Securities Lawyers Blog

Eric Foster Accused of Unauthorized Trading and Churning Customer Accounts

September 7, 2013 | by Staff Attorney

In April 2013, the Financial Industry Regulatory Authority (FINRA) requested that Eric Foster (Foster) provide information concerning possible securities laws violations. By July 2013, Foster failed to respond to FINRA’s requests and imposed a permanent bar from the securities industry.

The FINRA bar isn’t the first time Foster has been sanctioned by FINRA. In February 2012, Foster settled charges that he violated FINRA Rule 2110 by effecting unauthorized transactions in the account of a deceased customer. In so doing, Foster exercised discretion in the customer’s account without written authorization. The settlement resulted in a $12,471 fine and restitution and a three month suspension. In December 2011, Foster settled charges brought by Illinois Securities Department concerning allegations that he churned the account of a senior citizen earning large commissions for himself while reducing the equity in the account to zero

Foster was a registered representative of Halcyon Cabot Partners, Ltd. from July 2010 through June 2012. Previously, Foster was associated with Arjent Services, LLC from October 2010, until July 2010. Foster was also associated with Maxim Group LLC from October 2002 until October 2008.

SEC Issues Concerns Over Private Oil and Gas Offerings

September 7, 2013 | by Staff Attorney

Private securities offerings of oil and gas ventures pose a substantial danger for investor fraud. According to the Securities and Exchange Commission (SEC), there has been an increase in the number of civil fraud cases related to oil and gas private placements. Investing in private placement offerings carries unique risks and private oil and gas offerings have additional risks for investors to be aware of and to consider.

The SEC’s Investor Alert listed common red flag sales pitches that fraudulent oil and gas investments often make to investors including:

Sales pitches referring to high oil and gas prices;

Financial Advisors Have an Obligation to Provide Truthful Information When Selling Securities

September 6, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Scottie Brent Chitwood (Chitwood) from the securities industry over allegations that he sold clients variable annuities by making false and misleading representations concerning the securities features. Chitwood was also accused of exercising discretionary authority in clients’ accounts. FINRA’s action reinforces the regulator’s rules that brokers have an obligation to disclose truthful and balanced information in the sale of securities products to investors.

A variable annuity is a contract where an insurance company agrees to make periodic payments to an investor either immediately or at some future date. The purchase of a variable annuity contract either involves a single purchase payment or a series of purchase payments.

Variable annuities offer a range of investment options to invest in and the value of the investment will vary depending on the performance of the investment options selected. The investment options typically include mutual funds that invest in stocks and bonds. Variable annuities distribute periodic payments for the rest of the investor’s life (or any other person you designate). Most variable annuities encourage investors to remain invested for a period of years and discourage early termination through expensive surrender fees. The insurance company can charge investors in some cases up to 7% of the investment for early termination.

Turker Ergun Barred From Financial Industry for Alleged Misappropriation of Customer Funds

September 5, 2013 | by Staff Attorney

Turker Ergun (Ergun) settled charges brought by the Financial Industry Regulatory Authority (FINRA) concerning the sale of private securities and misappropriating customer funds by accepting a bar from the securities industry.

From January 2004 until December 2008, Ergun was associated with WaMu Investments, Inc. From December 2008 through October 2009, Ergun was associated with Banc of America Investment Services, Inc. After Banc of America, Ergun was associated with Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch) until September 2012.

Ergun’s public records do not disclose any businesses, other than his previous brokerage employers, that he was involved with. However, in August 2012, Merrill Lynch filed a U-5 termination form reporting that Ergun was discharged following an internal review concerning conduct involving recommending a customer’s purchase of securities not offered by the Merrill Lynch and accepting personal loans from a customer without firm approval.

Michael Kmetz Barred From Financial Industry for Alleged Private Securities Sales

September 5, 2013 | by Staff Attorney

Michael J. Kmetz (Kmetz) was barred by the Financial Industry Regulatory Authority (FINRA) over allegations concerning the sale of securities away from his member firm involving an elderly customer by accepting a bar from the securities industry.

