Monthly Archives: October 2013

Thompson National Properties, Strategic Realty Trust Update

Legal troubles continue to mount for Tony Thompson, the former director of Thompson National Properties.  On October 29, 2013, an investor filed a putative class action lawsuit against Thompson and his companies.  Thompson also faces a contentious proxy battle in a real estate trust he once controlled and continued disciplinary actions from the Financial Industry Regulatory Authority (FINRA).

The lawsuit was filed in the U.S. District Court of Northern California.  Plaintiffs contend that Thompson misrepresented his company’s true financial condition to investors through the offering of Strategic Realty Trust (SRT), then known as TNP Strategic Realty Trust.

SRT is a non-traded real estate investment trust (REIT) meaning: (1) that it is public because it is registered with the Securities and Exchange Commission (“SEC”), can sell to the investing public rather than only to qualified investors and is required to file reports with the SEC; and (2) that it is non-traded because its securities are not listed on any national stock exchange.  There has never been a public market for the shares of SRT’s stock.

In other SRT news, Thompson continues to battle to regain control of SRT.  Andrew Batinovich, CEO of Glenbourgh LLC, purchased a controlling interest in SRT earlier this summer and helped set up a special committee of SRT’s executive board to reform the company.

In response, Thompson has organized a group of SRT investors calling for a shareholders meeting and vote to replace Batinovich and his special committee.  Batinovich contends in a letter to investors that Thompson is trying to regain control of SRT to reinstate a 20 year $10 million management contract that SRT made with TNP.  SRT’s new board suspended the contract calling it unreasonable and against the trust’s charter.

There are fundamental problems inherent to non-traded REITs.  Perhaps most significantly, investors typically pay up-front commissions of between 10-15% on their purchase of the securities.  These commissions are taken from the sales proceeds of the securities and do not appear on the purchasers’ brokerage statements.  The brokerage firms that place these securities typically receive approximately half of the up-front commissions and the REIT’s sponsor receives the balance.  The forfeiture of 10-15% of the initial investment results in a substantial impairment to the REIT.

Broker-dealer firms have an obligation to make suitable investment recommendations to their customers.  It appears that this investment was unsuitable for many investors.  It also appears that many brokerage firms failed to conduct adequate due diligence before recommending this investment to their customers.

It is possible for many investors to recoup losses suffered in SRT by pursuing claims against the broker-dealer firms that sold the investment in arbitration at FINRA.

Investors in SRT are encouraged to contact the law firm of Blau & Malmfeldt at 312-443-1600 for a free initial consultation to discuss recovery options.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.

FINRA Suspends Registration of Aaron Kazinec Formerly of METLIFE Securities, LLC

The Financial Industry Regulatory Agency suspended the registration of Aaron Kazinec, a Fort Lauderdale broker most recently registered with MetLife Securities, Inc., the Metropolitan Life Insurance Company’s securities broker-dealer arm.

Kazinec was associated with MetLife from 2007 to 2012. He was previously associated with MML Investors Services, Inc., the broker-dealer arm of Mass Mutual, from 1998 to early 2007. Before that, he was associated with Pruco Securities Corporation in Newark, New Jersey, from 1994 to 1998.

There have been 13 customer complaints against Kazinec over the years, and three cases are still pending.

MetLife terminated Kazinec in December 2012 after discovering that he had been accepting checks without payee information from his customers. He then deposited those checks in personal accounts, the FINRA disciplinary complaint states.

FINRA alleges that Kazinec misappropriated funds from at least four of his customers between May 2009 and August 2012, telling them to write checks payable to “cash” and leading them to think that he would use the money to make investments for them. Instead, he used $745,250 of his clients’ money for his own benefit.

Kazinec also failed to properly disclose a tax lien of approximately $22,000 to FINRA.

Kazinec is now banned from associating with any FINRA member in any capacity. He accepted FINRA’s proscribed sanctions without admitting or denying FINRA’s allegations.

MetLife had a duty to supervise Kazinec.  Specifically, MetLife had a duty to enforce a supervisory system reasonably calculated to ensure that Kazinec acted in compliance with all applicable industry rules and regulations and to ensure that Kazinec did not engage in any illicit outside business activities.  It appears that MetLife failed in this respect.

It is possible for Kazinec’s victims to recover investment losses by pursing claims against MetLife for the company’s negligence in supervising Kazinec.

Investors who worked with Kazinec are encouraged to contact Blau & Malmfeldt at 312-443-1600 to discuss possible recovery options. Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership and shareholder rights disputes.

