The securities attorneys at Chicago-based Stoltmann Law Offices are representing investors in FINRA arbitration actions against multiple brokerage firms that recommended GWG-L-bonds to their clients. Our investigation into GWG, which includes monitoring and being involved in the Chapter 11 bankruptcy, is focused on two issues: First, GWG L-Bonds were speculative, high risk, unrated debt instruments. One of the biggest issues with this bond program is, the bondholders were subordinate to hundreds of millions of dollars other debt.  The debt owed by GWG in these bonds are not the first priority to be paid back by the company on the “capital stack”.  These were very high risk investments, so unless that was made clear to you by your financial advisor, you may have a claim to pursue for misrepresentations and commissions and for recommending an unsuitable investment.  Either of these are actionable.

The other main issue here from the brokerage firm perspective is the failure to perform reasonable due diligence. Although 160 brokerage firms sold GWG Financial, this is actually a super-minority, roughly 5%, of all brokerage firms nationwide. In reality, very few firms approved GWG for sale to their customers.  GWG was allowed to borrow up to 90% of its listed assets. Its assets are almost all illiquid and subject to “fair valuation” which is an extremely dangerous financial situation for investors.  Big firms like Merrill Lynch and Morgan Stanley don’t go anywhere near unrated speculative bonds like this. But a lot of firms do because GWG paid brokers massive 8% commissions to sell these bonds which were the financial life-blood of GWG.  Even through the US government began investigating GWG in October 2020, and brokerage firms still continued to sell them.  As early as march 2020, GWG was reporting publicly about “several material weaknesses” with respect to the company’s accounting processes.  By 2020, there were more Red Flags about GWG than a Soviet May-Day parade and yet brokerage firms continues to sell it, and one reportedly BOOSTED sales.

It was reported this week that Centaurus Financial, with 640 brokers nationwide, actually increased the amount individual investors could invest in GWG from $100,000, to $150,000. Brokers went on the sales push to recommend their clients increase their investment in the GWG L-Bonds in April 2020, after GWG reported material issues with accounting and after it entered into a highly questionable transaction with the Beneficient Company, alleged now to have been securities fraud.

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who have run Ponzi schemes right under their big-bank firm’s nose. Unscrupulous financial advisors have been known to steal clients’ money to pay for their lifestyle. As they are pocketing investors’ funds, they are often pitching  investments like Ponzi schemes, which are fake and fraudulent investment schemes fueled by money flowing in from new investors.

Shawn E. Good, 55, from Wilmington, North Carolina, a former Morgan Stanley advisor, had “clients send funds to his personal bank account to supposedly make low-risk investments in real-estate development projects,” according to a U.S. Securities and Exchange Commission (SEC) complaint filed in federal court. “Good defrauded investors — including retirees — out of at least $4.8 million, resulting in more than $2 million of losses,”  the SEC said.

A spokesperson for Morgan Stanley told Advisorhub.com the bank “is reviewing the matter and that the alleged conduct is plainly unacceptable. Good is no longer employed by the bank.” The Morgan spokesman added “We are currently reviewing the matter, which affects a small number of clients, and are cooperating with the SEC and other government authorities.”

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who have violated securities laws. When brokerage houses or investment advisers make big “block” stock trades, there are numerous rules they must follow to ensure that other investors don’t get burned. They are not allowed to “front run,” an illegal brokerage practice of a stockbroker placing an order for their own account ahead of the client’s, knowing when the client’s order is placed it will move the market and create a profit for the broker.

Disruptive Technology Solutions LLC, a software services company, and affiliated funds, have filed a demand for arbitration against Morgan Stanley with FINRA, the federal securities industry regulator, according to The Wall Street Journal.

“Disruptive alleges that Morgan Stanley and a senior executive there leaked information ahead of the fund’s sale of more than $300 million of Palantir in February 2021, resulting in tens of millions of dollars in damages,” the Journal reports. Disruptive is seeking compensatory and punitive damages. Palantir is a software firm that provides a wide range of platforms from artificial intelligence to supply chain products.

Stoltmann Law Offices, a Chicago-based investor rights law firm, represents investors across the country in suits against brokerage firms, investment advisors, investment banks, and insurance companies. Typically, we offer our services on a contingency-fee basis which means we do not get paid until you do.  We understand most of our prospective clients come to us having already been financially burned and rarely have the wherewithal to pay out of pocket for legal services.

