Texas Securities Fraud

New Braunfels Firm Accused of Texas Securities Fraud In Sales of Viatical (Insurance) Investments

Published on: May 10, 2010 | by Shepherd Smith Edwards & Kantas, LLP

State District Court Judge Stephen Yelenosky has frozen the assets of Retirement Value LLC and appointed a receiver to take control of the New Braunfels company, which faces allegations of Texas securities fraud related to the sale of investments linked to death benefits from life insurance policies. The Texas State Securities Board, which has been conducting an undercover investigation into the company, requested the court order against the investment firm.

Retirement Value, its President Richard “Dick” Gray, and Chief Operating Officer Bruce Collins are defendants in the court action. According to the securities board, between April 2009 and February 2010 the company allegedly collected $65 million from more than 800 investors. The securities board also claims that investment firm told investors that the expected rate of return would be 16.5% payable upon maturity.

The claim contends that from the $65 million that the Retirement Value received from investors, $9.3 million was paid in commissions to unregistered sales agents. Meantime, Retirement Value, Gray and other principals in the company retained $8.4 million. Only $20.2 million was used to acquire the interests in the life insurance policies, while another third was set aside to acquire additional policies.

Broker Settles Texas Securities Fraud Charges by SEC that She Misappropriated Customers’ Money

Published on: May 4, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Susan G. Slovak has agreed to pay $25,000 to resolve Securities and Exchange Commission charges that she committed Texas securities fraud. Slovak, a former registered representative from Corsicana, is accused of misappropriating hundreds of thousands of dollars belonging to three customers.

According to the SEC, Slovak took more than $330,000 from an 83-year-old client. The commission says that she liquidated securities that were in this elderly man’s account, moved the money to her own accounts, and used the funds to pay for her own expenses. The SEC also says that in 2008, Slovak misappropriated about $144,000 from two other people’s accounts and moved those funds into the elderly client’s brokerage account.

Slovak reportedly told her supervisor Beth Chapman about her misconduct in August 2008. The branch manager is said to have responded by directing Slovack to buy back the securities in the clients’ accounts. In order to do this, Slovak allegedly made material misstatements and omissions to compliance staff. She also told one of the clients that she’d accidentally taken out the money.

The SEC is accusing Slovak of violating the antifraud provisions of the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934. The SEC is accusing Chapman of misleading compliance staff about Slovak’s alleged misappropriation of client funds and failing to properly supervise and respond appropriately to Slovak’s Texas securities fraud. Chapman has agreed to settle SEC’s administrative charges for $25,000 and a bar from supervisory roles.

By agreeing to settle, Slovak and Chapman are not denying or admitting to the allegations against them. Slovak has also consented to the entry of a permanent injunction that bars her from violating Section 206 of the Advisers Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as well as to an administrative order prohibiting her from associating with dealers, brokers, or investment advisers.

Related Web Resources:
SEC Charges Texas Registered Representative With Misappropriating Hundreds of Thousands of Dollars from Three Customers, Texas Securities Fraud, April 23, 2010
Read the SEC Complaint (PDF)
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Texas Securities Fraud: Commodity Futures & Options Service, Inc. is Permanently Barred from the NFA

Published on: May 1, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Commodity Futures & Options Service, Inc., a Houston-based introducing broker, has been permanently barred from the National Futures Association. The ban stems from an NFA complaint filed last year and a settlement offer submitted by the Texas broker and Bryan L. Wright, one of its principal who also was barred from the association (for five years). If he wants to reapply for membership after the ban, he will have to pay a $10,000 fine.

According to the NFA Hearing Panel, which issued the bars, CF & O failed to maintain the mandatory minimum adjusted net capital, did not submit telegraphic notice that it was under the requirement, neglected to keep accurate financial records, as well as records that correctly identified CF & O’s capital sources, did not list specific individuals and entities as CF & O principals, and, along with Wright, inadequately supervised the Houston broker’s operations.

Prior to the Bar, CF & O had been a member of the NFA since April 1988.

