Stoltmann Law Offices, a Chicago-based securities and investment fraud law firm offers representation to defrauded investors and consumers nationwide on a contingency fee basis. Our firm is investigating potential claims against Herbert J Sims & Co., a/k/a HJ Sims, in connection with dozens of private offerings solicited and engineered by HJ Sims.

Private placements are investments that are not publicly registered with the Securities and Exchange Commission. Although a totally legitimate way to raise capital, private placements fall into the alternative investment category. They are supposed to only be sold to “accredited investors”, are speculative, illiquid, and opaque when compared to publicly traded securities. Private placements are the darlings of the independent broker-dealer community because they generate commissions many times higher than publicly traded securities. For most private placements, commissions range from 7% to 12% in total fees, costs, and commissions to the brokerage firm.  The justification for such high commissions, the brokers say, is that they have to spend so much time and resources in the due diligence process to vet the investments prior to offering them for sale to their clients. This due diligence process is required to be undertaken and is mandated by FINRA Rule 2111, Regulation Best Interest, and several FINRA notices, including most prominently, Regulatory Notice 10-22.

HJ Sims hits the trifecta with its private placement offerings. Not only does it receive high commissions, HJ Sims actually creates many of the investments they sell, and their board and corporate officers share in the loot raised by HJ Sims selling these deals to their client base.  One of these offerings is Madison Funding I, LLC, which HJ Sims brought to market in 2019.  They issued $5,115,000 in bonds due June 1, 2024. The bonds defaulted on principal payments due March 2, 2021 and has paid reduced interest since. Incredibly, AFTER the bonds defaulted, HJ Sims continues to valuate the bonds at $100 on customer account statements, and shockingly, Madison Funding I, LLC is owned and controlled by executives of HJ Sims. It is common sense that a bond in default is NOT worth what it was sold at, but don’t tell that to HJ Sims.

Stoltmann Law Offices represents investors in cases where brokers overcharge their clients and their employers fail to supervise them. FINRA, the federal securities industry regulator, fined Raymond James Financial Services (RJFS) $1.1 million, alleging “From at least January 2012 through April 2018, RJFS failed to reasonably supervise two registered representatives who engaged in a scheme to overcharge commissions to seven institutional customers, which they serviced as part of a team.”

The two Raymond James representatives, a father-and-son team, worked in a Raymond James branch office in Mercer Island, Washington, FINRA stated. “The customers at issue were foreign institutions, whose buy and sell orders involved large blocks of equities. The representatives agreed to a per share commission rate with their customers. From at least January 2012 through April 2018, the two representatives overcharged these institutional customers by calling the trading desk after placing the orders and instructing the trading desk to increase the commissions being charged prior to execution and/or while the orders were being worked by the desk.”

To conceal their misconduct from their clients, FINRA said, the brokers “created their own trade confirmations, which they then emailed to customers. These confirmations contained misleading information, including understating commissions. In total, the representatives overcharged these customers approximately $2.4 million. The scheme ended in or about April 2018 when Raymond James flagged and reviewed an unusually large order for one of the customers.”

Stoltmann Law Offices has represented investors in cases where brokers have swindled their clients in penny stock scams.  “Penny Stocks” are defined as the common stock of companies with low (typically under $250 million) market capitalization, and share prices that are under $5 per share. Although some penny stocks do trade on exchanges like the NYSE or NASDAQ, most trade “over the counter” or OTC.  Penny-stocks are famous for their speculative qualities and volatility.  Because they are usually thinly-traded compared to non-penny stocks, the share price is easily impacted by large block transactions, which can lead to manipulation.  The classic “pump and dump” scheme almost always depends on penny stocks.  If the following scenario sounds familiar to you, then you should consider calling Stoltmann Law Offices at 312-332-4200 for a consultation with a securities attorney.

Here’s how the scam goes. First, a promoter pumps out positive news about a company on social media, in online chat rooms, and through press releases.  They’ll announce some new deal (almost always some sort of merger) which will lead to great things for the company. The stock will pop based on the news, usually based on sales to investors by promoters or brokers affiliated with the promoters. This is the “pump” part of the scam.  As brokers drive investors to the stock, the price goes up, sometimes meteorically, and investors keep buying it on the way up. Once the stock price gets to a certain price, unbeknownst to any investors, the original holders, the promoters, and insiders, all dump their shares at once, causing the stock price to drop like a rock. This is the “dump” part of the scam. Because liquidity is a problem with penny stocks, even if you are watching the stock minute to minute, you might not get a bid when you try to sell your shares.  A day or two later, you are left with shares of stock that are near-worthless and are likely looking at substantial losses.  If you think you’ve seen movies like this, you are correct. The Wolf of Wall Street, both Wall Street movies, and Boiler Room were all largely based on pump and dump scams.