Our attorneys are currently investigating claims by investors against Morgan Stanley involving fired Morgan Stanley broker Robert David, Jr., of Farmington Hills, Michigan. According to a regulatory filing, Robert David Jr. played fast and loose with client information on Morgan Stanley documents used by compliance to approve investments by clients in high risk junk bonds.  The information David manufactured included client net-worth, liquid net-worth, and changing the risk tolerance on client documents. Morgan Stanley has limitations in place for soliciting investments in high risk junk bonds to protect against over-concentration risk. David altered these documents to avoid these compliance protocols and restrictions. It was also alleged by FINRA that David made 538 unauthorized trades in eight client accounts.

Investing in junk-bonds can be a high risk investment plan. These sorts of corporate bonds offer considerably higher coupon payments, usually 7% per year or higher, but carry with them a substantially higher risk of default. If a company goes out of business, runs into cash shortfalls, and then seeks some sort of restructuring, like through a Chapter 11 Bankruptcy filing, the bond holders can be wiped out completely. Most public companies that issue bonds to investors publicly are rated by the three primary ratings agencies – Standard & Poor’s, Moody’s, and Fitch.  Although each is slightly unique, generally, all three rate bonds using a AAA to D structure. AAA is reserved for the absolute highest credit reliability, like that of United Kingdom. According to published reports, only two United States companies have earned a AAA rating, Microsoft and Johnson & Johnson. In order for a bond to be rated junk, its ratings typically need to fall below BBB- on the Standard and Poor’s scale, and are considered to be “high risk” by definition. Investing in junk bonds may be suitable for investors seeking high income so long as they are comfortable with the high risk inherent in such a strategy. In a rising interest rate environment, this strategy could spell doom for investors.

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who have violated their firms’ compliance rules. If they are following the law, broker-advisors have to follow a set of rules to ensure that they are doing right by their clients. In the real world, though, this doesn’t always happen. Sometimes firms don’t supervise what their brokers are selling along with inappropriate investment strategies.

Few investors know that brokerage firms must employ a professional called a “chief compliance officer (CCO).” This person acts as a watchdog to oversee broker activities and police trades so that rules and guidelines set by federal securities regulators such as FINRA and the Securities and Exchange Commission (SEC) are followed to the letter. What if the CCO isn’t doing their job? They can be sued.

FINRA states “that if a CCO has other business responsibilities (such as at firms where the CEO also serves as CCO), the CCO can be held liable for failure to supervise in his or her business line capacity, notwithstanding the CCO title.”

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses as a result of conflicted, fraudulent, and negligent financial advice.  Sometimes the investments advisors recommend are themselves engaged in a fraud or some other scheme. These sorts of games can happen in any investment fund, but are far more common in private equity or other private investment funds.

The Securities and Exchange Commission (SEC) has charged James Velissaris, the former Chief Investment Officer and founder of Infinity Q Capital Management, with overvaluing assets of funds his company sold by more than $1 billion while pocketing tens of millions of dollars in fees. The SEC’s complaint alleges that, “from at least 2017 through February 2021, Velissaris engaged in a fraudulent scheme to overvalue assets held by the Infinity Q Diversified Alpha mutual fund and the Infinity Q Volatility Alpha private fund.” According to the SEC complaint, “Velissaris executed the overvaluation scheme by altering inputs and manipulating the code of a third-party pricing service used to value the funds’ assets. Velissaris allegedly collected more than $26 million in profit distributions through his fraudulent conduct and without disclosing his activities to investors.

“While Velissaris marketed the mutual fund as a way for retail investors to access investment strategies typically reserved for high-net-worth clients,” the SEC alleges, “what he actually offered them were fraudulent documents, altered performance results, and manipulated valuations.” The SEC also alleges that, “by masking actual performance, Velissaris sought to thwart redemptions by investors who likely would have requested a return of their money had they known the funds’ actual performance, particularly in the volatile markets in the wake of the COVID-19 pandemic. The complaint alleges that at times during the pandemic, the funds’ actual values were half of what investors were told.”

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from investing in unregistered securities based on the recommendation of their financial advisor.  All too often, brokers pitch investors on making a quick profit on unregistered securities. These investments, typically not on the radar screen of regulators, can easily lose money. They can skirt the safeguards of state and federal securities laws.

