Broker Fraud

Buckman, Buckman & Reid To Pay Customers $205K

Published on: May 2, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) announced that Buckman, Buckman & Reid, a New Jersey-based brokerage firm, will pay about $205K in restitution to seven clients to settle claims that it did not reasonably supervise two ex-registered representatives accused of recommending “excessive and unsuitable trades.” The self-regulatory authority (SRO) has already barred both former brokers from the industry.

Also dealing with sanctions are Buckman Senior VP and owner Harry John Buckman, Jr., who supervised the two former brokers. Mr. Buckman was suspended for three months, ordered to pay a $20K fine, and must fulfill continuing education hours related to fulfilling supervisory duties.

FINRA said that the brokerage firm and Buckman neglected to identify when one of the ex-representatives was taking part in short-term Unit Investment Trust (UIT) trading on a frequent basis, as well as engaging in “other long-term investments” that charged customers substantial, upfront expenses. As a result, between ’13 to ’14 Buckman customers that were harmed ended up paying about $201K in commissions while sustaining approximately $163K in losses. Meantime, although there were red flags indicating “potentially excessive trading” by this former broker, the firm is accused of not reviewing these warnings.

Ex-Aegis Capital Broker is Barred Over Churning Allegations

Published on: April 22, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory (FINRA) announced that it is barring former Aegis Capital broker James Schwartz for allegedly churning four clients’ accounts. The self-regulatory authority (SRO) contends that Schwartz, who is no longer employed in the securities industry, made 256 trades in these accounts without first getting the customers’ permission to execute the transactions. Along with other trades he made in these accounts—535 trades in total—the customers ended up collectively losing over $660K.

FINRA’s BrokerCheck record on its case against Schwartz said that he engaged in about $10M worth of unauthorized trades. Some trades were also allegedly excessive.

The SRO said that Schwartz earned commissions and gross sales credits of $277,705 from these fraudulent transactions, more than $194,000 of which was paid to the former Aegis Capital broker.

LPL Financial To Pay $450K Fine to Texas Investors

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

According to the Texas State Securities Board, target=”_blank” rel=”noopener noreferrer”>LPL Financial (LPLA) will pay a $450K fine and buy back unregistered securities. The Consent Order noted that the settlement is part of the wider $26M one reached between the brokerage firm and state securities regulators in 2018.

In its deal with Texas, LPL agreed to buy back unregistered securities that it sold to investors in the state going as far back as Oct 1, 2006. LPL will pay “3% interest per year on the value of the securities either in damages if they were sold or by repurchasing the investments.” Similar terms were part of the wider agreement offered to all US states and territories regarding how to compensate investors who were sold unregistered stocks and fixed-income securities.

In January, Maryland Attorney General Brian Frosh announced his state’s settlement with LPL, which involved buying back these same types of securities, along with 3% simple interest annually, from investors. Aside from its restitution and rescission offers to Maryland investors, the brokerage firm agreed to pay a $499K civil penalty.

Investor Alert! Beware of Losses from the UBS Yield Enhancement Strategy

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

Investors in supposed “Yield Enhancement” strategies are learning that the purported safe investment program has significant risk. The Yield Enhancement Strategy (YES) that UBS Financial Services, Inc. (UBS) and other brokerage firms used was marketed as a “safe and efficient” way to enhance the return on a conservative portfolio.

The YES program was represented as an investment program that involved using options strategies that produced small returns but with small risks. UBS is one of a number of brokerage firms that touted the YES approach to customers as a way to make money via the “strategic” buying and selling of SPX index options spreads. The returns were purportedly “incremental” to “underlying asset returns” while giving clients a chance to possibly make money from low yield assets.

Seeking Alpha reports that the brokerage firm told clients that their UBS Yield Enhancement Strategy involved allowing a “mandate” or margin to be placed against their respective portfolios and that this would then be used, via an “iron condor” options trading strategy, to generate returns. It was these particular investors that have sustained the greatest losses when excessive volatility in December—the most that the market has encountered in 30 years—caused the YES strategy to fall.

Ex-UBS Puerto Rico Broker is Sentenced to Prison

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

Jose G. Ramirez-Arone Jr., who formerly worked as a broker for UBS Financial Services of Puerto Rico (UBS-PR), has been sentenced to a year and a day in prison for defrauding investors. Ramirez-Arone, also called Jose Ramirez and known by many on the island of Puerto Rico as “The Whopper,” pleaded guilty to bank fraud last year.

Ramirez admitted that he made more than $1.2 million in improper commissions by persuading clients to inappropriately invest in UBS Puerto Rico Bond Funds. More specifically, Ramirez admitted to participating in a scheme where he advised his clients to borrow money against their investments from a credit line at UBS Bank and then to use that borrowed money to buy more UBS Puerto Rico Bond Funds. This use of “non-purpose” loans to buy securities was strictly prohibited.

Unfortunately, in addition to being a prohibited transaction, this type of investing – where leverage is used to buy an already leveraged investment product – is unsuitable for most investors. The vast majority, if not all, of these investors were ill-equipped and unable to handle the risks involved, which they are now claiming were misrepresented or not fully disclosed to them. When Puerto Rico bonds and closed-end bond funds plunged in value in 2013, many UBS clients ended up having to sell their investments because they lacked the assets to satisfy maintenance calls on their accounts, resulting in massive losses for some.

