Texas Securities Fraud

Houston-Area Business Man Charged with Running $114M Texas Ponzi Scam

Published on: August 5, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Frederick Alan Voight with Texas securities fraud in running an alleged $114 million Ponzi scam that bilked investors. The regulator claims that the Houston-area man defrauded over 300 investors via multiple offerings of promissory notes that his companies DayStar Finding LP and F.A. Voight & Associates LP had issued.

In its complaint, the SEC said Voight recently raised $13.8 million that he claimed would be a loan to InterCore Inc., a company start up. The loan was supposed to fund the deployment of a DADS-a Driver Alertness Detection System.

Voight allegedly told prospective investors that the technology was to be installed in millions of buses and trucks. He promised 30 to 42% yearly interest rates on the promissory notes to be paid out by the company, which he said it could do “many, many times over.”

However, the Commission claims that Voight as aware he was making false claims because he was an InterCore board member and knew that the company was financially beleaguered and could not repay the loans. Voight allegedly used the money from new investors to pay off earlier investors or funnel them to InterCore via another two partnerships that belonged to him. The money would then be sent to subsidiary InterCore Research Canada, Inc.
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Wells Fargo Must Pay Woman Over $8M For Alleged Fraud Involving Childhood Trust

Published on: July 22, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Wells Fargo Bank (WFC) must pay a Dallas woman over $8 million. Texas State Judge Emily Tobolowsky said that the bank defrauded Angela Militello in its role as trustee for a trust that family members set up for her when she became an orphan at the age of seven.

Militello contends that in 1999, a trust officer sent to her by the bank told her to set up a new account and gave her papers for establishing a revocable trust. After Militello filed for divorce in 2006, she asked the trust officer about withdrawing $200,000 from the trust to purchase a home for her and her child.

The trust officer gave her a check for that amount and a form asking for approval of the completed sale of a percentage of the assets in the trust. The remainder of assets was to be sold within a few months. Militello claims that Wells Fargo and a third party conspired to sell the assets in her trust at way below market value and fraudulently charge her tfor the property taxes after a buyer purchased the assets.

SEC Appeals Its In-House Agency Judge’s Decision to Throw Out Charges Against Financial Advisers Paid by Fidelity to Push Specific Mutual Funds

Published on: July 2, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Securities and Exchange Commission employees are appealing a ruling by an administrative law judge dismissing charges against two financial advisers accused of not notifying clients that Fidelity Investments (FNF) had paid them to sell specific mutual funds. In the Texas securities case, SEC Administrative Law Judge James E. Grimes rejected claims that The Robare Group and two of its owners violated the law by failing to adequately disclose that they had a financial relationship with the brokerage firm. Grimes said that from listening to Mark L. Robare and his son-in-law Jack L. Jones Jr. testify, he was hard pressed to imagine them attempting to bilk anyone. This is one of the few cases presided over by one of its judges that the SEC has lost.

Fidelity is The Robare Group’s custodian. For the last 11 years, the registered investment advisor has been part of a program in which Fidelity pays it a portion of the revenue earned from the sale of certain third-party mutual funds. The payment goes to the adviser who made the mutual fund sale happen.

Advisors are given access to the funds without any transaction fees. As the custodian, Fidelity refers to payments made to advisers not as commission but as compensation for shareholder administrative fees.

In their appeal, the SEC staffers said that they feared Grimes’ ruling in this case establishes a troubling precedent that shifts the burden of full disclosure of a conflict interest from an investment adviser to a compliance consultant. They said this could allow an investment adviser to be excused from certain securities violations as long as he has a compliance consultant that has not “affirmatively” objected to a “particular disclosure.”
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Federal Judge in Texas Says Law Firms Must Face Lawsuit Seeking Creditor Payments in Stanford Ponzi Fraud

Published on: June 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Four years after Allen Stanford’s $7 billion Ponzi scam was uncovered in 2009, investors who lost money in the scheme are still trying to recover their funds. The 65-year-old Stanford is serving 110-years behind bars for selling investors bogus high-yield CD’s through his Stanford International Bank based in Antigua. Prosecutors said he used customers’ money to fund his expensive lifestyle.

This week, U.S. District Judge David Godbey in Dallas said that law firms Proskauer Rose and Chadborne & Parke will have to contend with claims brought by a committee of these investors and Ralph S. Janvey, the court-appointed receiver for Allen Stanford’s companies.

Chadborne and Prosakuer had sought to have this lawsuit, which seeks to hold the two law firms liable for legal malpractice, dismissed. The plaintiffs contend that Thomas Sjoblom, who worked at the two firms, allegedly obstructed regulator probes into the Ponzi Scam and helped Stanford conceal the SEC’s investigation from auditors.

Now, the Texas-based judge has decided that Janvey and the investor committee can pursue claims of negligent supervision, professional negligence, civil conspiracy, and aiding and abetting fraud against the two firms. Judge Godbey stated that the allegations suggest that Sjobolm knew that Stanford was potentially running a Ponzi scam, and this awareness was imputed to both firms. Godbey said that the plaintiffs have alleged that the defendants knew that Stanford was engaged in sufficient wrongdoing.
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San Antonio Spurs’ Tim Duncan Addresses $20M-Plus Texas Securities Case Against His Former Financial Adviser

Published on: June 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Earlier this year, our securities law firm published a blog post reporting that San Antonio Spurs’ Tim Duncan had filed a Texas securities case against financial representative Charles Banks. Duncan contends that due to unsuitable recommendations made to him by Banks, he allegedly lost some $25 million.

