Securities Lawyers Blog

FINRA Files Complaint Against ARI Financial Services and William Candler Concerning Bridgeport Oaks Fund

July 16, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently filed a complaint against ARI Financial Services, Inc. (ARI) and William Candler (Candler), the firm’s President and former Chief Compliance Officer (CCO) alleging that that he facilitated at least ten private placement offerings from September 1, 2009, to December 31, 2012. The complaint found that the respondents failed to implement reasonable supervisory procedures in connection with the sales of the private placements.

ARI has been a FINRA member firm since 2005 and derives most of its revenue as a wholesaler of private placements that it marketed to retail broker-dealers who then sold those interests to retail investors. ARI’s main office was located in Kansas and during certain times had registered up to five branch offices and over 30 registered representatives located in six different states. ARI is currently owned by Candler and two other individuals. Candler is ARI’s majority owner.

Candler entered the securities industry in 1996. From March 2011, until November 2012, Candler was associated with Connor Capital Investments, LLC. Since April 2014, in addition to ARI, Candler is associated with JCC Advisors, LLC.

Broker Leonard Tanner Suspended By FINRA Over Unauthorized Trading

July 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) fined and suspended broker Leonard Tanner (Tanner) concerning allegations between October 2010, and January 2014, Tanner executed discretionary transactions in approximately 90 accounts of customers under a verbal authorization but without prior written authorization from those customers or approval of his brokerage firm City Securities Corporation (City Securities).

Tanner became a broker with a FINRA firm in 1969. From July 1995 until October 2010, Tanner was associated with PNC Investments. Since October 2010, Tanner has been registered with City Securities.

FINRA alleged that Tanner exercised discretion in executing transactions in the accounts of approximately 90 customers. FINRA found that Tanner received prior verbal authorization from his customers for these transactions for their investment strategies but exercised discretion in executing those transactions. FINRA determined that Tanner did not obtain written authorization from his customers and that City Securities did not approve these accounts for discretionary trading.

Gana LLP Investigation: George Montgomery’s Sales of Twin Peak Investment

July 13, 2015 | by Staff Attorney

According to news reports, broker George Montgomery (Montgomery) committed suicide but questions surrounding the death left many believing that foul play was involved. Montgomery, a former ASU running back, before injuries took him off the field.

Montgomery became a registered broker in 1998. From 2005 until October 2011, Montgomery was associated with United Planners’ Financial Services of America (United Planners). Thereafter, from January 2012 until July 2013, Montgomery was associated Fortune Financial Services, Inc. (Fortune Financial).

Montgomery was found July 31, 2014, submerged in Wet Beaver Creek by two hikers with a handgun next to the dead man. When police inspected the scene, investigators found that there were four gunshot wounds and two had penetrated the Montgomery’s chest while there were also a hand wound and one leg also wound.

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

July 10, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Blake (Blake) has been the subject of at least six customer complaints, one criminal activity, and three regulatory actions. Customers have filed complaints against Blake alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations and false statements in connection with recommendations to invest in several different types of investments including private placements such as tenants-in-common (TICs) interests, variable annuities, and equity-indexed annuities.

Blake first became registered with a FINRA firm in 1974. From 2001 until November 2011, Blake was registered with Presidential Brokerage, Inc. Thereafter, Blake has been registered with Cambridge Investment Research, Inc. in the firm’s Greenwood Village, Colorado office. Blake operates out of business entity called Speer Wealth Management.

Both TICs and investment annuities have caused significant investment losses. 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.

Broker Dealer Financial Services Corp. Sanctioned Over Non-Traditional ETF Practices

July 9, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) entered into an agreement whereby the regulatory fined Broker Dealer Financial Services Corp. (BDFS) concerning allegations that between March 2009 and April 2012, BDFS failed to establish and maintain a supervisory system, including written procedures, that was reasonably designed to ensure that the firm’s sales of leveraged or inverse exchange-traded funds (Non-Traditional ETFs) complied with the securities laws.