SEC Initiates Enforcement Proceeding Against Former McGinn Smith & Co. Brokers

On September 23, 2013, the Securities and Exchange Commission (SEC) initiated an administrative enforcement proceeding against 10 former brokers of McGinn Smith & Co. (McGinn Smith).   The SEC alleges that these individuals sold investments in a Ponzi scheme operated by McGinn Smith’s owners, Timothy McGinn and David Smith.

Timothy McGinn and David Smith were recently convicted of multiple counts of wire fraud, mail fraud and securities fraud for embezzling over $4M from the 17 trusts and other entities that they controlled.

According to the SEC, McGinn Smith’s brokers “sold millions of dollars of [McGinn Smith] private placements in spite of numerous red flags, including a policy – which was clearly inconsistent with the terms of the offerings – that required them to ‘replace’ customers seeking to redeem notes with new customers before the redemption would be honored.

The SEC also contends that in January 2008 the brokers became aware that McGinn Smith related investments had suffered $80 million in losses yet continued to sell the investments to their clients.

Combined, the brokers garnered around $3.5M in commissions for selling investments in the Ponzi scheme operated by McGinn Smith’s owners.

The brokers named in the SEC’s complaint are as follows:

Donald J. Anthony, Jr.

Frank H. Chiappone

Richard D. Feldmann

William P. Gamello

Andrew G. Guzzetti

William F. Lex

Thomas E. Livingston

Brian T. Mayer

Philip S. Rabinovich

Ryan C. Rogers

Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.  Please call us at 312-443-1600 to learn more about the services we offer.

FINRA Suspends Former Wedbush Securities Broker Bambi Holzer

The Financial Industry Regulatory Authority (FINRA) suspended broker Bambi Holzer in September 2013 for failing to comply with a settlement agreement.

Holzer has been a securities broker for more than 30 years and has been associated with 10 different securities broker-dealer firms.  Most recently, Holzer has been associated with Newport Coast Securities, Inc. (March 2011 through August 2013) and Wedbush Securities, Inc. (Wedbush)  (June 2007 through August 2013).

According to FINRA’s website, Holzer has been the subject of huge number of customer complaints (64) and regulatory events (5) over the course of her career.

In addition to suspending Holzer for failing to pay a settlement, FINRA’s Department of Enforcement recently brought a regulatory action against Holzer.  This regulatory action focuses on unsuitable investment recommendations that Holzer allegedly made to seven customers while she was associated with Wedbush.  Specifically, FINRA alleges that Holzer’s recommendations that her clients invest in affiliates of Provident Royalties, LLC (Provident) were unsuitable.

In 2009, the Securities and Exchange Commission (SEC) brought a lawsuit against Provident.  The court eventually determined that Provident was run as a Ponzi scheme.  Provident, along with its related entities, filed for bankruptcy.

FINRA also alleges that Holzer misrepresented the liquid net worth of various customers in order that they would be eligible to invest in private placement securities (including Provident) as accredited investors.  By submitting documents with the improperly-stated liquid net worth figures, it appears that Holzer violated FINRA rules.  FINRA asserts that Holzer knew, or should have known, that the values were incorrect because she had been working with these customers for several years.

FINRA rules required Wedbush and Newport to supervise Holzer.  Specifically, FINRA rules required these brokerage firms to enforce supervisory systems reasonably calculated to ensure that Holzer complied with all applicable rules and regulations, including FINRA’s rule requiring brokers to make suitable investment recommendations to their customers.  It appears that Wedbush failed in this respect.  It may be possible for Holzer’s former customers to recover investment losses by pursuing claims against Wedbush and/or Newport.

Former customers of Holzer are encouraged to contact the law firm of Blau & Malmfeldt at 312-443-1600 for a free initial consultation.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.

Commodity Futures Broker Vision Financial Markets, LLC Fined Twice in September 2013

The Commodity Futures Trading Commission (CFTC) fined Vision Financial Markets, LLC (Vision) twice in September 2013.  Vision is registered with the CFTC and with the National Futures Association (NFA) as a Futures Commission Merchant (FCM).

The Stamford, Connecticut-based firm was first charged for “failing to diligently supervise its employees” who improperly handled a customer’s interest accounts. The CTFC claimed that employees used a faulty software program that incorrectly calculated futures equivalent net positions, and that the employees failed to correct the mistake for approximately six months. The employees also did not use the proper delta when calculating the aggregate amount for the customer’s futures equivalent net positions, nor did they properly aggregate the customer’s multiple trading accounts when doing their calculations.

