Articles Posted in Audits and Investigations

Malecki Law is currently representing clients and investigating allegations against the brokerage and investment advisory firm Henley & Company, LLC and its recently deceased financial adviser, Philip Incorvia.  Public records show Mr. Incorvia openly and notoriously operated Jefferson Resources Inc. since 1992 (nearly 30 years, while being registered as a FINRA Series 7 licensed broker with Henley & Company – using Henley & Company as the website address for the company).  Mr. Incorvia was employed approximately 15 years with Henley and Company, operating both out of its offices in Shoreham and Uniondale, New York.  Malecki Law is looking for whistleblowers, witnesses, and other victims.

Malecki Law’s investigation relates to a possible Ponzi scheme and/or misappropriation of funds involving many investors and potentially many millions of dollars in losses.  The losses occurred across a number of purported “investments,” including but not limited to Jefferson Resources Inc., Vanderbilt Realty Investors, Inc., and JRI Hedge Fund. The investments were purporting to be mutual funds, hedge funds, and index funds, but it is believed that they were fictitious.  Some were “income producing” while others rolled over.

A Ponzi scheme is a fictitious investment or scam, in which the Ponzi operator typically uses investor money for personal use and non-investment related purposes.  Earlier investors are typically given “returns” which consist of principal coming from newer investors.  Ponzi schemes tend to collapse when there are no more new investors to tap into, which often happens during adverse market conditions.  In this case, it is believed that there was no one left to continue the Ponzi scheme when Mr. Incorvia passed away in August 2012, so it collapsed.

Malecki Law is currently investigating allegations regarding a Ponzi scheme targeted by several regulators, including the Commodity Futures Trading Commission (CFTC), which filed a civil enforcement action against Avinash Singh and nine others, including Daniel Cologero and Randy Rosseau, who reside in Florida, and Hemraj Singh, from New Jersey, concerning allegations of an almost $5 million-dollar multi-level Ponzi scheme.  We are specifically interested in speaking to any affected investors in Highrise Advantage, LLC or other related investments discussed below. Upon information and belief, Mr. Singh may have been working closely with Equity Trust Company and one or more of its representatives, including Anthony (“Tony”) Sopko, who may have been helping to bring new investors into the scheme.

Mr. Singh is accused of misappropriating funds fraudulently solicited by him and his co-defendants.  They allegedly used their network of contacts to prey on those within their communities.  One individual charged, Surujpaul Sahdeo, was a priest who may have used his company, SR&B Enterprises, to prey on the Guyanese community and community church-goers, allegedly using their donations to fund the Ponzi scheme through Mr. Singh, who is alleged to have been a main point of contact for recruiting many investors. It is alleged that all of the funds were funneled through commodity pools set up to funnel the fraudulently solicited funds– Highrise Advantage, LLC., Green Knight Investments, LLC, Bull Run Advantage, LLC, and King Royalty, LLC.

Firms like Equity Trust Company have supervisory duties that require them to monitor both the internal and external business activities of their employees like Mr. Sopko.   This is significant because Ponzi victims often do not know who to turn to, as Ponzi funds are often spent and heavily depleted by the time a Ponzi scheme falls apart and is discovered.  Nevertheless, Malecki Law has decades of experience in successfully recovering millions of dollars from financial firms, such as those Malecki Law sued and successfully recovered from in Ponzi schemes perpetrated by Hector May and Robert Van Zandt.

As we have been saying in this space for many years, getting a Rule 8210 Notice from FINRA can be a jarring event.  If you have received an 8210 notice, you should take it seriously, as well as immediate steps to develop your best course of action to comply with the request. An 8210 Notice is a subpoena from FINRA that is typically sent to registered representatives in connection with an informal inquiry that does not have to be reported on your form U4. When you first receive an 8210 notice, FINRA is likely trying to determine if there have been any violations of securities and/or industry rules and/or regulations.  You should notify your compliance officer, as they will likely have already received a copy from FINRA, but being transparent is important.

It is important to meet with an attorney as soon as possible to determine the best ways in which to protect your interests during the process.  All involved parties will not necessarily share the same interests, i.e., your firm and/or supervisor may have their own self-preservation interests.   As part of the 8210 notice, you will be required to answer a list of questions (interrogatories) and produce sometimes a wide range of documents, both business and personal.  The attorneys at Malecki Law are experienced in defending FINRA registered representatives and firms in FINRA disciplinary matters and can work with you in responding to interrogatories and assist you with your document production using state of the art electronic discovery tools.

In working with your attorney to respond to interrogatories and produce documents you should also start to prepare for a potential “on the record” interview (or “OTR” for short).  OTRs before FINRA involve sitting in a conference room with investigators and answering their questions under oath.  You should have your attorney prepare and accompany you to an OTR. While not all cases involve an OTR, many do.  Experienced counsel will know the best way to couch what happened with the right language and explanation.  Furthermore, it is important to identify and explain mitigating circumstances as soon as possible before enforcement decisions are made.

Receiving a subpoena from the Securities and Exchange Commission (SEC) is a serious matter as is the associated document production most SEC subpoenas call for. Not only do most all SEC subpoenas require the production of vast amounts of documents, electronic files and data, the manner in which the SEC strictly requires production (see here for SEC data delivery standards) can be confusing for most, especially those not familiar with electronic discovery. Our securities regulatory attorneys frequently assist clients with examining, gathering and producing responsive documents and data for production in a format accepted by the SEC. Our securities regulatory attorneys utilize state of the art electronic discovery software and tools that reduce both the amount of time required of you and the billable hour.

