Articles Posted in Problem Brokers

This is Part 2 of an article we posted last week on former NBA-great, Tim Duncan, where we introduced the investing lessons that could be gleaned from Duncan’s relationship with his former financial adviser, Charles A. Banks, who was permanently barred from the securities industry and is now serving a four-year prison term after pleading guilty to wire fraud.

For background on this story, it is a good idea to read Part 1 of this series, where we revealed our first lesson, which was to be wary of the financial adviser who constantly brings you deals.  While this might create the impression that your adviser is knowledgeable and has the inside scoop, it is frequently a sign of an adviser who is exposing you to unnecessary risk and trying to earn commissions or undisclosed fees that will eat away at your principal.

A second lesson from this sad story is to recognize a common fraud tactic, which may seem innocent, but should set off alarm bells and have you looking for a new financial adviser.  This is when an adviser asks a customer to sign a blank form or just a signature page, as Banks did with Duncan.  The adviser will often justify the practice as a time-saver and present it to the customer as a convenience, such as dropping blank forms in the mail with affixed post-it-notes that simply point the investor where to sign.  This request often sounds benign or reasonable to an investor, but it is in fact illegal and happens more often than many people realize.  Though this practice may seem harmless, signing forms in the absence of one’s adviser deprives the investor of an in-person interaction to ask useful questions and to have the adviser explain all the investment risks and hidden fees that may be associated with the investment.

Last month we learned that Tim Duncan’s financial adviser was sentenced by a federal court to four years in prison for defrauding the NBA legend of $7.5 million.  Duncan earned over $220 million during his playing career, so he is by no means financially ruined, but there are some good lessons to learn about investing and placing too much trust in the person who manages your money.

Tim Duncan is an accomplished, 15-time NBA All-Star and future Hall of Famer.  He retired in July 2016 after playing nineteen seasons of professional basketball with the San Antonio Spurs.  In today’s age of free agency and mega-million-dollar commercial endorsements, it is a rarity for a player to play his entire career with a single franchise.  As one of the greatest to ever play the game, Duncan could have sought greener pastures and taken his talents to the highest bidder in any city of his choosing.  Instead, he was noted for having taken yearly pay cuts to stay in San Antonio to allow the Spurs to remain under the league salary cap while paying for talent at other positions.  Duncan was generally known for his loyalty and being the consummate teammate and role model for fans and younger players.  His loyalty on the court perhaps says a lot about how he conducted himself off the court, where he showed similar trust and loyalty to the people in his daily life, including his financial adviser.

Last month, Duncan’s financial adviser, Charles A. Banks, IV, made headlines when a federal court in Texas issued a judgment against Banks, convicting him of wire fraud, and sentencing him to 48 months in prison followed by three years of supervised release.  The court also ordered Banks to pay $7.5 million in restitution.

Financial exploitation of the elderly by a financial advisor can take many shapes and forms, and it is indeed possible to recover one’s financial losses from the broker or financial institution who carried out and supervised the misconduct.  Wrongdoing by a financial professional can be difficult to expose because it often arises out of relationships built on trust, and can go undetected for many years by the affected senior and family members.

Some types of broker misconduct are easier to identify than others.  Cases of outright fraud, for instance, could include the broker forging an elderly customer’s signature, falsely representing the worth or activity in an account, omitting the risks of a particular investment, recommending and selling unnecessary investment products (e.g., certain annuities), or trading excessively in a customer account solely to generate commissions (otherwise known as “churning”).  Regardless of motive or intent, an investor’s financial losses from the misconduct can be no less catastrophic.  If anything, this should point to the incidence rate of financial abuse amongst the elderly to be more prevalent than many people realize.  Indeed, research has shown that American senior citizens lose over $36 billion per year from financial exploitation.  That number is only expected to rise with increasing life expectancy and the expanding demographic of senior citizens within the United States.

Financial elder abuse is also greatly underreported.  According to the National Adult Protective Services Association, only 1 in 44 cases of financial abuse is reported.  The National Center for Elder Abuse points to studies that have identified feelings of shame as being one reason for the underreporting, in part related to the embarrassment of having fallen victim to financial fraud, but also to the embarrassment of having to disclose that one is suffering from age-related memory loss or cognitive decline.  On this latter point, memory impairment of an elderly investor only adds to the underreporting of broker misconduct.

