Broker Fraud

CYES Strategy Investments Prove Too Risky for Investors

Published on: July 15, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Over the last several months, it has come to light that brokers from some of the largest firms on Wall Street firms sold Collateral Yield Investment Strategies (CYES Strategies) that may not have been suitable for many investors, causing them to suffer devastating losses. Offered through registered investment adviser Harvest Volatility Management, LLC, the CYES Strategy is a type of Yield Investment Strategy (YES Strategy), only even more risky and complex.

YES Strategy Investments

Reportedly, UBS (UBS), Credit Suisse (CS), Bank of America’s (BAC) Merrill Lynch, Morgan Stanley (MS), and other brokerage firms brokers sold YES Strategies to many wealthy investors, touting the approach as safe way to increase returns on conservative portfolios. These were supposed to be small returns at a low risk, using a strategic approach that involved the purchasing and selling of SPX index options spreads.

Summit to Pay Over $880K for Excessive Trading, Inadequate Supervision

Published on: July 11, 2019 | by Shepherd Smith Edwards & Kantas, LLP

For alleged supervisory failures and excessive trading by one of its former brokers, Summit Brokerage Services, Inc. has been ordered to pay over $880K– $558K in restitution with interest to customers that were harmed, as well as a $325K fine to the Financial Industry Regulatory Authority (FINRA). The broker-dealer consented to the entry of the findings but did not admit to or deny wrongdoing.

According to the SRO, from 1/2012 to 3/2017, Summit neglected to review certain automated alerts for the trading activities of its registered representatives, of which there are more than 700. Because of this, one of its brokers, was able to excessively trade in accounts belonging to 14 clients, including 533 trades on behalf of one customer. This compelled her to pay over $171K in commissions.

The broker’s excessive trading resulted in 150 alerts for this type of activity, none of which were purportedly reviewed by Summit. FINRA has since barred the former registered rep.

Former LPL Broker and Ex-Convict Accused in $3.3M Investor Fraud

Published on: July 10, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Ex-target=”_blank” rel=”noopener noreferrer”>LPL Financial (LPLA) broker, Kerry L. Hoffman, is now facing fraud charges brought by the US Securities and Exchange Commission (SEC). Hoffman is accused of fraudulently selling $3.3M of unregistered securities, along with childhood friend Thomas V. Conwell, who is also a defendant in the civil case. The latter was barred by the regulator from the industry in 2000 after a separate $800K fraud that harmed 19 investors. Conwell pleaded guilty to criminal fraud charges against him and was sentenced to time in prison.

According to the SEC’s current complaint, the two men defrauded at least 46 investors in a dozen states by selling GT Media, Inc. securities to them. Hoffman was a registered LPL Financial broker during most of the time of the fraud, which allegedly took place between July 2015 and July 2018. He resigned from the firm in the wake of allegations that he served as consultant to GT Media without getting LPL’s approval or notifying the firm about these outside activities. He also was accused of helping a number of LPL clients and his own family members to invest in the company.

Hoffman allegedly offered and sold $350K of GT Media convertible promissory notes and $500K of the company’s stock to five advisory clients, making $50K in commissions. The Commission is accusing him of soliciting some of his advisory clients to invest in the unregistered securities but without letting them know that he had a conflict of interest. Not only was GT Media paying him compensation, but also the company was paying back money he had let it using investors’ money.

Legend Securities to Pay Almost $967K to Investor

Published on: July 9, 2019 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) panel is ordering Legend Securities, CEO Anthony Fusco, and three of the firm’s former brokers to pay one investor $966,708 in damages. Legend Securities was expelled by the self-regulatory authority two years ago and is no longer in operation.

The claimant, Frederick Blake, alleged the following:

- Churning

Former NY Trader Accused of $19.3M Ponzi Fraud

Published on: July 5, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) is accusing Paul Andrews Rinfret, Plandome LLC, and Plandome Partners LP of defrauding investors in a securities offering scam. At least five investors were allegedly collectively bilked of $19.3M. Rinfret, who is a former New York trader, is now also facing parallel criminal charges.

The SEC, in its complaint, contends that Rinfret told investors they were backing an already successful trading strategy using a proprietary algorithm that had rendered returns in the triple digits—360% in a multiyear period, supposedly—when, in reality, money was being lost on a consistent basis. Meantime, Rinfret allegedly used investors’ money to fund his extravagant lifestyle.