US Supreme Court Won’t Review Texas Securities Fraud Case of Investment Adviser Barred from Industry by SEC

Published on: April 6, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The US Supreme Court says it will not review the decision by a federal appeals court affirming the US Securities and Exchange Commission’s decision to bar investment adviser David Disraeli from the securities industry. The SEC accused the Texan of a number of violations, including broker misconduct (such as the making of material misrepresentations when selling and offering securities).

The SEC had concluded that David Henry Disraeli and his company Lifeplan Associates Inc. violated federal securities law antifraud proscriptions when they omitted and misrepresented material facts related to a private offering by Lifeplan, which the investment adviser then presented and sold to numerous clients.

The agency also found that Disraeli did not maintain appropriate and accurate records and books. The SEC says that when he registered as an investment advisor he was not qualified for the position and he included material misrepresentations in his applications.

In light of the Texas securities fraud case, the SEC has taken away Disraeli’s investment adviser registration, barred him from the securities industry, and told him to pay a civil money penalty of $85,000, plus a disgorgement of $84,300 and prejudgment interest.

The Texas investment adviser filed a certiorari petition last year. Disraeli claimed that the agency did not come up with “compelling reasons for the issuance of the death penalty,” as well as for why other sanctions weren’t sufficient. He also said that if the case was allowed to stand, the circuit court would have lowered the bar for what is required to prevent him from belonging in the securities industry and deprive him of his livelihood.

Disraeli says that the appeals court should have taken into consideration his lengthy relationships with his shareholders and the fact that he had accomplished his business plan’s “main objectives.”

Related Web Resources:
Adviser Fails to Gain High Court Review Of Ruling Affirming SEC Industry Bar Order, BNA Securities Law, March 23, 2010
Read the Appeals Court Decision (PDF)
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Texas Securities Fraud: SEC Sues Two Individuals For Allegedly Running Multi-Million Dollar Scheme Involving Viaticals

Published on: April 2, 2010 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Southern District of Texas, the US Securities and Exchange Commission is suing Kelly Gipson and Charles Jordan for allegedly orchestrating a multi-million dollar viaticals scam (in the secondary market for life insurance). On March 22, the agency said the court had granted its request for a temporary order to freeze the defendants’ assets.

Also, a receiver has been appointed to take charge of their business, American Settlements Association LLC, and their assets. The SEC is seeking preliminary and permanent injunctions, civil penalties, disgorgement plus prejudgment interest.

Per the agency’s complaint, Gipson and Jordan made at least $2.3 million from March to December 2007 by selling interests in a life insurance policy to over 50 investors in 10 states. They told them they would spend the funds on future premium payments so that the policy wouldn’t lapse. Instead, Gipson and Jordan mixed investors’ money with their funds and diverted it toward their personal spending, including travel, jewelry, entertainment, and casinos.

Protect Yourself from Texas Securities Fraud by Making Sure that the Company or Agent that Sells You Annuities Has a Valid Insurance License

Published on: March 13, 2010 | by Shepherd Smith Edwards & Kantas, LLP

If you are going to buy annuities in Texas, it is important that you make sure that your agent is licensed with the state and also has a Financial Industry Regulatory Authority license. You should also make sure that the annuity you purchased is legitimate and in compliance with Texas standards and laws.

If you buy an unauthorized annuity, you may pay an inadequate return or put your money at risk. You can also become the victim of Texas securities fraud.

What is an Annuity?
This financial insurance contract can grow in value and provide constant income over an extended time period. They are good for growing your retirement, saving for your children’s schooling, setting up a trust fund, or bequeathing money to loved ones. Texas Department of Insurance regulates annuities and keeps an update list of companies and agents that are allowed to sell them in the state.

Three Kinds of Annuities:
Variable Annuities: Higher risk than fixed annuities, variable annuities rely on the stock market’s performance. They usually invest in different financial instruments, including money market funds, equity indexes, mutual funds, and government securities. These annuities let buyers decide how to distribute their accumulated value within the contract’s selected investments.

