Allegations of mismanagement, oppression, and accounting disputes are the common accusations when conflicts arise between private equity funds and shareholders of companies being added to private equity portfolios. These disputes are increasingly being complicated by private equity deals involving companies with offshored entities that have local shareholders in the offshored country. Companies outsourcing via the creation of new foreign entities is not a new phenomenon. However, the activities outsourced to developing countries has shifted from traditional manufacturing and assembly to include more companies in the information technology sectors and even legal processes. Increased offshoring via the creation of satellite entities and the proliferation of private equity deals has increasingly led to instances of local citizen shareholders and partners of the offshored entity being ousted and/or squeezed out of deals.

The global digitization trend has led to an explosion of offshored entities of US companies in India. Fittingly, India has found itself cluttered with western private equity firms in search of potential portfolio companies. Becoming the investee of a private equity deal is generally a positive event for a company and its shareholders. However, it appears that Indian shareholders of these offshored entities can find themselves left out and private equity firms having to engage in unproductive litigation in Indian courts.

Recently, a petition for oppression and mismanagement has been filed in India by Mr. Dominic Thomas Karipaparambil, against, Xcellence Inc. (“XDD USA”), operating under the brand Xact Data Discovery, a US-based provider of eDiscovery, data management and managed review services. The parties to the dispute also include XDD USA’s offshored entity Xact Data Discovery India Private Limited (“XDD India”); JLL Partners Fund VII, L.P. (“JLL Partners”), a US-based private equity firm; and others. Court records show Mr. Karipaparambil, to be the 49% Indian shareholder of XDD India. Additionally, from the records it appears that Mr. Karipaparambil, may have also been the Managing Director of XDD India. Mr. Karipaparambil’s name also appears as the original subscriber to the charter documents of XDD India with Mr. Robert Polus (President & CEO of XDD USA). It seems that Mr. Karipaparambil, Mr. Polus and XDD USA, may have set up XDD India as a joint venture arrangement in the ratio of 51 (Mr. Polus): 49 (Mr. Karipaparambil). At some stage, into the venture, XDD USA seems to have acquired 51% in XDD India from Mr. Polus. US press releases show that JLL Partners acquired ‘Xact Data Discovery’ (XDD USA), shares from Clearview Capital LLC (“Clearview”) in late December 2017 – early January 2018. Past press releases also show that Clearview, another private equity investor, had acquired XDD USA in January 2015.

Brokerage firms may sometimes use reporting inaccurate negative information on a departing securities employees’ U-5 records as their “weapon” to keep their customers, according to a Bloomberg article. FINRA records and broker experiences show that brokerage firms occasionally include inaccurate information when filing a Form U-5. While financial advisors and brokers can file an arbitration to have employers remove the erroneous information from their record, many take no action. Securities employment attorneys are unsurprised given that broker and financial advisor cases against the employer, tend to favor big brokerage firms heavily. Financial professionals fear the high cost, time loss, and difficulty getting expungement in a FINRA arbitration.

Brokerage firms provide information regarding an existing employee’s termination in a document entitled, Uniform Termination Notice for Securities Industry Registration Notice – Form U-5. Within 30 days of the broker’s termination, the brokerage dealer must file a Form U-5 with the Financial Industry Regulatory Authority pursuant to Article V, Section 3 of the FINRA by-laws. A Form U-5 seeks information pertaining to the circumstances around a respective broker’s termination from the firm. Brokerage firms are obligated to provide accurate, and timely information as well as file any changes on the U5, according to FINRA’s Regulatory Notice 10-39.

It is important to contact a FINRA securities attorney when you first realize that you may be terminated or when you are terminated, to act fast. While a Form U-5 is not “negotiable,” a broker can provide information to the firm to change the firm’s mind on the facts, as well as tell them facts that they may not know. It is worthwhile to try doing so before the filing, as after the filing firms are hesitant to change a U-5 as regulatory agencies could start asking questions regarding the reasoning. No firm wants FINRA regulatory to come knocking on their door.

FINRA barred financial advisor Dawn Bennet, from Chevy Chase, Maryland was reportedly convicted for misappropriating client funds in a multimillion-dollar Ponzi Scheme that targeted elderly and financially unsophisticated investors. A Ponzi Scheme is a type of investment fraud that solicits investor money for non-existing investments. Between, December 2014 and July 2017, Ms. Bennett allegedly raised 20 million dollars from 46 investors through the unregistered offer of securities in her retail sports apparel business, DJB Holdings LLC, (“DJ Bennet”).  This past Wednesday, a jury convicted Ms. Bennett on all 17 federal charges including securities fraud, wire fraud, and bank fraud, according to the United States Attorney’s Office, District of Maryland. Ms. Bennet’s alleged Ponzi Scheme received heavy media attention after the FBI found evidence suggesting that she casted “hoodoo” spells intended to silence SEC investigators.