BDFS is a FINRA member firm since 1979 and headquartered in West Des Moines, Iowa. The firm employs about 270 registered representatives located in more than 130 branch offices throughout the country.

According to FINRA, from March 2009 to April 2012, BDFS failed to implement a supervisory system, including written procedures, reasonably designed to ensure the suitability of Non-Traditional ETF sales. For instance, FINRA issued guidance that specifically dealt with issues related to the sales and supervision of Non-Traditional ETFs. FINRA’s guidance requires a firm to have a reasonable basis for believing that a product is suitable for any customer before recommending any purchase of that product. Part of having a reasonable basis for making the recommendation includes understanding the terms and features of the Non-Traditional ETFs being offered including how they are designed to perform, how they achieve that objective, and the impact that market volatility, the ETF’s use of leverage, and the customer’s intended holding period.

Larry M. Phillips of The Phillips Group, Sanctioned For Overcharging Customers

July 8, 2015 | by Staff Attorney

On April 27, 2015, the Financial Industry Regulatory Authority (FINRA) published a Letter of Acceptance, Waiver, and Consent (AWC), whereby Larry M. Phillips of The Phillips Group, in Woodland Hills, California, was sanctioned for his misconduct related to Phillips’ unlawful overcharging of several of his customers.

In December 2009, Phillips became registered as a general securities representative through Purshe Kaplan Sterling Investments (“PKS”). From January 2010 through August 2010, while registered with PKS, Phillips overcharged several customers by charging both markups and investment advisory fees. First, Phillips purchased securities, including Steepener CDs, Floating Rate Notes, Principal Protected Notes, and Municipal Securities for several of his investment advisory clients. Next, Phillips allocated the marked-up products to those same clients’ investment advisory accounts. In doing so, Phillips charged advisory fees on the very same securities for which he had already charged a markup. FINRA found that by assessing both markups and investment advisory fees, Phillips’ was in violation of FINRA Rule 2010 and MSRB G-17.

As a consequence of Phillips’ misconduct, FINRA fined Phillips $7,500, suspended him from the securities industry for 45 days, and ordered him to pay over $3,000 in restitution to the customers that he took advantage of. This is not the first time that Phillips has been sanctioned. For example, in April 2005, Phillips executed an AWC with NASD, where he agreed to a ten-day suspension and $20,000 fine for failing to adequately disclose material facts regarding investment products and strategies in written communications that he disseminated. Then again, in October 2006, Phillips was sanctioned—this time by the State of Illinois based on these same improper communications discovered by the NASD. Illinois sanctioned Phillips by prohibiting from serving as a principal in Illinois for a period of two years in addition to requiring him to pay a $1,000 fine.

SEC Charges Advisor Patrick Churchville with $11 Million Fraudulent Investment Scheme

July 6, 2015 | by Staff Attorney

The Securities and Exchange Commission (SEC) recently announced fraud charges against Rhode Island investment adviser ClearPath Wealth Management, LLC, (ClearPath) and its president, Patrick Churchville (Churchville), for operating a fraudulent investment scheme that resulted in at least $11 million investor losses.

According to the complaint, from December 2010 onward ClearPath and Churchville diverted deposits from new investors to pay prior investors, used proceeds from selling investments to pay unrelated investors, used investors’ funds as collateral for personal loans, used investors’ money to repay the loans, converted investor funds, and also outright stole $2.5 million of investor funds to purchase a waterfront home in Barrington, Rhode Island for Churchville. The SEC’s complaint alleges that Churchville performed deceptive acts and used misleading accounting tricks to conceal the fraud.

The SEC’s alleged that when ClearPath’s investors requested distributions of their investments in September 2013, Churchville lied to investors about the status, worth, and disposition of those investments. Four other entities: ClearPath Multi-Strategy Fund I, L.P., ClearPath Multi-Strategy Fund II, L.P., ClearPath Multi-Strategy Fund III, L.P., and HCR Value Fund, L.P. were named by the SEC as relief defendants.

