Securities Lawyers Blog

Hedge Fund Canarsie Capital Losses 99.7% of Client’s Money Leading to SEC Investigation

October 10, 2015 | by Staff Attorney

According to news sources, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are investigating how the hedge fund Canarsie Capital lost nearly all of the $60 million capital in just three weeks of trading. The fund was run by Owen Li (Li), and Ken deRegt (deRegt). Canarsie Capital was named for the Brooklyn neighborhood where Li grew up and was launched in January 2013 and had offices in midtown Manhattan, New York. Li previously worked for Raj Rajaratnam’s (Rajaratnam) Galleon Group. Rajaratnam is currently serving an 11 year sentence following his May 2011 conviction on nine counts of securities fraud and five counts of conspiracy. The claims against him relate to $63.8 million in illicit profit from 2003 to 2009 by trading in stocks such as eBay Inc, Goldman Sachs Group Inc and Google Inc. Li cofounded the Canarsie Capital with his former Stanford University roommate, Eric deRegt and Eric’s father who ran Morgan Stanley’s fixed-income business.

According to filings the minimum investment accepted from an outside investor in the fund was $1 million. At its peak, Canarsie Capital had managed around $98 million in assets and had some well-known contributors. Goldman Sachs was the fund’s prime broker and clears and settles trades for the hedge fund starting in the fall of 2014. The Goldman Sachs switch came after the fund was dropped in March 2014, by Morgan Stanley’s prime brokerage over concerns with the fund’s risk practices.

On January 20, 2015, Li, wrote an apology letter to investors telling them that he “engaged in a series of aggressive transactions” during the first three weeks of 2015 that resulted in losing all but $200,000 of the fund’s capital, a 99.7% loss. According to the letter, Li engaged in aggressive trading in an attempt to recuperate prior losses the fund suffered in the fund in December 2014. At this time it’s unclear what the trading strategy was that Li engaged in January of this year. The only details in the letter concerning the securities themselves are that they included “options with strike prices pegged to the broader market increasing in value” and “some direct positions.”

SEC Accuses Dawn Bennett of Misleading Investors On Her Radio Program

October 9, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Dawn Bennett (Bennett) has been the subject of at least six customer complaints over the course of her career. Customers have filed complaints against Bennett alleging securities law violations including that the broker made unsuitable investments, breach of fiduciary duty, negligence, misrepresentations, and excessive trading among other claims. In addition to customer complaints, The Securities and Exchange Commission (SEC) filed a press release announcing fraud charges against Bennett, a Maryland-based financial services firm and founder/CEO, accusing her of grossly inflating the amount of managed assets and exaggerating the investment returns actually obtained for customers.

Bennett entered the securities industry in 1987. From 2006, until October 2009, Bennett was associated with Royal Alliance Associates, Inc. Thereafter, from October 2009, till present Bennett is associated with Western International Securities, Inc.

The SEC’s allegations relate to Bennett’s attempts to inflate the firm’s profile and prestige by overhyping assets under management and customer returns. The SEC alleged that Bennett frequently touted to customers and on her paid radio program that highly profitable investment returns generated by Bennett Group Financial Services placed the firm in the top 1 percent of firms worldwide. However, the SEC charged that Bennett failed to disclose that the returns were calculated for a model portfolio and not based on actual investor performance. The SEC further alleged that Bennett and her firm claimed to be managing more than $2 billion in assets when in reality Bennett managed no more than one-fifth of that amount.

Customers File Claims Against Broker David Page

October 9, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker David Page (Page) has been the subject of at least three customer complaints over the course of his career. Customers have filed complaints against Page alleging securities law violations including that the broker made unsuitable investments, breach of fiduciary duty, negligence, unauthorized trading, misrepresentations, and failure to follow instructions among other claims.

An examination of Page’s employment history reveals that the broker moves from troubled firm to troubled firm. The pattern of brokers moving in this way is sometimes called “cockroaching” within the industry. See More Than 5,000 Stockbrokers From Expelled Firms Still Selling Securities, The Wall Street Journal, (Oct. 4, 2013). In Page’s 18 year career he has worked at eight different firms. Since May 2005 until April 2008, Page was associated with Investors Capital Corp. Thereafter, from April 2008, until May 2013, Page was a registered representative with John Thomas Financial. From May 2013, until March 2015, Page was associated with Brookville Capital Partners. After that Page was associated for only one month with Tryco Securities, Inc. Finally, Page is currently registered with Legend Securities, Inc.