All the documents and electronic data called for by the subpoena may seem overwhelming, however, ensuring that your production is both completely responsive and delivered in compliance with the SEC data delivery standards is one of the only ways in which you will be able to help the investigation proceed quicker to a final resolution. Often an issue for clients is the seemingly broad wording of SEC subpoenas, our securities regulatory attorneys are practiced in helping clients better understand what items are being sought by the SEC.  Thus, allowing you to limit your time spent searching for documents and data. A responsive and compliant production also limits the amount times that you and/or your attorney will need to spend in working with the SEC.  It is important to turn off any auto-delete functions that you may have in place to preserve your data and documents and DO NOT destroy anything. Not only will the destruction of any documents complicate your matter you may also face an obstruction charge.

It is imperative that you carefully comply in a timely manner with an SEC subpoena. The SEC can enforce a subpoena if you fail to comply with what the subpoena calls for and a failure to comply with court orders could result in contempt charges. Our securities regulatory attorneys are often able to negotiate the scope and timing of productions, including an extension of time for clients document production and testimony (if called for).It is also important that your response to the subpoena includes any legal objections that you may be entitled to. Remember, your response does not end the process.  The SEC may consider your Subpoena response for weeks or months before they decide whether further investigation is necessary.

As reported in the Wall Street Journal, there has been a recent trend at big brokerages of shifting the power from the headquarters to brokers and branch managers. Apparently big brokerages like Bank Of America, UBS Group, and Merrill Lynch are “unleashing” their brokers and moving power closer to the brokers and their managers, both to keep brokers from leaving their firms and to increase revenues.

These modifications come in the wake of declining revenues and broker exoduses several big brokerages have experienced after the financial crisis. They have also witnessed that brokers who dislike or disagree with their managers and find them unhelpful tend to leave the brokerages more easily. The big brokerages have had to deal with rising regulatory costs and competing with an increasing number of independent advisers. According to research conducted by consulting groups, the registered investment adviser model is more successful as it is a smaller and more tightly integrated groups. Taking a cue from that, the zillion dollar brokerages are making changes aimed at empowering, training and giving their brokers more control over day to day decisions over clients, growth, and resource allocation. Merrill Lynch has plans to restructure the brokerage leadership, emphasize more on productivity and training, and reduce the number of divisions. UBS also made similar changes last year.

There are plans underway to also automate investment advisory and make use of robos to cater to a younger clientele so that the brokers can be freed up to deal with high net worth clients. All in all, this gradual shift is geared towards taking things back to how they were before the financial crisis hit, when the field agents and managers had more autonomy to structure their branches, price and sell services, be less accountable to corporate headquarters, hold more power and sway.

We frequently represent individuals who have received an SEC Subpoena, and often the first question asked is, “Why did I get this subpoena? I did nothing wrong.”  The SEC investigates many kinds of misconduct, and the people they seek information and documents from (through the use of Subpoenas) very often are not “targets” of the investigation, but the SEC may believe they could be a “witness,” or may have useful information that could aid the investigation.  Understanding the common investigations the SEC may commence is a good first step to understanding what prompted the Subpoena.

According to the SEC, the most common types of investigations of potential securities violations include:

  • Misrepresentation or omission of important information about securities – when promoting the sale of securities, brokers, broker-dealers and other securities professionals should ensure that promotional materials accurately reflect the characteristics and risks of the securities.

This week, it has been reported that the Department of Labor proposed tougher laws after issuing new regulations requiring financial advisors and brokers managing 401k and retirement accounts to act in the best interest of their clients. These rules were proposed a year ago and after deliberating on it for a year, the White House has finalized these tougher requirements. However, it might be a year before these rules go into effect.

An academic study commissioned by the White House revealed that “conflicts of interest” in financial investing was costing Americans about $17 billion a year in retirement savings. Although brokers are required to only recommend “suitable” investments under the current “suitability standard”, they can push a more expensive product that pays a higher commission than a cheaper fund that would be equally appropriate for that investor.

The new rule fiduciary rule is aimed to at reducing fees and commissions that erode retirement savings and hold brokers to higher standards. It will cast a wider net on who is subject to the fiduciary standard.

The New York securities and investment fraud attorneys at Malecki Law are interested in hearing from investors in Highland Funds’ series Energy Master Limited Partnerships (MLPs).

Highland Funds’ four Energy MLPs have declined by approximately 23% in the year to date, per Morningstar.  These funds include:

  • Highland Energy MLP C (HEFCX)

The securities and investment fraud attorneys at Malecki Law are interested in hearing from investors in Tortoise Capital Advisors and explore their potential options for recovering their losses.

The Kansas-based Tortoise Capital Advisors is a “privately owned investment manager . . . that primarily provides its services to high net worth individuals . . . and caters to corporations, pooled investment vehicles, investment companies, and pension and profit sharing plans . . . typically invest[ing] in [the] energy and infrastructure sector,” per Bloomberg Business.

Among Tortoise’s portfolio of funds, a number of them declined between 17% and 36% in 2015 alone, per Morningstar.

Oil briefly dropped below $30 per barrel today.  For those who drive SUVs, this may feel like a blessing. However, for those who are heavily invested in Oil and Gas, it can be frightening.  People who invested in Oil and Gas at the recommendation of their financial advisor may be feeling anger and confusion, in addition to that fear – these investors rightfully want answers.

Aside from buying Oil and Gas futures directly, there are two frequently used products that investors use to invest in Oil and Gas – Master Limited Partnerships (MLPs) and Exchange Traded Funds (ETFs).

As we wrote here last year, investors lost millions as gas prices dropped at the beginning of 2015.  As prices have continued to slide over the past 12 months, losses have compounded.  This is terrible news for those whose financial advisors recommended that they invest in Oil and Gas, and then convinced them to stay in and “ride it out” on promises of a price recovery.

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