Dawn Bennett (CRD#1567051) worked as a FINRA registered broker and investment adviser before getting barred by the self-regulatory agency, according to her BrokerCheck records. Within her 28 years in the securities industry, Dawn Bennett was registered with Wheat, First Securities, Inc. (03/1987-08/1996), Legg Mason Wood Walker, Inc. (08/1996-02/2006), CitiGroup Global Markets Inc. (02/2006), Royal Alliance Associates, Inc. (02/2006-10/2009), and Western International Securities, Inc. (10/2009-12/2015).  FINRA barred Ms. Bennett from the industry after failing to show up to an administrative hearing.

The Securities and Exchange Commission also charged Dawn Bennett for violating federal securities laws in connection with her alleged Ponzi Scheme. A SEC amended complaint filed last year also lists her business’ CFO, Bradley Mascho, from Frederick, Maryland in addition to Dawn Bennett and her entity DBJ Holdings, LLC. A few months ago, Mr. Mascho pled guilty to charges in a plea bargain that capped his maximum prison term at ten years.

Yesterday, a Financial Industry Regulatory Authority (FINRA) arbitration panel in New Jersey, FINRA Case No. 03-08177, handed down a decisive award in favor of a trader, who was also a Series 7 registered broker.  The trader was sued by a retail investor relating to his recommendation of a municipal bond nearly fifteen years ago.  The arbitration was first filed with the National Association of Securities Dealers in November of 2003, which predates the entity’s merger with the enforcement and arbitration arm of the New York Stock Exchange to form FINRA.  The matter, which started in arbitration, winding its way in and out of the New Jersey courts, was the oldest and longest running case in FINRA’s history.  As argued before the arbitration panel by the broker’s attorney, Jenice L. Malecki, “this case was nearly old enough to drive and only three years away from being allowed to vote.”

In addition to dismissing the investors’ claims in their entirety, the arbitration panel made the rare, and ultimately just, decision to award the trader $47,831.01 in attorneys’ fees based on the panel’s finding of “malicious prosecution” by the claimant investors.  The panel further recommended expungement of the complaint from the broker’s registration records, as maintained by the Central Registration Depository (CRD), finding the investors’ allegations to be without merit and false.  The case was in and out of arbitration and court numerous times over the years, contributing to its length.

According to the award, the Claimants in this case, in connection with their single purchase of municipal bonds, had alleged damages against the Respondent trader “in excess of $500,000.00 but not less than $1,000,000.000, the exact amount to be proven at the hearing.”  However, as the panel determined, the investors had suffered no losses at all but in fact, received interest and turned a profit:

A former Wells Fargo registered representative in Daytona, Ohio is facing charges by the Securities and Exchange Commission for defrauding investors out of over a million dollars in a fraudulent scheme that targeted seniors. The SEC filed a complaint against John Gregory Schmidt with the United States District Court for the Southern District of Ohio on Tuesday. Allegedly, Mr. Schmidt made unauthorized sales and withdrawals from variable annuities to use the proceeds for covering shortfalls in other customer accounts. While Mr. Schmidt allegedly received over $230,000 in commissions, his customers were unaware of the transactions. When the scheme unraveled, it is reported that involved investors discovered that the account balances provided by their trusted financial adviser were false. Our investor fraud attorneys are currently investigating into customer claims against Mr. Schmidt.

The SEC complaint alleges that John Gregory Schmidt sold securities from seven of his investors and transferred proceeds to other customer accounts. Most of the securities were variable annuities that required letters of authorization, which Mr. Schmidt is alleged to have forged without client consent. Instead of notifying certain clients of their dwindling account balances, Mr. Schmidt allegedly sent false account statements and permitted excessive withdrawals. Unbeknownst to the client with account shortfalls, it is charged that the received money was illegally retrieved from other customer accounts. The SEC claims that Mr. Schmidt’s misrepresentations violate federal securities laws, including Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.

It is important to note that John Gregory Schmidt’s alleged fraudulent actions appear to have targeted some of the most vulnerable people in society. Mr. Schmidt, who is 65 years old, ran a fraudulent scheme that targeted elderly victims not too far off from his age, according to the complaint. Several of his reported victims were suffering from medical conditions such as Alzheimer’s and other forms of dementia. Tragically, at least five of the defrauded investors have passed away and will never be able to see justice served.

