New York Securities Fraud Lawyers Blog
Malecki Law filed an expedited FINRA arbitration complaint today on behalf of a retired couple from New York alleging that their brokerage firm Henley & Company LLC failed to supervise its recently deceased, registered representative Philip Incorvia and the Henley branch office he worked out of. The complaint claims losses of approximately $2.5 million and that Henley essentially allowed Mr. Incorvia’s Ponzi scheme to flourish since about the time he joined Henley in 2006. Through these alleged supervisory failures and extreme negligence, the complaint alleges that Henley effectively promoted Mr. Incorvia’s fraudulent practices, including allowing him to freely run his own business, Jefferson Resources, Inc., out of the satellite branch office of Henley’s affiliate, SEC-registered investment advisory firm, Henley & Company Wealth Management, LLC, located at 10 Beatty Road, Shoreham, New York. Mr. Incorvia operated his Ponzi scheme out of this Jefferson entity housed right inside a Henley office, soliciting investor funds away from investor accounts at Henley to be invested directly into private “alternative” (i.e., fictitious) investments with Jefferson. Mr. Incorvia’s recent passing is what caused the Ponzi scheme to unravel. A Henley executive named in the complaint has further admitted to the existence of numerous other Henley customers who are only just discovering that they have been victimized as well.
The complaint alleges that Henley knew about the existence of Jefferson being run out of its own office but failed to follow industry rules to both report and supervise the activity. According to Henley’s BrokerCheck Report published by the Financial Industry Regulatory Authority (FINRA), the defendant brokerage arm of the firm (Henley & Company LLC) apparently failed to disclose the existence of its10 Beatty Road satellite office to FINRA. However, Henley’s advisory arm (Henley & Company Wealth Management, regulated by the SEC) did disclose it as an operational branch office in a public ADV filing to the SEC. The ADV filing further disclosed Henley’s awareness of Jefferson by reporting Mr. Incorvia’s association with Jefferson as its “President.” According to BrokerCheck, both Henley firms are under common supervisory control, have the same main office address in Uniondale, New York, and are owned by the same CEO, Francis P. Gemino, with common oversight by their managing director, Michael J. Laderer. Both Gemino and Laderer are named in the lawsuit as liable control persons.
FINRA’s supervisory rules require all brokerage firms to disclose and report all outside business activities of its registered representatives, further requiring firms to audit and supervise those businesses, especially if they are small branch offices. Both FINRA and the SEC have made clear that supervision of small, satellite branch offices require the same level of supervision as a main office. The SEC, for instance, takes the position that geographically dispersed offices staffed by only a few people are more at risk of fraud because “[t]heir distance from compliance and supervisory personnel can make it easier for registered representatives [like Mr. Incorvia] to carry out and conceal violations of the securities laws.”
As alleged in the FINRA pleading, Mr. Incorvia had Henley customers send funds and checks made out to Jefferson, addressed to Henley’s branch office at 10 Beatty Road. Some of the names for these fictious funds included Jefferson Reseources Inc., Vanderbilt Realty Investors, Inc., and many others which Mr. Incorvia portrayed as legitimate by linking them in name to widely known indices, such as the S&P 500, VIX, and others. Although Mr. Incorvia sent out supposed distributions for these investments each month, he otherwise encouraged his victims to let the majority of these “returns” be reinvested in the fictious products. Mr. Incorvia would further send his victims fake account updates by email on the supposed gains of these investments. Had Henley properly monitored Mr. Incorvia, his emails, banking activities, mail directed to its own office, social media, and its own offices generally, Henley would have discovered these irregularities and other red flags noted in the complaint. But Henley apparently conducted no such inquiry or supervision as it was required to.
Prior to his alleged conduct coming to light, Mr. Incorvia had created the fictious Jefferson and Vanderbilt funds as early as the mid-1980s and early 1990s, registering their corporate names with the New York Department of State, but he apparently did not start running his scheme until he joined Henley in 2006. As alleged in the complaint, Henley was further negligent in hiring Mr. Incorvia to begin with because his BrokerCheck Report refers to earlier customer complaints and regulatory infractions that cite to his forging of customer documents and churned their accounts for commissions. Once hired, Henley’s supervisory controls were apparently lax enough to fully give Mr. Incorvia a platform to steal from Henley investors. As with many selling away and Ponzi cases, financial advisors like Incorvia are able to gain the trust of investors through their employment at a regulated financial institution like Henley. Brokers with legitimate licenses who run a fraudulent Ponzi scheme are inherently more dangerous to investors because their employing firms provide a constant flow of new customers and Ponzi funds, which every Ponzi scheme needs to survive. Such schemes would otherwise run out of money because Ponzi schemes, by design, always require new money to be able to continue issuing “returns” to the earlier investors of the scheme.
As with most Ponzi schemers, Mr. Incorvia’s victims included people who perceived him as their very best friend. According to Jenice Malecki, the New York securities fraud attorney representing the retired plaintiffs, “Like Bernie Madoff, operators of Ponzi schemes cannot run such complex frauds all by themselves, and it is not up to financially unsophisticated customers to know the laws and catch the fraud.” Henley and its executive control persons had an obligation to uphold their licenses and to follow industry rules to properly supervise their offices and personnel, but they apparently did not and looked the other way.
Malecki Law’s securities fraud attorneys have requested expedited treatment of the case since the victims are elderly and suffer from severe health issues. The firm has been successful in recovering many millions of dollars from brokerage firms who failed to uphold their supervisory obligations, including recently in 2020 and 2021, when Malecki Law recovered millions of dollars in losses for investors victimized by Biscayne Capital and several of its corporate officers, indicted just weeks ago in federal court in New York’s Eastern District on charges of defrauding Latin American investors of over $155 million through U.S. brokerage firms. In 2018, the firm recovered over $4 million as a result of the Hector May Ponzi scheme in update New York. Malecki Law also previously represented over 120 working class investors from the Bronx, New York, recovering over $7.4 million in losses in the Robert Van Zandt Ponzi scheme.
“Our experience and success in recovering Ponzi funds lead me to believe that Mr. Incorvia’s alleged activities have impacted a much higher number of investors than the number who have already come forward.” If you are a customer who lost money with Henley and believe you were taken advantage of by Mr. Incorvia, we would love to hear from you. Our firm typically works on a contingency, which means we do not get paid unless you do.