securities fraud

SEC Brings Fraud Charges Against Broker Lee Weiss Over FEP Fund I and Catamaran Fund Investments

November 16, 2015 | by Staff Attorney

The Securities and Exchange Commission announced fraud charges against a registered investment adviser and its owner on allegations of self-dealing and failing to disclose material facts to clients including conflicts of interest, use of investor funds, and the risks of the investments they recommended. The complaint filed in U.S. District Court for the District of Massachusetts, alleges that Lee D. Weiss (Weiss) and Family Endowment Partners, L.P. (FEP) and relief defendants MIP Global, Inc. (MIP Global), Mosaic Enterprises, Inc. (Mosaic Enterprises), Mosaic Investment Partners, Inc. (Mosaic), and Weiss Capital Real Estate Group, LLC (Weiss Capital) recommended their clients invest $40 million in illiquid securities issued by hedge fund FEP Fund I, LP (FEP Fund I) and the Catamaran Holding Fund, Ltd. (Catamaran Fund) without disclosing that Weiss had an ownership interest in the parent company of these entities and received payments from these entities.

The SEC’s complaint further alleges that FEP and Weiss recommended that their clients invest in entities that Weiss owned without disclosing that the investments would be used primarily to benefit FEP. The SEC also alleges that FEP and Weiss advised clients to invest in a consumer loan portfolio while concealing that Weiss would receive half of the clients’ profits from these investments.

Between 2010 and 2012, the SEC alleges that FEP and Weiss advised 11 FEP and caused two FEP affiliated hedge funds to invest more than $40 million in securities issued by subsidiaries of a French company that purportedly had designed methods to reduce the harmful effects of tobacco smoking. According to the SEC, FEP and Weiss had a financial interest in the French company and that Weiss and entities received more than $600,000 in payments from that company shortly after the FEP clients and hedge funds invested in it. However, the SEC stated that Weiss failed to disclose these conflicts of interest to investors.

FINRA Bars Broker Ralph Savoie Over Misappropriation of Client Funds

November 10, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Ralph Savoie (Savoie) (FINRA No. 2015046239401) resulting in a bar from the securities industry alleging that Savoie failed to provide FINRA staff with information and documents requested. The failure to provide those documents and information to FINRA resulted in an automatic bar from the industry. FINRA’s document requests related to the regulators investigation into claims the Savoie misappropriated more than $665,000 from at least one member firm customer.

FINRA’s investigation appears to stem from Savoie’s termination from Cambridge Investment Research, Inc. (Cambridge) in August 2015. At that time Cambridge filed a Form U5 termination notice with FINRA stating in part that the firm discharged Savoie under circumstances where there was allegations that Savoie failed to disclose and receive approval for an outside business activity. It is unclear the nature of the outside business activities from publicly available information at this time. However, Savoie’s Brokercheck disclosures reveal several outside business activities including working for the Savoie Financla Group, LLC in Baton Rouge, LA and as being and independent insurance agent for various companies.

Savoie entered the securities industry in 1973. From March 2007 until July 2013, Savoie was associated with ING Financial Partners, Inc. Thereafter, from July 2013 until September 2015, Savoie was associated as a registered representative with Cambridge.

Broker Investigation: Claims Against Broker John Stapleton

November 2, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker John Stapleton (Stapleton) has been the subject of at least 2 customer complaints, 1 regulatory action, and 6 judgements or liens. Customers have filed complaints against Stapleton alleging securities law violations including misrepresentations of investments among other claims.

In 2005 the NASD brought action against Stapleton alleging that the broker committed securities fraud and made unsuitable investments while exercising control over the purchases and sales in a client’s account. The NASD found that Stapleton did not have a reasonable basis to believe that the purchases and sales in the account were suitable for the customer given the size and frequency of the transactions and the customer’s circumstances.

In addition, Stapleton has had difficulty managing his own finances and on April 16, 2014, disclosed a tax lien of $105,7191, on December 6, 2013, disclosed a tax lien of $12,478, on April 23, 2012, disclosed a tax lien of $1,592, on January 25, 2012, disclosed a tax lien of $9,642, on August 10, 2010, disclosed a tax lien of $121,506, and on March 27, 2009, disclosed a tax lien of $11,180. Judgements are often a sign that the broker cannot manage their own personal finances and may be tempted to recommend high commission products or strategies to clients in order to satisfy debts.

FINRA Investigates Broker Craig Taddonio Over Supervision and Churning

October 29, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Craig Taddonio (Taddonio) has been the subject of at least three customer complaints, three judgements or liens, and one regulatory investigation. The Customer complaints against Taddonio alleges securities law violations that claim churning and excessive trading, unsuitable investments, securities fraud, and excessive commissions among other claims. The most recent complaint filed in April 2015, alleges losses of $900,000. In addition, in May 2015, a customer was awarded $338,454 in an arbitration claim including Taddonio where the panel assessed $107,944, $9,871, and $220,639 in compensatory damages against Taddonio and others jointly and severally and also a finding of punitive damages against Taddonio and others jointly and severally under New York law.

