Securities Lawyers Blog

Matthew Davis Barred Over Allegations of Conversion of Funds and Unauthorized Trading

August 25, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred financial advisor Matthew Davis (Davis) concerning allegations that in connection with a FINRA investigation into allegations of misconduct in several customer accounts, FINRA staff scheduled Davis’ on-the-record (OTR) testimony and Davis failed to appear for the scheduled testimony and informed the agency that he would not appear at another time.

Davis was associated with Beneficial Investment Services, Inc. from November 2008, through April 2010. Thereafter, Davis was associated with OneAmerica Securities, Inc. (OneAmerica) from April 2010, through July 2013. He is not currently associated with a FINRA member.

FlNRA alleged that its staff requested that Davis appear and provide testimony on March 24, 2014, regarding allegations that Davis engaged in misconduct in several customer accounts. The allegations of misconduct included claims of conversion, misrepresentation of customer holdings and account value, forgery, discretionary unauthorized trading, attempts to settle a customer complaint without the firm’s knowledge, and unsuitable investment recommendations. Through Davis’ counsel, FINRA was informed that he would not appear for testimony.

IRS Brings Charges Against Barred Broker William Bucci

August 23, 2014 | by Staff Attorney

Back in Decmeber 2013, the law offices of Gana Weinstein LLP reported that “Former Ryan Beck and Oppenheimer Financial Advisor William Bucci Barred From the Financial Industry” where we reported that The Financial Industry Regulatory Authority (FINRA) barred Bucci for allegedly accepting 19 personal loans totaling $635,000 from nine customers in violation of FINRA rules. FINRA also alleged that Bucci willfully failed to amend his Form U4 to disclose material facts relating to two judgments that were entered against him. In addition to these claims, several customers filed complaints alleging that Bucci sold illegal promissory notes.

Recently, a combined investigation by the IRS and the FBI led to the filing of a federal complaint in the Eastern District Court of Pennsylvania against Bucci in connection with the foregoing activities. The complaint alleged that Bucci willfully made Individual Income Tax Return, Form 1040, for the calendar years 2007, 2008, 2009, and 2010 that falsely understated his income.

In addition, a second superseding indictment was filed against Bucci on July 22, 2014, by the United States Attorney’s Office for the Eastern District of Pennsylvania alleging that Bucci was running an investment fraud scheme that deceived investors into turning over more than $3.2 million. According to a press release issued by the office, Bucci told his victims he was starting a wine and high end olive oil import business to import the goods from Italy. The release stated that Bucci was a licensed stockbroker and a non-lawyer elector on the Pennsylvania Court of Judicial Discipline who never had an olive oil and wine business. The release also alleged that Bucci also solicited individuals to loan money for the purchase of real estate. According to the indictment, Bucci used the funds to supplement his income and to support his lifestyle as well as to make payments to earlier victims.

Brokerage Firm Safeguard Securities and Peter Mooney Sanctioned Over Numerous Supervisory Failures

August 22, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm Safeguard Securities, Inc. (Safeguard Securities) and broker Peter Mooney (Mooney) concerning allegations that during a FINRA examination of the firm Safeguard Securities provided certain outside business activity (OBA) forms to FINRA that had been backdated. FINRA found that Mooney, who signed the backdated forms, knew or should have known that the forms had been backdated. In addition, FINRA identified many supervisory and recordkeeping failures relating to: the review and retention of electronic communications; outside business activities; private securities transactions; the supervision of producing managers; and branch registration and fingerprinting of personnel.

FINRA found that Mooney was the firm’s principal and supervisor responsible for establishing and implementing supervisory procedures. FINRA alleged that Safeguard Securities, through Mooney, failed to establish and/or implement adequate supervisory procedures in numerous respects. First, it was alleged that the firm failed to establish and implement an adequate supervisory system for the review and retention of electronic communications relating to the business of the firm. For example, between July 14, 2008, and November 4, 2012, it was alleged that Safeguard Securities failed to maintain any record to evidence its review of electronic communications. Further, FINRA alleged that the firm failed to take any steps to monitor registered representatives who used e-mail addresses at domains other than the firm’s e-mail system.

In another instance of supervisory failure, FINRA alleged that during 2012, Mooney knew that a broker by the initials “WM” was engaging in private securities transactions for compensation. Notwithstanding the fact that the firm prohibited such activity, FINRA found that Mooney failed to take any steps to stop the broker’s participation in those transactions. Under NASD Rule 3040, a duty is imposed on member firms to supervise the transaction as if the transaction were executed on behalf of the member.

SEC Releases Alert Warning Investors About Affinity Fraud

August 21, 2014 | by Staff Attorney

The SEC’s Office of Investor Education and Advocacy issued a Investor Alert to help educate and warn investors about the dangers of affinity fraud. Affinity fraud is a common type of securities fraud that preys upon members of a group or community such as members of certain religions or ethnic communities. Affinity frauds involve either fake investments or extremely risky investments that are conducted outside regular securities channels. The fraudster will typically lie about important details such as the risk of loss, the track record of the investment, or the background of the investment.

