Former Ameriprise Financial Services, Inc broker Corey Lee Mireau (CRD#3046777) has recently been suspended for two years from the industry after having agreed to the entry of findings alleging his failure to disclose loans from customers, private securities transactions, and outside business activities. As part of his letter of Acceptance, Waiver, and Consent, (“AWC”), Mr. Mireau will also pay a $15,000 fine and $154,458.85 in restitution to one of the clients that he borrowed money from without approval. Malecki Law’s securities lawyer team has been investigating into Corey Lee Mireau’s blemished background as well as his alleged violations of securities regulations including FINRA Rules 3240, FINRA Rule 3270, NASD Rule 3040 and subsequently FINRA Rule 2010.

The AWC claims that Mr. Mireau burrowed money from two of his Ameriprise Financial Services customers, without complying with relevant FINRA rules and internal firm policies. In September 2013, Mr. Mireau allegedly borrowed $150,000 from a customer and invested most of the money in a wholesale company in the e-cigarette business. A broker generally should not borrow money from their customers without the arrangement meeting requirements set forth by FINRA Rule 3240(A) and following firm required procedures. Furthermore, Mr. Mireau should have sought written approval for using the borrowed money in a private securities transaction under NASD Rule 3040. In May 2017, Mr. Mireau allegedly borrowed $500 from another customer and also failed to disclose the details to Ameriprise Financial.

In addition to the aforementioned, Mr. Mireau allegedly provided consulting services to a customer in 2014 and 2015, which would have been considered an outside business activity under the law. According to FINRA Rule 3270, brokers must provide disclosure and seek approval for outside business activities. Specifically, “No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member.” However, Mr. Mireau allegedly did not provide written notice, and instead made false statements in multiple annual compliance questionnaires with Ameriprise Financial.

On Friday, Malecki Law securities attorneys Jenice Malecki and Darryl Bouganim traveled to Washington D.C to lobby on behalf of investors as part of PIABA’s annual Hill Day. PIABA is an international bar association for securities attorneys representing investors in disputes within the financial services industry. As part of Hill Day, PIABA attorneys from across the nation met with representatives and their legislative aids on Capitol Hill to lobby for stronger investor protection. Following a day of discussing the issues amongst PIABA members, our attorneys met with officials across party lines including at the offices of Brian Higgins, John Katko, Tom Reed, Danny Davis, John Hawley, Tim Scott, and Patty Murray.  Alongside other PIABA members, Malecki Law securities attorneys lobbied for the FAIR Act; legislation to fund outstanding arbitration awards; and modification or clarification of the proposed Regulation Best Interest.

On Capitol Hill, Malecki Law attorneys lobbied for members of the House of Representatives and Senate to co-sponsor the Forced Arbitration and Repeal Act, known as the FAIR Act. U.S Rep. Hank Johnson (D-GA) and U.S Sen. Richard Blumental (D-CT) introduced the FAIR Act to end the use of mandatory arbitration in their effort to restore public accountability. As it stands now, investors must sign contracts with forced arbitration clauses when opening new brokerage accounts. The FAIR Act outlaws forced arbitration, thereby granting investors the freedom to choose venues besides private arbitration to adjudicate their disputes. Investors will still have the option to choose to use arbitration under FINRA rules, just as how it was before the historic Shearson/American Express v. McMahon case.

Mandatory arbitration clauses within investment account contracts undermine investors’ rights for fair process and their right to trial by jury under the 7th amendment. The industry’s self-regulatory agency, FINRA runs arbitrations as off the record legal proceedings. Instead of a judge and jury, one or three arbitrators decide on the verdict of cases. A major problem is that arbitrators are usually industry people who tend to be overwhelmingly older, white and male. Thus, the arbitration pool is not diverse enough for the diverse investors that use it to feel their case is being heard by their peers, which undermines the process. Additionally, arbitrators do not have to apply the law or include any reasoning behind their decisions. When only 40% of their cases win their cases, the process should be more transparent especially with the other forces that could foster bias. Even after winning their case in arbitration, investors sometimes cannot collect their damages from the wrongdoers found liable. This undermines self-regulation.

The Securities and Exchange Commission continues to make it clear that whistleblowers are among their most potent enforcement weapons in their law enforcement arsenal. In a press release on March 26, the SEC awarded a combined $50 million to two whistleblowers who provided info leading to a successful enforcement action against a major financial institution. Jane Norberg from the SEC’s Office of the Whistleblower referred to the involved whistleblowers and others who lead the enforcement as the “source of smoking gun evidence and indispensable assistance.” One whistleblower received $13 million, and the other won a $37 million award, which is the SEC’s third-highest whistleblower award as of yet. Our whistleblower attorneys view this particular case as another example of the SEC’s growing willingness to provide large sums of money to qualifying individuals.

