Broker Fraud

FINRA Bars Ohio Broker Accused of Stealing $90,000 Inheritance from Two Sisters from the Securities Industry

Published on: August 19, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Richard Wood, an Ohio broker, has agreed to be barred from the securities industry for allegedly committing broker misconduct. According to the Financial Industry Regulatory Authority, the broker, working for American General Securities Inc., allegedly stole the $90,000 that a client had left to two of her nieces.

FINRA says that Wood helped liquidate the estate in 2006. He then suggested that the nieces, who are sisters, open a brokerage account and invest in bonds. He was to oversee their investments. Instead, he allegedly misappropriated the money and told the sisters to issue their checks to STL Financial, Inc., an entity that he alone controlled rather than an actual brokerage firm.

The self-regulatory organization claims that Wood gave each of the sisters a bogus account number to a brokerage account that didn’t exist. He also allegedly put together more than one false customer account statement when one of the sisters became suspicious.

UBS AG and Merrill Lynch Collectively Fined $250,000 by FINRA for Closed-End Fund Actions

Published on: August 12, 2009 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services Inc. has agreed to be fined $100,000 and Merrill Lynch, Pierce, Fenner & Smith Inc. has consented to a $150,000 fine, says the Financial Industry Regulatory Authority, for alleged supervisory failures that resulted in the inappropriate short-term sales of closed-end funds that were bought at initial public offerings for the funds. By agreeing to settle, the broker-dealers are not deny or admitting to the FINRA charges. They are, however, consenting to the findings.

FINRA also announced that it was suspending five Merrill Lynch brokers for 15 days. Each of them must pay a $10,000 fine for allegedly making fund recommendations that were unsuitable for investors.

Merrill Lynch brokers that FINRA has sanction include:

• Kenneth C. Iwelumo (his clients lost about $563,000)
• Joseph Miller (approximately $130,000 in client losses)
• Ronald Kemp (about $411,000 in customer losses)
• Michael Kizman (about $210,000 in losses)
• John Ong (about $350,000 in client losses)

The investigation into the activities of a number of former UBS brokers is ongoing.

Closed-End Funds
Closed-End Funds are investment companies that sell a fixed number of shares during an initial public offering. These sales come with built-in sales charges. The CEF’s at issue came with a 4.5% sales charges and a 30-90 day penalty bid period after the IPO. If a client sold the CEF that had been purchased at the IPO during this time period, the broker would lose the commission.

FINRA says that both broker-dealers knew that CEF’s bought at IPO’s are more appropriate for long-term investments and that because of the sales charges that come with their purchases, it is inappropriate to engage in the short-term trading of CEF’s. FINRA claims that Merrill Lynch and UBS did not have the proper supervisory procedures and systems in place so that brokers couldn’t and/or wouldn’t make such unsuitable CEF sales.

FINRA also says that both broker-dealers failed to warn supervisors about the potential issues that could result from such activity and did not properly train registered individuals. Due to this improper supervision, brokers for Merrill and UBS recommended that certain clients engage in short-term sales of CEF’s bought at IPOs without fully understanding the financial ramifications these recommendations would have on their clients’ finances.

FINRA is concerned about brokers who convince customers to buy CEF’s during their IPO’s and then wait until after the penalty bid period is over to recommend that clients sell the CEF’s-usually at a loss. These brokers then recommend that clients use the proceeds from the sale to purchase more CEF’s at initial public offerings.

FINRA Fines Merrill Lynch, UBS for Supervisory Failures in Sales of Closed-End Funds; Customers Get More Than $5 Million in Remediation, FINRA, July 28, 2009
Merrill, UBS Are Fined in Closed-End-Fund Case, The Wall Street Journal, July 29, 2009 Continue Reading ›

SEC Says Prime Capital Services, Inc. Defrauded Elderly Investors in Florida with “Free” Lunch Seminars and Unsuitable Variable Annuity Sales

Published on: August 10, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is accusing broker-dealer Prime Capital Services Inc., income tax preparation business Gilman Ciocia Inc., and seven individuals of defrauding senior investors in Florida. The agency claims that the two companies, as well as the individuals named, allegedly used “free” lunch seminars that resulted in the sales of unsuitable variable annuities and, on occasion, millions of dollars in commission.

