securities fraud attorney

Michael Oppenheim Charged With $20 Million Theft of Client Funds

April 20, 2015 | by Staff Attorney

In parallel actions The Securities and Exchange Commission (SEC) announced fraud charges and filed a complaint against Michael Oppenheim (Oppenheim), a financial advisor formerly with J.P. Morgan Securities LLC (JP Morgan), accusing him of stealing at least $20 million from customers to fund his own brokerage accounts and then spending the majority of the money in highly unprofitable options trading. In addition, the United States Attorney for the Southern District of New York and the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (FBI), announced that Oppenheim was charged with wire, securities, and investment adviser fraud, as well as embezzlement.

The charges stem from allegations that from at least March 2011, to March 2015, Oppenheim abused his relationship of trust with his clients in converting at least $20 million belonging to at least seven clients whose investment advisory accounts at JP Morgan he purported to manage. The allegations state that in some instances, Oppenheim induced clients to consent to the withdrawal of hundreds of thousands, and in some cases millions, of dollars from their accounts at JP Morgan based on false and misleading representations that Oppenheim would invest their money in low-risk municipal bonds to be held in an account at JP Morgan. In other instances, Oppenheim is alleged to have simply withdrew hundreds of thousands of dollars from clients’ accounts without their knowledge.

According to the allegations Oppenheim did not invest client money in low-risk municipal bonds as promised but instead Oppenheim, without the client’s knowledge, used the money to obtain cashier’s checks purporting to be remitted by the clients. Oppenheim then allegedly deposited the cashier’s checks in at least three online brokerage accounts he controlled and used the funds for his own personal use including on-line trading and to pay for personal expenses such as a home loan and bills. Oppenheim allegedly embarked on sizeable trading of stocks and options in his personal accounts for securities including Tesla, Apple, Google, and Netflix. Oppenheim then lost nearly the entire amount of each deposit and his brokerage accounts currently show minimal cash balances.

Josh Abernathy Accused of Running Investment Scheme Through Omega Investment Group

April 7, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Josh Abernathy (Abernathy) due to Abernathy’s refusal to respond to requests made by the agency. In addition, the U.S. Attorney for the Eastern District of Virginia charged Abernathy with mail fraud and conducting unlawful monetary transactions. The complaint alleges that Abernathy stole $1.3 million from at least 14 victims located throughout Virginia and Texas. In order to carry out the alleged fraud scheme, Abernathy created an entity called Omega Investment Group (Omega).

ln 2000, Abernathy first became registered with a FINRA firm. From March 2007 until September 2012, Abernathy was associated with NEXT Financial Group, Inc (NEXT Financial). Thereafter, from February 2013 through August 2014, Abernathy was associated with The O.N. Equity Sales Company (ONESCO).

According to the complaint Abernathy told investors and clients that there the investments would generate guaranteed returns of between 10 to 20 percent. Abernathy’s victims included widows, single mothers, and church friends. In reality, instead of making legitimate investments, Abernathy used investor funds for his own personal trading account through E*Trade, where he lost the funds, or used for the money to fund personal expenses. Abernathy’s pitch allegedly was that investor money would be placed in certain options, puts, and calls through Omega. Abernathy also allegedly sent fake quarterly statements to the investors which he altered in order to show investment profits that did not actually exist.

SEC Alleges that Levi Lindemann Engaged in a Ponzi Scheme

March 11, 2015 | by Staff Attorney

The Securities and Exchange Commission (SEC) has filed a complaint against former FINRA registered broker Levi Lindemann (Lindemann) alleging that from about September 2009, to August 2013, Lindemann, a resident of Minnesota, fraudulently raised at least $976,000 from six investors located in Wisconsin including elderly individuals and a member of his own family among other allegations.

Previously, Lindemann was a FINRA registered broker with several brokerage firms beginning in 2001. From March 2008 until October 2009, Lindemann was associated with United Equity Securities, LLC. Then, from October 2009 until November 2010, Lindemann was a broker for Workman Securities Corporation. Thereafter, from November 2010 until March 2012, Lindemann was associated with J.P. Turner & Company, L.L.C. (JP Turner).

According to the SEC’s complaint Lindemann told investors that their money would be used to purchase a variety investments, including 1) secured notes in Home Path Financial LP (Home Path), a Wisconsin-based real estate investment company; 2) notes issued by GWG Life, LLC (GWG Life); and 3) interests in a unit investment trust through Lindemann’s sole proprietorship, Alternative Wealth Solutions (AWS). The SEC alleged that none of these investments were ever made.

Former Merrill Lynch Broker Kwok Chiu Sanctioned Over Unauthorized Discretionary Trading

March 10, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has sanctioned broker Kwok Chiu (Chiu) concerning allegations that between March and June 2013, while associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), Chiu exercised discretionary power in two customer accounts with only oral authorization by making 162 transactions without obtaining prior written authorization from the customers. Under NASD Conduct Rule 2510(b) Chiu was required to provide written authorization to his firm in order to engage in discretionary trading activity.

