Suitability
Fredericksburg Virginia Registered Rep Indicted
As set out in this Fredericksburg.com article, John Robert Graves, a former FBI agent, was indicted on charges of defrauding Virginia investors out of $1,300,000. According to the indictment filed in U.S. District Court in Richmond (Case 3:11CR246), Mr. Graves used funds obtained from investors to buy personal real estate, to pay personal expenses and credit cards, to pay himself cash, and to pay back prior investors.
Mr. Graves operated Brooke Point Management in Spotsylvania County since 2003 which provided financial planning, insurance sales, estate planning, and investment advice to customers. According to FINRA’s Brokercheck report, Mr. Graves had been a registered securities salesperson since 1998 with various firms including, Harrison Douglas, Community Bankers Securities, Fintegra, Questar Capital Corporation, Pacific West Securities, and H. Beck. The Brokercheck report also discloses multiple pending arbitration claims alleging fraud, negligence, breach of fiduciary duty, and unsuitable investments regarding private placements, limited partnerships and REITs.
If you wish to discuss a potential securities fraud claim with one of our attorneys, please contact us here for a free consultation.
Posted by Greco & Greco on 10/13 at 02:35 PM
Arbitration •
Brokerage Firms •
Community Bankers Securities •
H. Beck •
Pacific West Securities •
Questar Capital Corporation •
Ponzi Scheme •
Private Placements •
Securities Fraud •
State Regulators •
Virginia •
Suitability •
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SEC Fraud Charges Regarding The Nutmeg Group LLC
As set out in the SEC Complaint which can be found here, the SEC filed civil fraud claims in Illinois against The Nutmeg Group, LLC, Randall Goulding, and others. The SEC alleges in its Complaint that Nutmeg was an investment adviser to 15 funds which invested fund assets in private investments in public equity (PIPE) transactions. As a basis for its fraud claims, the SEC alleges in the Complaint that Nutmeg “improperly commingled investor and fund assets,” “misappropriated over $4 million in fund assets,” “failed to maintain the required books and records,” and “overstated the performances of its Funds to investors.” (paragraphs 2 and 3 of SEC Complaint).
This article from tampabay.com discusses the recruitment of investors for The Nutmeg Group investments by an individual (Harvey Altholtz) from the Sarasota, Florida area. Here is a cease and desist Order from the Colorado Securities Commissioner relating to Altholtz and Wealth Strategy Partners.
Greco & Greco have recently filed a FINRA arbitration on behalf of investors who were sold investments in Nutmeg Group funds by a FINRA registered representative (securities salesperson). All FINRA registered representatives are required to be registered with a FINRA firm (Broker-Dealer). FINRA firms have legal responsibilities to supervise their registered representatives, and further may be found liable for the wrongful actions of their agents. Examples of legal grounds for liability of Broker-Dealers in these situations include:
a) under tort and agency law, principals can be found liable for the acts of their agents even if they are entirely innocent and have received no benefit from the transaction;
b) a broker’s Broker-Dealer can also be found liable as a “control person” of that broker under state and federal securities laws; and
c) claims can be pursued in arbitration based on violations of FINRA rules including Rules related to supervision, suitability, and outside business activities.
If you were sold investments in Nutmeg Group funds by a FINRA registered representative, and you would like to discuss legal options with an attorney, please contact Greco & Greco for a free consultation with one of our lawyers.
Posted by Greco & Greco on 06/08 at 04:05 PM
Arbitration •
Brokerage Firms •
Intersecurities •
Transamerica Financial Advisors •
Ponzi Scheme •
Private Placements •
SEC •
State Regulators •
Colorado •
Florida •
Suitability •
Unregistered Securities •
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Unsuitable ETF trading results in large losses for investors
Greco & Greco’s attorneys have represented a significant number of investors over the past several years who have suffered large amounts of losses in their securities accounts due to the improper and unsuitable trading of ETFs by their brokers. Many inverse and leveraged exchange traded funds, including some by Proshares and Direxion, were designed to seek multiples of the exchange they were designed to track. However, many of these ETFs were designed to reset daily, thereby creating drastic differences in their performance over time compared to the index they were designed to track. We have seen many situations where many of the risks of these funds were not disclosed to customers.
