Securities Cases: Verto Capital Settles Life Settlement Charges, Couple File Broker Fraud Claim Against NY Life Securities, JCPenny to Settle Texas Class Action Lawsuit for $97.M, & Cetera Admits to Charging Investors More For Mutual Funds

Financial Firm and Its CEO Settle Life Settlement Fraud Charges
The US Securities and Exchange Commission announced that Verto Capital Management and its CEO William Schantz III have settled civil charges accusing them of running a Ponzi-like scam involving life settlements. As part of the settlement, Verto Capital and Schantz will pay over $4M.

According to the regulator’s complaint, the two of them raised about $12.5M through promissory note sales that were supposed to pay for the firm’s purchase and sale of life settlements. The notes were sold mostly through insurance brokers in Texas.

Investors who were religious were the main target of the alleged fraud.They were allegedly told that that the securities were short-term investments that were at low risk of defaulting.

The Commission contends that Verto Capital and Schantz misrepresented that the firm was profitable and that investors’ money would go toward general working capital purposes. Meantime, Schantz used investor money for his own use and to pay back earlier investors.

Of the over $4M, more than $3M plus interest are disgorgement. $600K is a penalty. Schantz and Verto Capital settled the SEC case without denying or admitting to the allegations.

NYLife Securities Accused in Broker Fraud
A securities fraud claim has been brought with the Financial Industry Regulatory Authority against New York Life Insurance Company subsidiary NYLIFE Securities LLC. The case was brought on behalf of a couple who claim that one of the firm’s brokers recommended several variable annuities that were not suitable for their portfolio.

The couple, who have two young kids, contend that the recommendations were more about the broker wanting to make commissions than about their best interests. They are accusing the broker of not disclosing to them that a substantial chunk of their investments would be placed in Mainstay funds, which come with high fees.

Cetera Cited by FINRA for Mutual Fund Sales
Cetera Advisors Network has admitted that its advisers sold more costly mutual fund shares rather than less expensive ones that were also available to charitable organizations and retirement funds. According to the Financial Industry Regulatory Authority, the broker-dealer did not put into place or keep up a system and procedures that could make sure that eligible customers that qualified for lower-cost mutual fund shares were given the warranted sales charge waivers.

Cetera has signed a letter of acceptance, waiver, and consent over this matter. According to the FINRA letter, even though certain mutual funds on Cetera’s platform offered waivers for charities and retirement plans, the broker-dealer did not apply the waivers when customers became eligible for them. Instead, the broker-dealer sold these customers the more costly Class A shares which came with a front-end sales charge, or class C or B shares, which included higher costs, ongoing fees, and back-end sales charges.

JC Penny Settles Class Action Securities Case In Texas for $97.5M
Retailer JC Penny will pay $97.5M to settle a class action securities lawsuit brought by investors who claim that the company lied about its financial state. The plaintiffs claim that they decided to buy JC Penny stock because of false statements that its executives made in August 2013 regarding how much money the retailer would have at year’s end.

Investors who make up the class bought JC Penny stock from 8/20/13 to 9/26/2013. The National Shopmen Pension Fund is the lead plaintiff.

It was in August 2013 that Goldman Sachs (GS) noted that JP Penny was having liquidity problems. The retailer later announced that it was going to issue $1B of new shares. The plaintiffs said that this announcement caused the store’s stock price to go down.

Last year, U.S. Magistrate Judge K. Nicole Mitchell found that the class had done a sufficient job of pleading its contention that the retailer was aware of undisclosed information that could counter the claims it had made in a financial statement.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities fraud law firm.

The SEC Complaint in the Verto Capital Management Case (PDF)

Finra cites Cetera for mutual fund sales charge improprieties, InvestmentNews, May 4, 2017

J.C. Penney spending $97.5M to settle lawsuit, Business Journal, May 5, 2017