Articles Posted in Investment Fraud

The Securities and Exchange Commission (SEC) announced today that is has formally charged Malcolm Segal with running a Ponzi scheme and stealing investor money from his office in Pennsylvania.  According to his BrokerCheck Report, Mr. Segal was formerly a registered stockbroker with Aegis Capital Corp. and Cumberland Advisors.  Mr. Segal reportedly was a partner in J&M Financial and the president of National CD Sales.

According to the SEC, Mr. Segal allegedly sold what he called certificates of deposit (CDs) to his brokerage customers under the false pretense that he could get them a higher rate of interest than was then available through banks.  Mr. Segal allegedly represented to his victims that his CDs were FDIC insured and risk-free. Mr. Segal reportedly defrauded at least fifty investors out of roughly $15.5 million.

As his scheme was unravelling, Mr. Segal allegedly began to steal from his customers’ brokerage accounts by falsifying fraudulent paperwork such as letters of authorization. This fake paperwork reportedly allowed Mr. Segal to withdraw funds from his customers’ accounts without them knowing.  Ultimately, in July 2014, the scheme collapsed completely.  Mr. Segal has since been barred from the securities industry by the Financial Industry Regulatory Authority.

Because Mr. Segal was registered with a broker-dealer, Aegis, at the time he was operating this scheme, investors may be able to recover against the broker-dealer for supervisory failures and negligence.  In this way, it is possible that Aegis may be responsible to Mr. Segal’s victims for some or even all of their losses.  The same may also apply to Mr. Segal’s prior broker-dealer, Cumberland.

Malecki Law has significant experience representing the victims of Ponzi-schemes and stockbroker theft.  The attorneys at Malecki Law have successfully handled numerous cases on behalf of Ponzi scheme victims.  If you or a family member were a victim of Malcolm Segal or a similar Ponzi scheme, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.

 

 

It was recently reported that Keith M. Rogers, formerly employed by GLS & Associates, Inc., a FINRA broker-dealer, has been indicted and held on $2 million bond on securities fraud charges, where it was reported that he took investors’ money to pay for personal expenses and repay other investors, a classic Ponzi scheme scenario.  Previously, it was reported that Mr. Rogers was ordered by the Alabama Securities Commission to cease and desist from dealing in securities in the State of Alabama.  In September 2014, Mr. Rogers apparently consented to a bar from the securities industry was barred from the securities industry by the Financial Industry Regulatory Authority (FINRA) for failing to cooperate in FINRA’s investigation into Mr. Roger’s alleged diversion of customer funds away from GLS brokerage accounts.  According to the Administrative Order filed by the Alabama Securities Commission Mr. Rogers facilitated transactions in a company called R&P Development LLC from 2009 through 2013, when he was registered by GLS & Associates, Inc. and Warren Averett Asset Management.

FINRA specifies strict rules on a broker’s ability to solicit business to businesses that are not run by their employing broker-dealer.  Malecki Law attorneys have seen instances where employing broker-dealers fail to properly supervise a broker’s activities.  According to FINRA Rules, Broker-dealers like GLS & Associates Inc. have an important non-delegable duty to supervise the conduct of their financial advisors and employees.  The firm may be held liable for customer losses if the firm failed to properly supervise their employees.  If a broker violates FINRA Rules or securities laws, both the broker and the broker’s employing firm may be held liable for the customer’s losses.

Malecki Law has previously represented many investors successfully in FINRA arbitration proceedings involving outside business activities and firms’ failures to supervise their registered representatives and financial advisors.  If you believe you have suffered losses as a result of questionable actions taken in your securities account, please contact us immediately for a confidential consultation.

A former University of Washington faculty member pled guilty in connection with a Ponzi scheme that lasted at least six years.  It has been reported by the Washington State Sky Valley Chronicle on May 20, 2015 that Satyen Chatterjee, who owned and operated a financial advisory business called Strategic Capital Management, Inc. for more than twenty years.  The news article reported that the Washington State Department of Financial Operations ordered the business to cease operating illegally in 2013.  The guilty plea was also announced by the Federal Bureau of Investigations in a press release dated May 18, 2015.

According to the article, Mr. Chatterjee used his faculty post at the University of Washington to promote his advisory business.  The article went on the detail that Mr. Chatterjee convinced investors to transfer funds on the belief they were purchasing fixed rate securities, when in reality he transferred the money to personal bank accounts to fund his lifestyle or lost the money day trading.  Also detailed in the article was another scheme whereby Mr. Chatterjee solicited investments in a nutrient supplement company, but used that money to pay off investors who thought they invested in the fixed rate securities.