The prospectus for the Proshares leveraged and inverse ETFs from September 2007 makes clear that these investments were an aggressive day-trading tool, not an investment appropriate or suitable for most retail investors. Specifically, the prospectus stated:
• p. 7: “The Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Funds from achieving such results.”
• p. 8: “The Funds use investment techniques that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments.”
• p. 9: “Certain Funds are “leveraged” funds in the sense that they have investment objectives to match a multiple of the performance of an index on a given day. These Funds are subject to all of the correlation risks described above. In addition, there is a special form of correlation risk that derives from these Funds’ use of leverage, which is that for periods greater than one day, the use of leverage tends to cause the performance of a Fund to be either greater than or less than the index performance times the stated multiple in the fund objective, before accounting for fees and fund expenses.”
In June of 2009, FINRA issued a Regulatory Notice (09-31) regarding these Non-Traditional ETFs. The Notice states: “inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.”
If you suffered losses in your brokerage accounts resulting from your broker’s trading in ETFs, and you would like to discuss your potential claim with an attorney, please contact Greco & Greco.
Posted by Greco & Greco on 01/23 at 12:01 PM
Arbitration •
Brokerage Firms •
UBS •
ETF •
FINRA •
Suitability •
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McLeod Ponzi Scheme Preys on Government Employees
The SEC filed an Emergency Complaint on June 24, 2010 against the Estate of Kenneth Wayne McLeod, F&S Asset Management Group, and Federal Employee Benefits Group, alleging that Mr. McLeod engaged in a ponzi scheme. The SEC release and Complaint can be found here. The Complaint alleges that Mr. Mcleod solicited federal government workers across the country to invest in a purported bond fund (the FEBG Bond Fund) which offered “guaranteed, tax-free returns of eight to ten percent annually in the fund.” In reality, the fund did not exist and Mr. McLeod used newly invested funds to pay off old investors, a classic ponzi scheme. Mr. McLeod raised $34 million from current investors.
According to this Florida Times Union article, Mr. McLeod killed himself days after confessing to investigators.
Mr. McLeod was a FINRA registered representative of Lincoln Financial Securities Corporation until May, 2010. Prior to Lincoln, Mr. McLeod was FINRA registered with Capital Analysts, Incorporated and Washington Square Securities. FINRA firms have legal responsibilities to supervise their registered representatives, and further may be found liable for the wrongful actions of their agents. Examples of legal grounds for liability of Broker-Dealers in these situations include:
a) under tort and agency law, principals can be found liable for the acts of their agents even if they are entirely innocent and have received no benefit from the transaction;
b) a broker’s Broker-Dealer can also be found liable as a “control person” of that broker under state and federal securities laws; and
c) claims can be pursued in arbitration based on violations of FINRA rules including Rules related to supervision, suitability, and outside business activities.
If you are a victim of the FEBG bond fund ponzi scheme, and you would like to discuss legal options with an attorney, please contact Greco & Greco for a free consultation with one of our lawyers.
Posted by Greco & Greco on 07/02 at 10:00 AM
Arbitration •
Brokerage Firms •
Capital Analysts •
Lincoln Financial Securities •
Washington Square Securities •
FINRA •
Ponzi Scheme •
Retirement •
SEC •
Suitability •
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Medical Capital Charged With Fraud by SEC
Medical Capital Holdings is another private placement investment that has been subject to claims of fraud by the SEC. In the Amended Complaint found on the Receivership site the SEC alleges that despite promises in the offering memoranda from Medical Capital not to use investor funds to pay administrative fees, 24% of investor funds were paid out as administrative fees, and the companies engaged in sham intercompany transactions to pay back principal and interest to investors in prior offerings.