This kind of annuity doesn’t come with any guarantee of earnings and you can lose your original investment. Because variable annuities rely so much on the stock market, the Securities and Exchange Commission considers them securities.

Fixed Annuities: The most conservative type of annuity. They make earnings at an annually set current interest rate. Although the rate can change, a guaranteed minimum rate must be established. These annuity contracts usually invest in non-stock market, conservative investments. Buyers usually don’t have any say in how the funds are managed.

Equity-Indexed Annuities: EIA’s have traits that can be found in both variable annuities and fixed annuities. They pose a greater risk than fixed annuities and are less risky than variable annuities. Their returns are affected by changes in money, bond, and stock markets, and they come with a guaranteed minimum interest rate.

It is important to remember that annuities are not the best investment for everyone-especially if your financial goals are in the short-term. Your agent should apprise you of any risks and make sure that if you do choose to buy annuities, that they are the right choice for you.

Related Web Resources:
Understanding Annuities, Texas Department of Insurance
SEC Tips for Preventing Annuities Fraud, SEC.gov Continue Reading ›

Court Reinstates Texas Securities Arbitration Award

Published on: February 26, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Claimant Leonard Claus was awarded $25,000 by a National Association of Securities Dealers’ arbitration panel for his Texas securities arbitration claim. Claus had made a verbal agreement with Jerry Short, who worked for Institutional Capital Management Inc. over the sale and purchase of bonds.

Clause, who bought the bonds, was planning to sell them to Sterling Financial Investment Group Inc. The resale plan didn’t work out, and he sold them to another buyer at cost.

Clause then sued ICM and Sterling for breach of contract, violations of federal and state securities laws, and negligence.

In addition to the $25,000 compensatory damages award, NASD charged Clause $22,000 in arbitration fees. They awarded his lawyer $70,000 in legal fees.

ICM and Sterling asked that the Texas securities fraud award be vacated by the district court. A magistrate judge vacated, claiming that the NASD panel went beyond its authority when it violated Texas law and directly issued an award to Clause’s lawyer.

Clause and IMS appealed, claiming that the judge made a mistake when vacating the entire award on the basis of the awarded attorney’s fee. Meantime, Sterling and ICM contended that the attorney’s fee violated Texas law and that it conflicted with the contingency fee arrangement between clause and his attorney, which the NASD panel is not allowed to override. ICM and Sterling said the legal fee award was unreasonable.

Court of Appeals ruled that even though Texas statute must directly authorize any fee awards, the party that is told to pay the fee cannot challenge the payment’s propriety. The court called the award error harmless and “immaterial to the party” that is ordered to pay it. The court also noted that ICM/Sterling did not challenge the evidence that supported the fee award.

Related Web Resources:

National Association Of Securities Dealers – NASD
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Frontline Advisors LLC and Frontline Financial, Inc. Propose Texas Securities Fraud Settlement that Includes Permanent NFA Bar

Published on: February 20, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The National Futures Association has accepted Frontline Advisors LLC and Frontline Financial, Inc.’s proposal to permanently remove themselves as a member of the group. The Texas-based Commodity Trading Advisors and Commodity Pool Operators offered the settlement after the NFA filed a complaint against them in 2009 accusing FFI and principal Charles G. Rice of failing to disclose key information to participants in a pool they were running. Among the material information withheld:

• In exchange for promissory notes, the pool would lend money to third parties • When issuers of the promissory notes defaulted, the pool sustained losses • Even after one note went into default, FFI charged a monthly management fee to participants • FFI redeemed its interest in the pool • FFI wrote off notes but did not give participants specifics about the write-offs

The NFA also accused FFI of not filing an annual financial statement, disclosure document, or exemption notice for the fund. Meantime, Rice has also agreed to a withdraw himself as an NFA member for five years. If he decides to reapply for membership, he has to pay a $10,000 fine.

