units at $8.80 per unit price of Series E preferred stock and eight Series C warrants. Each share of Series E preferred stock was to be convertible into four common stock shares.

The Dawson James offering has many signs of a classic pump and dump penny stock scheme. After the offering the stock price for the company reach a high of almost $5 in April 2015. However, since that time the price of Great Basin has collapsed to about only $.06 per share wiping out shareholders. Back in April 2015, Dawson James claimed that Great Basin had announced a strong quarter and updated investors on their progress and receiving of a significant patent award.

In a Seeking Alpha article, a writer stated that the Dawson James offering gave cause for concern due to Dawson James’ past regulatory infractions and its association with one of its previous brokers who was arrested in connection with a nationwide Ponzi Scheme. In addition, the Seeking Alpha article cited other instances where Dawson James has had other investment banking relationships with other stocks that considered to be pump and dumps as well as with a Chinese company accused of fraud whose registration was revoked by the SEC. Importantly, prior to the Dawson James offering Great Basin had only 5 million outstanding shares and that the February 2015 secondary offering created convertible preferred stock and warrants that will allow an additional 35 million Great Basin shares that would undoubtedly flood the market and collapse the company’s stock.

FINRA Sanctions Broker Robert Gill Over Borrowing Customer Funds

November 15, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Gill (Gill) has been the subject of at least 9 customer complaints, 2 criminal matters, 2 employment terminations, and 5 regulatory complaints. The customer complaints against Gill allege securities law violations that claim churning and excessive trading, unsuitable investments, breach of fiduciary duty, unauthorized trading, fraud, and misrepresentations among other claims. Gill’s first employment separation in 2003 from Grayson Financial LLC alleged that Gill abused margin, failed to execute trades, engaged in unauthorized trades, and misappropriated firm information. Gill’s second firm termination in October 2013 was due to allegation by J.P. Turner & Company LLC (JP Turner) that Gill borrowed money from a client without prior firm approval.

FINRA’s action against Gill involves the circumstances alleged by JP Turner. FINRA sanctioned Gill by suspending the broker and imposing a fine for allegations involving a loan for $100,000 that he received from a firm customer.

Gill entered the securities industry in 1996. From April 2003, until October 2013, Gill was associated with JP Turner. Since November 2013 Gill has been associated with Chelsea Financial Services out of the firm’s Tinton Falls, New Jersey branch office location.

Broker Investigation: Churning Claims Against Broker Donald Fowler

November 13, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Donald Fowler (Fowler) has been the subject of at least 10 customer complaints. The customer complaints against Fowler allege securities law violations that claim churning and excessive trading, unsuitable investments, breach of fiduciary duty, unauthorized trading, fraud, overconcentration, purchasing securities on margin, and misrepresentations among other claims. At least three of the complaints have been filed in 2015 alone. One complaint alleged that Fowler caused $419,372 in damages.

Fowler entered the securities industry in 2005. From September 2005 until February 2007, Fowler was associated with American Capital Partners, LLC. From January 2007, until November 2014, Fowler was associated with J.D. Nicholas & Associated, Inc. Since November 2014, Fowler has been associated with Worden Capital Management LLC out of the firm’s Garden City, New York office location.

Churning is investment trading activity in the client’s account that serves no reasonable purpose for the investor and is transacted solely to profit the broker. The elements to establish a churning claim, which is considered a species of securities fraud, are excessive transactions of securities, broker control over the account, and intent to defraud the investor by obtaining unlawful commissions. A similar claim, excessive trading, under FINRA’s suitability rule involves just the first two elements. Certain commonly used measures and ratios used to determine churning help evaluate a churning claim. These ratios look at how frequently the account is turned over plus whether or not the expenses incurred in the account made it unreasonable that the investor could reasonably profit from the activity.

Source Capital Group Discharges Broker Robert Turpin Over Unauthorized Business Activities

November 12, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Turpin (Turpin) was recently discharge from Source Capital Group, Inc. (Source Capital) relating to the firm’s allegations that Turpin engaged in unapproved and undisclosed outside business activities – also referred to in the industry as “selling away.”

It is unclear the nature of the outside business activities from publicly available information at this time. However, Turpin’s Brokercheck disclosures reveal numerous outside business activities including:

Tartesso West Multi Family LLC