Furthermore, as set out in this Orange County Register article, the head of Medical Capital (Sidney Field) had previously had his insurance license revoked by California, had been sued twice by state insurance regulators for racketeering and fraud, and had filed bankruptcy.
Investors who were sold these offerings by their stock brokers and have suffered losses may have claims that they can bring in FINRA arbitrations against their brokerage firms. Firms selling such offerings have due diligence duties prior to approval of their sale, and representatives are required to only make suitable recommendations to their customers. Additionally, representatives may not misrepresent the risk of securities they recommend, and they must disclose material facts related to risk. Greco & Greco is pursuing claims in arbitration on behalf of customers who were sold these products. If you think you may have a claim, please contact us for a free consultation with one of our attorneys.
Posted by Greco & Greco on 03/19 at 03:17 PM
Arbitration •
Brokerage Firms •
CapWest •
Gunn Allen •
FINRA •
Private Placements •
SEC •
Suitability •
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QUEEN SHOALS INVESTMENT FRAUD
According to this Western District of North Carolina Department of Justice release, Sidney Hanson of Charlotte, North Carolina pleaded guilty in July, 2009 to securities fraud, mail fraud, and money laundering in relation to an investment scheme known as Queen Shoals. The SEC has also filed a Complaint related to the investment scheme.
The SEC states in the above Complaint that the Hansons and their sales force sold almost $33 million in “private loan agreements” to investors around the country. The investments were allegedly to be placed in a diversified portfolio” of precious metals, foreign currency and treasury notes, generating high returns while remaining safe in non-depletion accounts. In reality according to the SEC, the investment funds were invested “in a number of very risky private investment opportunities” and funds from new investors were used to pay off old investors.
Investors who were sold Queen Shoals investments by their stockbrokers, investment advisers, retirement specialists, or financial planners may have claims to be brought against related firms based on securities fraud, suitability, failure to do due diligence, misrepresentations and omissions, and other legal grounds. Greco & Greco is currently investigating sales by FINRA registered parties in Virginia - please contact us for a free consultation if you believe you may have a claim.
Posted by Greco & Greco on 11/25 at 02:57 PM
Arbitration •
Brokerage Firms •
FINRA •
Ponzi Scheme •
Retirement •
SEC •
State Regulators •
North Carolina •
Suitability •
Unregistered Securities •
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Provident Royalties / Shale Royalties charged with fraud by SEC
As set out in this SEC Release, Provident Royalties, LLC and many related entities (including Shale Royalties entities) have been charged with engaging in a $485 million offering fraud and orchestrating a ponzi scheme. According to the SEC’s Complaint and release, “Provident falsely promised yearly returns of up to 18 percent,” and used investor funds from later offerings to pay “expenses related to earlier offerings and returns to investors in those offerings.” Unaffiliated brokerage firms were solicited by Provident to sell the investments through placement agreements for each offering, thereby selling the investments to retail investors nationwide.
Investors who were sold these offerings by their stock brokers and have suffered losses may have claims that they can bring in FINRA arbitrations against their brokerage firms. Firms selling such offerings have due diligence duties prior to approval of their sale, and representatives are required to only make suitable recommendations to their customers. Additionally, representatives may not misrepresent the risk of securities they recommend, and they must disclose material facts related to risk. Greco & Greco is pursuing claims in arbitration on behalf of customers who were sold these products. If you think you may have a claim, please contact us for a free consultation with one of our attorneys.
Posted by Greco & Greco on 11/13 at 05:12 PM
Arbitration •
Brokerage Firms •
CapWest •
Gunn Allen •
FINRA •
Ponzi Scheme •
Private Placements •
SEC •
Suitability •
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INVESTIGATION OF WORLD FINANCIAL GROUP CLAIMS
Greco & Greco, in conjunction with local Ohio counsel, is currently investigating alleged claims of individuals sold securities and real estate related investments out of the Ohio and Florida offices of World Financial Group and World Group Securities, specifically including sales made in relation to refinancing of mortgages.