According to the FBI press release, Mr. Chatterjee admitted to the scheme to defraud investors during a period of 2007 to 2013.  The FBI press release estimates that at least six investors were defrauded out of more than $600,000.

The FBI press release also detailed that Mr. Chatterjee fabricated account statements for at least one investor, and blamed some of the investor losses on investment associates who defaulted on agreements they had with Mr. Chatterjee, as well as blaming them for certain of the losses.

Malecki Law has previously investigated and successfully handled securities arbitrations concerning Ponzi schemes and fraudulent investments perpetrated by financial advisors.  If you believe you have suffered losses as a result of questionable actions taken in your securities account, please contact us immediately for a confidential consultation.

Victims of securities fraud and negligence are entitled to receive damages to compensate them for their losses, as well as other remedies that may be available depending on the specific case.  Frequently investors who have lost money in their investment accounts do not realize that they may be the victims of securities fraud and/or negligence on the part of their financial advisor (i.e., investment advisor and/or stockbroker).

Therefore, today we are going to answer the question:

“Can I sue my financial advisor, investment advisor or stockbroker?“

The short answer to that question is:

“Yes, you may be able to sue your investment advisor, financial advisor or stockbroker, if you have suffered losses in your account as a result of their fraud or negligence.”

When do investors sue their financial advisor?  In simple terms, people sue their financial advisor when they feel that they have been cheated or misled.

Financial advisors are under a number of duties and obligations by virtue of having a license to sell securities.  The firms that they work for are also under specific duties and obligations with respect to what they permit the financial advisors that work for them to do and how they are supervised.  These duties stem from the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), as well as both state and federal laws.

So, if you to suffer losses in your investment account because your financial advisor, their firm, or both breached one or more of those duties to you, then you could have the right sue them to recover money.  It is important to file a lawsuit as quickly as you can, but always consult a lawyer, even if it seems like it happened a long time ago.

Did my financial advisor break the law?

A financial advisor and their firm have the obligation to provide their customers (you) with full and accurate information about investments they recommend.  If a firm or financial advisor provides you with misleading or false information that induced you to buy or sell and investment or did not tell you something important – then you may have a claim for fraud.

Churning is another example.  Churning occurs when a financial advisors buys and sells investments over and over in a very short period of time (oftentimes day-trading) in a customer’s account.  When this happens, the customer usually loses a lot of money in the account, while the financial advisor “earns” a lot of commissions from the account.  A customer who has had their account churned can sue their financial advisor and their firm to recover their losses and refund the commissions the customer paid.

Frequently when churning an account, the financial advisor is also engaged in what is known as “unauthorized trading.”  Unauthorized trading is just what it sounds like – trading in a customer account without the customer’s permission.  Unless a customer gives their financial advisor what is known as “discretion” (i.e., permission) to trade their account at will, a financial advisor is supposed to get the customer’s permission for every trade they make.  If not, then the financial advisor and their firm can be liable to the customer for losses sustained in the unauthorized trades.

Another duty that all financial advisors have to their customers is to make only suitable (i.e., appropriate) recommendations to their customers.  Therefore, financial advisors cannot legally make unsuitable or inappropriate recommendations to their customers.  For example, if a financial advisor has a customer who is conservative and not willing to risk losing a lot of money in their account and they recommend to that customer an investment that is very speculative (i.e., risky with high upside but high downside, too), that financial advisor and their firm can be on the hook to that customer if and when the investment loses money.

Finally, financial advisors (just like everybody else) are not permitted to forge documents or steal their customer’s money.  Unfortunately, financial advisors across the country regularly do both.  These financial advisors and their firms can be held liable to reimburse their customers for all money stolen and losses in the accounts effected.

Financial advisors who do “go bad” seem to do so during periods of personal crisis in their own lives – usually when they are going through a rough divorce, facing personal bankruptcy, or battling addiction to drugs/alcohol.  While those going through life’s major struggles deserve sympathy and a helping hand, that is no excuse to abuse the trust of their customers as so frequently happens.

Investors who believe they may be the victim of fraud or negligence on the part of their financial advisor should contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212)943-1233.  The attorneys at Malecki Law have extensive experience representing investors, and are here to help.

The Financial Industry Regulatory Authority (FINRA) has permanently barred Nicholas Hansen Harper.  Harper worked in Wells Fargo’s Topeka, Kansas branch office from 1997 through 2013 according to his BrokerCheck Report.