In recent years, exchange-traded products, “ETFs,” have become increasingly more popular on Wall Street and in the investor community. Institutional investors and retail investors alike have invested in exchange-traded products. Astoundingly, exchange-traded funds are a trillion-dollar market that continues to grow in value with passing time. While some ETFs are like mutual funds, others are a speculative gamble. There are many ETFs that investors should be wary of before deciding to invest. Not all ETFs are created equal.

What are Exchange-Traded Funds and How Do They Work?

Exchange-traded funds are securities that track an index, basket of stocks, bonds or a commodity. For an investor to own an ETF is the equivalent of indirectly holding a share of the total basket of underlying assets. In return, the investor receives a proportional amount of the fund’s profits and residuals. Investors can also use exchange-traded funds as a tracking mechanism for exposure to a specific index or collection of securities.

Three men are facings charges by the SEC and federal prosecutors over allegations of running a $364 million in one of the largest Ponzi Schemes found in the Washington D.C region. A federal grand jury indicted the three alleged perpetrators, Kevin Merrill of Maryland, Jay Ledford of Texas and Cameron Jezierski of Texas in a Maryland court. The charges leading to their arrest include wire fraud, identity theft, money laundering, and conspiracy, according to the U.S attorney’s office. They falsely represented themselves as financial professionals selling credit portfolios to unsuspecting investors. Meanwhile, most of the investor money was pocketed or used to pay existing investors. The alleged victims include individuals, family offices, and investment groups across the nation. Investment fraud attorneys see parallels between this case and the textbook example of a Ponzi Scheme.

Alleged Ponzi Schemers Kevin Merrill, Jay Ledford, and Cameron Jezierski allegedly ran a multi-million-dollar scheme to defraud investors using consumer debt portfolios, according to the indictment. Consumer debt portfolios consisted of outstanding debt owed to consumer lenders like banks and student loan lenders. It is alleged that starting in January 2013, the three men collected investor money through offering investments in consumer debt portfolios. The investing victims were allegedly promised profits from successful “flips” or collections from consumer payments.  The indictment further alleges that the men shielded their fraudulent activity from investors through the creation of falsified documents and companies. The investors allegedly received collection reports, consumer debt portfolio overviews and sales agreements, bank wire transfer records and bank statements containing falsified information.

According to the indictment, most of the money was not invested but used to maintain their elaborate Ponzi Scheme, unbeknownst to the victims. A Ponzi Scheme is an investment fraud that solicits people to invest in non-existent investments. New investor money ends up being used to produce “returns” to existing investors to maintain the Ponzi Scheme and fund their lavish lifestyle. The Ponzi Schemer will distribute falsified documents containing inaccurate information about their nonexistent investments. The schemes will spread as investors bring more people on board based on their positive returns in the beginning. As more investors join, Ponzi Schemers, such as the three men receive more money to fund their lavish lifestyle. Notably, according to the indictment in the Baltimore case, $73 million of investor funds went to personal expenses that included high-end cars, expensive homes, and jewelry. Additionally, the accused allegedly spent the money gambling at casinos and other luxuries to sustain their lavish lifestyles.

Investors are encouraged to watch out for “false prophets” that commit affinity fraud by targeting members of religious communities. CNBC posted an article about rampant religious-based fraud with securities attorney Jenice Malecki’s commentary for tonight’s new episode of true crime series American Greed. The episode, entitled “An Ungodly Scammer” will feature the story of convicted multimillion-dollar Ponzi Scheme fraudster Ephren Taylor, who targeted churchgoers. Ephren Taylor pleaded guilty to conspiracy to commit wire fraud and sentenced to 235 months. In an interview for tonight’s premiering American Greed episode, Jenice Malecki comments on Ephren Taylor’s religious fraud with a warning for investors to be on the lookout for affinity fraud.

Ephren Taylor collected millions of dollars by traveling to megachurches in 43 states to solicit investors in his low-risk investments as part of his “Building Wealth” tour. In his visits, Ephren Taylor spoke of his status as a self-made multimillionaire from a young age to represent his credibility. Investors listened and believed as Ephren Taylor used religion to garner their funds through his “prosperity gospel” sales pitches. Ephren Taylor claimed to sell investors high yield promissory notes that would finance socially responsible ventures that included low-income housing projects. Instead, provided funds were being allocated to Ephren Taylor’s personal expenditures and occasional false “returns” to existing investors, as part of a Ponzi Scheme.

Now, victims of Ephren Taylors’ Ponzi Scheme are left distraught and defrauded out of millions of dollars in life savings after falling prey to his affinity fraud. Affinity fraud refers to an investment scam that targets members of identifiable groups based on shared commonalities. The affinity fraud perpetrator will leverage represented membership within the group to exploit trust and sell a fraudulent investment. Jenice Malecki told CNBC that in affinity situations, people would tend to be comfortable enough to blindly trust those that share membership within their church or ethnic communities. A famous example of this is Bernie Madoff’s Ponzi Scheme which raised billions through targeting Jewish communities.