The U.S. Securities and Exchange Commission (SEC) recently filed an enforcement action against five California World Group Securities’ representatives, including a branch manager, for selling unsuitable investments to customers, mostly variable universal life policies (VULs). The SEC alleged that because many customers did not have the funds necessary to purchase the investments, the representatives urged them to refinance their homes from fixed rate mortgages into subprime adjustable rate negative amortization mortgages. Read the SEC Release and Complaint here.
If you think you may have a claim and wish to speak to an attorney, please contact Greco & Greco toll free at 877-821-5550.
Posted by Greco & Greco on 11/26 at 05:03 PM
Brokerage Firms •
World Group Securities •
SEC •
Suitability •
Unregistered Securities •
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Auction Rate Securities Failures
Auction Rate Securities and Auction Rate Preferred Securities (ARS) are securities made up of long term bonds or preferred stock with variable interest rates and yields. The yields are periodically reset through Dutch auctions. ARS are often marketed and sold by a single dealer with the only resale market being through a successful auction. Problems have arisen in recent months as a result of the failures of the auctions, leaving investors in the lurch and unable to redeem the security. As set out in this SmartMoney article, ARS have been marketed as a safe, liquid alternative to money market funds. Investors believing they had their money in a safe liquid investment are understandably concerned by the failures in the marketplace for these securities, and our firm has been monitoring the situation closely and discussing the matter with concerned individuals and businesses. Misrepresentations and omissions in the sale of a security can form the basis for a claim for securities fraud as well as other legal claims for recovery of damages.
As recently as 2006, the SEC censured 15 of the largest brokerage firms for sales and auctions of Auction Rate Securities. As stated by the SEC in its press release, “since the firms were under no obligation to guarantee against a failed auction, investors may not have been aware of the liquidity and credit risks associated with certain securities.” The SEC further stated that “the firms violated Section 17(a)(2) of the Securities Act of 1933, which prohibits material misstatements and omissions in any offer or sale of securities.” The fifteen firms which were censured were Bear, Stearns & Co., Inc., Citigroup Global Markets, Inc., Goldman Sachs & Co., J.P. Morgan Securities, Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated/ Morgan Stanley DW Inc., RBC Dain Rauscher Inc., A.G. Edwards & Sons, Inc., Morgan Keegan & Company, Inc., Piper Jaffray & Co., SunTrust Capital Markets Inc., Wachovia Capital Markets, LLC, and Banc of America Securities LLC. Read the SEC Order here.
UBS appears to be the first firm to actually begin lowering the values of auction rate securities on its customers’ statements, as reported by many news sources on March 29 including this Reuters article. Citing a Wall Street Journal article, Reuters reported that the markdowns could exceed 20 percent for some customers. Additional concessions from other firms may be forthcoming as the first quarter of 2008 ends.
State Regulators, including Massachusetts, have also begun investigations of the auction rate securities market with Massachusetts reportedly issuing subpoenas to UBS, Merrill Lynch, and Bank of America.
The Financial Industry Regulatory Authority (FINRA) released an Investor Alert on March 31, 2008 regarding auction rate securities which purports to set out various options for investors stuck with these products. FINRA, which claims to be a “trusted advocate for investors,” notably fails to mention contacting an attorney or filing an arbitration claim as options. If you are an investor who was sold Auction Rate Securities, and you would like to discuss your legal options with an attorney, please Contact Greco & Greco.
Link to Securities-Lawyers.net Auction Rate Securities page.