Per the Letter of Acceptance Waiver and Consent filed with FINRA, Harper resigned from Wells Fargo on August 7, 2013, shortly after the firm’s compliance department began to review trading in the accounts of certain of his customers.  The timing of Harper’s resignation can only serve to raise suspicions.

Presumably suspicious of Harper, in March of 2015, FINRA requested Harper provide testimony to FINRA investigators pursuant to Rule 8210.   More than one month after the request was issues, FINRA staff spoke to Harper’s attorney, who purportedly indicated that Harper would not be appearing before FINRA to provide testimony at any time.

In response to his violation of FINRA Rule 8210, Harper has agreed to a bar from association with any FINRA member in any capacity.

FINRA investigations are serious matters and for that reason Rule 8210 provides FINRA with a “big stick” to force compliance from registered representatives.

For Harper, this has already become something future employers and clients, alike, in any business can see.  This can affect future employment possibilities, future licensing and the ability to get financing for personal and/or business endeavors.  For a registered person receiving an 8210 request, proper handling of these matters by experienced counsel is essential.

FINRA is one of the few regulators that specifically oversee the securities industry.  Because of that, FINRA’s enforcement division is a crucial part of preventing investment fraud and punishing those who have committed violations.

In addition to the state and federal laws that are on the books, the securities industry is also governed by industry rules promulgated by the Securities and Exchange Commission and FINRA.   These rules, including Rule 8210, are important and must be complied with.

Failure to comply with FINRA and SEC rules can expose a person to civil liability and loss of professional licenses, as in the case of Nicholas Harper.  If a licensed stockbroker or financial advisor has broken the rules with respect to a customer account, that customer could be entitled to recover their losses.

Malecki Law has handled numerous cases stemming from inappropriate trading by brokers in customer accounts.  If you or a family member invested with Nicholas Harper or Wells Fargo and have lost money, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.

This oil and gas investment was a bust, but not because of the current market conditions.  According to Securities and Exchange Commission (SEC) court filings, brokers Jeffrey Gainer, Jerry Cicolani, Jr. and Kelly Hood were terminated from their employer PrimeSolutions Securities, Inc., a Cleveland, Ohio broker-dealer, as a result of marketing and recommending investments in KGTA Petroleum, Ltd.  In its complaint filed in the United States District Court for the Northern District of Ohio, the SEC described KGTA Petroleum, Ltd. as a scam and Ponzi scheme.  As reported recently by Crain’s Cleveland Business, the FBI announced on April 15, 2015 that Mr. Cicolani had been charged criminally as a result of selling unregistered KGTA Petroleum, Ltd. securities.

Brokers Gainer and Cicolani allegedly engaged in three separate fraudulent acts by recommending the KGTA investments without properly registering the securities, engaging in “selling away” activities by selling the KGTA investments not through their employer, PrimeSolutions Securities, Inc., and failing to disclose to their public investor customers the very large fees they earned as a result of the recommendations and placements.  According to the SEC complaint, Brokers Gainer and Cicolani earned approximately $6 million in fees, or around 29% of all funds raised in the fraudulent KGTA investments.

The SEC detailed in its complaint that the investments KGTA Petroleum, Ltd. held by customers were often in the form of “promissory notes” or “agreements,” but really represented a typical Ponzi scheme, with interest and other payments made to old investors from the funds of new investors.  The SEC complaint alleged that the scheme affected at least 57 customers.

Selling private securities offerings without the required registration, disclosures and approval of a FINRA member broker-dealer are a very serious violation of the securities laws and rules.  Any investors who invested in these investments may have claims against the brokers and perhaps the broker-dealer PrimeSolutions Securities, Inc., who had affirmative supervision obligations over the branch office at which the brokers worked.  PrimeSolutions Securities, Inc. is obligated to investigate any “red flags” and perform regular audits to root out potentially fraudulent conduct.

According to his publicly available Financial Industry Regulatory Authority (FINRA) CRD report, Mr. Cicolani was the subject of approximately 70 customer complaints at his previous broker-dealer Merrill Lynch, Pierce, Fenner & Smith, Inc.  This number of complaints alone would require PrimeSolutions Securities, Inc. to subject Mr. Cicolani to “heightened supervision,” requiring closer scrutiny of his activities and accounts.  Ms. Hood was allegedly Mr. Cicolani’s girlfriend and was also terminated from PrimeSolutions Securities, Inc. as a result of the KGTA investments.

Malecki Law has previously investigated and successfully handled securities arbitrations concerning private securities transactions and other fraudulent conduct by brokers who are employed by FINRA member broker-dealers.  If you believe you have suffered losses as a result of questionable actions taken in your securities account, please contact us immediately for a confidential consultation.