The whistleblower is said to have provided information that helped the SEC and CTFC pursue action against JPMorgan Securities and JPMorgan Chase Bank.  While the SEC did not openly name any involved party, the law firm representing the whistleblowers that received the smaller award has come forward with information. The charges involve allegations that from 2008-2013 JP Morgan failed to provide certain disclosures that would have been pertinent to their wealthy investors. Allegedly, JP Morgan steered clients towards its own mutual funds and hedge funds, without providing the proper disclosures. All in all, the whistleblowers’ original information allegedly assisted the SEC and the Commodities Futures Trading Commission with securing a $307 million settlement with JP Morgan.

As this case, as well as others show, whistleblowers have a lot to gain besides just helping restore public order and market integrity. Clients represented by whistleblower attorneys know that being an asset to the SEC can pay off. The SEC’s whistleblower program launched in 2011 to incentivize people to come forward after the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act. As part of the program, whistleblowers with original, timely and credible information are eligible to receive a percentage of recovered funds. Whistleblowers qualify if their tip helps the agency to achieve a successful enforcement action recovering least $1 million. The award, which ranges between 10-30% of recovered funds comes from an investor recovery fund set up by Congress. The investor fund is from sanctions paid from federal securities law violations.  The Dodd-Frank Act also grants whistleblowers the right to anonymity and protection from employer retaliation.

A Texas former financial advisor, Christian radio host, author, and self-identified “Money Doctor” Neil Gallagher has been arrested and charged by the SEC for allegedly running a $19.6 million Ponzi Scheme targeting elderly retirees, according to reports. Between December 2014 and January 2019, Gallagher allegedly used religion to solicit and misappropriate the funds of 60 senior investors. The recently unsealed SEC civil complaint alleges that William Neil “Doc” Gallagher using his companies, Gallagher Financial Group and W. Neil Gallagher, Ph. D Agency, Inc. promised guaranteed-risk free returns in a non-existent investment product titled, “Diversified Growth and Income Strategy Account.” Instead of investing the money as promised, Gallagher allegedly used their money to fund his lifestyle and pay falsified returns to other investors, in a typical Ponzi-Scheme fashion.  Our Ponzi fraud law team finds the details of the egregious allegations in the SEC complaint horrible, but not atypical in affinity frauds.

Securities attorney Jenice Malecki has extensive knowledge on similarly alleged affinity frauds, having provided her insight on a religious-based Ponzi Scheme to CNBC’s white-collar crime show, American Greed. Religious fraud is a type of affinity fraud, in which the perpetrator target members of identifiable groups, with shared commonalities like race, age, and religion. The FBI has been investigating affinity fraud instances amounting to billions of dollars in projected losses. Additionally, the true prevalence of affinity fraud cannot be fully counted as group members tend to not report the activity to authorities for proper legal redress, especially within religious communities. In some states, like Utah, affinity fraud is so common that the legislature has an online white-color crime register. Fraudsters often target religious communities because of the members’ shared trust, even without the relevant facts. Religious investors are at an even higher risk when the fraudster intertwines their religious values with their deceitful sales pitch, as seen in the activity alleged here.

According to the SEC complaint, Gallagher allegedly raised at least $19.6 million from investors while pretending to be a licensed professional, despite that no longer being the truth. Gallagher allegedly offered an investment product that could provide returns that ranged between 5% and 8% each year. The complaint details that the investment product was supposed to be comprised of U.S Treasury Securities, publicly-traded stock, fixed-index annuities, life settlements, and mutual-fund shares, but Gallagher only purchased a single $75,000 annuity. It further alleges that instead of making genuine investments, Gallagher is alleged to have used $5.8 million to repay investors and $3.2 million for his own personal expenses. As of January 31, 2019, Gallagher allegedly depleted nearly all of the millions provided by his elderly victims who ranged in age between 62 and 91 years old. Our investor fraud team finds it to be in particularly devastating that victims of alleged Gallagher’s Ponzi Scheme are unlikely to re-earn their stolen funds.

The Department of Justice coordinated the largest elder fraud sweep by filing cases and consumer actions related to financial scams targeting or disproportionately affecting seniors nationwide. In their announcement yesterday, the DOJ claimed that their civil, as well as criminal actions, filed with the support of law enforcement, involve claims of three-fourths of a billion in monetary losses and millions of alleged victims. Elder financial exploitation, the illegal misappropriation of an old person’s funds, is destroying millions of lives. News of the DOJ elder fraud sweep comes a month after the Consumer Financial Bureau released a report with data indicating an increase in reported incidences involving elder financial exploitation. While the reported elder financial exploitation prevalence might shock some, our investor fraud lawyers are very familiar with this growing epidemic.