Family Files $18M Investor Fraud Lawsuit Against Securities America Alleging Broker Fraud

Published on: March 27, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The Jamieson family has filed a broker-dealer fraud lawsuit against Securities America. They are seeking $18M in damages related to the actions of one of the firm’s former brokers, Hector A. May, who late last year pleaded guilty to operating an $11M Ponzi scheme that went on for years. May now faces 25 years in prison. Securities America fired him last year in the wake of the fraud allegations against him.

Last month, the Jamieson family sued May and Securities America. They claim that they lost $18M from working with May, who had been their adviser since 2001. The family contends that the former Securities America broker and his daughter Vania May Bell stole millions of dollars from them. In addition to working as a Securities America broker, May also was president and CCO of Executive Compensation Planners Inc. (ECP), which is no longer in operation. Bell served as ECP’s controller.

The plaintiffs contend that May and Bell advised them in a manner that made it possible for the two of them to keep defrauding the family. The Jamiesons are accusing Securities America of not performing its duties by:

NorthStar Healthcare REIT Investors Suffer Losses as Income Distributions Are Suspended

Published on: March 22, 2019 | by Shepherd Smith Edwards & Kantas, LLP

If you are an investor in NorthStar Healthcare Income, you very likely received a letter last month notifying you that monthly distributions from this investment have been suspended. According to NorthStar’s board, the publicly registered nontraded real estate investment trust’s (nontraded REIT) portfolio has been undergoing “operational and performance challenges” that as of the end of June 2017 has resulted in a “lower estimated value/share” of the NorthStar Healthcare’s common stock. The nontraded REIT has since determined that in order to protect both capital and its financial state, suspension of these distribution payments is necessary.

The NorthStar Healthcare Inc. nontraded REIT was set up to originate, acquire, and oversee healthcare industry-related investments, including debt, equity, and securities investments involving healthcare real estate. Sources note that between 2013 and 2018, it raised about $2B and set up a portfolio involving more than 650 properties.

However, NorthStar Healthcare Income began reducing distribution rates in December 2017. By October of last year, it had notified investors that it would only buy back shares from an investor if qualifying disability or death were factors. In December 2018, the nontraded REIT reduced its net asset value from $8.50/share to $7.10/share. Now, with the distribution suspension, some investors are standing to lose not just their monthly distributions, but also they could see a substantial decline in value on their principal that they originally invested.

Wedbush Securities To Pay $250K Over Inadequate Supervision of Ex-Broker Accused of Fraud

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

According to the US Securities and Exchange Commission (SEC), Wedbush Securities has settled allegations accusing the brokerage firm of failing to supervise one of its former registered representatives, Timary Delorme, who is accused of engaging in a pump-and-dump fraud that harmed retail investors. As part of the settlement, Wedbush consented to a censure and will pay a $250K penalty.

The SEC filed this civil securities case against Wedbush a year ago, accusing the broker-dealer of not properly investigating red flags indicating that Delorme might have been defrauding investors. The former Wedbush broker is accused of, from 2008 to 2014, receiving payments, which were issued to her husband, in exchange for recommending to investors that they make certain trades that were then used in the pump-and-dump fraud.

The regulator said that Wedbush even disregarded an email from a customer reporting the fraud, as well as a number of Financial Industry Regulatory Authority (FINRA) arbitrations claims and inquiries over Delorme’s trading activities involving penny stocks. Instead, contends the Commission, Wedbush performed two inadequate probes into the allegations against its former broker but didn’t take proper action.

Former Alexander Capital Broker Accused of Churning Must Pay Over $302K

Published on: March 12, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) has secured a final judgment against ex-Alexander Capital broker William Gennity, who is accused of excessive churning in clients’ brokerage accounts. Gennity, whom the Financial Industry Regulatory Authority (FINRA) had earlier suspended, will pay nearly $128K in disgorgement, nearly $15K in prejudgment interest, and a $160K civil penalty.

The SEC’s complaint accused Gennity of recommending costly, “in-and-out trading” to four clients between 7/2012 and 8/2014 without having any reasonable grounds for thinking that doing so would cause them to make money. Instead, they lost money as a result, while Gennity made money. The alleged churning purportedly took place while he was an Alexander Capital broker.

Churning typically involves a broker engaging in trades in order to earn more commissions.

SEC Bars Former Wells Fargo Broker Over Alleged $1.3M Senior Investor Fraud

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

Just a few weeks after former Wells Fargo (WFC) broker John Gregory Schmidt consented to a final judgment in the US Securities and Exchange Commission’s (SEC) investor fraud case against him, the regulator announced that it has barred Schmidt for misappropriating more than $1.3M from clients, most of them elderly retired investors. Schmidt, who also ran Schmitt Investment Strategies Group in Ohio and was already barred by the Financial Industry Regulatory Authority (Finra), was fired by Wells Fargo in 2017. In a parallel criminal case, he is also charged with 128 felony counts over the same fraud allegations.

The SEC’s complaint notes that at the time that Wells Fargo fired Schmidt, he had about 325 retail brokerage customers. At least half of them had worked with him for over a decade, and a “significant percentage” were retirees who depended on regular withdrawals from their brokerage accounts to cover their living expenses. Many of them were unsophisticated, inexperienced investors, some of whom were suffering from dementia, including Alzheimer’s disease.

Schmidt’s scam purportedly involved making unauthorized sales and withdrawals involving variable annuities from certain customers’ accounts and then using fraudulent authorization letters to move the money to the other clients’ accounts. According to the Commission’s complaint, between ’03 and ’17, Schmidt took money out of seven clients’ accounts and moved the funds to the accounts of other clients to conceal shortfalls there.