A group of securities regulators recently launched a crack-down on a company marketing unregistered securities. The North American Securities Administrators Association (NASAA) and the U.S. Securities and Exchange Commission (SEC) jointly announced a “$100 million settlement with BlockFi Lending, LLC (BlockFi) concerning its lending products and practices. Thirty-two state securities regulators have agreed to the terms of a settlement with BlockFi to resolve its past unregistered activities. More jurisdictions are expected to follow.”

The settlement focused on BlockFi’s sales of unregistered securities to retail investors through BlockFi interest accounts (BIAs).  “BlockFi promoted its BIAs with promises of high returns for investors who purchased the products. The company took control of and pooled its investors’ loaned digital assets, and exercised sole discretion over the pooled digital assets, including how to use those assets to generate a return and pay investors the promised interest.”

Chicago-based Stoltmann Law Offices is representing investors who’ve been victims of cryptocurrency thefts. These days, cryptocurrencies or “digital cash” are all the rage. You can speculate with it, buy a few consumer goods, and even play games. Unfortunately, like any currency that is a store of value, it can be stolen.

One of the largest heists in the short history of cryptocurrencies occurred recently when customers of Axie Infinity, a play-to-earn online game, lost some $625 million to a thieving hacker.

It was reported that the Axie account was hacked on March 23rd, although it was only revealed on Tuesday, March 29th.  According to Yahoo News, “Axie Infinity remains one of the most popular play-to-earn games, and users continued to log on Wednesday after news of the crypto heist. Hackers targeted a vulnerability in the bridge — or a software mechanism for exchanging types of crypto tokens — to drain funds in two separate transactions.”

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered as a result of financial advisors recommending high risk leveraged exchange-traded funds (ETFs).  Broker-dealer Purshe Kaplan Sterling Investments was charged by the Massachusetts Securities Division with selling “unsuitable investments to investors while operating as independent investment advisers of Harvest Group Wealth Management,” according to thediwire.com.  “Despite warnings from FINRA that leveraged exchange-traded funds are typically unsuitable for average investors who plan to hold them for more than a day, the Harvest Group invested more than 340 client accounts in leveraged exchange-traded funds for days, weeks, months, and even a year,” the state regulator stated. FINRA is the federal regulator of the U.S. securities industry.

According to the Massachusetts complaint, “more than $2.3 million in losses were incurred as a result of unsuitable investments in leveraged ETFs. Purshe Kaplan had a duty to review the transactions as part of their supervisory responsibilities, even though they were conducted outside of the firm.”

Investments like ETFs can be highly leveraged, which means they carry high downside risk and can easily lose money under certain market conditions. Brokers are under a legal obligation to carefully vet all trades and investments with you to ensure that the investments they are selling meet your financial goals and risk tolerance. Leveraged ETFs specifically, are designed to be trading vehicles, not held long-term, because they will not achieve their stated objectives long-term. They are designed to achieve their objectives daily, and are totally unsuitable for buy-and-hold investors. Unfortunately, many financial advisors do not understand this.

Stoltmann Law Offices, P.C. is a Chicago-based investor-rights and consumer protection law firm offering representation nationwide on a contingency fee basis to defrauded investors and consumers alike. If you are a victim of the alleged Ponzi scheme perpetrated by former Morgan Stanley financial advisor Shawn Good, you likely have sustainable legal claims against Morgan Stanley.  It is critical to your chances to recover what was taken from you to consider all legal options and to not depend on the Securities and Exchange Commission or criminal prosecutors to make you whole.

The attorneys at Stoltmann Law Offices have over fifty years of combined experience representing victims of Ponzi schemes. According to published reports, Shawn Good is alleged to have stolen millions of dollars from victims of a scam he ran while he was a financial advisor at Morgan Stanley.  The SEC has filed a civil complaint against Good, and Morgan Stanely fired him in February for failing to cooperate with an internal investigation in connection with his scheme.

Morgan Stanley can be held liable for Shawn Good’s scheme for two primary reasons.  First, as an agent of Morgan Stanley, the company is responsible for Good’s conduct in the course and scope of that employment. Sure, running a criminal scheme is not necessarily what his employment with Morgan Stanley was about, but offering investment advice and financial services was.  You are not seeking to hold Morgan Stanley liable because Good broke into a jewelry store, the agency liability stems from Good’s solicitation to invest in securities and products in furtherance of providing investment advice. That falls squarely inside the agency relationship with Morgan Stanley.

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