Elder financial fraud manifests in many ways through a variety of scam artists from Ponzi Scheme perpetrators to relatives. The DOJ’s recent prosecution focus is tech support fraud, which is the most commonly reported fraud that the elderly reported to the Consumer Sentinel Network. Other types of popular financial scams affecting seniors are investment schemes, identity theft, internet phishing, grandparent scam, lottery scams and more, according to the National Adult Protective Services Association. Additionally, older individuals lose their life savings, investments or retirement money from unscrupulous brokers or financial advisors. Seniors get conned into making inappropriate investments because of their greater tendency to trust financial professionals. Worst of all, seniors defrauded at broker-dealers do not have the time to remake money earned throughout their lifetime.

The Consumer Financial Bureau analyzed data from Suspicious Activity Reports filed between April 2013 and December 2017 to shed more awareness on the issues of elder financial exploitation. Broker-dealers and other financial institutions file suspicious activity reports with the U.S Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) in compliance with the federal Bank Secrecy Act.  The study found that suspicious activity reports referencing financial exploitation quadrupled within these few years. In 2017, the financial institutions reported $1.7 billion in 63,500 suspicious activities reports. The average loss indicated on elder financial exploitation suspicious activities reports was $34,200, but that amount varied depending on the type of account, specific age group, and other factors.

Formerly registered broker James Bradly Schwartz is facing charges in a FINRA disciplinary proceeding for allegedly churning customers’ accounts while a registered broker employed with Aegis Capital Corp between August 2014 and May 2016. In this quite brief period, Schwartz allegedly executed around 535 trades in these customer accounts, many of which were unauthorized. The FINRA complaint alleges that Schwartz violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder as well as FINRA rules 2010, 2011 and 2020. His alleged victims include a married couple, engineer, estate executer and a deceased individual. It is alleged that Schwartz even made unauthorized and excessive trades while one of the victims was dying in the hospital. Our securities law team is appalled to hear that possibly two unauthorized transactions were made in this customer’s account less than an hour after he passed away.

Churning is a fraudulent activity in which the broker makes excessive trades in light of the customer’s investment objectives. Common signs of churning in investment accounts are high broker commissions and significant investor losses. While Mr. Schwartz’s customers allegedly lost at least $660,000, Schwartz is reported as having pocketed over $194,000 sales credits and commissions, with annualized turnover rates ranged from 19.9 to 54.7 and annualized cost-to-equity ratios between 87% and 120%.  These percentages are above average for their proclaimed non-speculative investment objectives. In an alleged effort to conceal his purported nefarious activities, Schwartz allegedly traded on a riskless principal basis. Trading on a reckless principal basis does not explicitly report the commission costs on customer’s account statements. Our securities attorneys believe that if such measures to hide his activity is true, Schwartz most likely acted with intent to defraud, which fulfilling the churning legal requirement of “scienter”.

This current FINRA disciplinary proceeding is not the first time that Schwartz has been accused of fraudulent activity. In his 18 years in the securities industry, Schwartz accumulated 12 disclosures on his official CRD records, publicly available on Broker Check. Each of the nine customer disputes mentioned on Schwartz’s BrokerCheck reference at least one allegation pertaining to unsuitability, unauthorized trading, or churning. Our New York securities attorneys encourage investors to think twice before working with brokers that have that many negative disclosures mentioned on their records. Even before Schwartz was a registered representative with Aegis Capital Corp for three years in June 2013, he procured a seemingly shady record that should have raised many flags. It is a matter of grave concern that Schwartz may have continued to gain new employment after so many customers made some of the same allegations.

A Ponzi Scheme is a type of investment fraud that pays purported “returns” to current investors from proceeds received from new investors, rather than through genuine investments. Once the fraudster stops receiving new money or investors request too much of their money back, the Ponzi Scheme falls apart. The term for Ponzi Scheme is from a famous 1920s con man, Charles Ponzi who redistributed investor funds for international reply coupons to himself and other investors. More recently, thousands of investors, many of whom were elderly lost their money in a billion-dollar Ponzi Scheme perpetrated by the Robert Shapiro Woodbridge Group. Not all Ponzi Schemes are as large and notorious as that committed by Bernie Madoff. Many more Ponzi Schemes happen on a much smaller basis and go undetected.

Malecki Law has handled numerous Ponzi cases: McGinn Smith, Robert Van Zandt, Hector May, Illume, and Steven Pagartanis, just to name a few. We are available to review your situation at no cost. Catching these things early inures to your benefit. Investors can fight to recoup their losses from a Ponzi Scheme committed under a FINRA registered firm through arbitration.