Posted by Greco & Greco on 03/03 at 05:42 PM
Auction Rate Securities (ARS) •
Bonds •
Brokerage Firms •
A.G. Edwards •
Banc of America •
Bear Stearns •
Citigroup •
Deutsche Bank •
Ferris Baker Watts •
Lehman Brothers •
Merrill Lynch •
Morgan Keegan •
Morgan Stanley •
Piper Jaffray •
RBC Dain Rauscher •
Suntrust •
UBS •
Wachovia •
FINRA •
State Regulators •
Massachusetts •
Suitability •
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News from SEC’s Senior Summit
The SEC reported at its 2nd Annual Senior Summit that it was working on codifying suitability rules as they apply to recommendations for the purchase of securities by stock brokers, and further clarifying sales practice principals for investment professionals. If properly crafted, additional guidance in these areas should help prevent abuse of investors as well as provide additional tools for attorneys representing investors who have been abused by their stock brokers.
The SEC, FINRA, and state regulators also reported the results of their “free lunch” sweep of seminars targeted as seniors. The findings included 59% of the brokerage firms involved failing to properly supervise the seminars, and 23% of the seminars including advice that was unsuitably risky for senior investors.
Posted by Greco & Greco on 09/21 at 02:31 PM
FINRA •
SEC •
State Regulators •
Suitability •
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Suitability of Hedge Funds
Hedge funds are largely unregulated investment funds which are typically limited to investment by accredited investors, i.e. high net worth individuals, pension funds, and other institutional investors. These funds are not restricted by many of the regulations and disclosure requirements of mutual funds, and they have evolved into a widely diverse industry investing in an array of traditional and non-traditional investments.
As set out in the NASD Notice to its Members linked below, the NASD / FINRA has expressed its concern regarding the sale of hedge funds by its representatives to retail customers. The Notice emphasizes that the risks and disadvantages associated with hedge funds must be fully disclosed to retail customers, and the sales representative or member must use due diligence to investigate the fund and must make a customer specific determination of suitability for the customer’s situation.
NASD Notice to Members
Posted by Greco & Greco on 08/16 at 01:47 PM
Hedge Funds •
NASD Regulation •
Suitability •
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CMOs and Mortgage Backed Securities
CMOs, or collateralized mortgage obligations, are bundles of mortgages which are then divided up for sale by investment banks. Different types of these mortgage backed securities can vary widely in risk for investors, but recent problems with the subprime mortgage lending market could portend future problems for individual investors who have been sold these types of securities without their brokers fully explaining the risks involved. As set out in the following linked news stories, customers of Brookstreet Securities and Wedbush Morgan Securities have filed arbitration claims against their brokerage firms related to the sale of CMOs and other mortgage securities.
Wall Street Journal article
Orange County Register Article
Posted by Greco & Greco on 07/20 at 02:21 PM
Brokerage Firms •
Brookstreet •
CMOs / CDOs •
Suitability •
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Wachovia Fine Related to Fee Based Accounts
Fee based accounts with brokerage firms are typically an alternative to commission accounts in which the account is charged a fixed annual fee or an annual percentage fee based on the assets in the account. These accounts may not be suitable for all customers. As set out in the link below, the NASD fined Wachovia for “failing to adequately supervise its fee-based brokerage business between 2001 through 2004.”
NASD Press Release
Posted by Greco & Greco on 07/20 at 11:29 AM
Brokerage Firms •
Wachovia •
NASD Regulation •
Suitability •
(0) Trackbacks •
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Early Retirement Pitches
Beware of sales pitches allowing early retirement which are based upon aggressive unrealistic annual returns without disclosure of the risks involved with such an aggressive strategy. As set out in the below NASD Investor Alert, following such a program may result in the depletion of your retirement nest egg if the broker is unable to meet the aggressive advertised annual returns.
NASD Investor Alert
See also the NASD charges against Citigroup regarding early retirement seminars in Charlotte, North Carolina for employees of Bellsouth.
NASD News Release
Posted by Greco & Greco on 07/20 at 11:13 AM
Brokerage Firms •
Citigroup •
NASD Regulation •
Retirement •
Suitability •
(0) Trackbacks •
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