In addition to customer complaints Porges is subject to several liens including a massive $574,055 tax lien in February 2015, a $57,735 tax lien in September 2014, and a $48,607 tax lien in September 2014. Tax liens and judgements are often a sign that the broker cannot manage their own personal finances and may be tempted to recommend high commission products or strategies to clients in order to satisfy debts.

Finally, the brokercheck record also states that on September 29, 2015, FINRA initiated an investigation into Taddonio conduct. The investigation relates to false statements and testimony, violations of FINRA’s supervisory rules and churning.

FINRA Investigates Broker Brent Porges Over Supervision and Churning

October 28, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Brent Porges (Porges) has been the subject of at least four customer complaints, six judgements or liens, and one regulatory investigation. The Customer complaints against Porges alleges securities law violations that claim churning and excessive trading, unsuitable investments, securities fraud, and excessive commissions among other claims. The most recent complaint filed alleges losses of $900,000. In addition, in May 2015, a customer was awarded $338,454 in an arbitration claim including Porges where the panel assessed $107,944 against Porges and others jointly and severally and also a finding of punitive damages against Porges and others jointly and severally under New York law.

In addition to customer complaints Porges is subject to numerous liens including a $7,500 tax lien in March 2015, a $9,000 tax lien in February 2014, a $64,000 tax lien in August 2013, a $5,200 tax lien in December 2012, among other liens. Tax liens and judgements are often a sign that the broker cannot manage their own personal finances and may be tempted to recommend high commission products or strategies to clients in order to satisfy debts.

Finally, the brokercheck record also states that on September 29, 2015, FINRA initiated an investigation into Porges conduct. The investigation relates to false statements and testimony, violations of FINRA’s supervisory rules and churning.

Former B.B. Graham & Company Broker Russell Macke Barred For Failing to Respond to Regulator Requests

October 20, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Russell Macke (Macke) has been the subject of at least 5 customer complaints, 2 regulatory actions, and 2 employment terminations, and 7 judgment or liens. Customers have filed complaints against Macke alleging securities law violations including poor investment performance, churning and excessive trading, unsuitable investments, and investment fraud among other claims. The judgment and liens include a $38,000 tax lien, a $108,000 tax lien, a $105,000 tax lien, a $1,500 tax lien, a $110,000 tax lien, a $24,000 tax lien, and a $14,000 tax lien. Macke was terminated by John Hancock in 1998 due to claims that the firm was unable to supervise him. In 2012, Macke was terminated from Forsyth Securities, Inc. due to a Missouri consent order and pending FINRA inquiry.

One of the regulatory actions brought against Macke by FINRA alleged that the broker took advantage of his discretionary authority over two customer accounts by engaging in excessive trading and use of margin in those accounts. FINRA found that Macke caused both customers to pay excessive margin interest, commissions and fees and that the amount of trading in the accounts was inconsistent with the customers’ financial circumstances and investment objectives.

One of the customers was alleged to have opened a brokerage account at Forsyth and was 85 years old and living in a nursing home and the account balance was $390,558. The customer used money from the account to pay health care and living expenses. FINRA found that the customer withdrew $55,923 to pay expenses and that Macke was aware of the customers’ use of the account and these withdrawals. The account forms listed annual income of $60,000, a net worth of $600,000, and liquid assets of $380,000. The account form’s risk tolerance was noted as moderate and the investment objectives were growth and income and trading and speculation.

Broker Investigation: St. Bernard Financial Broker Joseph Miles

October 19, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Joseph Miles (Miles) has been the subject of at least 3 customer complaints, 3 judgements or liens, and one bankruptcy discharge. Customers have filed complaints against Miles alleging securities law violations including poor investment performance, unsuitable investments, securities fraud, and breach of fiduciary duty among other claims. Most of the claims against Miles relate to bonds or other debt obligations that caused losses. For instance, the latest complaint alleged damages of $169,865 as a result of bonds that lost value in 2013. In addition, Miles has had difficulty managing his own finances having been through a bankruptcy in 2005. Thereafter, Miles has had three judgments filed against him for taxes in the amounts of $5,499, $27,241, and $7,900.

Miles entered the securities industry in 1983. Since May 2004, Miles has been associated with St. Bernard Financial Services, Inc. out of the Russellville, Arizona office location.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

Broker Spotlight: Financial Advisor Stephen Kipp

October 19, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Stephen Kipp (Kipp) has been the subject of at least 6 customer complaints, 1 regulatory action, and 1 employment termination. Customers have filed complaints against Kipp alleging securities law violations including, unsuitable investments, securities fraud, and breach of fiduciary duty among other claims. The employment termination was from National Planning Corporation (NPC) in August 2010 where the firm terminated Kipp alleging that the representative was permitted to resign under allegations that the he authorized his assistant to sign his name on firm related documents.