Many affinity frauds turn out to be Ponzi schemes. In a Ponzi scheme new investors money goes to pay earlier investors to create the illusion that the investment is succeeding all the while the fraudster skims large amounts of the funds for his or her personal use. When the fraudster’s supply of new investor money runs out and current investors seek payment the scheme collapses. Fraudsters use many legitimate investment sounding vehicles and names to mask their schemes. For example, the fraudster may tell investors that they are investing in real estate, options, precious metals, or employing leverage or other sophisticated investment tools to increase returns.

In order to carry out affinity frauds, the fraudster will be a member of the group they are trying to defraud such as a particular denomination or church. However, any close knit community or group such as an ethnic group, immigrant community, or racial minority will work. Fraudsters may also prey upon members with other commonalities such as teachers, union members, or military servicemen. The key to affinity fraud is that the fraudster can target the group and built up a high level of trust and confidence through the affinity connection to convince them to trust the fraudster with their life savings.

Business Development Companies (BDC) – Investment Risks to Be Aware of – Part II

August 20, 2014 | by Staff Attorney

In our prior post we recently highlighted, the rising popularity of non-traded business development companies (BDCs). BDCs may be one of the latest and greatest products that Wall Street is promoting that will provide outsized yield with less risk. As usual, these “new ideas” end with brokerage firms making lots of money and investors suffering the consequences.

BDCs make loans to and invest in small to mid-size, developing, or financially troubled companies. BDCs now fill the role that many commercial banks left during the financial crisis to lend to those companies with questionable credit. While BDCs are not new products, until very recently investors had only publicly traded closed-end funds that acted like private equity firms to invest in. These funds are risky enough. During the last downturn some of the publicly traded funds fell by 60%, 70% or more.

Like their non-traded REIT cousins, non-traded BDCs utilize a non-traded REIT-like structure and promote very high yields of 10% or more. There are some differences between BDCs and REITs, BDCs are regulated under the 1940 Act that governs mutual funds. There is also a big difference in valuation. BDCs are valued quarterly while non-traded REITs publish their valuations no later than 18 months after the offering period.

Adam Gana of Gana LLP Receives the AVVO 2014 Cleints’ Choice Award

August 19, 2014 | by Staff Attorney

Adam Gana of Gana Weinstein LLP received the Avvo’s Clients’ Choice Award for 2014. “This is a tremendous honor,” said Mr. Gana, “Clients are the life blood of our business and we work tirelessly to make sure they are happy.” Mr. Gana received the award on August 19, 2014.

Business Development Companies (BDC) – The Next Risky Wall Street Cash Cow?

August 19, 2014 | by Staff Attorney

Since the financial crisis, the product development squad on Wall Street has been hard at work putting new spins on old ideas. The usual plan is merely to rebrand an old idea with a new label and convince investors looking for the latest and greatest product that the investment will provide outsized yield with less risk. It’s no coincidence that these new ideas make lots of money for the brokers selling them.

Enter the non-traded business development companies (BDCs). Now that many regulators and investors have begun to wise up and sour on the high commission and uncertain return approach offered by non-traded REITs, BDCs have entered into the fray as the non-stock market, non-real estate, high yield alternative. However, BDCs appear to be just as speculative – likely even more so – and inappropriate for most investors as non-traded REITs with many of the same failings such as obscenely high up-front fees, limited liquidity, and reliance on leverage to juice returns.

BDCs make loans to and invest in small to mid-size, developing, or financially troubled companies. BDCs have stepped into a role that many commercial banks left during the financial crisis due to capital raising requirements. In sum, BDCs lend to companies that may not otherwise get financing from traditional sources. While BDCs are not new, until very recently the market has been served by publicly traded closed-end funds that act like private equity firms. Just like the market was served just fine by publicly traded REITs before the non-traded variety showed up on the scene. One would think that the publicly traded BDCs provided high enough returns and were risky enough for even the most speculative investor considering that during the last downturn some of the funds fell by 60%, 70% or more. But greed is good.

Gana LLP Represents Seven Former Clients of Sean Sheridan Against JP Turner (Part II)

August 18, 2014 | by Staff Attorney

Continuing our prior post, the law office of Gana Weinstein LLP recently filed securities arbitration case on behalf of a group of seven investors against J.P. Turner Company, L.L.C. (JP Turner), Ridgeway & Conger, Inc. (Ridgeway), and Newbridge Securities, Corp. (Newbridge) concerning allegations that Sean Sheridan (Sheridan) churned claimants’ accounts through the use of excessive and unreasonable mutual fund switches, among other claims.