Several the firms Page has been associated with have been expelled by FINRA including John Thomas Financial which was run by Anastasios “Tommy” Belesis who recently agreed to be banned from the securities industry when the SEC accused him of defrauding investors in two hedge funds. In addition, John Thomas faced allegations of penny-stock fraud by FINRA after the firm reaped more than $100 million in commissions over its six-year history before it closed in July. According to new sources trainees at the firm earned as little as $300 a week to pitch stocks with memorized scripts.

FINRA Suspends Former LPL Financial Broker Walter Chao Over Private Securities Transactions

October 8, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and suspended for two year broker Walter Chao (Chao) (FINRA No. 2012034046301) alleging that between February and May 2012, while registered with LPL Financial LLC (LPL Financial), Chao participated in nine private securities transactions totaling $1.27 million without LPL’s approval. According to FINRA, Chao attempted to conceal his participation in the private securities transactions by using an unapproved email address and providing false and misleading answers in a compliance questionnaire. In addition, FINRA claimed that Chao also provided false and misleading statements to FINRA regarding his involvement in the private securities transactions. In addition, FINRA found that Chao was also a branch manager and failed to adequately supervise certain conduct such as being aware that staff under his supervision were using blank signed forms and unapproved email addresses.

Chao entered the securities industry in June 2003. In August 2007, Chao joined LPL Financial. LPL Financial terminated Chao’s registration in September 2012 for violating firm policies and procedures relative to participation in private securities transactions away from the firm without firm authorization. From October 2012 to January 2015, Chao was registered with Purshe Kaplan Sterling Investments.

FINRA alleged that in late 2011, Chao learned that a firm had created a special purpose vehicle (SPV) to purchase pre-initial public offering (IPO) shares of Facebook. By using the SPV investors could purchase ownership interests in the SPV in order to participate in the Facebook IPO. FINRA found that Chao wanted to solicit his customers to purchase interests in the Facebook SPV but knew that he was required to get approval from LPL Financial before doing so. Chao requested approval but LPL Financial denied his request.

Former National Securities Corporation Broker Brian Folland Subject to Numerous Customers Complaints

October 8, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Brian Folland (Folland) has been hit with at least 30 customer complaints over his career and two tax liens. Customers have filed complaints against Folland 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 Folland 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. In addition, in July 2012, Folland disclosed a tax lien of $334,995 owed. Tax liens of that size provide an incentive and conflict of interest in the recommendation of high commission based products such as private placements and direct participation programs that often pay commission between 7-10%.

Folland entered the securities industry in 1995. From July 2007 until May 2013, Folland was associated with brokerage firm National Securities Corporation (National Securities) out of the firm’s Fresno, California 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.

Customers File Complaints Against Former National Securities Corporation Broker William Gillis

October 7, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker William Gillis (Gillis) has been hit with at least 11 customer complaints over his career of which three have been filed in 2015 alone. Customers have filed complaints against Gillis alleging securities law violations including that the broker made unsuitable investments, poor investment advice and recommendations, failure to follow instructions, negligence, unauthorized trading, and misrepresentations among other claims. The claims against Gillis primarily involve his advice concerning equity securities. In addition, two of the claims resulted in arbitration panels awarding damages to customers.

Gillis entered the securities industry in 1986. From 2002, until August 2008, Gillis was associated with Wachovia Securities, LLC. Thereafter, from August 2008 until June 2015, Gillis was associated with brokerage firm National Securities Corporation (National Securities). Gillis does business through his DBA company Gillis Wealth Management Services in Seattle, Washington.

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.

FINRA Sanctions John Jones Over Unsuitable Investments

October 7, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker John Jones (Jones) (FINRA No. 2013036960801) alleging that between January 2004 and December 2006, Jones engaged in unsuitable trading in a customer’s account by recommending purchases of three speculative investments inconsistent with the customer’s investment objectives and financial condition and resulting in an overconcentration in the customer’s account in speculative investments. FINRA determined that the recommendations were made without reasonable grounds by Jones for believing that they were suitable for the customer. Finally, FINRA found that Jones willfully failed to timely amend his Form U4 to disclose two tax liens.

In addition to FINRA’s latest regulatory action, Jones has been the subject of two customer disputes, one tax lien, one bankruptcy, and two other regulatory actions, and one employment separation. The customer complaints allege that Jones’ made misrepresentations in recommending private placements, made unsuitable investments and engaged in fraudulent activity. One of the other regulatory actions was by the state of Georgia found that Jones misrepresented private placements. The other regulatory action also involved the state of Georgia and customer complaints concerning Jones’ private placement sales.

Jones first became associated with a FINRA member in 1986. From December 2007 until February 2010, Jones was a registered representative of First Legacy Securities, LLC. Thereafter, from March 2010, until July 2015, Jones was associated with Moloney Securities Co., Inc.