Robert Khuzami, the SEC Enforcement Director, called the free lunches “bait” for the scam. Elderly investors who are persuaded to purchase unsuitable financial products frequently are never able to fully recover their financial losses, which can severely deplete their retirement savings.

In addition to cease and desist proceedings against the respondents, the SEC is seeking remedial action, including civil penalties and disgorgement. According to the attorney representing PCS, Gilman, PCS President Michael P. Ryan, CCO Rose M. Rudden, one of the registered representatives, and one of the supervisors, the conduct under question occurred in the late ’90’s and 2000’s and has been remedied for some time. The respondents plan to defend themselves against the charges.

SEC investigators say the senior investment fraud scam occurred between November 1999 and February 2007 and that during appointments conducted with seminar participants, PCS representatives either left out important information or made misrepresentations about variable annuities. For example, PCS representatives are accused of telling investors they would have unrestricted access to the money they invested but did not tell them that there would be substantial charges if they withdrew their money early.

The SEC claims that representatives’ commissions when selling variable annuities was 6%. Their commission on other investment products was just 3%. The agency also claims that Ryan and a number of supervisors neglected to implement PCS’s supervisory procedure to identify when misconduct was occurring, as well as prevent broker misconduct from happening.

Related Web Resources:
Read the SEC’s Order (PDF)

“Free-Lunch” Seminars Still Baiting Seniors, Retirement Income Journal, July 15, 2009 Continue Reading ›

FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme

Published on: August 3, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has permanently barred a former Stifel, Nicolaus & Co. Inc. and AXA Advisors broker from operating. Kenneth George Neely has admitted to running a ponzi scheme involving clients of both broker-dealers, as well as friends, family members, and fellow church members.

According to federal regulators, Neely acted fraudulently when he induced at least 25 clients to take part in the “St. Louis Investment Club” and invest in “St Charles REIT. Both the investment club and the real estate investment trust are bogus.

To cover up the Ponzi scheme, Neely had investors issue payments to his wife in $2,000 and $3,000 increments so that banks wouldn’t get suspicious when funds were turned into cash. He also created bogus invoices that looked like official ownership certificates for REIT purchases. These certificates listed names of a “President” and a “Secretary” who were both fictitious. Neely promised investors that their investments would be taken care of.

For example, he promised one friend a high return rate on a bogus St. Charles REIT investment. The friend had invested $154,000. Neely would end up returning $10,000 to this person and using the rest of the funds to pay for some of his own personal expenses and debt.

He also persuaded a fellow church member to invest $35,000. He promised a 5% return rate. Small interest payments later dried up and Neely used the balance for his personal spending.

Neely improperly utilized over $600,000 of his investors’ assets. He converted over half the amount to his own use and returned about $300,000 to some investors.

It wasn’t until FINRA spoke with the St. Louis broker about his bogus real estate investment trust that he stopped collecting funds. AXA terminated his employment after he admitted what he’d done to FINRA.

FINRA enforcement chief Susan Merrill says that it is disturbing that in addition to taking advantage of clients at the brokerage firms where he’d worked, Neely also exploited relatives, friends, and acquaintances and took their “hard-earned savings.”

FINRA Permanently Bars Broker Operating Ponzi Scheme Involving Customers of Broker-Dealers, FINRA, July 27, 2009
Former AXA broker barred by FINRA for Ponzi scheme, Reuters, July 27, 2009 Continue Reading ›

Morgan Stanley to Pay $500,000 to Resolve SEC Charges that it Recommended Unapproved Money Managers to Clients

Published on: July 27, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley & Co. Inc. has consented to pay half a million dollars to settle Securities and Exchange Commission charges that it recommended unapproved money managers to clients. The SEC claims the broker-dealer breached its fiduciary duty to Nashville advisory clients when it made material misstatements about a program designed to help clients choose money managers who were “properly vetted,” as well as assist them in developing investment goals.

Instead, the SEC claims that Morgan Stanley suggested money managers who were not approved to take part in the broker-dealer’s advisory programs and did not undergo the firm’s due diligence process. The SEC says that it was specifically William Phillips, a former Morgan Stanley broker based in Tennessee, who guided clients to three managers who were “unapproved.”

The clients were not told that the managers gave Morgan Stanley and Phillips significant fees or commissions of at least $3.3 million. The alleged incidents took place from 2000 to through early 2006.

