Financial Firms

FINRA Bars Former JP Morgan, Stifel Nicolaus, and Benjamin & Jerold Brokers

Published on: September 11, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) has barred three former brokers who failed to take part in the self-regulatory authority’s probe into allegations of wrongdoing. Stephen T. Hurtak, formerly of Stifel Nicolaus & Co., was a broker for 39 years. According to FINRA, Hurtak refused to take part in the investigation into possibly unsuitable recommendations he may have made to several customers.

Unsuitable Recommendations

Brokers have a duty to make investment recommendations and strategies that are appropriate for a customer as it pertains to their investment goals, risk tolerance, and portfolios. When unsuitable recommendations lead to investment losses, this can be grounds for an investor fraud case.

Investors Bilked in $1.2B Woodbridge Ponzi Scam Must Pay 16% to Borrow on What They Are Owed

Published on: September 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

It wasn’t bad enough that over 10,000 investors, many of them retirees and other retail investors, were bilked in the $1.2B Woodbridge Ponzi scam. Now, they are allowed to borrow against what they hope to recover after the bankrupt real estate developer’s assets are liquidated but they must pay a 16% interest rate to do so.

While the rate isn’t necessarily wrong or unfair on the part of hedge fund lender Axar Capital Management—it was the investors that went to the Delaware Bankruptcy court seeking a $215M loan facility so that they could access their funds until Woodbridge’s bankruptcy proceedings are settled—the rate is still a steep sum considering that they thought that their investments would garner an approximately 8% return.

SEC Goes After Woodbridge

Dallas, Texas-Based Wells Fargo Broker Expelled by FINRA

Published on: August 30, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority (FINRA) has barred J. Gordon Cloutier, Jr. (Cloutier), a former Wells-Fargo (WFC) broker based in the Dallas area of Frisco, Texas, after he allegedly tried to make an unauthorized trade and requested a loan from a client. Cloutier, who had worked at the firm for seven years, was fired in 2016. Previous to working with Wells Fargo, Cloutier was a Merrill Lynch broker, which is now a division of Bank of America (BAC), from 1996 to 2009. FINRA ultimately barred Cloutier after he failed to respond to numerous attempts by the self-regulatory organization to interview him for its probe. It is FINRA’s policy to open an investigation after a broker is let go from a firm. It was Cloutier’s lack of response that led to FINRA issuing the default bar from the industry.

At Shepherd Smith Edwards and Kantas LLP, our Texas broker fraud law firm represents investors in helping them to recoup their losses sustained due to broker misconduct, negligence, or carelessness. Over the years, we have successfully helped thousands of investors from our Houston offices. If you were an investors who worked with Cloutier, our Wells Fargo investor fraud attorneys want to hear from you.

Broker Fraud

Oppenheimer Found Liable for Representative Mark Hotton’s Fraud

Published on: August 29, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Recently, Oppenheimer was found liable for the conduct of one of its former brokers named Mark Hotton. Hotton joined Oppenheimer in November 2005, and proceeded to fleece a number of his clients, according to financial regulators. FINRA, the Financial Industry Regulatory Authority, has filed a disciplinary action against Hotton which is still pending.

According to the complaint, Hotton outright stole almost $6 million from his brokerage customers, and directed another $2.5 million to outside businesses that Hotton was affiliated with in some way. These numbers don’t even include the millions of dollars that FINRA believes that Hotton caused by excessively trading, or churning, customer accounts to generate commissions for himself.

The level of fraud that Hotton was engaging in should be shocking if it wasn’t becoming increasingly commonplace. In 2006, a customer filed a lawsuit against Hutton after it was convinced by Hotton to invest $4 million in real estate transactions. The customer claimed that Hotton simply stole the entire investment, which was accomplished by forging contracts, forging mortgages, forging account statements, and directing the investment being made into a shell corporation that he had created with a similar name to the company that was supposed to be invested in. Ultimately, that lawsuit was settled for millions of dollars which Hotton was individually liable for. Yet this lawsuit, its allegations, and its results were never disclosed to other customers as regulations require, permitting Hotton to continue to seek new customers to bilk.

Oppenheimer Continues to Show Serious Supervisory Deficiencies

Published on: August 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Date: August 7, 2013

The attorneys at Shepherd, Smith, Edwards & Kantas LLP are investigating claims by investors with Oppenheimer & Co. Although the firm’s investigations are usually target more specifically at particular conduct of a firm or broker, Oppenheimer & Co.’s supervisory system has been found so woefully inadequate by numerous regulators and arbitration Panels over the last several years that almost any trading strategy permitted in Oppenheimer customer accounts becomes suspect.

For example, in 2008 the Massachusetts Securities Division filed suit against Oppenheimer for its sales of Auction Rate Securities (ARSs). Specifically, the regulator alleged that Oppenheimer marketed ARSs as safe alternatives to money markets and certificate of deposits (CDs). In actuality, ARSs are complex debt securities that can suffer complete failures and ultimately leave the investor holdings a completely illiquid asset with no way to get their money back out. The regulator further claimed that Oppenheimer was aware of many disruptions and failures that occurred in the ARS market in 2007, but blithely ignored these warnings. Oppenheimer did not investigate the potential ramifications for the ARS securities that had been, and were currently being, sold to their clients. Oppenheimer did not warn its clients of these warning signs.