Our securities fraud law team aims to equip investors with the knowledge to spot not only Ponzi Schemes but other fraudulent investment opportunities as well. Everyone should be aware of the following signs that could indicate a Ponzi Scheme.

Arbitration is a formal alternative to courtroom litigation for resolving issues with neutral third party “arbitrators” issuing a binding decision after the litigants present their facts and argument. Compared to the usual courtroom procedures, arbitration is a faster, affordable and less formal legal proceeding.  FINRA, a self-regulatory-agency for the securities industry, controls the largest, most prominent arbitration forum for securities disputes. A full FINRA arbitration proceeding from initiation through hearing can take on average 16 months, but cases often are settled before the end. Sick or elderly claimants may request an expedited arbitration process within nine months.

There is a wide range of reasons that investors might want to make a legal claim against their broker-dealer and broker firm. When opening an account with brokerage firms, investors sign a contract that often contains a clause that makes handling disputes through FINRA arbitration mandatory. Notably, investors are bound to arbitrate their securities claim after the Supreme Court upheld binding arbitration provisions in Shearson/American Express Inc. v. McMahon. FINRA registered broker-dealers, and registered representatives are similarly obligated to handle disputes arising through their employment in FINRA arbitration.

The FINRA arbitration process commences when the plaintiff, known as the claimant, submits a statement of claim, outlining the case’s relevant facts, dates, names of involved parties, type of relief requested and name of accused parties. The statement of claim must be filed within the allotted time, which is within six years after the dispute. Compared with a courtroom complaint, a statement of claim is less formal and usually a more detailed account of the background story. In addition to the statement of claim, the claimant needs to pay fees and submit a Submission Agreement. The fees owed for filing a FINRA arbitration claim are based off the sought remedies, hearing sessions, discovery motions and postponement fees. Fortunately, some individuals with financial difficulties can request a fee waiver.

Malecki Law’s newest securities attorney, Michael Liik will speak to law students on a panel at his alma mater, the Elisabeth Haub School of Law, tomorrow February 14, 2019. The event will feature a panel of lawyers educating law school students about their practice areas along with the ropes of professional networking.  As an attorney panelist, Mr. Liik will provide career advice as well as share his experiences as a former student now working as a securities attorney in New York City.

It is with great honor that Mr. Liik accepts this invitation to join the panel from the New York City Bar Association and Elisabeth Haub School of Law at Pace University. Since graduating a few years ago, Mr. Liik has remained involved as an active member of his school’s alumni community. Continue reading

Financial professionals handling compliance keep abreast with changes in the regulatory landscape to effectively allocate resources. At the start of each year, regulatory agencies Financial Industry Regulatory Authority and the Securities and Exchange Commission publish their priorities. FINRA’s recently released Risk Monitoring and Examination Priorities Letter states emerging issues as well as ongoing concerns for the upcoming year. In an introductory note, Robert Cook explains that this year’s letter more broadly relays FINRA’s priorities for risk monitoring with a more pronounced focus on new issues. Firms can use the information contained within this letter to ensure that their compliance, supervisory and risk management programs reach FINRA’s standards. Distinct from earlier times, the FINRA letter focuses on explaining new issues and risk analysis.

The main new issues on the regulatory agency’s radar are the firm’s involvement with online distribution platforms, fixed income mark-up disclosure, and regulatory technology. Specifically, FINRA is concerned with how firms meet AML requirements, supervise communications with the public and conduct suitability analysis when involved with the distribution of securities on online distribution platforms. FINRA plans to evaluate the risks of excessive or undisclosed compensation arrangements between firms and issuers for offerings exempt from registration under Regulation A. Furthermore, FINRA intends to assess how firms handle risks with sales of offerings under Regulation D to non-accredited investors. FINRA expects firms to follow FINRA rule 2232 and MSRB Rule G-15 to comply with mark-up or mark-down disclosure obligations on fixed income transactions. As more firms use regulatory technology for compliance, FINRA plans to examine the efficiency and risks involved.

While this year’s letter pays more mind to new issues, FINRA briefly restates ongoing problems that have already been named as top priorities. Notably, FINRA mentions suitability determinations, outside businesses activities, and private securities transactions; private placements; data quality and governance; communications with the public; trade and order reporting; anti-money laundering (AML); net capital and consumer protection; best execution; fraud; insider trading and market manipulation; record keeping, risk management and supervision related to these and other areas. As per usual, FINRA will be mindful of how firms supervise and respond to associated persons with flawed disciplinary records. In the rest of the letter, FINRA categorizes the other concerns into sales practice risks, operational risks, market risks, and financial risks.