Broker Misconduct

Stanford Ponzi Fraud Victims Awarded $1.4M

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

A Financial Industry Regulatory Authority (FINRA) panel has ordered Pershing, LLC to pay $1.4m to six investors who lost money in R. Allen Stanford’s $7.2B Ponzi scam. Pershing is a Bank of New York Mellon Corp. (BK) division. It acted as Stanford Group Co.’s clearing broker for several years.

Pershing is accused of enabling the Stanford Ponzi Fraud, including through its transfer of hundreds of millions of dollars from US investors’ securities accounts, as it continued to make money from the sales of at least $500M in fake, unregistered certificates of deposit (CDs).

Pershing also allegedly disregarded the unusual ways in which Stanford ran his operations, including the use of offshore transfers and the high compensation awarded to brokers. The unregistered CDs were issued out of Stanford International Bank, a Stanford Financial Group unit based in Antigua, and then sold by Stanford’s brokerage firm in the US.

Claim Filed Against Arkadios Over GPB Capital Private Placements

Published on: May 3, 2019 | by Shepherd Smith Edwards & Kantas, LLP

An investor in GPB Capital has filed a Financial Industry Regulatory Authority (FINRA) Claim against Arkadios Capital and one of its brokers over losses she sustained to her IRA after she followed the financial adviser’s recommendation to invest in GPB Capital Holdings.

Now she is claiming retirement fund losses in the hundreds of thousands of dollars. Our investor fraud law firm, Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) is representing the investor, who hails from the greater Atlanta area, and we have filed a FINRA arbitration claim on her behalf.

GPB Capital Holdings is an alternative asset management firm whose private placement funds are primarily invested in auto dealerships and waste management. The firm is under scrutiny by FINRA, the US Securities and Exchange Commission (SEC), Massachusetts Secretary of the Commonwealth William Galvin, and the FBI over its private placements that were sold by dozens of brokerage firms and their brokers.

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.

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.

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.

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.