Securities Lawyers Blog

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

FINRA Approves Rule Designed to Protect Seniors From Financial Exploitation

November 11, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) announced its approval of a rule in a press release to help brokerage firms protect seniors citizens and other vulnerable adults from financial exploitation. The heart of the proposal allows a firm to place a temporary hold on a disbursement of funds or securities and notify a customer’s trusted contact when the firm has a reasonable belief that the customer may be the subject of financial exploitation. According to FINRA, an average of 10,000 Americans will turn 65 every day for the next 15 years.

In our practice, often time accountants, attorneys, or children of elderly investors contact our firm when they suspect that there has been elder abuse or unfair trade practices in the handling of an elderly persons’ accounts. As long time readers of our blogs know senior abuse is an ongoing concern in the securities industry. See Massachusetts Fines LPL Financial Over Variable Annuity Sales Practices to Seniors; The NASAA Announces New Initiative to Focus on Senior Investor Abuse; The Problem of Senior Investor Abuse – A Securities Attorney’s Perspective; Senior Abuse in the Securities Industry A Major Ongoing Concern

In the past, regulators have expressed worry that brokers may be placing seniors in risky investments that chase yield such as inappropriate nontraditional investments like variable annuities, non-traded real estate investment trusts (Non-Traded REITs), structured products, and other alternative products. Regulators have warned brokers that the dangers of seniors’ chasing yield through alternative investments comes from the fact that they don’t have as much time as other clients for them to pay off. In addition, if these investments fail the result is a major loss of irreplaceable life savings.

FINRA Bars Broker Ralph Savoie Over Misappropriation of Client Funds

November 10, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Ralph Savoie (Savoie) (FINRA No. 2015046239401) resulting in a bar from the securities industry alleging that Savoie failed to provide FINRA staff with information and documents requested. The failure to provide those documents and information to FINRA resulted in an automatic bar from the industry. FINRA’s document requests related to the regulators investigation into claims the Savoie misappropriated more than $665,000 from at least one member firm customer.

FINRA’s investigation appears to stem from Savoie’s termination from Cambridge Investment Research, Inc. (Cambridge) in August 2015. At that time Cambridge filed a Form U5 termination notice with FINRA stating in part that the firm discharged Savoie under circumstances where there was allegations that Savoie failed to disclose and receive approval for an outside business activity. It is unclear the nature of the outside business activities from publicly available information at this time. However, Savoie’s Brokercheck disclosures reveal several outside business activities including working for the Savoie Financla Group, LLC in Baton Rouge, LA and as being and independent insurance agent for various companies.

Savoie entered the securities industry in 1973. From March 2007 until July 2013, Savoie was associated with ING Financial Partners, Inc. Thereafter, from July 2013 until September 2015, Savoie was associated as a registered representative with Cambridge.

FINRA Bars Broker Jeffrey Mohlman Over Private Securities Transactions

November 9, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Jeffrey Mohlman (Mohlman) (FINRA No. 2015044734401) resulting in a bar from the securities industry alleging that Mohlman failed to provide FINRA staff with information and documents requested. The failure to provide those documents and information to FINRA resulted in an automatic bar from the industry. FINRA’s document requests related to the regulators investigation into claims the Mohlman engaged in unapproved and undisclosed private securities transactions – also referred to in the industry as “selling away.”

FINRA’s investigation appears to stem from Mohlman’s termination from Questar Capital Corporation (Questar Capital) in February 2015. At that time Questar Capital filed a Form U5 termination notice with FINRA stating in part that the firm permitted Mohlman to resign under circumstances where there was allegations that Mohlman was under internal review for failure to follow firm policies and procedures regarding participation in private securities transactions. It is unclear the nature of the outside business activities from publicly available information at this time. However, Mohlman’s brokercheck disclosures reveal several outside business activities including being a co-owner of NexGen Vapors – a vapor needs business – and Ann Arbor Annuity Exchange where Mohlman discloses that he works as an insurance agent.

Mohlman entered the securities industry in 2001. From October 2002 until March 2009, Mohlman was associated with MetLife Securities Inc. Thereafter, from June 2009 until May 2011, Mohlman was associated as a registered representative with Investacorp, Inc. Finally, from June 2012 until March 2015, Mohlman was associated with Questar Capital.

FINRA Sanctions Broker Garrett Ahrens Over False Account Statements

November 8, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) fined (Case No. 2013036001201) broker Garrett Ahrens (Ahrens) concerning allegations that the broker used false and misleading consolidated reports with clients.

According to FINRA’s BrokerCheck records Ahrens has been in securities industry since 1989. From June 1998 until August 2015, Ahrens was associated with LPL Financial LLC (LPL Financial). In August 2015, LPL Financial allowed Ahrens to voluntarily resign alleging that the broker potentially violated certain FINRA rules relating to the use of consolidated statements. In addition to the termination and FINRA complaint Ahrens has been subject to nine customer complaints over the course of his career. Many of the more recent complaints involve allegations of investments in limited partnerships, private placements, and non-traded real estate investment trusts (Non-Traded REITs) among other investments.

As a background, a Non-Traded REIT is a security that invests in different types of real estate assets such as commercial, residential, or other specialty niche real estate markets such as strip malls, hotels, storage, and other industries. There are also publicly traded REITs that are bought and sold on an exchange with similar liquidity to traditional assets like stocks and bonds. However, Non-traded REITs are sold only through broker-dealers, are illiquid, have no or limited secondary market and redemption options, and can only be liquidated on terms dictated by the issuer, which may be changed at any time and without prior warning.

Customers File Complaints Against Interactive Brokers for Flawed Margin Liquidations

November 6, 2015 | by Staff Attorney

The law offices of Gana Weinstein LLP are tracking a number of cases that have been filed against brokerage firm Interactive Brokers LLC (Interactive Brokers). These cases generally allege that due to market events affecting the customer’s accounts Interactive Brokers executed forced margin calls selling the customer’s securities. However, according to the customers Interactive Brokers did not provide investors fair pricing for the securities during the liquidations violating the “National Best Bid/Best Offer,” rule that is required in processing auto liquidations. By failing to offer fair prices for the stocks these customer their accounts were subject to additional margin calls, which results in a death spiral situation where the forced selling causes additional investment losses that causes more selling.

In one case that went to an arbitration hearing (FINRA No. 12-02766) the Claimant asserted claims of breach of contract; promissory estoppel; violation of state securities statutes; claims under common law; and vicarious liability. The Claimant alleged that Interactive Brokers’ flawed, inefficient and fraudulent margin auto-liquidation system caused auto-liquidation of the customers’ portfolios at prices inferior to the National Best Bid/Best Offer. The panel awarded the Claimant $175,000 for auto-liquidations that occurred on January 12, 2011, plus $57,200 in interest, $285,000 for auto-liquidations that occurred on August 5, 2011, and $77,000 in interest, and $72,418 for expert witness fees and other costs involved in the arbitration.

Trading on margin is a practice where the investor borrows funds from the brokerage firm and agrees to keep a maintenance margin balance or a minimum account balance. If the account value falls below the maintenance margin or the brokerage firm believes the securities are at risk at falling below that balance the firm can require investors to either deposit additional funds to bring the account back into balance or make a margin call that sells stocks in order to raise capital to pay down the loan.