In addition to specifically finding that Sheridan committed fraud and made unsuitable recommendations in Claimants accounts, FINRA also found that JP Turner general sales practice with regard to non-traditional ETFs and mutual funds was inappropriate. On December 4, 2013, FINRA released a Letter of Acceptance, Waiver, and Consent (AWC) concerning JP Turner’s non-traditional ETFs sales practices and excessive mutual fund switches and fined the firm $707,559.53. FINRA v. J.P. Turner & Company, L.L.C., AWC No. 2011026098501 (FINRA, January 2013). According to FINRA’s investigation, JP Turner failed to establish and maintain supervisory systems related to leveraged and inverse ETF sales and mutual fund purchases.

In another churning related action, on November 8, 2013, the SEC issued a similar order against JP Turner finding that Michael Bresner (Bresner), as head of supervision, failed to properly supervise firm employees. The SEC Order found that JP Turner employed an Account Activity Review System (AARS) to monitor customer accounts for signs of churning. The SEC found that the average number of accounts flagged by the AARS system for churning was shockingly high for each quarter in 2008-2009 and was between 300 and 325 accounts and included more than 100 JP Turner registered representatives. In sum, the SEC discovered that no one at JP Turner was willing to take responsibility in determining whether churning took place in a client’s account – a problem that directly affected the claimants in this case.

Gana LLP Files Complaint on Behalf of Seven Former Clients of Sean Sheridan Against JP Turner

August 15, 2014 | by Staff Attorney

The law office of Gana Weinstein LLP has recently filed securities arbitration case on behalf of a group of seven investors against J.P. Turner Company, L.L.C. (JP Turner), Ridgeway & Conger, Inc. (Ridgeway), and Newbridge Securities, Corp. (Newbridge) concerning allegations that the firms failed to supervise and prevent Sean Francis Sheridan (Sheridan) from churning claimants’ accounts through the use of excessive and unreasonable mutual fund switches and generally making unsuitable recommendations to the clients. Both FINRA and the SEC have brought actions against JP Turner and the firm’s brokers on numerous and repeated occasions concerning the firm’s failure to protect its clients from the type of unscrupulous sales practices alleged in the complaint

As discovered by FINRA, from at least January 2007, through December 2009, Sheridan recommended approximately 205 unsuitable mutual fund switch transactions in the accounts of eight customers, including some of the Claimants in the filed case. See Department of Enforcement v. Sean Francis Sheridan, Disciplinary Proceeding No. 2009019209204, (FINRA, Feb. 12, 2013) (Sheridan Action). FINRA found that Sheridan recommended the unsuitable mutual fund switches in customers’ accounts and as a result of Sheridan’s activities in claimants’ and other customers’ accounts, FINRA barred Sheridan from the financial industry.

FINRA found that Sheridan only recommended Class A mutual fund shares that require customers to pay sales charges with each new purchase when Sheridan intended to effect the switches on a short-term basis. FINRA found that the average holding period for the mutual funds Sheridan sold was just four to five months. FINRA found that Sheridan exclusively recommended Class A mutual fund shares that charged front-end sales loads of 4-5% with each new purchase, an enormous cost. FINRA also found that Sheridan would randomly switch customers between fund categories such as Growth, Natural Resources, Gold, Emerging Markets, Science and Technology without a reasonable basis for doing so.

Gana LLP Files Complaint on Behalf of a Family Against First Allied Securities and Centaurus Financial

August 14, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP recently filed a securities arbitration case on behalf of a family of four investors against First Allied Securities, Inc. (First Allied) and Centaurus Financial, Inc. (Centaurus) concerning allegations that their financial advisor Seyed Ahmad Hashemian (Hashemian) made unsuitable and inappropriate investment recommendations to claimants’ by recommending a near 100% concentration in illiquid, speculative, and high commission investments including variable annuities, equity-indexed annuities (EIAs), private placements, oil and gas ventures, non-traded real estate investment trusts (REITs), and Advanced Equities private placements.

Our law offices have represented over a dozen investors who alleged that they were sold the Advanced Equities private placements through the use of false and misleading advertising materials. In addition, to customer complaints both FINRA and the SEC have sanctioned Advanced Equities concerning the misleading nature of their sales practices. Customers have alleged that the products were misrepresented as “late stage equities” that were a mere 12-36 months from going public. The complaint also alleged that the investments were sold as providing “Higher near-term investment returns than the public equity markets” while providing “Greater short-term liquidity and lower risk profiles.” The complaint alleged that these representations were false and that First Allied failed to conduct even basic due diligence to verify the accuracy of these statements.

In the case of the recent complaint filed, claimants’ investments were alleged to have been made using money that was supposed to be used to replace the earnings the untimely passing of a family member. As a result, the complaint alleged that over a nearly nine year period where the broader market indexes have hit all-time highs, claimants have lost significant sums their investments. The claimants alleged that they have been deprived of the ability to generate reasonable returns by being trapped in illiquid and unsuitable investments.