Is it okay for a broker-dealer to use bonuses and other incentives to encourage its financial advisors to steer customers into “in house” and proprietary funds that may not be right for them just to generate more fees for the firm?  Or does this practice improperly (and illegally) incentivize the financial advisor to betray his customer’s trust for his and his firm’s benefit – thereby compromising the integrity of the relationship?

The SEC is asking just those types of questions about the practices of JP Morgan, according to recent reports.  Per InvestmentNews, the SEC and other regulators have subpoenaed and otherwise inquired of JP Morgan about the firm’s sales practices.  Specifically, the reports indicate that the focus seems to be on conflicts of interest related to the sales of mutual funds and other proprietary products to customers.  The SEC is reportedly looking into whether JP Morgan breached duties to its customers and/or applicable laws by unfairly and/or illegally marketing its in house investment products.

The sale of in-house proprietary products can be a very lucrative business for large “wire houses” as they are known in the industry.  Wire houses include such familiar names as JP Morgan, Merrill Lynch, Citigroup, Wells Fargo, etc.  By performing all of the structuring, issuing, lending and selling for their proprietary funds internally, a wire house is able to capture all of the associated fees, commissions and charges.  Therefore, it is important that regulators review the sales of such in house products, to make sure they are being sold fairly and legally to customers.

The regulators are allegedly reviewing pensions and other accounts that are covered by a fiduciary standard at JP Morgan.  Fiduciary duty means that the financial advisor must look out for their customer’s best interests ahead of their own. There is some debate over whether or not all financial advisors have a fiduciary duty to their customers.

Even so, financial advisors should give unconflicted advice to customers and should be looking out for their customer’s best interests.  Fiduciary or not, it is illegal for financial advisors to improperly provide conflicted and misleading investment recommendations to their customers, and for their firm to encourage them to do so.

It is the right of any and all investors who believe they may have suffered losses as a result of recommendations of their financial advisor to contact our offices to explore their legal rights and options.  The attorneys at Malecki Law have extensive experience representing investors in cases that result from conflicted advice from a financial advisor.

If you or a family member lost money and believe your financial advisor was looking out for himself or herself  instead of you or your loved one, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.

 

 

The Financial Industry Regulatory Authority (FINRAannounced on March 30, 2015 that it fined H. Beck, Inc., LaSalle St. Securities, LLC, and J.P. Turner & Company, LLC for failing to supervise consolidated reports.  These consolidated reports were provided to public customers, according to the announcement.

According to FINRA, “[a] consolidated report is a single document that combines information regarding most or all of a customer’s financial holdings, regardless of where those assets are held,” and does not replace monthly reports received from the firm.

In the announcement, FINRA cited to FINRA Regulatory Notice 10-19.  A regulatory Notice is used by FINRA to remind its members of obligations required by FINRA Rules and securities laws.  In Regulatory Notice 10-19, FINRA made clear that:

If not rigorously supervised, this activity can raise a number of regulatory concerns, including the potential for communicating inaccurate, confusing or misleading information to customers, lapses in supervisory controls, and the use of these reports for fraudulent or unethical purposes.

Regulatory Notice 10-19, and FINRA’s announcement, make these concerns clear, and also put FINRA member broker-dealer firms on notice of their obligations to perform adequate supervision over these consolidated reports.  In Regulatory Notice 10-19, FINRA states that to the extent brokers are permitted to create consolidated reports, “firms are required to supervise this activity.”

In FINRA’s March 30 announcement, it fined the three firms for inadequate supervision over consolidated reports.  H. Beck, Inc., for example, has approximately 465 offices around the country and approximately 800 brokers.  For a period, H. Beck, Inc. had no system in place to supervise the creation and dissemination of consolidated reports, despite the fact that close to 50 brokers sent them to certain of their respective customers, according to AWC No. 2012031552601.  According to the AWC, certain of these consolidated reports contained inaccuracies.

Likewise, J.P. Turner, a firm of approximately 185 branch offices and 420 brokers, also was fined by FINRA for permitting close to 50 brokers to create and distribute to their customers consolidated reports, while the firm had no supervisory procedures in place addressing the use of consolidated reports, according to AWC No. 2013036404301.

We at Malecki Law have seen how consolidated reports, combined with lax broker-dealer firm oversight, can be used to perpetuate frauds against public investors.  Very often, brokers have the ability to create or modify the consolidated reports to include “investments” that may not be on the broker-dealer’s books and records.  If the firm does not properly supervise the creation and dissemination of these consolidated reports, then brokers may be permitted to give the questionable “investments” an appearance of legitimacy because they appear on a firm document.