Meantime, Phillips is contesting the charges against him and Is denying that he engaged in any impropriety. Phillips’s attorney claims the SEC is not alleging antifraud violations and that the allegations did not stem from any client complaints.

By agreeing to settle, Morgan Stanley is not admitting to or denying the allegations. The broker-dealer, however, did agree to cease and desist from violations in the future.

Scott Friestad, the SEC’s Associate Enforcement Director, recently noted that it is the job of investment advisers to put investors’ interests before their own and to give clients accurate and complete information at all times.

Related Web Resources:
Morgan Stanley paying $500,000 to settle SEC charges of misleading clients in Nashville, Newser.com, July 27, 2009
SEC Charges Morgan Stanley and Former Adviser with Misleading Clients, SEC, July 20, 2009

Related Web Resources:
Read the SEC’s Order against Morgan Stanley (PDF)

Read the SEC’s Order Against Phillips (PDF)
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SSEK Looks Into Securities Fraud Claims for Richard Buswell and Brookstone Securities Clients Over Private Placement Units Sales in Advanced Blast Protection

Published on: July 23, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Our securities fraud lawyers are investigating claims for clients of Richard Buswell and Brookstone Securities over private placement units sales in Advanced Blast Protection, as well as charges that clients received unsuitable recommendations.

The Financial Industry Regulatory Authority has made public records noting that Brookstone Securities terminated Buswell’s employment this year in the wake of investigations involving allegations of fraud, unsuitability, failure to disclose complaints, churning, and other “disclosable matters” that may be “outstanding.” Buswell’s employment termination was reportedly punitive.

Some investors say they lost their retirement because Buswell gave them the wrong advice and defrauded them. He is also accused of overstating potential earnings for clients, convincing some of them to invest in companies that would give him commissions, and in some cases was given higher commissions than expected. Buswell is also accused of making high risk investments for investors who would have been better off making more conservative to moderate moves.

Investors have also filed complaints against Buswell over the sale and marketing of private placement units in Advanced Blast Protection. ABP is based in South Florida. The company’s clients were supposed to receive principal payments this year but ABP defaulted. As a result, investors were left with illiquid investments.

Please contact Shepherd Smith Edwards & Kantas LTD LLP if you bought ABP private placement or were an investor client of Brookstone and Buswell.

Related Web Resources:
Investors sue advisers, 2TheAdvocate.com, May 15, 2009
FINRA
Continue Reading ›

Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP Files Claims Against Morgan Keegan Following SEC Wells Notice

Published on: July 16, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Last week, the Staff of the Atlanta Regional Office of the US Securities and Exchange Commission sent Morgan Keegan & Co, Inc., Morgan Asset Management, Inc., and three employees a “Wells” notice. The notice stated the Staff’s intention to recommend that the Commission bring enforcement actions over possible federal securities laws violations. Morgan Keegan, is a subsidiary of Regions Financial Corporation.

The Staff had been investigating a number of mutual funds that Morgan Asset Management had previously managed. In light of the Wells notice, the securities fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP is continuing to file arbitration claims against Morgan Keegan for covering up the risks associated with their bond funds.

Our investor clients are accusing Morgan Keegan of selling specific funds that it promoted as relatively conservative investments when in fact, the funds were exposed to subprime mortgage securities, collateral debt obligations, and other high risk debt instruments. Investors are alleging that Morgan Keegan took part in a scam that defrauded investors of certain bond funds while misrepresenting their degree of involvement in more high risk investments. As a result, our investor clients suffered major financial losses after the subprime mortgage market collapsed.

FINRA Says Number of Stockbroker Fraud Arbitration Claims by Plaintiffs is Rising

Published on: July 14, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to the Financial Industry Regulatory Authority, the amount of investor fraud claims alleging securities fraud and other violations has grown. From January to May 2009, investors filed 3,163 stockbroker fraud claims-an 85% increase from the 1,711 stockbroker fraud arbitration claims that were filed for the same period in 2008.

More investors have filed arbitration complaints since the demise of the sub-prime mortgage market in 2007. About 7,000 investment fraud claims are expected to be filed in 2009-compare this figure to the 4,982 arbitration claims in 2007 and the 2,238 securities fraud arbitration claims in 2007. In 1,718 of the arbitration cases filed through May 2009, breach of fiduciary was the most common complaint.