Broker Lawrence LaBine Accused of Selling Unsuitable Alternative Investments

July 6, 2015 | by Staff Attorney

Gana Weinstein LLP, a securities law firm, is investigating customer complaints against Lawrence Labine, a broker located in Scottsdale, Arizona. Gana Weinstein LLP’s investigation is on the heels of regulatory investigations into LaBine’s conduct.

On April 28, 2015, the Department of Enforcement of Financial Industry Regulatory Authority filed a complaint against Mr. Lawrence LaBine. According to the Complaint, from April 2009 through August 2009, LaBine sold senior debentures (Series D) issued by Domin-8, a company that developed software for real estate management companies. During that period, LaBine was registered with DeWaay Financial Network, a FINRA regulated broker-dealer. The Complaint alleges the LaBine made fraudulent misrepresentations and omissions of material fact to five customers in connection with the sale of the Series D senior debentures.

At the time of those sales, LaBine was receiving regular updates about Domin-8’s poor financial condition from senior management at Domin-8 and the company’s lead investment banker, and had arranged to receive compensation and other valuable consideration from the company – such as a seat on Domin-8’s board of directors – for meeting Series D fundraising targets he had arranged with the company. The information about Domin-8’s financial condition and LaBine’s personal incentive to sell Series D was material to the investors, yet LaBine failed to disclose that information to his customers according to the Complaint.

Gana LLP Investigates Investor Losses in Patriot Coal Corp (PCX)

July 2, 2015 | by Staff Attorney

The law offices of Gana Weinstein LLP are currently investigating investors who have suffered losses in in now bankrupt coal company, Patriot Coal Corp (Stock Symbols: PCX) (Patriot Coal). Patriot Coal is the third largest coal producer in the eastern US. Patriot Coal has operations in the eastern US in Central Appalachia, Northern Appalachia, and the Illinois Basin.

According to Reuters, Patriot Coal filed for bankruptcy protection on in May 2015, just 18 months after emerging from its previous Chapter 11. The bankruptcy filing has been prompted by low energy prices. In order to support its mining and marketing operations during bankruptcy, the company has secured up to $100 million in financing. Patriot Coal has listed assets and liabilities of more than $1 billion in its bankruptcy petition. Patriot Coal also has 1.4 billion tons of proven and probable coal reserves. In the prior bankruptcy, Patriot received an agreement with its former parent Peabody Energy to provide $400 million to cover health care benefits for retired mine workers.

Patriot Coal is only one of several energy related companies our firm has been tracking through bankruptcy including Xinergy Ltd, Dune Energy Inc, BPZ Energy Inc, RAAM Global, Sabine Oil & Gas Corp., and Quicksilver Resources Inc. In addition, Walter Energy Inc, another coal produce, has skipped an April interest payment on its debt

Broker Investigation: Advisor Mark Gardner

July 1, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Mark Gardner (Gardner) has been the subject of at least nine customer complaints, one firm termination, and one regulatory action. Customers have filed complaints against Bell alleging a number of securities law violations including that the broker made unsuitable investments among other claims. Most of these claims involve recommendations in equities.

Gardner entered the securities industry in 1977. Since 2008, Gardner has been associated with Oppenheimer & Co. Inc. until November 2008. From December 2010 until July 2012, Gardner was associated with Lake Forest Securities LLC. Currently, Gardner is associated with J.H. Darbie & Co., Inc.

In the regulatory action that was brought against Gardner, FINRA alleged that on or about November 5, 2008, Gardner executed three equity securities purchase transactions to open an investment account on behalf of a corporation without that corporation’s knowledge. FINRA found that Gardner accepted the purchase orders from a person who did not have authorization to act on behalf of the corporation. In addition, FINRA found that Gardner failed to verify whether the individual who placed the purchase orders had been granted authorization by the corporation. The transactions in question totaled $2,203,020.