Chiu entered the securities industry in 1996. In 2005 he was became registered through Merrill Lynch until October 14, 2013, at which time Merrill Lynch filed a Uniform Termination Notice stating that Chiu was discharged for conduct involving the exercise of discretion in non- discretionary customer accounts. Thereafter, in October 2013, Chiu has become registered as a broker with Gilford Securities Incorporated.

In addition to FINRA’s claims, Chiu’s public disclosures reveal that the broker has been subject to at least four customer complaints. These statistics are troubling because so many customer complaints are rare. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. These disclosures do not necessarily have to include customer complaints but can include IRS tax liens, judgments, and even criminal matters. The number of brokers with multiple customer complaints is far smaller. In Chiu’s case, all of the customers complaints involve allegations of unauthorized trading or failing to follow instructions of the client.

FINRA Sanctions Former Ameriprise Broker Radcliffe Daly Over Sloud Recommendations

February 18, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned former Ameriprise Financial Services, Inc. (Ameriprise) broker Radcliffe Daly (Daly) concerning allegations that between May 2013 and November 2013, while Daly was registered with Ameriprise, Daly mismarked more than 250 order tickets for solicited transactions as unsolicited. In addition, FINRA alleged that during the same period Daly engaged in private securities transactions (also known as “selling away”) without providing written notice to Ameriprise. FINRA also alleged that Daly exercised unauthorized discretion in customer accounts.

Daly entered the securities industry in 2003 and left the industry in June 2014. During the majority of this time Daly was associated with Ameriprise until January 2014.

FINRA alleged that Daly recommended a penny stock, Sloud, Inc. (SLOU), to numerous customers during 2013. According to FINRA Daly placed 292 buy transactions for 43 different customers in the Sloud stock between May 3 and November 7, 2013. However, instead of properly marking the transactions as solicited, Daly allegedly falsely marked 253 of these purchases as unsolicited. FINRA also found that Daly continued to solicit purchases of Sloud and to inappropriately mark the trades as unsolicited even after being told by his firm in June 2013 that he could not solicit purchases of the stock because it was a penny stock and not supported by firm research. From the allegations made by FINRA it appears that Daly attempted to circumvent Ameriprise’s instructions by mismarking the tickets as unsolicited.

FINRA Sanctions Felt & Company Broker Timothy O’Brien Over Discretionary Trades

February 17, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned broker Timothy O’Brien (O’Brien) alleging that O’Brien exercised discretion in two customers’ accounts without obtaining prior written authorization from the customers. O’Brien is associated with brokerage firm Felt & Company.

The FINRA rules provide that registered representatives shall not exercise discretionary power in a customer’s account unless the customer has given prior written authorization to a stated broker and the account has been accepted by the member on that basis. FINRA found that O’Brien was the registered representative for two Felt customers. FINRA determined that in handling the customers’ accounts O’Brien periodically discussed trading strategies with these two customers. However, FINRA alleged that these customers did not give O’Brien written authorization to exercise discretion in their accounts nor did Felt approve these accounts as discretionary accounts. From July 2012, through February 2013, FINRA found that O’Brien used discretion to execute approximately 171 transactions in these customers’ accounts.

Often times unauthorized discretionary trading goes hand and hand with churning, trading that broker engages in solely to generate commissions at the client’s expense. In order to establish a churning claim the investor must show that the trading was first excessive and second that the broker had control over the investment strategy. 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 and whether or not the expenses incurred in the account made it unreasonable that the investor could reasonably be expected to profit from the activity.

WFG Investments Sanctioned Over Failure to Review Transactions for Suitability Part II

February 9, 2015 | by Staff Attorney

This article continues our prior post concerning The Financial Industry Regulatory Authority (FINRA) recent sanctions of brokerage firm WFG Investments, Inc. (WFG) alleging a host of supervisory failures from March 2007, through January 2014.

In one supervisory failure example involving suitability, FINRA found that between 2009, and 2013, a broker by the initials “MC” (1) traded with discretion in several of his customers’ accounts without their written authorization; and (2) also excessively traded in at least one of his customer’s accounts in light the customer’s investment objectives and risk tolerance. FINRA also alleged that many of the securities traded were also qualitatively unsuitable in light of the customers’ age, objectives, risk tolerance, and financial situation. In addition, several of the customer’s accounts were charged both commissions and management fees and this problem was not identified or corrected even after it was detected.