The short answer is no.

When a customer opens an investment account with a brokerage firm, he or she is typically given the option to choose between a discretionary or non-discretionary account.  A discretionary account gives the assigned broker or financial advisor the latitude, or discretion, to buy or sell securities in the account without the customer’s prior authorization.  In non-discretionary accounts, a broker does not have that discretion and must obtain the customer’s permission prior to each transaction.

For reasons that may seem obvious, discretionary accounts are somewhat of a rarity in the brokerage world, in part because they require much more supervisory oversight than non-discretionary accounts.  Discretionary accounts are naturally prone to a higher risk for abuse or mismanagement of funds, as there is less customer input and oversight of the trading.  Thus it should be no surprise that the securities laws for discretionary accounts are especially geared towards investor protection.

man-and-woman-holding-money-300x300Broker Deborah D. Kelley is allegedly one of the key figures in the $184 billion New York pension fund “pay-for-play” bribery scandal. She was reportedly arrested in December 2016 in San Francisco on charges of securities fraud, conspiracy to commit securities fraud, and conspiracy to obstruct justice in an SEC investigation. This week she was barred by the Financial Industry Regulatory Authority (FINRA).

The salacious allegations in this scandal involves the NY retirement pension fund and Navnoor Kang, its former director of fixed income and portfolio strategy, not only made newspaper headlines but was reported in prominent magazines such as Vanity Fair. Allegedly, Mr. Kang received more than $100,000 in bribes, including prostitutes, bottle service, drugs, vacations and weekend trips, expensive watches, VIP tickets to concerts from Ms. Kelly and another broker Gregg Schonhorn, in exchange for promoting the interest of Deborah Kelley’s broker-dealer. It is reported that Navnoor Kang deposited $2 billion with Ms. Kelly’s broker-dealers. Wall Street Journal reportedly quoted U.S. attorney Preet Bharara calling this a “classic case of quid pro quo corruption.”

As per FINRA records, she was registered with Sterne, Agee & Leach Inc.in 2014 and subsequently with Stifel, Nicolaus & Co. Inc. after Stifel bought the former broker-dealer. She was reported fired by Stifel for bribing the pension fund manager with entertainment and gifts to further business opportunities and misrepresentation of these expenses, as noted in the FINRA proceedings that led to her disbarment.

Patrick Churchville of Rhode Island has been accused of orchestrating a $21 million Ponzi scheme and was recently sentenced to 7 years in prison by a federal judge, according to an Investment News report. Mr. Churchville is thefinancial-fraud-300x200 owner and president of ClearPath Wealth Management and according to SEC’s complaint, he allegedly diverted funds from investors to pay older investors, used their funds as collateral for loans or converted investments to benefit ClearPath Wealth Management. According to the news report, he allegedly used $2.5 million of borrowed money to buy a lavish waterfront home in Rhode Island.

Mr. Churchville started running his Ponzi scheme 2010 onwards and like in any Ponzi scheme, he added to his net worth at the cost of his victims, who lost their homes and all their savings. One of his victims was left on food stamps and needed heating assistance by the end of it, and others were forced back into the workforce in their retirement years. U.S. District Court Chief Judge William E. Smith called the whole scheme a “tragedy”. Churchville allegedly pleaded guilty to five counts of wire fraud and one of tax fraud for failing to pay more than $820,000 in taxes. He has also reportedly been ordered to pay restitution to his 114 victims although the number is unspecified.

Being victimized by financial fraud not only means lost savings but can completely wreak someone’s life and strain personal relationships. At Malecki Law, we regularly help victims of Ponzi scheme get justice and restitution. If you suspect a financial advisor or brokerage firm has been taking advantage of you or your loved ones, reach out for legal advice.

office_suit_corportate_237605_l-300x224The securities fraud attorneys at Malecki Law are interested in hearing from investors who have complaints against stockbroker Matthew Maczko.  Mr. Maczko was employed and registered with Wells Fargo Advisors, LLC, a national broker-dealer out of the firm’s Oakbrook, Illinois, from February 2008 to September 2016, according to his publicly available BrokerCheck, as maintained by the Financial Industry Regulatory Authority (FINRA).  He was previously registered with UBS Financial Services, Inc. from November 1998 to March 2008, according to BrokerCheck records.

