Investor Fraud

Investor Fraud: Steele Financial is Accused of Selling Over $13M in Risky Securities, NJ Broker Allegedly Cherry Picked Trades, and the SEC Files Charges in $27M Microcap Fraud

Published on: September 15, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Steele Financial is Accused of Investor Fraud

The US Securities and Exchange Commission has filed civil charges against investment advisory firm Steele Financial Inc. and its owner Tamara Steele. According to the regulator, they allegedly sold $13M of risky securities to over 120 advisory clients. A lot of these clients are teachers, ex-teachers, or other public education employees. The SEC contends that Steele and her investment advisory firm did not tell them that Steele Financial would be making up to 18% in commissions in sales.

According to the Commission’s investment advisory fraud complaint, from 12/2012 to 10/2016, Stele Financial and Steele sold over $15M of Behavioral Recognition Systems Inc. securities. BRS is a company that the SEC has charged with fraud in the past. Meantime, Stele and her firm made over $2.5M of commissions.

Financial Firm News: Includes Lincoln Investment Planning, Grenda Group, and Massachusetts Financial Services Company

Published on: September 7, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Lincoln Investment Planning to Pay Clients For Not Giving Discounts on Mutual Fund Shares

FINRA is ordering broker-dealer Lincoln Investment Planning to pay $1.37M to clients to whom it did not give the discounts they were entitled to when they purchased mutual fund A shares between 1/2011 and 6/2018.

The self-regulatory organization contends that the firm placed certain charitable organizations and retirement plan customers at a disadvantage by charging them a front-end sales charge even when they qualified to not pay the fees.

1 Global Capital Accused of Defrauding Retail Investors in Alleged $287M Unregistered Securities Scam

Published on: September 4, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed fraud charges against 1 Global Capital LLC, a Florida-based cash advance company, and its ex-CEO Carl Ruderman. According to the regulator, they allegedly defrauded at least 3,400 investors and since 2014 have fraudulently raised over $287M through unregistered securities sales.

According to the SEC’s complaint, 1 Global worked with a network of both registered and unregistered investment advisors, brokers who were barred from the industry, and other sales agents. The company paid them millions of dollars in commissions for offering and selling the unregistered securities to investors in at least 25 US states.

Investors were promised that they would make money from loans that 1 Global would issue to companies. The investments were touted as “high-return, low-risk” and purportedly involved the issuing of short-term cash advances to businesses that didn’t qualify for financing of the “more traditional” varieties.

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.

Investor Fraud: Alleged $100M Future Income Payments Fraud, Capital Investment Group to Pay One Elderly Investor $400K, and Tech Fund Adviser is Now Facing Fraud Charges

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

Over 1000 Investors May Be Victims of Alleged Future Income Payments Fraud

Dozens of stockbrokers, financial planners, financial advisers, and insurance agents are now the defendants of investor fraud lawsuits over an alleged $100M scam that may have bilked over 1000 investors. Many of these investors were retirees, which means that elder investor fraud may have been involved.

InvestmentNews reports that according to the plaintiffs, the advisers breached their fiduciary obligation and were negligent when they sold them structured cash flows offered by Future Income Payments, LLC. At least 370 investment intermediaries in the US are believed to have sold these investments to investors, with the representatives receiving 6-10% in commissions upfront.

Investor Fraud: Four More People Charged in $34M Biozoom Stock Scam, Alternative Investment Firm Owner is Accused of Misappropriating Nearly $6M, and California Investment Adviser Settles Allegations in $71M Scheme

Published on: May 15, 2018 | by Shepherd Smith Edwards & Kantas, LLP

$34M Illegal Stock Scam Leads to New Charges

The US Securities and Exchange Commission has filed charges in an alleged nearly $34M illegal stock sale involving Biozoom Inc. stock that caused serious financial losses for retail investors. Biozoom was previously called Entertainment Art Inc..

It was in 2013 that the regulator was able to get a court order freezing proceeds made from the allegedly illegal stock sales. The SEC contends that from March to June 2013, ten people received over 20 million Entertainment Art shares. A number of these individuals then sold over 14 million of these shares in a month-long period. This resulted in around $34M in sales.

Massachusetts Hedge Fund Manager Sentenced to Prison for Investor Fraud

Published on: May 3, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Yasuna Murakami, a hedge fund manager who oversaw MC2 Capital Management LLC And MC2 Canada Capital Management LLC, is sentenced to six years in prison for fraud. Prosecutors accused him of defrauding hedge fund investors. Additionally, Murakami, must pay over $10.5M in investor restitution.

