Securities Lawyers Blog

Broker Investigation: Robert Horning’s Sale of Tenants-in-Common (TIC) Real Estate Investments

October 20, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Horning (Horning) has been the subject of at least 8 customer complaints. Customers have filed complaints against Horning alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations, fraud, breach of fiduciary duty, and false statements in connection with recommendations to invest in private placements such as tenants-in-common (TICs) interests, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), and equipment leasing programs.

Horning entered the securities industry in 1993. From November 2004, until July 2009, Horning was a registered representative with Direct Capital Securities, Inc. Thereafter, since July 2009, Horning has been associated with Centaurus Financial, Inc. (Centaurus) out of the firm’s Los Angeles, California office location.

TIC investments have come under fire by many investors. Indeed, due to the failure of the TIC investment strategy as a whole across the securities industry, TIC investments have virtually disappeared as offered investments. According to InvestmentNews “At the height of the TIC market in 2006, 71 sponsors raised $3.65 billion in equity from TICs and DSTs…TICs now are all but extinct because of the fallout from the credit crisis.” In fact, TICs recommendations have been a major contributor to bankrupting brokerage firms. For example, 43 of the 92 broker-dealers that sold TICs sponsored by DBSI Inc., a company whose executives were later charged with running a Ponzi scheme, a staggering 47% of firms that sold DBSI are no longer in business.

Former B.B. Graham & Company Broker Russell Macke Barred For Failing to Respond to Regulator Requests

October 20, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Russell Macke (Macke) has been the subject of at least 5 customer complaints, 2 regulatory actions, and 2 employment terminations, and 7 judgment or liens. Customers have filed complaints against Macke alleging securities law violations including poor investment performance, churning and excessive trading, unsuitable investments, and investment fraud among other claims. The judgment and liens include a $38,000 tax lien, a $108,000 tax lien, a $105,000 tax lien, a $1,500 tax lien, a $110,000 tax lien, a $24,000 tax lien, and a $14,000 tax lien. Macke was terminated by John Hancock in 1998 due to claims that the firm was unable to supervise him. In 2012, Macke was terminated from Forsyth Securities, Inc. due to a Missouri consent order and pending FINRA inquiry.

One of the regulatory actions brought against Macke by FINRA alleged that the broker took advantage of his discretionary authority over two customer accounts by engaging in excessive trading and use of margin in those accounts. FINRA found that Macke caused both customers to pay excessive margin interest, commissions and fees and that the amount of trading in the accounts was inconsistent with the customers’ financial circumstances and investment objectives.

One of the customers was alleged to have opened a brokerage account at Forsyth and was 85 years old and living in a nursing home and the account balance was $390,558. The customer used money from the account to pay health care and living expenses. FINRA found that the customer withdrew $55,923 to pay expenses and that Macke was aware of the customers’ use of the account and these withdrawals. The account forms listed annual income of $60,000, a net worth of $600,000, and liquid assets of $380,000. The account form’s risk tolerance was noted as moderate and the investment objectives were growth and income and trading and speculation.

Broker Investigation: St. Bernard Financial Broker Joseph Miles

October 19, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Joseph Miles (Miles) has been the subject of at least 3 customer complaints, 3 judgements or liens, and one bankruptcy discharge. Customers have filed complaints against Miles alleging securities law violations including poor investment performance, unsuitable investments, securities fraud, and breach of fiduciary duty among other claims. Most of the claims against Miles relate to bonds or other debt obligations that caused losses. For instance, the latest complaint alleged damages of $169,865 as a result of bonds that lost value in 2013. In addition, Miles has had difficulty managing his own finances having been through a bankruptcy in 2005. Thereafter, Miles has had three judgments filed against him for taxes in the amounts of $5,499, $27,241, and $7,900.

Miles entered the securities industry in 1983. Since May 2004, Miles has been associated with St. Bernard Financial Services, Inc. out of the Russellville, Arizona office location.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

Broker Spotlight: Financial Advisor Stephen Kipp

October 19, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Stephen Kipp (Kipp) has been the subject of at least 6 customer complaints, 1 regulatory action, and 1 employment termination. Customers have filed complaints against Kipp alleging securities law violations including, unsuitable investments, securities fraud, and breach of fiduciary duty among other claims. The employment termination was from National Planning Corporation (NPC) in August 2010 where the firm terminated Kipp alleging that the representative was permitted to resign under allegations that the he authorized his assistant to sign his name on firm related documents.

The regulatory actions brought against Kipp by FINRA alleged that when Kipp was employed by NPC permitted Julie Pritchard (Pritchard), who was also registered with NPC, to affix his signature to approximately 160 documents that were business records of NPC. FINRA found that NPC was not informed that Pritchard had placed Kipp’s signature on the records and therefore maintained these falsified documents. FINRA also found that from January 30, 2003 through June 10, 2010 Pritchard falsified the signatures of two brokers of NPC on approximately 293 total documents without disclosing that she had signed the documents instead of the brokers.

Kipp entered the securities industry in 1984. From January 2000, till August 2010, Kipp was associated with NPC. Thereafter since August 2010, Kipp has been associated with NFB Financial Group, LLC out of the firm’s Ventura, California office location.