Every firm registered with the CFTC is required to supervise its employees and their business activities by “establishing, implementing, and executing an adequate supervisory structure and compliance programs.” Vision failed to do so, the CFTC said, violating the Commission’s rules.

Vision agreed to pay $140,000 to settle, but a less than a week later, the CFTC fined the firm again, claiming that Vision failed to segregate its customers’ funds and futures positions from August 2008 to June 2009. The firm used the futures and options customer funds to purchase securities, but failed to hold those securities in separate accounts for its customers – a violation of the Commodity Exchange Act.

The firm allegedly told its customers that their invested funds were being “deposited in segregated funds bank accounts,” even though the funds were actually being held in an internal account at Vision.

Vision did not properly segregate the securities until the NFA informed the firm that its customer funds were being held incorrectly. Vision then transferred the securities to a segregated account, although the firm was aware of the issue well before the NFA detected the problem.

On the charge relating to its failure to segregate customer funds and positions, Vision agreed to a $525,000 settlement.

It appears that the CFTC and the NFA have begun to take a more hands on approach to enforcing segregation rules in the wake of the Peregrine and MF Global blowups.

Blau & Malmfeldt is a law firm that represents investors across the United States in commodity futures, securities, partnership and shareholder rights disputes.

Former LPL Broker Arthur Lin Indicted in Connection with Ponzi Scheme

A federal grand jury last Friday indicted two Chicago area men with fraud in connection with a Ponzi scheme that they operated.  The government alleges that Marcin Malarz, formerly of Lake Forest, and Arthur Lin, of Palatine, fraudulently raised over $9M from approximately 25 investors causing at least $5.5M in losses.

Between 2006 and 2010, Lin used his position as branch office manager of LPL Financial, LLC (LPL) in Itasca, IL, to recruit investors in Malarz Equity Investments LLC (MEI), a company that Malarz managed.  MEI claimed to make money by converting old apartment buildings into refurbished condominiums.  According to the government, Malarz misappropriated over $2M from MEI to pay for personal expenses and make to Ponzi interest payments to older investors.  Malarz made commission payments to Lin’s wife (rather than to Lin directly) – apparently in an effort to avoid detection – of 10% on investments that Lin steered into MEI.

The government contends that Malarz and Lin made misrepresentations to investors about the expected and actual returns on MEI investments, the ways MEI would use investor funds, and Malarz’s ability to personally guarantee investments and loans.  In the indictment, the government seeks forfeiture of at least $5.5M of ill-gotten proceeds as well as Lin’s houses in Palatine and Barrington.  Each fraud count contains a maximum 20 year prison sentence.

Lin agreed in January 2012 to a $485,583 settlement in a civil case that the Securities and Exchange Commission (SEC) had brought against Malarz, Lin, and associate Jacek Sienkiewicz of Rolling Meadows, IL.  The SEC waived all but $158,240 of that settlement based upon Lin’s representation of his financial condition in an August 16, 2011 statement that Lin submitted to the court.

It appears that Malarz and Sienkiewicz have fled the country and are hiding in Poland.

FINRA records show Lin was a registered broker with LPL from 09/2006 – 04/2010.  Lin was previously employed by A. G. Edwards and Sons, Inc. from 10/2001 – 10/2006

LPL had a duty to supervise Lin.  Specifically, LPL had a duty pursuant to industry rules to enforce a supervisory system reasonably calculated to ensure that Lin complied with all applicable laws and regulations and to prevent Lin from engaging in illicit outside business activities.  It appears that LPL failed to adequately supervise Lin.

Lin’s former customers may be able to recover investment losses by pursuing claims against LPL in arbitration at FINRA.  Lin’s brokerage customers are encouraged to contact the law firm of Blau & Malmfeldt at 312-443-1600 for a no obligation consultation.  Blau & Malmfeld is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.

Mark Cuban Cleared of SEC’s Insider Trading Charges

On October 16, 2013, a federal jury returned a verdict in favor of Mark Cuban, the outspoken, billionaire owner of the NBA’s Dallas Mavericks, in a securities fraud and insider trading case prosecuted by the SEC.  (Here is a copy of the SEC’s complaint.)

The SEC’s charges revolved around a phone conversation Cuban had in June 2004 with Guy Faure, the former CEO of  Cuban owned a six and a half percent interest in stock when Faure called Cuban about participating in a private investment in public equity (PIPE) deal.