FINRA also alleged that MC used unapproved charts and provided consolidated statements to a customer without the firm’s knowledge or approval. Moreover, allegedly there were exception reports that highlighted the problem trading activity in several of these accounts that were simply not reviewed or not properly processed. In fact, FINRA found that one of the customers who complained about unsuitable activity in her accounts was not contacted by the firm until after she had complained despite the fact that her accounts had appeared on numerous exception reports. Similarly, FINRA found that broker SGD was also permitted by the WFG to engage in unsuitable trading in one of his customer’s accounts which included the recommendation and sale of numerous high risk equity and ETF purchases for a retired client with a conservative risk tolerance.

FINRA Sanctions WFG Investments $700,000 for Supervisory Failures Part I

February 6, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned brokerage firm WFG Investments, Inc. (WFG) alleging a host of supervisory failures from March 2007, through January 2014. FINRA alleged that WFG failed to commit the necessary time, attention, and resources to critical regulatory obligations in supervising registered representatives including: (1) failure to conduct appropriate due diligence on a private placement offering that was sold by a broker away from the firm; (2) failure to supervise the private securities transactions of one of its brokers that were executed through the representative’s investment advisory firm; (3) failure to maintain a supervisory system to ensure customer transactions were suitable; (4) failure to enforce its written supervisory procedures regarding the sale of alternative investments; (5) failure to supervise statements made by one broker on his weekly radio broadcast; and (6) failure to timely report customer complaints and update the Forms U4 and U5 of its brokers.

WFG has been a FINRA member since 1988, conducts a general securities business, and is headquartered in Dallas, Texas. WFG currently has about 280 brokers operating out of 102 branch offices.

FINRA alleged that in 2007, a WFG broker by the initials “SGD” provided notice to the firm that he intended to sell a private placement offering FINRA called “ATMA” to his customers. ATMA was designed to offer an income stream to investors based revenues form automated teller machines (ATMs). In evaluating a selling agreement with SGD, FINRA alleged that WFG assigned its compliance officer known by the initials “TS” to conduct due diligence on ATMA. TS owned a 5% interest in ATMA and SGD was the 90% owner and the operator of ATMA, had no prior experience in structuring and offering private placement investments. FINRA found that the entity that was to provide the ATM machines to ATMA was engaged in fraudulent business practices and most of the ATMs were fictional. FINRA found that WFG declined to enter into a selling agreement with SGD, but permitted him SGD to sell interests in ATMA as private securities transactions.

FINRA Fines Sigma Financial Over Supervisory Failures Part II

January 27, 2015 | by Staff Attorney

This post continues our prior report on the Financial Industry Regulatory Authority’s (FINRA) recently sanctions against Sigma Financial Corporation (Sigma Financial) alleging from April 25, 2011, through June 24, 2012, supervisory deficiencies existed at Sigma including the firm’s supervision of registered representatives, the firm’s suitability processes and procedures, some of the firm’s implemented procedures relating to customer information, and also branch office registration for trade execution.

FINRA found that Sigma Financial permitted its representatives to create and use consolidated statements with their customers that reflected the customers’ holdings of investments away from the firm. However, FINRA found that Sigma Financial did not adequately supervise its representatives’ creation and use of such statements in that the firm neither centrally tracked the number or identity of representatives who were using consolidated statements nor the customers who received such statements. Instead, FINRA found that Sigma Financial relied upon the representatives themselves to submit only the initial template of the consolidated statements they created and intended to use with their customers and the firm did not actually receive or review the statements shared with the customers.

Another supervisory deficiency noted by FINRA was that Sigma Financial had four preferred vendors through which brokers could establish and maintain websites. But use of these vendors, was not required and FINRA found that 134 representatives maintained non-preferred vendor websites, or approximately 20% of all websites. FINRA found that non- preferred vendors failed to notify Sigma Financial if registered representatives made any changes to their websites. In this way FINRA found that Sigma Financial did not conduct adequate supervision of those non-preferred vendor websites.

Wedbush Securities Regulatory Actions Explored Part III

January 21, 2015 | by Staff Attorney

This post continues our examination of the numerous regulatory actions against Wedbush Securities, Inc. (Wedbush) for its failure to supervise the activities of its employees and the recent National Adjudicatory Council (NAC) decision affirming the FINRA hearing decision.

What were the failures to report that were claimed by FINRA? In one instance, a client faxed a letter to Wedbush alleging that his broker had committed unauthorized trades but Wedbush did not report the complaint until January 2010, 275 days later. At hearing Wedbush conceded that the complaint was not timely reported but disputed their responsibility for the late reporting because a firm office manager failed to forward the letter to the business conduct department after concluding that the letter wasn’t a customer complaint. FINRA found though that the office manager’s failure does not excuse the late filing or the firm’s responsibility for the late filing.

In addition, the firm had argued that Mr. Wedbush was not liable for failure to supervise because he was more of a manager than a supervisory. Again, FINRA disagreed stating that as president he was ultimately responsible for the misconduct.