While marijuana-related investments grow in popularity, the SEC has reportedly received more associated complaints from investors. As a result, the Securities and Exchange Commission warns individuals to be mindful of certain risks before investing in marijuana-related companies. The SEC released an investor alert with this warning after medical marijuana company owner, Richard Greenlaw settled charges for allegedly offering and selling unregistered securities to 59 investors.  Signs of fraud reportedly include unlicensed, unregistered sellers; guaranteed returns; and unsolicited offers. Chiefly, Richard Greenlaw was not registered nor licensed to sell his marijuana-related investments with the Securities and Exchange Commission.

The SEC complaint, filed with the United States District Court of Maine charged the owner of NECS, Richard Greenlaw and his 20 cannabis-related entities for violating the registration provisions of federal securities laws. The 20 cannabis-related entities charged in the SEC complaint are NECS LLC, MaineCS LLC, VTCS LLC, MassCS LLC, NHCS LLC, RICS LLC, CTCS LLC, FLCS LLC, ILCS LLC, IACS LLC, LOUCS LLC, MICS LLC, MNCS LLC, NDCS LLC, NJCS LLC, NYCS LLC, OHCS LLC, PennCS LLC, UPCS LLC, and WICS LLC. It is alleged that Richard Greenlaw posted advertisements on Craigslist to offer and sell subscription agreements for securities in his companies. In response to these charges, Mr. Greenlaw agreed to pay $400,000 and accept permanent injunctions from further violations of  Section 5(a) and 5(c) of the Securities Act of 1933.

Federal securities laws mandate that any offer and sale of a security must be registered with the SEC. A company registers a security by filing financial statements, business descriptions and other legally required information with the SEC. Otherwise, the securities offering must be found to be subject to exemption under Securities Act 1933. Offerings of securities that can be exempt include those of limited size, intrastate, private and more. Exemption requirements may also require that securities be only sold to accredited investors. Thus, investment salespersons would be prohibited from selling exempted securities to any investors who do not meet the requirements. In this case, Mr. Greenlaw’s marijuana-related investments were not registered nor qualified for exemption.

Barred FINRA-registered broker Steve Pagartanis, of Suffolk County, N.Y, is facing charges by the SEC and the Suffolk County District Attorney’s Office for allegedly running a multi-million-dollar Ponzi Scheme that bilked long-term investors, many of them seniors, for 18 years. In May 2018, the SEC filed a civil complaint against Steven Pagartanis alleging that he solicited and sold securities using falsified statements; defrauding at minimum nine investors out of $8 million. Mr. Pagartanis allegedly told investors that he would invest their funds in a publicly-traded or private land development company. Steven Pagartanis was arrested on July 25, 2018, with charges related to securities fraud as well as mail and wire conspiracies in connection with this alleged Ponzi scheme. Before being barred from acting as a broker by FINRA, Steve Pagartanis (CRD#1958879) was most recently a registered broker with Lombard Securities Incorporated. Our securities fraud attorneys are currently investigating into Steve Pagartanis’s alleged Ponzi Scheme on behalf of investors who lost their irreplaceable life savings.

Victims claimed to have trusted Mr. Pagartanis after having done business with him for years and entrusted hundreds of thousands of dollars, including retirement and elder care earmarked money.  Mr. Pagartanis reportedly claimed that the money would purchase investments in Genesis Land Development. His victims claim that Mr. Pagartanis promised that their investments in the real estate development company would produce 4.5% in guaranteed interest with annual dividends. On the contrary, Mr. Pagartanis allegedly never invested the money and deposited it into his personal bank accounts, as also alleged in the SEC complaint. Now, victims of Mr. Pagartanis’s alleged Ponzi Scheme are left distraught, with no other choice but to hold the appropriate parties responsible – in particularly his brokerage firm Cadaret Grant & Co.

Our investor fraud attorneys see many parallels between Steve Pagartanis’s alleged fraudulent actions and typical Ponzi Scheme activity. A Ponzi Scheme is a kind of investment fraud in which a perpetrator pays “false returns” to existing investors using new deposits. Ponzi Scheme perpetrators will use some of the money to fund their lavish lifestyles. As is often the case in Ponzi Schemes, Steve Pagartanis relied on built up trust gained over the years from his mostly elderly clients. Eventually, Steve Pagartanis allegedly failed to make an expected payment to a client, which most probably unveiled the fraud. Ponzi schemes are almost always finally revealed when the fraudulent perpetrator could no longer make a payment, according to securities fraud attorneys.