Transamerica Entities to Pay $97M to Investors Over Flawed Investment Models

Published on: August 28, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Four Transamerica entities have settled US Securities and Exchange Charges accusing them of misconduct involving investment models that were faulty. Collectively, the entities, AEGON USA Investment Management LLC (AUIM), its affiliated brokerage firm Transamerica Capital Inc., as well as its affiliated investment advisers Transamerica Financial Advisors Inc. and Transamerica Asset Management Inc., will pay $97M to retail investors that were impacted. However, the entities are not denying or admitting to the regulator’s findings.

The SEC’s order contends that investors placed billions of dollars into mutual funds and strategies that employed flawed investment models that AUIM developed without knowing they had errors. AUIM’s affiliated investment advisers and broker-dealer touted the quantitative models upon which their investment decisions would be made. Between July ’11 and June ’15, they purportedly offered, sold, and oversaw 15 mutual funds, variable annuity investment portfolios, variable life insurance investment portfolios, mutual funds, and separately management account strategies that were based on these quantitative models.

Unfortunately, contends the SEC’s order, the models were created by one junior analyst who was inexperienced. Not only that, but there were a number of errors in the models, which failed to operate as promised. Moreover, said the regulator, the Transamerica entities launched the Strategies and Products without first verifying that the models worked as they were meant to and without disclosing any risks identified with the models.

Securities News: Genstar to Acquire Cetera With $1B in Junk Bond Sales, Financial Adviser Admits to Fraud Involving $2M Trading Loss, and BlackRock Funds Shareholders Sue Over Excessive Fees

Published on: August 27, 2018 | by Shepherd Smith Edwards & Kantas, LLP

$1M in Junk Bond Sales Helps Fund Cetera Acquisition by Genstar Capital

According to InvestmentNews, private equity firm Genstar Capital will sell $1B of junk bonds to help pay for its acquisition of Cetera Financial Group, which will be bought for $1.7B. Genstar will use $700M of its own money in the purchase.

Cetera Financial Group is comprised of six independent brokerage firms with approximately 8,000 brokers and advisers, including Cetera Advisors, Cetera Advisors Network, First Allied Securities, Cetera Financial Institutions, Summit Financial Services, and Cetera Financial Specialists. Cetera initially spun out of ING Groep (ING), a Dutch insurer, in 2010.

Unregistered Brokers Are Charged With Selling More Than $243M of Woodbridge Securities to Over 1600 Investors

Published on: August 24, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Top10-3 Five unregistered brokers and their companies are now facing US Securities and Exchange Commission charges accusing them of selling Woodbridge securities to investors even though they were not registered as broker-dealers and therefore were not allowed to sell these securities. The defendants allegedly made millions of dollars from the Woodbridge securities sales.

The unregistered brokers and their companies are Barry and Ferne Kornfeld and Fek Enterprises, Andrew G. Costa and Costa Financial Insurance Services Corp., Albert D. Klager and Atlantic Insurance & Financial Services Inc., and Lynette M. Robbins and Knowles Systems, Inc. They allegedly sold over $243M of Woodbridge unregistered securities to over 1600 retail investors.

According to the regulator’s complaints, the unregistered brokers and the companies marketed Woodbridge Group of Companies, LLC as an investment that was “safe and secure.” Woodbridge, however, declared bankruptcy last December. The moment Woodbridge filed for bankruptcy protection, investors stopped receiving the interest they were due each month and they still haven’t received a return on their principal.

Ex-Wells Fargo Advisors Claim Bank Pressured Them to Sell Products That Charged Higher Fees to High-Net Worth Investors

Published on: August 23, 2018 | by Shepherd Smith Edwards & Kantas, LLP

According to Yahoo Finance, a number of Wells Fargo (WFC) advisors who used to work for the Private Bank’s wealth management unit are claiming that the firm pushed them to place client funds in investments that charged higher fees to clients. The ex-bank employees contend that they were pressured to cross-sell products and bill clients for fees that they would not have had to pay otherwise.

Yahoo Finance reported that there are internal company documents verifying the former employees’ claims. The media outlet said that it conducted interviews with a number of these former advisors.

The ex-Wells Fargo advisors were reportedly encouraged to place clients’ funds in complex products and separately managed accounts. The advisors claim that they were told that if they did not meet sales quotas for certain products, their compensation would suffer.

Securities Cases: Goldman Sachs Investors Can Proceed with $13B CDO Fraud Litigation, Deutsche Bank Resolves Self-Dealing Lawsuit for $21.9M, and Elkhorn Capital Group Founder is Accused in $2.5M ETF Fraud

Published on: August 17, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Shareholders Can Proceed with $13B CDO Fraud Case Against Goldman Sachs

A US district court judge has given Goldman Sachs (GS) shareholders the right to move forward with their $13B collateralized debt obligation fraud lawsuit accusing the bank of not disclosing certain conflicts of interest. Judge Paul A. Crotty granted the investors’ case class action certification.

The CDO fraud lawsuit revolves around investments that Goldman Sachs created and sold prior to the collapse of the housing market. According to the plaintiffs, the bank made false and misleading statements and acted counter to clients’ best interests.