Broker Investigation: Aegis Capital Financial Advisor Edward Jeffery

October 18, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Edward Jeffery (Jeffery) has been the subject of one customer complaint and one regulatory action. The Customers complaint against Jeffery alleges securities law violations that focus primarily on churning and excessive trading. In addition to the churning claims, the customer have complained of unauthorized trading among other claims. In the regulatory action, FINRA alleged that from July 2004 through November 2007, Jeffery effected 682 discretionary transactions in a customer’s accounts without written discretionary authority and without having the customer’s accounts accepted as discretionary accounts in violation of NASD rules. As a result Jeffery was suspended for thirty days and a fine of $10,000.

Jeffery entered the securities industry in 1992 with Paulson Investment Company, Inc until April 2012. Thereafter, from Apirl 2012 until July 2015, Jeffery was a registered representative of JHS Capital Advisors, LLC. Finally, since July 2015, Jeffery has been associated with Aegis Capital Corp. where he remains registered out of the Portland, Oregon 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 Investigation: Aegis Capital Financial Advisor Louis Baudendistel

October 17, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Louis Baudendistel (Baudendistel) has been the subject of at least 4 customer complaints. Customers have filed complaints against Baudendistel alleging securities law violations that focus primarily on churning and excessive trading. In addition to the churning claims, customers have complained of unsuitable investments, breach of fiduciary duty, and negligence among other claims.

Baudendistel entered the securities industry in 1965. From 1983, until August 2010, Baudendistel was associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated. From August 2010, until April 2012, Baudendistel was associated with Paulson Investment Company, Inc. Thereafter, from April 2012, until July 2015, Baudendistel was a registered representative of JHS Capital Advisors, LLC. Finally, since July 2015, Baudendistel has been associated with Aegis Capital Corp. where he remains registered out of the Portland, Oregon 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.

Customers File Dozens of Complaints Against Broker John Schooler

October 16, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker John Schooler (Schooler) has been hit with at least 26 customer complaints over his career. Customers have filed complaints against Schooler alleging securities law violations including that the broker made unsuitable investments, negligence, misrepresentations, breach of fiduciary duty, violation of blue sky statutes in several states, and fraud among other claims. The claims against Schooler involve various types of securities including private placements, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), equipment leasing programs, and tenants-in-common (TICs). The majority these products are high commission based products that often pay broker commission of between 7-10%. As the research now shows these products are arguably always unsuitable for investors because they do not compensate investors for their substantial risks. See Controversy Over Non-Traded REITs: Should These Products Be Sold to Investors? Part II

Schooler entered the securities industry in 1993. From 1994, until July 2011, Schooler was associated with WFP Securities. From June 2011, until July 2011, Schooler became associated with JRL Capital Corporation. Finally, Since July 2011, Schooler has been associated with First Financial Equity Corporation out of the firm’s Scottdale, Arizona office location.

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 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 Claims Against RBC Capital Markets Broker Jeffrey Fladell

October 15, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Jeffrey Fladell (Fladell) has been the subject of at least 6 customer complaints, one regulatory action, and one criminal matter. Customers have filed complaints against Fladell alleging securities law violations including churning and excessive trading, unsuitable investments, negligence, and overconcentrated positions among other claims. Most of the claims against Fladell relate to allegations that the investor was concentrated in municipal bonds or other debt obligations that caused losses. For instance once complaint alleged damages of $1,000,000 as a result of concentration in municipal bonds that were inconsistent with the client’s objective of principal protection.

Fladell entered the securities industry in 1970. From March 1995, until October 2009, Fladell was associated with J.B. Hanauer & Co. Since October 2009, Fladell became associated with RBC Capital Markets, LLC out of the firm’s Parsippany, New Jersey office location.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

Gana LLP Investigation: Broker Robert Marks

October 15, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Marks (Marks) has been the subject of at least 2 customer complaints. Customers have filed complaints against Marks alleging securities law violations that focus primarily on churning and excessive trading. In addition to the churning claims, customers have complained of unsuitable investments, negligence, fraud, and unauthorized trading among other claims. One customer complaint focuses on speculative trading in penny stocks.

Marks entered the securities industry in 2000. From August 2008, until October 2009, Marks was associated with GunnAllen Financial, Inc. Thereafter, Marks became associated with Synergy Investment Group, LLC from October 2009, until October 2011. Finally, since September 2011, Marks has been associated with Cape Securities Inc. where he remains registered out of the Coram, 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.

Broker Spotlight: Morgan Stanley Broker Hilary Zimmerman

October 14, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Hilary Zimmerman (Zimmerman) has been the subject of at least 6 customer complaints over the course of her career. Customers have filed complaints against Zimmerman alleging securities law violations including that the broker made unsuitable investments, negligence, unauthorized trading, misrepresentations, churning and excessive trading, fraud, and breach of fiduciary duty, among other claims.

Zimmerman entered the securities industry in 1991. From December 2007 until present Zimmerman has been associated with Morgan Stanley out of the firm’s Ridgeland, Mississippi office.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.