Faure alleged in a July 2011 deposition that Cuban agreed to keep confidential the information that Faure transmitted to him during the June 2004 telephone conservation and not to act on that information.  Cuban sold his interest in shortly after his phone conversation with Faure.  The government charged that Cuban traded illegally on insider information.

At trial, Cuban testified that he did not remember the June 2004 conversation with Faure and that he certainly did not enter into any sort of confidentiality agreement.  Faure refused to testify in person at the trial but instead testified via video conference.  Cuban’s lawyers cast doubts on Faure’s credibility, and argued that the volatility in stock before Cuban executed his trade was evidence that’s search for a PIPE investor was public information.

The SEC’s case showed early signs of weakness.  The trial court dismissed the SEC’s complaint in 2009.  While the U.S. Court of Appeals for the 5th Circuit reversed the trial court’s order of dismissal, the opinion described that the decision was a close one.

Cuban’s defense costs were likely far in excess of what the government would have accepted in settlement.  Cuban was adamant throughout the process that he did nothing wrong and accused the SEC of engaging in abusive conduct.

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

UBS Puerto Rico Municipal Bond Funds Post Sharp Declines

As reported previously on this blog, the market for Puerto Rico municipal bonds has faced sharp declines over the past two months.  Contributing to the market decline have been Puerto Rico’s burgeoning debt as well as a marked decline in both the territory’s economy and population.  Puerto Rico’s economy, once considered to have great potential due in part to the absence of federal income taxation within the territory, is now in great peril.  To make matters worse, Puerto Rico (unlike a city such as Detroit) cannot declare bankruptcy.  It is certainly possible that Puerto Rico will default on its municipal bond obligations.

UBS underwrote a significant portion of Puerto Rico’s municipal bond offerings and manages numerous mutual funds focused on Puerto Rico municipal bonds.  Some of these mutual funds are highly leveraged, meaning that the funds have borrowed funds in order to purchase more securities for their portfolios.  The use of leverage makes the mutual fund a much riskier investment.

On November 16, 2013, UBS reported the following net asset values for its Puerto Rico municipal bond mutual funds (percentage losses shown are since inception):

Tax-Free Puerto Rico Fund, Inc.: 4.829 (-51.7%)

Tax-Free Puerto Rico Fund II, Inc.: 4.236 (-57.6%)

Tax-Free Puerto Rico Target Maturity Fund, Inc.: 4.031 (-59.7%)

Puerto Rico AAA Portfolio Target Maturity Fund, Inc.: 7.748 (-22.5%)

Puerto Rico AAA Portfolio Bond Fund, Inc.: 7.202 (-28.0%)

Puerto Rico AAA Portfolio Bond Fund, II Inc.: 7.997 (-20%)

Puerto Rico GNMA & US Govmt. Target Maturity Fund, Inc. 8.015 (-19.8%)

P.R. Morgage-Backed & US Govmt. Securities Fund, Inc.: 6.020 (-39.8%)

Puerto Rico Fixed Income Fund, Inc.: 3.327 (-66.7%)

Puerto Rico Fixed Income Fund II, Inc.: 3.905 (-61.0%)

Puerto Rico Fixed Income Fund III, Inc.: 3.749: (-62.5%)

Puerto Rico Fixed Income Fund IV, Inc.: 4.798 (-52.0%)

Puerto Rico Fixed Income Fund V, Inc.: 4.275 (-57.3%)

Puerto Rico Fixed Income Fund VI, Inc.: 5.241 (-47.6%)

Puerto Rico Investors Tax-free Fund, Inc.: 3.90 (-61%)

Puerto Rico Investor Tax-Free Fund, Inc. II: 3.75 (-62.5%)

Puerto Rico Investors Tax-Free Fund III, Inc.: 4.14 (-58.6%)

Puerto Rico Investors Tax-Free Fund IV, Inc.: 3.60: (-64%)

Puerto Rico Investors Tax-Free Fund V, Inc.: 3.92 (-60.8%)

Puerto Rico Investors Tax-Free Fund VI, Inc.: 4.72 (-52.8%)

Puerto Rico Tax-Free Target Maturity Fund, Inc.: 1.06 (-89.4%)

Puerto Rico Tax-Free Target Maturity Fund II, Inc.: 1.59 (-84.1%)

Puerto Rico Investors Bond Fund: 4.21 (-57.9%)

Investors in Puerto Rico’s municipal bond funds are encouraged to contact the law firm of Blau & Malmfeldt at 312-443-1600 to discuss recovery options.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.