Police arrested the Massachusetts hedge fund manager last year. When pleading guilty to wire fraud, Murakami acknowledged that he diverted millions of dollars in investor monies to his own personal and business accounts, as well as used their funds to pay for a luxury sports car, make credit card payments, travel abroad, make purchases at expensive department stores, initiate investments on his own behalf, and issue Ponzi-like payments to investors.

Yasuna Murakami and Former Business Partner Were Working Together to Defraud Investors

SEC Proposes “Regulation Best Interests” that Would Prevent Brokers from Merely Calling Themselves Investment Adviser

Published on: April 20, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is proposing a rule that would keep registered representatives and brokers from also referring to themselves as investment advisors. In almost 1,000 pages of new proposals, the regulator articulated that it wants brokerage firms to make sure that the investing public knows that while brokers can sell investment products they are not trusted fiduciary advisors—nor is it their role to continue to offer advice after a sale has been made. Under the proposed rule, brokers would no longer be allowed to call themselves a trusted “advisor” or “adviser.” They can, however, take steps to become a registered investment adviser.

Addressing the proposed package, SEC Chairman Jay Clayton said that “investor confusion” about what differentiates broker-dealers from investment advisers is what prompted these latest initiatives. While both can give retail investors advice regarding possible investments, the two have different kinds of relationships with them. Clayton also noted that retail investors can suffer harm if they don’t know that certain conflicts of interest may be involved when working with either broker-dealers or investment advisers. Investors also may be giving more authority over their finances to a broker or investment adviser than they should.

In a 4-1 vote this week, the SEC’s ”Regulation Best Interests” measures for brokers was moved forward. Under the new measures, brokers would be obligated to place clients’ best interests before their own when it comes to recommending investment strategies or products. Brokers would have to set up and enforce written procedures and polices that would identify, expose, get rid of, or avoid conflicts of interest that might involve a financial incentive. While the existing broker standard requires that they recommend investment products that are suitable to each client, brokers are still allowed to endorse the products that gives them the greater financial payday.

Investment Adviser is Accused of “Ponzi-Like” Scam Involving 50 Investors, Including Friends and Family

Published on: April 18, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed fraud charges against investment adviser Amrit J.S. Chahal, who founded Kane Capital Investment Group, LLC. Chahal is accused of using his company to solicit about $1.4M from about 50 people, some of them friends and family members. Now, the regulator wants a permanent injunction, penalties, and disgorgement.

According to the SEC’s securities fraud complaint, from at least 2/2015, the investment advisor targeted prospective investors by telling them he was a seasoned trader who could make clients “above-market returns” by employing a trading strategy whose risks were low. In truth, contends the Commission, Chahal had no previous substantive experience in the securities industry or in trading securities for others.

Investors gave Chahal their money with the understanding that he would use the funds to buy and sell futures, options, and commodities. He told them they would have to pay a $2.5% yearly fee and a performance-based fee that was 10% of an investor’s returns that went beyond a yearly 30% return rate. Chahal also falsely claimed that Kane Capital employed the most current software to help it garner the “highest possible profit” from every investment, with a focus on choosing investments that were high-yield and low-risk. In truth, said the Commission, the accused investment advisor “traded risky options and margins,” as well as sold and purchased commodities and futures.

As LJM Preservation and Growth Fund Declines in Value and Announces Shut Down, Investors Suffer Losses

Published on: March 1, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The LJM Preservation and Growth Fund (LJMIX, LJMAX, LJMCX) is facing allegations that it made false and misleading statements to investors. In particular, the fund represented that it was appropriate for capital preservation investors who wanted conservative growth of their account. In reality, the mutual fund exposed investors to high risks that made them vulnerable to massive losses when it lost nearly all of its value within two days, dropping more than 80% earlier this month. In a filing with securities regulators, The LJM Partners, LTD., which is based in Chicago, announced that it was shuttering operations by March 29 and is going into liquidation.

The latest earnings report for the fund, filed at the end of October, noted $768 million of net assets. Reuters reports that the fund’s net assets were $812 million at the start of month but that is now reduced to $14 million. After this massive drop, the fund announced that it would no longer be open to new investments. Soon after, investors brought a class action securities lawsuit against the mutual fund. The plaintiffs are alleging that the LJM Preservation and Growth Fund violated the Securities Act and misled them by claiming it was committed to “preserve capital, particularly in down market.”

LJM, operated by Anthony Caine and Anish Parvatanen, was among a number of companies involved in selling liquid alternative funds that were complex and came with high fees. Investors that sought these funds out were generally hoping to enhance their returns even while reducing the risks. However, the fund did not accomplish that goal. It instead embarked on a risky strategy involving complex options trading and other investments that are not appropriate for any investor seeking capital preservation.