Broker Fraud

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.

BB&T Securities To Give Back Over $5M To Retail Investors

Published on: March 8, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Brokerage firm and investment adviser BB&T Securities has agreed to give back over $5M to retail investors, as well as pay the US Securities and Exchange Commission (SEC) a $500K penalty, to resolve charges that Valley Forge Asset Management misled advisory clients into thinking they were getting complete “full-service brokerage services in-house” at an up to 70% reduced rate, even as less costly alternatives were available. BB&T Corp. previously acquired Valley Forge, now a subsidiary called Sterling Advisors.

The regulator contends in its order that Valley Forge, which was registered as a broker and investment advisor, made “misleading statements and inadequate disclosures” about these services and their prices to persuade customers to retain their in-house services. Meantime, Valley Forge purportedly failed to give these advisory clients more services than what they provided to their other advisory clients who had selected other brokerage options. These options charged substantially lower commissions—about 4.5 times less than what the firm charged for its full-service in-house broker services. This, even as those who had chosen the in-house broker services were led to believe they would be getting a “high level of service at a low cost” and beyond what the other clients were getting from the firm.

The SEC is accusing Valley Forge of placing its own interests before that of its advisory clients, costing them money in higher commissions so that the firm could profit. The regulator noted that it was the firm’s duty to fully disclose any material facts to its advisory clients that could impact their relationship, including conflicts of interest. Such disclosures are important so that a client is able to give their informed consent (or not) to these conflicts.

Securities-Backed Lines of Credit Are Not For Every Investor

Published on: March 6, 2019 | by Shepherd Smith Edwards & Kantas, LLP

In an Investor Alert, the Financial Industry Regulatory Authority and the US Securities and Exchange Commission’s Office of Investor Education and Advocacy (OIEA) sought to inform investors about the risks involved in securities-backed lines of credit (SBLOCs). These loans are usually touted as a hassle-free, low-cost way for investors to gain access to money by borrowing against their investment portfolio’s assets without needing to liquidate the investments. Popular among a growing number of securities firms, SBLOCs, however, are not a good match for every investor.

Securities-Backed Lines of Credit – SBLOCs

Typically, to qualify for an SBLOC, an investor must have assets with a “market value of at least $100K.” He or she can then usually borrow anywhere from 50-95% of the value of assets in the portfolio.

Broker-Dealers Who Sold GPB Investments

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

According to public filings submitted to the Securities and Exchange Commission, there were approximately eighty broker-dealers across the country who sold, or were at least authorized to sell, these investments for GPB, including Aegis Capital Corp., D.H. Hill Securities, Purshe Kaplan Sterling Investments, Sagepoint Financial, Inc., Woodbury Financial Services, Inc., and many others.

Accelerated Capital Group

Advisory Group Equity Services, Ltd

FBI Is Investigating GPB Capital Holdings

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

InvestmentNews reports that the Federal Bureau of Investigation is investigating GPB Capital Holdings. The alternative investment management firm said that the FBI stopped by unannounced to its New York offices last week. The visit took place a few months after both the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (Finra) launched separate probes into the firm, which claims to have raised $1.8B from accredited, high net worth investors via private placement funds invested in waste management and car dealerships. WealthManagement.com reports that GPB Capital Holdings-sold private placements that are risky, illiquid alternative investments. However, there is growing concern that not all of these investors, were, in fact, sophisticated, accredited, high net worth parties.

In September, Massachusetts Secretary of the Commonwealth William Galvin announced it was investigating 63 brokerage firms for selling GPB Capital Holdings-issued private placements. Among the broker-dealers that sold these investments were Advisor Group firms Sagepoint Financial Inc, Royal Alliance Associates, Inc., Woodbury Financial Services, Inc., and FSC Securities Corp. News of Secretary

Galvin’s probe came just a month after GPB Capital Holdings announced that it was pausing its efforts to raise investor funds to deal with accounting and financial reporting issues involving two of its largest funds, the GPB Holdings II and the GPB Automotive Portfolio, which together reportedly raised almost $1.3B of investor money while paying brokers over $100M in commissions. Both funds missed an earlier deadline to file statements with the SEC.

Former Commonwealth Financial Network Broker Is Accused of Stealing $100K From Retiree

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

Massachusetts Secretary of the Commonwealth William Galvin has filed investor fraud charges against ex-broker Bruce Worthington, who was previously licensed with Commonwealth Financial Network and after that with Founders Financial Network. Worthington was based in Massachusetts.