In 2017, Mr. Maczko was permanently barred from association with any FINRA member broker-dealer by FINRA, after submitting a Letter of Acceptance, Waiver and Consent No. 2016050430201.  According to the AWC, Mr. Maczko violated NASD Rule 2310 and Rule 2111, both pertaining to suitability of investment recommendations, because from 2009 to 2016, Mr. Maczko “effected excessive transactions in four brokerage accounts of [a] customer … who is now 93 years old,” and “during this period, Maczko effected over 2800 transactions in these accounts that generated approximately $581,650 in commissions, $84,270 in other fees, and approximately $397,000 in trading losses.”  As the AWC went on, “[t]his level of trading was unsuitable.”

FINRA Suitability Rules require that recommendations made by the broker to the customer be suitable.  This means that the broker must consider the investor’s age, investment experience, age, tax status, other investments, as well as other factors when making a recommendation to buy or sell securities.

According to publicly available BrokerCheck records, James Carolan Speno (CRD#431NYSE912), a New York based securities broker, formerly associated with Morgan Stanley, was recently barred by FINRA. Attorneys at Malecki Law are interested in hearing from investors who have complaints against James Speno.

Mr. Speno has spent over 45 years as a securities advisor. His most recent registration was with Morgan Stanley in New York. Prior to that he was registered with Oppenheimer & Co.; RBC Capital Markets Corporation; Salomon Smith Barney Inc.; Lehman Brothers Corp.; Merrill Lynch, Pierce, Fenner & Smith Inc., Sussex Securities Incorporated; Lehman Brothers Incorporated.

Mr. Speno is currently not registered with any firm.

Wall-Street-Sign-300x200AdvisorHub reported on January 23, 2017 that the SEC permanently barred Ane Plate from the securities industry for stealing from her elderly clients.  Ms. Plate was most recently registered as a broker from May 2005 to June 2014 with Wells Fargo Advisors Financial Network, LLC out of the broker-dealer’s Orlando, Florida office.

The Securities and Exchange Commission (SEC) Order detailed that from October 2013 to April 2014, she made 15 unauthorized sales of securities from her elderly clients’ accounts totaling over $176,000.  In a regulatory action brought by the Financial Industry Regulatory Authority (FINRA), Ms. Plate submitted a Letter of Acceptance, Waiver and Consent No. 2014041705101 (AWC) where she accepted and consented to findings by FINRA that she facilitated the $176,000 to be transferred to her client’s bank account where she then arranged for 15 checks to be issued from the customer’s account, payable to her.  The AWC detailed that in total, Ms. Plate converted $140,058 from her brokerage customer, and that this conduct violated FINRA Rules 2150 (Improper Use of Customers’ Securities or Funds) and 2010 (Standards of Commercial Honor and Principles of Trade).  Ms. Plate was terminated from her employment with Wells Fargo for this same conduct, according to her publicly available BrokerCheck report as maintained by FINRA.

The SEC Order stated that on May 20, 2015, Ms. Plate pled guilty to one count of Theft, Embezzlement, or Misapplication by a Bank Officer or Employee, in violation of Title 18, United States Code, Section 656, in the United States District Court for the Middle District of Florida.  Ms. Plate’s criminal case is titled United States v. Ane Plate, Case No. 6:15-cr-00084-GKS-GJK (M.D. Fla).

BN-LT369_1712mo_P_20151217084436-300x200It was reported by AdvisorHub on January 24, 2017 that the firm terminated three high producing brokers who were being investigated internally.  The three brokers were members of the PC Wealth Management Group.

The first broker, Michael Paesano, was reported to

have been terminated over “concerns” of his “exercise of discretion and investment strategy,” according to the AdvisorHub article.  According to Mr. Paesano’s publicly available BrokerCheck report, as maintained by the Financial Industry Regulatory Authority (FINRA), he has been the subject of 15 customer complaints, spanning his employment and registration at two broker-dealers, including Morgan Stanley from May 2011 to January 2017 and UBS Financial Services, Inc. from August 2005 to May 2011.  According to Mr. Paesano’s BrokerCheck report and the AdvisorHub article, the most recent customer complaint, alleging unsuitable investments and $1,000,000 in damages, resulted in a settlement of $245,000 to the customer.