Malecki Law has previously investigated and successfully handled securities arbitrations concerning issues related to consolidated reports.  If you believe you have suffered losses as a result of questionable actions taken in your securities account, please contact us immediately for a confidential consultation.

The Financial Industry Regulatory Authority (FINRAannounced on March 26, 2015 that it fined Oppenheimer & Co., Inc. for failing to supervise Mark Hotton, a former broker who allegedly stole money from his clients accounts and excessively traded their accounts.  FINRA had already barred Mr. Hotton from the securities industry in 2013.

According to FINRA’s announcement, Oppenheimer & Co., Inc. failed to supervise Mr. Hotton in many respects, including during his hire and during his employment, as well as failed to supervise the accounts he was trading.  Oppenheimer & Co., Inc. failed to supervise Mr. Hotton during his hire by failing to consider 12 prior reportable events that occurred in Mr. Hotton’s past, including criminal events and seven customer complaints, according to FINRA.

FINRA also announced that Oppenheimer & Co., Inc. failed to supervise Mr. Hotton during his employment by failing to subject him to heightened supervision despite learning that his business partners had allegedly sued him for fraud resulting in several million dollars’ damages.  Oppenheimer & Co., Inc. may have been required to subject Mr. Hotton to heightened supervision, a more expensive and time-consuming manner of supervision, because of the number of past customer complaints against him while employed at other firms or while at Oppenheimer & Co., Inc.  To may matters worse, FINRA noted that Oppenheimer & Co., Inc. further failed to supervise Mr. Hotton by failing to investigate “red flags” in correspondences and wire requests that could have signaled potential violations of securities laws and industry rules.  FINRA alleged that Mr. Hotton was wiring funds out of customers’ accounts to accounts he owned or controlled.

FINRA also announced that Mr. Hotton excessively traded certain of his clients’ accounts.  Excessive trading may occur when purchases and sales of securities are made at such a rapid rate that the purpose is only to increase the broker’s commissions earned from buying and selling.  Excessive trading may be evidenced from such high “turnover rates” as well as high “cost to equity ratios,” a ratio calculated from comparing the costs in the account to the equity.    Customers usually lose large percentages of money when their accounts are excessively traded, and broker-dealers are often best placed to detect and stop such trading, though they rarely do.

Finally, FINRA announced that Oppenheimer & Co., Inc. has failed to make timely disseminations to FINRA regarding their brokers, which meant that the investing public and other broker-dealers did not get necessary information in a timely manner.

Malecki Law has previously investigated and successfully handled securities arbitrations against Oppenheimer & Co., Inc. and certain of the firm’s brokers in the past.  If you believe you have suffered losses as a result of questionable actions taken in your account, please contact us immediately for a confidential consultation.

A memo drafted by Jason Furman, one of President Obama’s top economic advisors, entitled “Draft Conflict of Interest Rule for Retirement Savings” was reportedly obtained by Bloomberg News.

The memo cites research that says investors may lose between $8 billion and $17 billion per year as a result of stockbroker/financial advisor practices, such as excessive trading commissions.  That number, while astonishing, may even be an underestimate according to some people.

As a result, some on Capitol Hill are calling for stricter rules on Wall Street.

One thing being looked at is the imposition of a “fiduciary standard” on brokers when handling retirement accounts.  This would require brokers to act in their clients’ best interests.  Many are surprised to hear that brokers may not always be required to act in a fiduciary manner.  Yet the fact is that based upon the specific circumstances, some brokers may only be held to a lesser “suitability” standard.

Unfortunately, many brokers cave to the temptation presented by conflicts of interest, such as increased commissions for selling one mutual fund over another.  This leads to brokers looking out for themselves, at the expense of their customers.  The memo indicates that some investors lose up to 10% of their long term savings because of such conflicted advice.

Given reports that tens of millions of people have savings in retirement accounts that total more than $11 trillion in total assets, it is no surprise that a push to a fiduciary standard for these accounts is gaining steam.  Given their age and varying levels of diminished capacity, senior citizens tend to be especially vulnerable to the illicit sales practices of an unscrupulous broker.  This makes protecting senior investors a paramount concern.

The attorneys at Malecki Law have significant experience representing victims of investment fraud and negligent financial advisors in arbitration and have successfully recovered millions of dollars on the behalf of individual investors, as well as large groups of investors, who lost money due to inappropriate investment advice.

If you or a family member suffered losses because of inappropriate investment advice, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.