The regulatory actions brought against Kipp by FINRA alleged that when Kipp was employed by NPC permitted Julie Pritchard (Pritchard), who was also registered with NPC, to affix his signature to approximately 160 documents that were business records of NPC. FINRA found that NPC was not informed that Pritchard had placed Kipp’s signature on the records and therefore maintained these falsified documents. FINRA also found that from January 30, 2003 through June 10, 2010 Pritchard falsified the signatures of two brokers of NPC on approximately 293 total documents without disclosing that she had signed the documents instead of the brokers.

Kipp entered the securities industry in 1984. From January 2000, till August 2010, Kipp was associated with NPC. Thereafter since August 2010, Kipp has been associated with NFB Financial Group, LLC out of the firm’s Ventura, California office location.

Hedge Fund Canarsie Capital Losses 99.7% of Client’s Money Leading to SEC Investigation

October 10, 2015 | by Staff Attorney

According to news sources, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are investigating how the hedge fund Canarsie Capital lost nearly all of the $60 million capital in just three weeks of trading. The fund was run by Owen Li (Li), and Ken deRegt (deRegt). Canarsie Capital was named for the Brooklyn neighborhood where Li grew up and was launched in January 2013 and had offices in midtown Manhattan, New York. Li previously worked for Raj Rajaratnam’s (Rajaratnam) Galleon Group. Rajaratnam is currently serving an 11 year sentence following his May 2011 conviction on nine counts of securities fraud and five counts of conspiracy. The claims against him relate to $63.8 million in illicit profit from 2003 to 2009 by trading in stocks such as eBay Inc, Goldman Sachs Group Inc and Google Inc. Li cofounded the Canarsie Capital with his former Stanford University roommate, Eric deRegt and Eric’s father who ran Morgan Stanley’s fixed-income business.

According to filings the minimum investment accepted from an outside investor in the fund was $1 million. At its peak, Canarsie Capital had managed around $98 million in assets and had some well-known contributors. Goldman Sachs was the fund’s prime broker and clears and settles trades for the hedge fund starting in the fall of 2014. The Goldman Sachs switch came after the fund was dropped in March 2014, by Morgan Stanley’s prime brokerage over concerns with the fund’s risk practices.

On January 20, 2015, Li, wrote an apology letter to investors telling them that he “engaged in a series of aggressive transactions” during the first three weeks of 2015 that resulted in losing all but $200,000 of the fund’s capital, a 99.7% loss. According to the letter, Li engaged in aggressive trading in an attempt to recuperate prior losses the fund suffered in the fund in December 2014. At this time it’s unclear what the trading strategy was that Li engaged in January of this year. The only details in the letter concerning the securities themselves are that they included “options with strike prices pegged to the broader market increasing in value” and “some direct positions.”

FINRA Files Churning Complaint Against Leonard Goldberg

September 30, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Leonard Goldberg (Goldberg) (FINRA No. 2011026098504) alleging during the seven year period from August 2007 through August 2014, while he was registered with FINRA through J.P. Turner & Company, LLP (JP Turner) and Newport Coast Securities Inc. (Newport Coast) Goldberg caused over $123,600 in losses to five customers while making over $77,900 for himself by using discretion without authorization in connection with 300 mutual fund and Exchange Trading Fund (ETF) transactions to his benefit and the customers’ loss. FINRA also alleged that from August 2007 through February 2012, Goldberg used discretion to facilitate a scheme of effecting fraudulent and unsuitable short term switching of Class A mutual funds – a/k/a excessive trading activity or churning – in the accounts of the five customers. Finally, FINRA alleges that Goldberg also falsified firm documents in furtherance of his scheme.

Goldberg first became associated with a FINRA member in 1972. From July 2007, until October 2010, Goldberg was associated with JP Turner. Thereafter, from October 2010, until December 2014, Goldberg was associated with Newport Coast. According to BrokerCheck records Goldberg has had at least six customer complaints filed against him during his career.

According to FINRA, Goldberg’s fraudulent and unsuitable short term mutual fund switching scheme involved replacing one Class A mutual fund position with another one more than 90 times in a five year period. FINRA determined that the accounts held those mutual funds for an average of only five to six months before Goldberg switched the funds. FINRA also found that the customers generally trusted Goldberg to trade on their behalf in their accounts and he did not inform them in advance of the trades. In sum, FINRA determined that Goldberg’s mutual fund switching had no business purpose other than to generate commissions for himself through repeated fees and charges.