Ponzi Scheme

Look out for the Top 10 Types of Investment Scams

October 24, 2017 | by Staff Attorney

The financial advisor rating firm Paladin Research & Registry assembled a list of the top 10 investment scams investors are facing today. If you are involved in any of these potential scams, the investment attorneys at Gana Weinstein LLP may be able to help you.

1. Ponzi Schemes

Ponzi schemes came in first-place for having stolen more money than any other type of scam. A Ponzi scheme is a fraudulent investment scam where the scammer promises a high rate of return with little or no risk to investors. Ponzi schemes generate returns for investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. The Ponzi scheme unravels when no more new investors are willing to invest and older investors demand the return of their money. The nature of Ponzi schemes (or pyramid schemes) requires investors (who believe they have a strong investment) to tell friends, family and associates about the investments. The influx of new investors provides scam operators with the assets needed to meet the withdrawal requests of the early investors.

SEC Charged Financial Advisor Leon Vaccarelli with Defrauding Investors in Ponzi Scheme

September 7, 2017 | by Staff Attorney

The investment lawyers of Gana Weinstein LLP are investigating allegations by the Securities and Exchange Commission (SEC) claiming that financial advisor Leon Vaccarelli (Vaccarelli) defrauded his elderly clients out of more than $1 million.

According to FinancialPlanning, the SEC filed a complaint in federal court in New Haven alleging Vaccarelli engaged in a Ponzi scheme for more than four years. To pay his mortgage and other personal expenses, Vaccarelli allegedly did not put client funds in conventional brokerage accounts as promised and instead had some clients write checks payable directly to him and used the funds to pay for his expenses or to repay earlier investors.

Upon information and belief, as of September 7, 2017, Gana Weinstein LLP is the only firm to have brought civil claims in arbitration to help investors recovery their money from this Ponzi Scheme.

Aegis Capital Corp. Broker Malcom Segal Barred From Industry Over Allegations of Outside Business Activities

January 6, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred former Aegis Capital Corp. (Aegis) broker Malcom Segal (Segal) alleging that Segal may have engaged in unauthorized transfers of funds from customer accounts to an outside business activities (a/k/a “selling away”).

According to Segal’s BrokerCheck, Segal was registered with Cumberland Brokerage Corporation from 1989 until April 2011. Thereafter, Segal was a broker for Aegis until July 2014 where he was terminated on allegations of by the firm violations of the firm that Segal failed to cooperate with an internal investigation into a customer complaint he made unauthorized wire transfers from a customer’s account. Segal’s disclosures also reveal that he is listed as a partner of J & M Financial and President of National C.D. Sales.

Upon information and belief, it is in connection with National C.D. Sales that customer have filed complaints against Segal concerning. While details concerning Segal’s activities are still pending, the allegations against Cox are consistent with a “selling away” securities violation. Selling away occurs when a financial advisor solicits investments in companies or promissory notes that were not approved by the broker’s affiliated firm. In many cases the broker transfers funds or liquidates investments at his registered firm in order to make the investment in the outside business.

Aegis Capital Corp. Broker Malcom Segal Barred From Industry Over Allegations of Outside Business Activities

December 14, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred former Aegis Capital Corp. (Aegis) broker Malcom Segal (Segal) alleging that Segal may have engaged in unauthorized transfers of funds from customer accounts to an outside business activities (a/k/a “selling away”).

According to Segal’s BrokerCheck, Segal was registered with Cumberland Brokerage Corporation from 1989 until April 2011. Thereafter, Segal was a broker for Aegis until July 2014 where he was terminated on allegations of by the firm violations of the firm that Segal failed to cooperate with an internal investigation into a customer complaint he made unauthorized wire transfers from a customer’s account. Segal’s disclosures also reveal that he is listed as a partner of J & M Financial and President of National C.D. Sales.

Upon information and belief, it is in connection with National C.D. Sales that customer have filed complaints against Segal concerning. While details concerning Segal’s activities are still pending, the allegations against Cox are consistent with a “selling away” securities violation. Selling away occurs when a financial advisor solicits investments in companies or promissory notes that were not approved by the broker’s affiliated firm. In many cases the broker transfers funds or liquidates investments at his registered firm in order to make the investment in the outside business.

Broker Edward Wendol Barred by FINRA Over Failure to Respond to Outside Business Activity Inquiries

October 16, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred broker Edward Wendol (Wendol) concerning allegations that during the course of FINRA’s investigation into whether Wendol was involved in undisclosed outside business and private securities transactions, also known as “selling away”, Wendol failed to respond to FINRA’s requests. On May 29, 2014, FINRA requested that Wendol provide documents and information. On June 16, 2014, Wendol informed FINRA that he would not provide the requested documents and information or appear and provide testimony. As a result, Wendol was barred from the securities industry.

Wendol first became registered with FINRA in 1993 with South Richmond Securities, Inc. From October 1993, through October 2009, Wendol was registered with seven different FINRA member firms. On December 5, 2011, Wendol registered with Sterling Enterprises Group, Inc. (Sterling). Thereafter, from September 2013, through July 2014, Wendol was associated with WTS Proprietary Trading Group LLC.

The allegations against Wendol are consistent with a “selling away” securities violation. In such a case, the broker sells private securities away from the firm because the investment is not approved by the broker’s affiliated firm. Under the FINRA rules, a brokerage firm owes a duty to properly monitor and supervise its employees. In fact, each brokerage firm is required to establish and maintain a system to supervise the activities of each registered representative that is reasonably designed to achieve compliance with the securities laws. Selling away often occurs when supervisory lapse conditions exist. Supervisory lapses include either the failure to put in place a reasonable supervisory system or a failure to implement their supervisory requirements. Many times there obvious “red flags” of misconduct that are overlooked or not properly followed up on.