According to Galvin’s fraud complaint, Worthington fraudulently misappropriated nearly $100K from one client’s accounts. The client is a retiree who worked as a groundskeeper and a landscaper. He was an inexperienced investor and Worthington was his broker for over 15 years.

From 2006 to 2008, about $98K was withdrawn from the retiree’s brokerage account. The state regulator contends that the money went towards Worthington’s own personal use. The ex-broker is accused of hiding his scam by persuading the client to diversify his portfolio. He also allegedly gave the retiree falsified documents to make it appear as if the diverted funds were put into alternative investments, including structured notes and laddered bonds, and had resulted in significant returns.

United Planners Fined $100K By Massachusetts for Inadequate Supervision of a Broker

Published on: February 20, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin’s office has fined United Planners Financial Services of America $100K for failing to properly supervise broker Thomas T. Riquier. The broker was charged last year for violating the state’s securities laws over his alleged involvement in a real estate scam that defrauded investors and others of at least $1M over 26 years.

According to the state regulator’s consent order, at one point Riquier, who is president of The Retirement Financial Center, oversaw 1,771 accounts for about 400 clients and generated more than $1.2M for United Planners, including over $500K in advisory fees. The state regulator charged Riquier, who is no longer a registered broker or investment adviser, last year with violating the Massachusetts Uniform Securities Act.

Investors of a limited partnership known as the Rowley Land Appreciation Fund Limited Partnership (The Rowley Fund) contend that Riquier told them that the property he was purchasing on their behalf would be sold for profit. Instead, he allegedly used their money to buy property that already belonged to him. Investors have yet to see any return on this property. Last year, The Salem News reported that according to investigators, Riquier made about $730K from his investor fraud.

Financial Firms: UBS Settles with Virginia’s Regulator over Broker’s Unsuitable Recommendations, FINRA Fines Texas Broker-Dealer $225K for Mutual Fund Sales Violations, and an Ex-Client Seeks $500K from Carson Wealth while Alleging Excessive Fees

Published on: February 19, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Virginia Regulator Fines UBS Financial After Its Broker Makes Unsuitable Recommendations

To settle charges brought by Virginia’s State Corporate Commission accusing a UBS (UBS) broker of making unsuitable recommendations involving gold and precious metals securities to 18 clients, UBS Financial Services will pay $319K—$289K to the clients and $30K to the state.

Virginia’s regulator contends that unsuitable recommendations were made in 2013 and 2014 and caused UBS clients to hold an overconcentration of these securities, which were not even suitable for some of them. The state said that this violated its securities rules.

Recover Losses From Investing With Former Ameritas Investment Corp. Broker Kristian Gaudet

Published on: February 16, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Current Investigation: Shepherd, Smith, Edwards & Kantas, LLP (“SSEK Law Firm”) is currently investigating claims on behalf of former clients of Kristian “Kris” Gaudet (“Gaudet”) of Cut Off, Louisiana.

In January 2019, the Financial Industry Regulatory Authority (“FINRA”) barred Gaudet from association with any FINRA member. The result of such a bar is that FINRA has effectively kicked Gaudet out of the brokerage business permanently. Kristian Guadet was most recently associated with Ameritas Investment Corp. (“Ameritas”), and had worked for Ameritas’ brokerage firm and insurance arm since 2003. Prior to Ameritas, Mr. Gaudet worked for The Advisors Group and Princor Financial Services. In November 2018, FINRA opened an investigation of Mr. Gaudet based on “suspicions that Mr. Gaudet was involved in fraudulent activities.” Then, only a few weeks later, on December 10, 2018, Ameritas terminated Mr. Gaudet based on allegations from clients that Mr. Gaudet was “using client funds for personal use.” Even after the termination from Ameritas, FINRA continued with its investigation. Rather than defend the allegations, Gaudet refused to appear or provide any on-the-record testimony, instead consenting to a permanent bar from the securities industry.

While it is unusual for brokers to find ways to steal client funds or otherwise use client funds as their own, it sadly does still happen. More importantly, our firm’s experience is that long before a broker starts taking client funds directly, that broker does many other less obvious things to hurt his/her clients while trying to profit from those same clients. The act of theft is typically the last in a series of wrongdoing that often goes undetected for years from customers.