Also, more investors with arbitration claims are emerging victorious. This may be in part due to new rules by the Securities and Exchange Commission that limits a defendant’s ability to file a dismissal motion. For the first five months of this year, arbitration panels issued rulings in favor of investors in 47% of arbitration claims-compared to 42% of the time during the same time period in 2008.

However, Shepherd Smith Edwards & Kantas LTD LLP founder and Stockbroker Fraud Attorney William Shepherd says, “Considering there are about 60 million investors in the U.S., it is actually surprising that so few seek recovery. Approximately 1 in 10,000 investors file claims, but I believe at least 1 in 1,000 investors is cheated. Thus, 90% of valid claims are never filed. Claims involving money lost gambling in the market or over honest but bad advice do not succeed. Valid claims include those for fraud, misrepresentation, unsuitable investments, failure to disclose risks, or even for negligence.”

Related Web Resources:
Investor Arbitration Claims Sharply Up, Law.com
FINRA
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Ameriprise Must Pay $17 Million for REIT Fraud

Published on: July 12, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission says Ameriprise Financial Services has consented to pay $17.3 million to settle allegations that it received millions of dollars in undisclosed compensation in exchange for selling certain REITs (real estate investment trusts) to its brokerage customers.

The SEC says Ameriprise demanded and got “revenue sharing” payments to sell the REITs but neglected to disclose it was receiving the payments. The SEC is also accusing Ameriprise of violating a number of federal securities laws when it sold over $100 million in unregistered shares involving one specific REIT.

SEC Enforcement Director Robert Khumazi says the broker-dealer’s clients were not told that brokers had incentives to sell the REITs. He stressed the importance of investors being able to rely on unbiased advice from financial advisers.

The SEC charges come from REITs sales that took place between 2000 and May 2004. CNL Holdings Group, Inc. and W.P. Carey & Co. LLC created, advised, and managed the REITs named in the proceedings.

By agreeing to settle, Ameriprise is not admitting to or denying wrongdoing.

Shepherd Smith Edwards & Kantas LTD LLP represents Ameriprise investors with securities fraud cases against the broker-dealer. Stockbroker fraud attorney and firm founder William Shepherd says “Our law firm handles claims of all types for investors nationwide who lost in accounts at Ameriprise and other financial firms. Over 90% of our clients recover all or part of their losses. It is sad that many investors choose not to seek recovery from investment firms that commit fraud or and other wrongdoing. We offer a free consultation and most of our clients advance no fees or costs but instead pay these out of their recovery.”

Related Web Resources:
Ameriprise Pays $17.3M To Settle SEC Charges, Wall Street Journal, July 10, 2009
REITs, Investopedia Continue Reading ›

Former Stifel Nicolaus and A.G. Edwards Stockbroker Pleads Guilty to Mail Fraud

Published on: June 25, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A former stockbroker that used to work for A.G. Edwards and Stifel Nicolaus has pleaded guilty to mail fraud. Neil R. Harrison, could spend up to 27 months behind bars-although his agreement to repay $85,739, cooperate with police, and lack of a criminal record could help him receive less than the 21-month minimum sentence. Harrison is accused of defrauding clients at two Illinois firms. He solicited investors to place their money in commodities futures and the gold market but instead used their funds for gambling. The mail fraud charge is based on a wire transfer confirmation mailed to a Stifel client.

While this may be Harrison’s first official brush with the law, he was let go from A.G. Edwards in 2005 for failing to cooperate with a probe regarding his efforts to get a loan from a client. A.G. Edwards filed the necessary securities documents regarding his firing. Even though Stifel Nicolaus was aware of Harrison’s background, the broker-dealer still hired him-with a special supervised agreement-just 10 days after A.G. Edwards terminated him.

Stifel would eventually fire the stockbroker in 2008 for “unethical and professional misconduct.” The broker-dealer accused Harrison of soliciting and getting money and personal loans from clients for fraudulent investments.

Per Harrison’s plea agreement: The ex-stockbroker persuaded clients to sign paperwork to open margin accounts without making sure that they had a good understanding of what these accounts were or the interest rates associated with them. He would then direct his broker-dealer to issue wire transfers to the investors’ checking accounts to replace money that was issued to him for the bogus investments. He also made material misrepresentations to clients and prospective investors. He told them they could make a lot of money but they would have to go outside the traditional brokerage account for diversity when making investments.

At least five investors were defrauded.

Related Web Resources:

Illinois Securities Department
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