UBS’s Puerto Rico Woes

UBS is facing a tidal wave of problems stemming from Puerto Rico municipal bonds.   UBS underwrote billions of dollars of Puerto Rico municipal bond issues, purchased many bonds for various mutual funds that it manages and that are focused on Puerto Rico municipal bond issues, encouraged many of its brokerage customers to concentrate their savings into these funds, and then took steps to stabilize the Puerto Rico municipal bond markets.

Puerto Rico is facing an economic crisis, with high unemployment rates, a pension dilemma, and a rising number of people leaving the island in favor of the mainland United States. The government has proposed increasing taxes to help generate revenue.

Since 2004, Puerto Rico’s debt from municipal bonds has doubled to about $70B, which represents $19,000 for every person living in the territory, and approximately 70% of the territory’s GNP.   During this period of time, the territory’s economic output has contracted by approximately 16% and its population has likewise fallen.   Partly as a result of these factors, Puerto Rico’s bonds have fallen in value by approximately 18% this year.   The bond rating agencies, including S&P, have assigned Puerto Rico municipal bonds junk status.

Because Puerto Rico is a commonwealth, not a city, it cannot declare bankruptcy in the same way as Detroit, so default is a possibility. The federal government could also choose to bail the island out, but the United States Treasury Department stated on October 8, 2013, that it is not planning to provide financial assistance to Puerto Rico.

UBS brokers in Puerto Rico allegedly encouraged clients to buy the island’s highly leveraged municipal bond funds, financing the investments by borrowing on credit lines or through margin accounts.   UBS brokers also encouraged many of their customers to invest in various mutual funds managed by UBS that are concentrated in Puerto Rico municipal bonds.  These mutual funds have taken a beating as of late.

It appears that UBS may have taken steps to try to stabilize the market for Puerto Rico municipal bonds, and in doing so, harmed many of its brokerage customers.

Auto executive Victor Gomez, along with other members of his family, recently filed an arbitration complaint with FINRA against UBS Financial Services of Puerto Rico. Also listed in the complaint are UBS representatives Jose M. Ramirez, Carlos Freire-Borges, Carlos Ubinas, Doel Garcia, and 11 anonymous persons who also allegedly participated in financial misconduct.

According to the complaint, Gomez and his family had deposited a “very significant percentage” of their total net worth with UBS. The complaint alleges that UBS made misrepresentations to the Gomezes in connection with their investments in various Puerto Rico municipal bond investments.

UBS has allegedly started an internal investigation into the practices of some of its brokers on the island. According to the New York Times, one broker has already been placed on administrative leave for encouraging his clients to borrow on credit lines.

Blau & Malmfeldt is continuing its investigation into UBS’s marketing of Puerto Rico municipal bond funds.  Please contact us at 312-443-1600 or email Paul Malmfeldt at to learn about recovery options.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.

Grifphon Asset Management Head Sentenced to Prison

On September 23, 2013, Yusaf Jawed, the former head of Grifphon Asset Management, received a six and a half year prison sentence.  The U.S. District Court for the District of Oregon ordered that Jawed serve three years of supervised release after his prison sentence and pay $6.47M  to victims of his Ponzi scheme.

In April 2013, Jawed pleaded guilty to five counts of mail fraud and 12 counts of wire fraud in connection with his $34M Ponzi scheme.  As reported on this blog, Jawed used phony marketing materials, audit reports, and tax statements promising double or triple digit returns to lure investors into Grifphon hedge funds.  Soon after Jawed received investor money, he transferred the money into his personal management accounts and used the money to fund his lavish lifestyle.

Under federal minimum sentencing guidelines, the court could have sentenced Jawed to eight years in prison; however, he received a lighter sentence as a result of his cooperation with the government’s investigation into Grifphon’s affairs.

In a parallel civil proceeding, the SEC issued an order on September 11, 2011 requiring Jawed and Grifphon to pay $33.9M.  The SEC also took disciplinary actions against Jawed and associates Robert P. Curtis, Jacques Nichols, Lyman Bruhn and Ben Daniels.  Curtis, Nichols and Bruhn aided Jawed in the orchestration of a scheme whereby fraudulent records were created indicating that a series of shell companies had purchased assets in Gifphon hedge funds.

Daniels, a former Coachella Valley, CA securities broker, steered over $4M of investor money into Grifphon funds.  For his services, Daniels received $286,683 in commissions.

Investors in Grifphon are encouraged to contact Blau & Malmfeldt at 312-443-1600 to discuss recovery options.  Blau & Malmfeldt is a law firm based in Chicago that represents investors across the country in securities, commodity futures, partnership, and shareholder rights disputes.