Gana LLP Files $3.7 Million FINRA Arbitration Complaint on Behalf of Investors In Connection with Paul Godlewski’s Investment Scheme

October 6, 2015 | by Staff Attorney

The law offices of

Gana Weinstein LLP has filed an arbitration complaint before the Financial Industry Regulatory Authority (FINRA) alleging damages in excess of $3.7 million against Allstate Financial Services, LLC (Allstate) and the estate of Paul J. Godlewski (Godlewski). The complaint alleges improper supervision and selling away related to Godlewski’s fraudulent Ponzi scheme. Godlewski’s scheme was targeted at the retirement savings of around two dozen victims, mostly in the Pennsylvania area. The complaint alleges that Allstate failed to properly supervise and enforce compliance measures over Godlewski, one of Allstate’s registered representatives. The failure to supervise was alleged to cause violations of federal, state securities laws, and the financial industry’s rules and regulations. The complaint alleged that these investors, many of whom used IRA or 401K proceeds, have lost substantially all of their investment.

“I believe there are more victims out there who are in need of help to assert their rights under the securities industry rules,” according to securities attorney Adam Gana. As background on Godlewski, the broker was barred from the securities industry by FINRA in April 2015 after failing to respond to the regulator’s requests concerning his activities. In June 2015, Godlewski passed away. After Godlewski’s death many of his investors received letters from Godlewski’s estate stating that the estate was conducting a four to six months accounting on the assets and liabilities left behind by Godlewski. Beyond these brief correspondence, investors have been left in the dark as to the status of their funds.

In the complaint, it is alleged that Godlewski created a fictional persona of a brilliant venture capital fund manager in order to sell investors. Godlewski claimed that he created innovative trading algorithms and and managed funds with $100 million in assets under management. To promote this persona Godlewski made appearances on television talk shows such as Money Matters purporting to be the president of Global Enterprise Investment Venture Capital a/k/a GEIVC. GEIVC was one of the fraudulent funds that the complaint alleged Godlewski sold to claimants. Over time Godlewski’s scheme is alleged to evolved and improved in order to better protect Godlewski from being found out. These other more sophisticated funds include Tall Tree Note Fund I, LP (Tall Tree), another Godlewski fund, and 611 Swede Street LLC, a real estate property investment.

Customers File Churning Complaints Against National Securities Corporation Broker Todd Henrich

October 5, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Todd Henrich (Henrich) has been hit with a couple customer complaints this year. Henrich’s record reveals a total of 2 customer complaints in his short four year career. Customers have filed complaints against Henrich alleging securities law violations including that the broker made unsuitable investments, churning, negligence, breach of fiduciary duty, and misrepresentations among other claims. Both claims have been filed against the broker since July 2015.

Henrich entered the securities industry in 2011 and became associated with National Securities Corporation (National Securities). In December 2011, Henrich became associated with Obsidian Financial Group, LLC until December 2012. At that time Henrich again became associated with National Securities and has been associated with that brokerage firm ever since.

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.

FINRA Sanctions Donald Levin Over Unsuitable Mutual Fund Switching

October 5, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Donald Levin (Levin) (FINRA No. 2014040335101) alleging that between December and April 2014, Levin hosted a weekly radio show and during that show he made statements that were unbalanced, promissory, misleading and lacked reasonable basis in violation of the FINRA Rules. According to Levin’s BrokerCheck records Levin also has a long and troubled history of customer complaints, regulatory actions, and employment separations. In September 2012, FINRA accepted an settlement with Levin where he accepted the entry of findings that Levin made unwarranted and misleading statements on his weekly radio show. At that time Levin agreed to accept a five month suspension and a $30.000 fine. Going back to December 2008, the Securities and Exchange Commission (SEC) issued a cease and desist order to Levin fining him $25,000 for his violations in the offering and selling mutual fund class A shares to retail customers without adequate disclosure of material information about the availability of breakpoint discounts for which customers could have qualified.

In addition to the regulatory actions, Levin has approximately 15 customer complaints filed against him dating back to 1999. The customer complaints allege a host of securities laws violations concerning a variety of investment products. Some of the more recent complaints allege that Levin failed to conduct due diligence in private placement securities some of which include oil & gas private placements. In another customer complaint, the customer alleged that he was induced to take out a home equity loan in order to purchase securities and suffered losses of $440,000 as a result. Other investor complaints involve alternative investments and mutual funds.

Levin first became associated with a FINRA member in 1980. From 2004 until June 2012, Levin was a registered representative of Milkie/Ferguson Investments, Inc. Thereafter, from June 2012, until September 2012, Levin was associated with Berthel, Fisher & Company Financial Services, Inc. Finally, from January 2014, unitl August 2014, Levin was a registered representative of Titan Securities.