On February 15, 2013, FINRA sent a letter to Kmetz requesting that he appear for testimony in connection with a complaint from an elderly investor who alleged that Kemtz had engaged in a variety of business activities and transactions. The customer’s complaint alleges that Kemtz sold securities away from Park Avenue. On March 12, 2013, Kemtz advised FINRA that he would not cooperate with the regulator’s requests for documents or testimony. Consequently, Kemtz was barred from the securities industry.

The accusations made against Kemtz are consistent with a “selling away” violation. Selling away occurs when a securities broker solicits securities that are not approved by the broker’s affiliated firm. Selling away is prohibited under FINRA Rule 3040, as well as other securities laws. The most common securities products solicited in selling away schemes are private placements and promissory notes.

Jason T. Knapp Accused of Selling Away Violations

September 4, 2013 | by Staff Attorney

At least one action has been initiated against Jason T. Knapp (Knapp) accusing the broker of running a Ponzi scheme. Knapp is a former broker of Dawson James Securities, Inc. (Dawson James) and operated under the company name Steeple Chase Group, LLC (Steeple Chase). Steeple Chase holds itself out as a real estate, financial lending, consulting, and investment related company.

From 2006 through September 2008 Knapp was a registered representative of Chicago Investment Group, LLC. From September 2008 through June 2012 Knapp was registered with Dawson James. Dawson James terminated Knapp citing that Knapp had falsified documents and solicited clients to purchase investments, presumably in Steeple Chase, that were not approved by the firm. In addition, an allegation was made by another client that Knapp engaged in an unauthorized transaction that Knapp could not provide the firm with a satisfactory explanation for.

In total two customer actions have been initiated against Knapp and Dawson James Securities for failing to supervise Knapp’s business activities. In March 2013, FINRA barred Knapp from the securities industry when he failed to respond to the agency’s request for additional information concerning the customer complaints and the circumstances of his termination.

Gana LLP Investigates Silver Oak Leasing and Alberto Neira

September 4, 2013 | by Staff Attorney

Gana Weinstein LLP is investigating claims against LPL Financial (LPL) on behalf of former customers of Alberto Neira who invested in Silver Oak Leasing (Silver Oak). In November 2012, Neira executed a letter of Acceptance, Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA) concerning his sale of investments in Silver Oak. According to the AWC, “[b]eginning in 2006, [Neira] became engaged with an outside business activity at Silver Oak Leasing, Inc. (“Silver Oak”), a California corporation purportedly involved in providing automobile financing and leasing services. [Neira] failed to fully disclose his involvement in the outside business activity, including that he was acting as a director of Silver Oak. [Neira] thereby violated NASD Rules 3030 and 2110 and FINRA Rules 32701 and 2010. Between July 1, 2008, and January 18, 2011 (the relevant period), [Neira] also recommended investments in Silver Oak to 14 customers. He did so without disclosure to his firm, [LPL Financial,] in violation of NASD Rules 3040 and 2110 and FINRA Rule 2010.2. Finally, during the course of this investigation, [Neira] failed to timely respond to staff requests for information and testimony. As a result, [Neira] violated FINRA Rules 8210 and 2010.” Neira was barred from the securities industry.

From February 2002 through January 2011, Neira was registered with LPL and operated out of Santa Ana, California. Under FINRA Rule 3010, LPL was obligated to properly supervise the activities of Neira during the time he was registered with the brokerage firm. Accordingly, we believe LPL may be liable for failing to supervise Neira’s activities while registered at the firm, and that it could be held responsible for compensating customers of Neira for their losses.

Former customers of Neira who invested in Silver Oak are encouraged to contact Gana Weinstein LLP to explore their legal rights and options.

The Dangers of Low-Priced (Penny Stocks) Securities

September 3, 2013 | by Staff Attorney

A “penny stock” is defined by the Securities and Exchange Commission (SEC) as a security issued by a very small company, micro-cap or less than $100 million in market capitalization, and trades at less than $5 per share. Penny stocks generally are quoted over-the-counter, such as on the OTC Bulletin Board or OTC Link LLC. However, not all penny stocks trade over-the-counter and many trade on securities exchanges, including foreign securities exchanges. In addition, the definition of penny stock can also include private companies with no active trading market.