The investors are five individuals who thought they were buying limited partnership interests in Plandome Partners, LP, which Rinfret claimed was an investment fund that he and Plandome Partners LLC ran. These investors thought their funds would be traded in S & P futures contracts and foreign currency.

Brokerage Firms Made over $165 Million for Selling GPB Capital Private Placements

Published on: July 1, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Investment News is reporting that broker-dealers and their brokers that sold GPB Capital Holdings private placements to investors have collectively been paid $167 million in commissions. That large number represents 9.3% of the $1.8 billion that supposedly accredited, wealthy investors paid for these risky private placements. Recent reports had estimated that the commissions paid were lower, at around $100 million (about 7% per transaction), but GPB Capital has apparently confirmed the much larger number.

While brokers and broker-dealers are allowed to make up to a 10% commissions for selling financial products to clients, very few investments pay such a high rate. However, private placements, such as GPB Capital, entice brokers and their firms to sell such risky investments by offering much higher commissions and fees.

For private placements, it is not uncommon for financial representatives to earn around 7% in commissions, with another 2% going to the brokerage firm. In comparison, mutual funds and other similar investments typically pay less than half as much in commissions.

Investors Awarded $3M In Claim Against Spire Securities

Published on: June 29, 2019 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded 23 investors $3M in their claim against Spire Securities, its CEO David Lloyd Blisk, and CCO Suzanne Marie McKeown. The broker-dealer and its executives were accused of inadequately supervising former broker Patrick Evans Churchville, whom the investors contend fraudulently sold them investments that caused them to lose money in a $21M Ponzi scam.

Churchville sold the investments through ClearPath Wealth Management, a registered investment adviser that he operated outside of Spire Securities. Still, the claimants contended that the broker-dealer should have prevented Churchville from causing them financial harm while he was a Spire Securities broker and could have done so had they properly overseen him.

Churchville pleaded guilty in 2016 to criminal charges accusing him of operating a $21M Ponzi scam. In 2017, he was sentenced to seven years in prison for tax evasion and wire fraud.

REIT Investors Suffer Major Losses

Published on: June 25, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Trouble is brewing with a number of nontraded real estate investment trusts (REITs) and now, investors are filing claims for their losses. One of the REITs, NorthStar Healthcare Income, Inc., suspended distributions to investors on February 1.

Closed to new subscriptions since December 2015, the publicly registered REIT was set up to acquire, originate, and oversee securities in the healthcare industry. Northstar told investors that challenges involving performance and operations had resulted in a reduced estimated value/share in 2018 compared to 2017—from an $8.50 NAV/share at the end of June 2017 to $7.10 NAV/share in December 2018.

The nontraded REIT’s board cited a number of reasons for the decrease: a cash flow affected by the senior housing market, labor costs related to the investments that have impacted the REIT’s portfolio, more cash flow issues—this one impacting the skilled nursing industry—and assets’ income losses.

Ex-Cetera Financial Group Adviser Named in 27 Customer Disputes

Published on: June 24, 2019 | by Shepherd Smith Edwards & Kantas, LLP

After failing to cooperate in a probe into allegations of securities violations, George Merhoff, a former ex-Cetera Financial Group adviser, has been barred by the Financial Industry Regulatory Authority (FINRA). He was fired by the brokerage firm in April for allegedly issuing an undisclosed payment to a firm customer.

With over 21 years working in the brokerage industry, Merhoff was a registered Cetera broker for seven years. Before that, he was registered with Pacific West Securities, where he worked for 13 years, and at AAG Securities for less than a year.

Merhoff’s BrokerCheck record shows 27 customer disputes filed since December 2015 that have either been settled or are pending. Allegations include the following:

Ex-Cetera, UBS, and Spencer Edwards Brokers Barred

Published on: June 21, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Former Cetera Broker Allegedly Engaged in Outside Business Activities

The Financial Industry Regulatory Authority (FINRA) announced that it is barring Nina Jessee, a former Cetera Advisors broker. The bar comes after Jessee failed to cooperate with the self-regulatory organization (SRO), which was investigating complaints about her related to alternative investments, including allegations that she had engaged in business activities that were not authorized outside of the brokerage firm.

With more than 30 years in the industry, Jessee has also been a registered broker at five other broker-dealers, including Investors Capital Corp., Financial Securities Network, NAP Financial Corporation, Marketing One Securities, and Mutual of Omaha Fund Management Company.