Banks, a private-equity investor, was Duncan’s adviser for nearly two decades, since the beginning of his professional sports career. The NBA All-Star says that Banks persuaded him to get involved in investments that were bad for Duncan but good for the financial adviser. He also claims that Banks forged his signature and withheld his return on a loan. The San Antonio Spurs star says that over the years, he’s invested millions of dollars in products and businesses that Banks either owned or had a financial stake in.

Meantime, Banks claims that Duncan’s losses are because of the player’s own impatience or due to misunderstandings. He argued that Duncan is using the Texas securities case to exit certain limited partnership investments.
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Trustee Says that Texas Company Life Partners Holdings Bilked Investors

Published on: June 9, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to bankruptcy trustee H. Thomas Moran II, Life Partners Holdings (LPHIQ) ran a scam to bilk its investors. The Texas company, which sold over $1.3 billion of fractional interests in individual life insurance policies to over 20,000 individuals, is accused of unnecessarily demanding that a lot of investors pay yearly premiums on policies that had enough funds to pay for future premiums. Many of these investors were forced to resell or abandon these investments while company insiders made money.

Now, Moran wants a court to give him permission to pool all of the policies and use accessible cash to pay premiums where necessary. This would relieve investors of having to continue to put more of their funds into the scam to keep their investments.

Life Partners used to be a huge player in the secondary market for life insurance. The company makes arrangements to purchase life insurance policies from people. Life Partners would then divide up the policies into fractional interests. Retail investors would buy the rights to collect on them.
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Dallas Trader is Sentenced in $3.5M Texas Securities Fraud Case Involving Institutional Investors

Published on: May 28, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A Texas man was sentenced to 30 months in prison after pleading guilty to securities fraud. At the time of the fraud, Daniel Lutz Bergin was an equity trader for Cushing MLP Asset Management, which is located in Dallas.

While at the registered investment adviser, Bergin had discretionary assets under management of about $2.5B. He serviced institutional investors and high net worth individuals through portfolio and advisory management services.

However, from 2010 until he was fired in May 2013, Bergin engaged in a front-running scam involving the misuse of inside information when making trades in his wife’s brokerage account. He would use non-public, material data about big orders that he was able to access from Cushing. The information was supposed to be used for making trades on behalf of his clients. Instead, he also used the information to make trades through his wife’s account.

Texas-Based Retirement Planning Firm Accused of Making False Claims to Investors About Life Settlements

Published on: May 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging Novus Financial and principals Brady J. Speers and Christopher A. Novinger with making false claims about life settlements. The regulator filed its claim in the U.S. District Court for the Northern District of Texas.

According to the SEC’s complaint, from ’12 – ’14, the retirement planning firm and its principals sold about $4.3 million in life settlement interests to 26 investors. Speers and Novinger are accused of describing the investments as secure and safe. Both were purportedly willing to manipulate the financial data of investors to make the sale happen.

The Commission also claims that the firm, Novinger, and Speers used a net worth calculator that was bogus. This allowed a number of prospective investors to improperly qualify to buy the interests. In one instance, the non-homestead assets of one couple were falsely inflated to $1.5 million from $263K because of the calculator.

Killeen Man Accused of Texas Securities Fraud Targeting Military

Published on: April 23, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Securities and Exchange Commission is accusing Leroy Brown Jr. of Texas securities fraud. Brown, a U.S. army veteran, allegedly solicited ex- and current members of the military and others to invest with him and his firm LB Stocks and Trades Advice.

Among his purported wrongdoings are presenting his firm as SEC- and Financial Industry Regulatory Authority-registered, when it is neither, touting himself as holding all securities licenses, which he does not, and creating a bogus sense of success and legitimacy via numerous misrepresentations to get people to invest. Brown also allegedly persuaded investors to buy $1,000 membership certificates in the firm’s stocks to get involved in purported investments in undeveloped real estate that were purportedly “guaranteed” to double or even triple their money. Instead, said the SEC, he took investors’ funds and placed the cash in his own accounts. The Commission believes the Texas securities scam has gone on for about sixteen months.

Affinity Scams

Texas Securities Scam Allegedly Bilked Investors of $4.4M

Published on: April 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed a lawsuit accusing Mieka Energy Corporation of Texas Securities Fraud. The oil and gas company and Daro Ray Blankenship, its president and founder, allegedly defrauded at least 60 investors located in different states of about $4.4 million. The regulator is also charging Vadda Energy Corporation, the publicly traded parent company of Mieka, of fraud and reporting violations, including deceptively promoting Mieka’s investments as a successful venture.

The scam is said to have taken place between 2010 and 2011, when investors were purportedly fooled into investing funds that were supposed to purchase energy-related investments while making big returns on other investments. The SEC said that Blankenship and Mieka engaged in boiler room cold calling to market these investments related to drilling, production, and oil and gas exploration.

To get around federal securities regulations, Mieka and Blankenship called their securities offering a “joint venture” and said that the investment interests were not securities, when really, under federal securities law, they were. The regulator said that Blankenship took all of the offering proceeds and spent the money on unrelated projects and expenses. He then used deceptive updates and misleading public filings to mislead investors.