Penny stocks are inherently risky due to several contributing factors. First, penny stocks may trade infrequently, meaning that it may become difficult to liquidate penny stock holdings once acquired. Second, it may be difficult to find accurate quotes for certain penny stocks. Therefore, it may be difficult or even impossible to accurately price certain penny stocks. Due to these risks, penny stock investors may lose their whole investment. When penny stock investing is combined with margin borrowing the results can be catastrophic for the investor.

If the inherent risks of penny stocks were not great enough, penny stocks are often used and manipulated for fraudulent purposes. One common scheme is the “pump and dump” scheme. The idea behind a pump and dump scheme is to create unfounded hype for a penny stock the pumper already owns. As the pumper’s victims buy into the hype additional purchases drive up the price of the stock artificially. The pumper then sells his shares for a large profit while those the pumper recommended the penny stock to quickly lose their money as the stock’s value decreases precipitously.

Two Cantella & Co. Brokers Barred From the Financial Industry for Allegedly Misappropriating Customer Funds

September 2, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has barred Todd Lloyd Goedeke and Ronald W. Nichter from the financial industry after the brokers were accused of misappropriating funds from customers.

In March 26, 2004, Goedeke became a registered representative with Cantella & Co., Inc. (Cantella), a FINRA regulated broker-dealer. Goedeke remained associated with Cantella until his termination on June 18, 2010. On or about July 1, 2010, Cantella filed a Form U5 that stated that Goedeke had been terminated. On or about February 22, 2011 and March 16, 2011, Cantella filed amendments to their Form U5 disclosing allegations that Goedeke may have converted customer funds. Goedeke’s public disclosures also list that he is employed by Wealthcare & Retirement Solutions, a financial planning company that provides insurance, fixed annuities, and life insurance.

Ronald W. Nichter became registered in the securities industry in December 2008 with Cantella Nichter’s registration was terminated by Cantella on April 4, 2013.

ACGM, Inc. Settles Charges with FINRA Concerning Misleading Advertising

September 2, 2013 | by Staff Attorney

HKC Securities, Inc., known as ACGM, Inc. (ACGM), and Harold Kenneth Cohen (Cohen) of Palm Beach, Florida, reached a settlement the Financial Industry Regulatory Authority (FINRA) over the firm’s use of certain hedge fund sales material that allegedly failed to fairly present the risks and potential disadvantages of hedge fund investing. According to FINRA, the sales materials violated FINRA Rule 2210(d) by only highlighting the hedge fund’s positive features, not providing a sound basis for evaluating the investment, containing exaggerated language, failing to identify the basis for factual statements made, and containing an inadequate discussion of the performance of the funds.

The settlement states that between January 2008 and June 2011, the firm marketed hedge funds to large institutional investors such as educational and other endowment funds. The regulator found that ACGM’s procedures for the review and approval of hedge fund institutional sales material were not reasonably designed or implemented to achieve compliance with FINRA’s content standards for institutional sales material and were not appropriate for a business actively engaged in the third-party marketing of hedge funds. Cohen was the firm’s Chief Compliance Officer and the principal responsible for the review and approval of institutional sales material. The complaint alleges that Cohen failed to adequately supervise the review of sales materials in order to achieve compliance with FINRA’s content standards.

The settlement provided some examples of the alleged misleading and exaggerated content provided to investors. One example referred to a fund as having “significantly outperformed its benchmarks” or a fund’s performance as “remarkable.” Another summary document referred to the performance of the underlying fund managers for a fund of funds over 1-year, 3-year, and 5- year time horizons, even though the fund of funds had only been in operation for approximately three months at the time of the document. Other documents failed to identify the basis for factual statements made and only described the fund as the “#l hedge fund in Israel” and describing another fund as the “#l performing equity market neutral fund in the world in 2005.”