FINRA Fines LPL Financial, LLC for Failure to Supervise Alternative Investment Sales

Last month, FINRA hit LPL Financial, LLC with a $950,000 fine for failing to supervise its registered representatives’ sale of alternative investments.  FINRA also ordered LPL to conduct a comprehensive review of its “policies, procedures, and training and remedy failures.”

FINRA determined that between 2008 and 2012, LPL representatives often recommended that their customers concentrate savings in alternative investments such as non-traded REITs, and in doing so, ignored state regulations that impose concentration limits on the sale of such investments, as well as concentration limits specified in the offering documents of certain investments.

Many alternative investments carry with them very high commissions.  As these commissions are paid from offering proceeds (and therefore do not appear on the customers’ brokerage statements), they are not readily apparent to the customers.  These high commissions often impair the entity and make it ultimately difficult for many alternative investments to succeed.  Despite these problems, and despite the fact that many alternative investments sold between 2006 and 2009 have failed, many brokerage firms such as LPL are pushing more of these investments on their customers.  2013 in fact saw more alternative investment sales than any prior year.

Blau & Malmfeldt is a law firm headquartered in Chicago, Illinois that represents investors nationwide in securities, commodity futures, and shareholder rights disputes.  Contact us at 312-443-1600 to learn more about the services that we offer.

 

Criminal Convictions for Former DBSI Executives

This week a federal jury in Idaho convicted four former executives of failed real estate company DBSI, Inc. on various counts including wire fraud and securities fraud.  DBSI was a real estate property investment company that was operated as a Ponzi scheme.  Like so many other Ponzi schemes, DBSI collapsed in 2008 amid sharp declines in the real estate and securities markets.

DBSI President Douglas Swenson was found guilty of 44 counts of securities fraud and 34 counts of wire fraud, Secretaries Jeremy Swenson and David Swenson were convicted of 44 counts of securities fraud, and company attorney Mark Ellison was convicted of 44 counts of securities fraud.

DBSI went into bankruptcy in 2008.  Subsequently, a private action trust was created to pursue claims against various third-parties on behalf of DBSI investors.  Blau & Malmfeldt represented numerous investors in arbitration actions against securities broker-dealer firms that failed to conduct adequate due before selling securities In DBSI and related entities to investors.

Blau & Malmfeldt is a law firm based in Chicago, Illinois that represents investors in securities, commodity futures, and shareholder rights disputes.  Contact us to learn more about the services we offer.

 

Former Merrill Lynch and Smith Barney Broker Jane E. O’Brien Indicted on Federal Charges

Jane E. O’Brien, a former registered representative of Merrill Lynch and Smith Barney, was recently indicted on federal counts of mail fraud, wire fraud and investment adviser fraud in connection with her alleged misappropriation of $1.3 million of customer funds.

O’Brien is already serving a 33-month jail term for securities fraud. In May 2013, she was found guilty of defrauding a customer for $240,000 through the sale of a fictitious security.

The new counts relate to O’Brien’s alleged activities between 1995 and 2013.  O’Brien allegedly convinced some clients to withdraw money from bank and brokerage accounts so that she could make investments on their behalf in private placement securities.  O’Brien allegedly utilized the misappropriated funds to pay personal expenses and to make Ponzi payments to other customers.

O’Brien allegedly convinced one victim to make an investment in the film “Crooked Arrows,” but simply misappropriated the funds that were provided to her for the investment.

Blau & Malmfeldt invites Merrill Lynch and Smith Barney customers who were victimized by O’Brien to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

FINRA Fines Berthel Fisher Over Non-Traded REIT and Inverse ETF Sales

The Financial Industry Regulatory Authority (FINRA) recently fined broker-dealer firm Berthel Fisher & Company Financial Services, Inc. (Berthel Fisher) and its affiliate, Securities Management & Research, Inc. (Securities Management) $775,000 for supervisory deficiencies. This came as Berthel Fisher and Securities Management failed to supervise sales of non-traded real estate investment trusts (REITs) and leveraged and inverse exchange-traded funds (ETFs) by their registered representatives.

The questionable sales activity took place from January 2008 to December 2012. FINRA discovered that the firms did not have adequate supervisory systems and written procedures in place for sales of the following alternative investment products: non-traded REITs, managed futures, oil and gas programs, equipment leasing programs and business development companies.

In some instances, the firms also failed to either accurately calculate concentration levels for these investments or correctly enforce suitability standards.

Additional questions arose around the sales of leverage and inverse ETFs during the period of April 2009 to April 2012. According to FINRA, Berthel Fisher did not have a “reasonable basis” for certain investment sales and it also did not “adequately” research or review non-traditional ETFs before allowing its registered representatives to make customer recommendations.