Dallas Securities Attorney and Former SEC Litigator Convicted of Fraud in Pump and Dump Stock Scam

Published on: February 11, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A jury has convicted Phillip Windom Offill Jr. of Texas securities fraud. The Dallas lawyer and former SEC trial attorney was found guilty of nine counts of wire fraud and one count of conspiracy for his involvement in a “pump and dump” scam that sold nine companies’ unregistered securities to investors in order to make a profit.

Court filings had accused the Texas securities attorney of using bogus press releases and “blast” emails to get investors to buy certain companies’ shares. When stock prices would go up, those involved in the scam would dump stock to make money. 10 other defendants have pleaded guilty for their part in the securities fraud scheme.

The SEC’s civil complaint against Offill accused him of conspiring with others to create bogus investment firms that obtained an offering of millions of unregistered AVL shares. Offill was one of the people who allegedly would transfer the shares to the company’s founder and associates, who would then promote the company’s potential as stock was being dumped.

According to U.S. Attorney Neil H. MacBride, Offill purposely broke the law, so that he and others could make millions off of innocent investors who ended up with worthless stock.

Prosecutors want $15 million in forfeiture. Offill’s sentencing is scheduled for April. He faces up to 20 years in prison for each wire fraud conviction and a maximum of five years in prison for conspiracy.

Related Web Resources:
Jury Convicts Former SEC Lawyer, The Wall Street Journal, January 28, 2010
Lawyer indicted in alleged pump-and-dump stock scheme, ITWorld, March 13, 2009 Continue Reading ›

Texas Class Action Securities Fraud Claim Against Cushing MLP Total Return Fund CEO and CFO Can Go Forward, Says District Court Judge

Published on: February 2, 2010 | by Shepherd Smith Edwards & Kantas, LLP

In Texas, a US district court judge has refused to dismiss a class action securities fraud claim against Cushing MLP Total Return Fund CEO Jerry V. Swank and CFO Mark Fordyce. The Texas securities fraud claim accuses the defendants of misrepresentations and omissionsrelated to the fund’s deferred tax asset. Other claims, including a 1940 Investment Company Act Section 36(b) claim over tax advisory fees, were dismissed.

The defendants named in the Texas securities fraud claim are investment adviser Swank Energy Income Advisers LP, Swank Capital LLC, fund board chairman, trustee, president and CEO Jerry V. Swank, fund CFO and trustee Mark Fordyce, fund audit committee member and lead independent trustee Edward N. McMillan, fund trustee and audit committee chair Brian R Bruce, and fund trustee and committee head Ronald P. Trout.

Lead plaintiff Terri Morse Bachow says that between September 1 and December 19, 2008, individual investors bought Cushing MLP Total Return Fund stock. She says that most of the reported net assets in the fund (which were invested in the energy infrastructure sector) was an accounting accrual owing to time differences in tax payments.

Throughout the class period, the deferred tax asset increased and the possibility that the fund would make money that the deferred tax asset could be used against became practically nonexistent. When the class period was over, the accounting accrual was made up of over 50% of the fund’s stated net assets and the chance the accrual would lead to any benefit was all but nonexistent.

The plaintiff claims that fund shareholders lost tens of millions of dollars when this data was disclosed on December 19, 2008 and the fund’s shares market price went down from $7.40 to $3.81. Bachow then filed a Texas securities class action claim.

In the claim, Swank and Fordyce are accused of making statements that were materially misleading, making it sound as if the fund was likely going to use deferred tax in “fact sheets” distributed to shareholders and in two SEC filings. The fund CFO and CEO are accused of failing to correct these statements even after discovering that they were misleading or untrue.

The court refused to drop the 1934 Securities Exchange Act Section 10(b) claim against the two men, noting that the plaintiff demonstrated that this information was important to any reasonable investor who was deciding on what to invest in. The court, however, did drop the Section 20(a) control person claims since the securities fraud claim name the two men (and not Swank Advisers and the fund), which makes it impossible for the two defendants to be their own “control persons.” The claim as to Trout, Swank Capital, Bruce, and McMillan failed because there was no allegation that the “controlled person” committed securities fraud.

Related Web Resources:
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