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.

Claus Foerster Barred Over Allegations Concerning Fictitious “S.G. Investments”

July 8, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has sanctioned and barred broker Claus Foerster (Foerster) concerning allegations that Foerster solicited firm customers to invest in a fictitious fund “S.G. Investments” and converted approximately $3 million in funds from 13 customers for his personal use. FINRA rules provide that no person associated with a member shall make improper use of a customer’s securities or funds.

Foerster entered the securities industry in 1988 when he associated with J.C. Bradford & Co. Between 1997 and 2008, Foerster was associated with Citigroup Global Markets, Inc. (Citigroup). From 2008 until February 2013, Foerster was associated with Morgan Keegan & Co. Inc. Thereafter, and until June 2014, Foerster was last associated with Raymond James & Associates, Inc., (Raymond James) when his registration was terminated based on the conduct described by FINRA in the AWC.

FINRA alleged that beginning in 2000, Foerster solicited securities customers to invest in an entity called S.G. Investments. S.G. Investments was marketed by Foerster to investors as an income-oriented investment. As part of Foerster’s scheme, FINRA alleged that he instructed customers to move funds from their brokerage accounts to their personal bank accounts via wire or electronic funds transfer. After that, FINRA found that Foerster would then instruct the customers to write checks from their personal bank accounts payable to “S.G. Investments.” FINRA determined that S.G. Investments was not an investment fund but instead a bank account owned and controlled by Foerster. According to FINRA, Foerster hid his scheme by providing customers with fictitious account statements. In addition, FINRA found that in at least two instances Foerster provided customers with purported dividend payments on a monthly basis in typical Ponzi Scheme fashion. Through these actions, FINRA found that Foerster converted approximately $3 million from 13 customers.

Investment Fraud Update: Patricia Miller Charged in Ponzi Scheme

June 14, 2014 | by Staff Attorney

Our law firm is currently investigating an alleged Ponzi scheme run by financial advisor Patricia S. Miller (Miller) of McMurray, Pennsylvania. According to the United States Attorney Office, on June 6, 2014, Miller was arrested on charges that she orchestrated a massive Ponzi scheme and committed wire fraud.

Our attorneys encourage investors to contact our office if they have been an unfortunate victim of Miller’s. Our attorneys have significant experience recovering investor funds by holding brokerage firms and Ponzi schemer’s responsible. In a similar fraudulent investment scheme our attorneys obtained a $2.8 million award on behalf of a group of defrauded investors including $1.9 million in punitive damages. See Reuters, Arbitrator orders alleged Ponzi-schemer to pay $2.8 million (Aug. 8, 2013) and the Award here.

In Miller’s case, the United States has alleged that Miller used and abused her position of trust and her association with a Massachusetts broker dealer in order to obtain money from clients. While Miller represented to clients that their funds would be invested prudently, it is becoming clear that Miller never made such investments. According to the United States Attorney’s Office, Miller promised high returns in “investment clubs” called KS Investments and Buckharbor, among others. Miller represented, that the investment clubs would be placed in fixed-income notes and other investments. Instead, Miller has been accused of misappropriating the client’s funds for her own personal use. If convicted, Miller could face a maximum sentence of 20 years in prison and a $250,000 fine.

Gana LLP Investigates Broker Patricia Miller’s Ponzi Scheme

June 6, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are currently investigating an alleged Ponzi scheme run by financial advisor Patricia S. Miller (Miller) of McMurray, Pennsylvania. According to allegations made against Miller by investors, she convinced customers to invest in purportedly safe mix of securities including corporate and municipal bonds. However, it is becoming increasingly clear that these investments may not exist at all.

Miller was a registered broker with several brokerage firms including Janney Montgomery Scott LLC and Investors Capital Corp. (Investors Capital). According to Miller’s BrokerCheck, on May 19, 2014, Investors Capital received a complaint alleging that an investor provided Miller with $80,000 that had been misappropriated by Miller. Two days later Investors Capital discharged Miller alleging that the broker has been accused of misappropriating funds, borrowing money from customers, fraudulent investment activity, and creating false documents.

According to investor complaints, Miller may have used various entities, including KS Investments, KS Investment Partnership, K Squared Development, K Squared Investments, Buck Harbor Investments, Buck Harbor Investment Club, and Buck Harbor Investment Partnership in order to carry out her scheme. Investors in these vehicles may have received false statements listing securities holdings and values of securities that may not truly exist. For instance some investors may have been misled into believing that they owned bonds issued by companies like General Electric, McDonald’s Corporation, Ford Motor Company, and other municipal bonds.

Broker Jeffrey Schrader Barred Over Selling Away Allegations

May 27, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Jeffrey Schrader (Schrader) concerning allegations that the broker engaged in private securities transactions and failed to cooperate with FINRA’s investigation.

Schrader entered the industry in June 1998. From November 2005, until March 2009, Schrader was associated with Merrill Lynch, Pierce, Fenner & Smith Inc. In March 2009, Schrader became associated with Western International Securities, Inc. (Western). Schrader conducts securities transactions on through his own business, Schrader Wealth Management.

FINRA found that between 2009 and 2010 Schrader, while associated with Western, engaged in over $145,000 worth of private securities transactions with three investors without providing written notice or receiving approval from Western. FINRA alleged that two of the nine investors were customers of Western at the time that their investment was made away from the firm.