Blau & Malmfeldt invites Berthel Fisher customers to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

CFTC Reaches Settlement with Worth Asset Management, LLC

The U.S. Commodity Futures Trading Commission (CFTC) recently settled administrative claims against West Palm Beach, Florida’s Worth Asset Management LLC (Worth Asset) and its sole owner and manager, Paul L. Kaulesar of Royal Palm Beach.

According to the CFTC, Worth Asset and Kaulesar solicited retail customers by telephone to make investments in gold, silver, and platinum.   During these conversations, Worth Asset and Kaulesar made false representations concerning their past performances.  Instead of actually making investments on the customers’ behalf, Worth Asset and Kaulesar transferred the funds to their own account.  In total, Worth Asset and Kauselar misappropriated over $4.6 million.

The settlement agreement requires Worth Asset and Kaulesar to pay a $1,565,000 in fines and$4,696,640 in restitution to their customers. They have also received permanent trading and registration bans.

Kaulesar and Worth Asset were never registered with the CFTC or with the National Futures Association.  However, the CFTC determined that it had jurisdiction over them because they made false statements in connection with their solicitation of customers to purchase physical commodity contracts.

Blau & Malmfeldt invites victims of Worth Asset to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

NFA Expels Member Firm Level III Management, LLC

The National Futures Association recently announced its termination of Metairie, Louisiana commodity pool operator and commodity trading advisor Level III Management LLC from NFA membership.  NFA has also ordered Level III Management’s principal and associated person Bruce Gwyn to withdraw from membership for a period of at least seven years.

According to NFA, 24 investors contributed approximately $1.7 million to Level III Trading Partners LP, a commodity pool managed by Level III Management.  During NFA’s unannounced examination of Level III Management in June 2012, NFA discovered that the Level III Pool had only $200,000 in assets.  NFA determined that Gwyn had siphoned more than $240,000 from the pool’s accounts to pay personal expenses.

In addition, NFA determined that Level III Management had caused the Level III Pool to invest in penny stocks in companies with connections to Gwyn.  NFA also determined that Level III Management and Gwyn had provided misleading information to pool investors.

NFA concluded that Level III Management had failed to  “observe high standards of commercial honor and just and equitable principles of trade and ailing to cooperate with NFA” in violation of NFA’s general conduct rule.

Blau & Malmfeldt invites Level III Pool customers to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

 

NFA Takes Emergency Action against Commodity Pool Operator Newport Private Capital, LLC

The National Futures Association (NFA) recently ordered Newport Private Capital, LLC, a commodity pool operator and commodity trading adviser and its former principals, Jonathan M. Hansen and David M. Giunta, to cease from entering new positions in commodity futures markets.

Newport Private Capital’s troubles stem from a $4 million loan that it caused one of its commodity pools, the Financial Futures Fund, to make to another entity controlled by Hansen and Giunta.  According to the NFA, the entity receiving the loan, the SURE Fund, was involved in real estate investing, and the loan was made via a promissory note that the Financial Futures Fund received in exchange for making the loan.  The SURE Fund defaulted on the promissory note in 2012.

NFA Compliance Rule 2-45 prohibits commodity pool operators from taking loans from commodity pools or from causing commodity pools to make loans to their affiliates.  NFA enacted this rule in 2009 after determining that another commodity pool operator had defrauded one of its commodity pools by causing it to loan money to its introducing broker.

In September 2013, NFA entered an emergency enforcement action charging Newport Private Capital, Hansen, and Giunta with violations of NFA Compliance Rule 2-45.  NFA ordered Respondents Hansen and Giunta to pay back the entire amount due on the note by January 2014.  NFA took subsequent action against them when they failed to comply with NFA’s order.

While NFA has put Newport Private Capital out of business, it has not recovered money on behalf of the Financial Futures Fund.  It is possible that a private law firm taking an aggressive approach to collection might have more success.

Blau & Malmfeldt invites investors in the Financial Futures Fund to contact our law firm to discuss recovery.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

FINRA Fines Stifel, Nicolaus for Rule Violations in Connection with Non-Traditional ETF Sales

The Financial Industry Regulatory Authority (FINRA) recently issued fines totaling $550,000 against broker-dealer Stifel, Nicolaus & Company, Inc. (Stifel Nicolaus ) and its affiliate Century Securities Associates, Inc. (Century Securities).  FINRA had alleged that Stifel Nicolaus and Century Securities violated FINRA rules in connection with their sale of non-traditional, leveraged and inverse exchange-traded funds (ETFs) between 2009 and 2013.   FINRA also ordered Stifel Nicolaus and Century Securities to pay approximately $475,000 in restitution to 65 customers.

FINRA determined that Stifel Nicolaus and Century Securities made unsuitable ETF recommendations to customers with conservative investment objectives through their registered representatives.  FINRA also determined that Stifel Nicolaus and Century Securities’ registered representatives did not understand these products’ unique features and risks.

FINRA found widespread problems with the firms’ supervisory systems for these non-traditional ETFs.   The firms apparently had neither written supervisory procedures relating to these products nor programs designed to provide adequate training for their registered representatives selling these products.

Brokerage customers of Stifel Nicolaus and Century Securities can recover losses by pursuing claims against the firms in arbitration at FINRA Dispute Resolution.  FINRA rules required Stifel Nicolaus and Century Securities to make suitable recommendations to their brokerage customers and it appears that they failed in this respect.  It also appears that the firms misrepresented non-traditional ETFs to many brokerage customers.

Blau & Malmfeldt invites Stifel Nicolaus and Century Securities customers who suffered losses in non-traditional ETFs to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

Recovery Options for Victims of Lynn Alan Simon’s Ponzi Scheme

In June 2013, FINRA announced its suspension of Lynn Alan Simon of Newburgh, Indiana, a former registered representative in CFD Securities’ Kokomo, Indiana office  Simon had operated two Evansville, Indiana businesses as its sole owner under the names Financial Security Planning and The Insurance Shoppe.

FINRA suspended Simon for  “selling away” from CFD Securities – i.e., for selling  securities that were not approved by CFD Securities.

Things only went downhill from there for Simon.  In September 2013, Simon was arrested for allegedly bilking more than $1 million from at least a dozen local investors. He currently faces three counts of securities fraud, Class B felonies, and a charge of unlawful sale of a security, a Class C felony.

Simon’s fraud began to come to light in April 2013 when his wife contacted the Sheriff’s office after he went missing for two days. Two weeks later, an Evansville-based client of Simon, filed a complaint with the Indiana’s Secretary of State after he had stopped receiving interest payments on an investment that he had made with Simon.  Simon remained missing until September 2013, at which time the authorities tracked him down and arrested him.

Court documents reveal that numerous elderly clients lost money through Simon’s “investments.”  Clients were apparently promised high rates of returns on their investments–as high as 11%.  Simon allegedly presented typewritten promissory notes to his customers, showing a rate of return and a maturity date.

In typical Ponzi scheme fashion, Simon apparently used money from new customers to pay interest and principal to old customers while misappropriating a great deal of customer money.

It is possible for Simon’s victims to recover their losses from CFD Securities by pursuing a case in either court or in arbitration at FINRA Dispute Resolution.  Securities industry rules required CFD Securities to adequately supervise Simon and it appears that CFD Securities failed in this respect.   CFD Securities may also be liable to Simon’s victims as a “controlling person” under the Indiana Securities Act.

Blau & Malmfeldt invites Simon’s customers to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

National Futures Association Takes Emergency Action Against Novo Trading and its Principal Thomas H. O’Connell, Jr.

The National Futures Association (NFA) recently announced a member responsibility action against NFA member and commodity trading advisor Novo Trading LLC (Novo) along with the firm’s principal Thomas H. O’Connell, Jr.  Novo is based in Oak Park, Illinois.  NFA took this emergency action in order to protect Novo’s customers.   

Novo opened its doors in September 2013 as a commodity trading advisor.   O’Connell became registered through Novo as a principal and associated person.  Additionally, Jerry J. Considine became listed as a principal and chief executive officer of the firm; however, Considine did not become registered as an associated person.  

To solicit customers, Novo and O’Connell allegedly utilized two websites with false and misleading promotional material that included “inaccurate rates of return (ROR) and grossly overstated assets under management (AUM).”  These results purportedly went back to 2008.

NFA found that the firm’s alleged trading results dating back to 2008 were suspicious because Novo did not specify that these results were achieved on proprietary accounts and because Novo, Considine Trading (Novo’s predecessor) and Considine were not registered from 2008 through September 2013.

NFA conducted an unannounced examination at Novo’s offices in Oak Park, Illinois in early December and requested that Novo provide financial documentation supporting its AUM and ROR claims.  Novo failed to satisfy NFA’s document request.   

NFA also could not determine funding sources for Novo’s commodity brokerage account.  Upon further review, the NFA discovered that Considine had opened accounts in his own name and a new one in a family member’s name on the day following NFA’s examination.

Based on these findings, NFA suspected that Considine and Novo had used the money in the Novo account to fund the trading account belonging to Considine’s family member. In addition, Novo’s bank statements indicated that Considine regularly transferred hundreds of thousands of dollars out of the account to at least one other unidentified checking account.

Considine and O’Connell failed to comply with NFA’s request to provide documents verifying the owner of the unidentified account to which the funds were transferred.

NFA was unable to determine the source of funding for Novo’s bank account and therefore speculated that Novo and Considine had utilized customer money to fund trading accounts for Considine’s personal benefit and for the benefit of his family member. Novo allegedly also misled and lied to the NFA during the examination.

Blau & Malmfeldt invites Novo customers to contact us at 312-443-1600 for a complimentary case evaluation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.