Recently, The U.S. Securities and Exchange Commission (SEC) charged four individuals with running a penny-stock fraud scheme targeting retail investors. The defendants were ‘variously involved in different parts of fraudulent schemes involving three separate publicly-traded companies that generated $9.1 million in illicit stock sale proceeds,” according to the SEC.

Stoltmann Law Offices is representing GWG L-Bond investors from across the country in FINRA arbitration claims against the brokerage firms responsible for soliciting the investors to put their hard-earned money into the speculative bonds offered by GWG Capital.

There are thousands of investors in the GWG-Bonds and very few have actually filed FINRA claims.  Many are waiting on the sidelines to see what happens with the ongoing Chapter 11 process while others are relying on information being peddled by the brokers and firms who sold them GWG, who continue to (mis)represent the alleged value of GWG Holdings, promising a full return of investor funds.  This is false and at this point, its fraud.

Let’s examine some of the representations advisors and their firms continue to make to their clients. First, GWG has an interest in FOXO Technologies (symbol FOXO). In September, FOXO went public in a SPAC deal and its stock is down over 90% since it hit the market.  FOXO has a current market capitalization of only $38.6 million, making it a micro-cap penny stock. Any representations that L-Bond investors will be saved as a result of any FOXO interest is clearly false as the stock continues to crater.

Stoltmann Law Offices, P.C. is a Chicago-Based investor-protection law firm that is currently investigating claims involving FTX, and law firms and advisors involved in raising billions of dollars in private equity from investors. According to The Wall Street Journal, FTX tapped $8 billion from customer accounts to fund “risky bets”.  According to published reports, the money went over to Alameda Research, a firm known to engage in highly speculative crypto-trading with borrowed assets.  Sam Bank-Fried, who is the majority owner of both FTX and Hong Kong-based Alameda Research, said it was a “mistake” to use FTX customer assets to fund high risk trading at Alameda. That is putting it modestly.

According to documents filed with the United States Securities and Exchange Commission, FTX Trading, Ltd., the US-side FTX entity that raised capital for FTX, has filed numerous Form-D’s reflecting over a billion dollars has been raised from investors in the eighteen months for FTX. These private offerings were sold out, according to the filings, to roughly 200 investors, most of whom are likely private equity funds and institutional investors.  According to other published documents, Fenwick West, a prominent Silicon Valley law firm, advised FTX on the Series B offering, which pegged the company’s valuation at $18 billion, and raised $900 million for FTX.  Fenwick West was also counsel to FTX on its Series B-1 offering, where it raised $420 million from investors, and the most recent, Series C offering which raised another $400 million for the now-scandal-ridden and likely soon to be bankrupt FTX, in January 2022.

What is interesting about Fenwick West’s involvement in raising all this money from investors for FTX, is that although a google search identifies the announcements of Fenwick West’s involvement in these offerings, the articles appear to have been removed from the firm’s website.  In their “Our Insights” blog, Fenwick West proudly promotes their deals  assisting capital raises. But their involvement with FTX, it would seem, appears to have been scrubbed from their website and blog.  This is far from an admission of responsibility for anything and likely just means they don’t want it “out there” that Fenwick was instrumental in raising well over a billion dollars for FTX in just the last eighteen months from investors.

Stoltmann Law Offices is representing investors in arbitration claims where brokers have violated the “Best Interest” rule of the Securities and Exchange Commission (SEC), known as Regulation BI.

In its first enforcement action relating to Regulation BI, FINRA, the U.S. securities industry regulator, fined a former broker, Charles V. Malico, $5,000 for violating Reg BI “by recommending a series of transactions in the account of one retail customer that was excessive in light of the customer’s investment profile and therefore was not in that customer’s best interest,” according to Investment News.

FINRA alleged “Malico’s conduct occurred from July 2020 through November 2021, when he worked for Network 1 Financial Services Inc. He recommended to a customer, a 63-year-old tax preparer who was not identified, that he make more than 350 trades in his account, which generated $54,000 in commissions and other trading costs,” Investment News reported. The customer, who earned $100,000 annually and had a liquid net worth of approximately $50,000, had an account balance of about $30,000.

Stoltmann Law Offices is investigating cases where brokers have violated rules on selling “naked shorts,” an extremely speculative options trading strategy.  In volatile markets, brokers transact strategies designed to make money on stocks their clients don’t own, known in the industry as “naked short selling.” In a recent regulatory action, Finra, the federal securities industry regulator,  announced that it has fined UBS Securities LLC (UBS) $2.5 million for violating Regulation SHO (Reg SHO) governing naked shorts for “violations and supervisory failures spanning a period of nine years.”

FINRA found that “from 2009 to 2018, UBS did not timely close out at least 5,300 ‘failure to deliver positions’ and routed or executed more than 73,000 short sales in securities with an unsatisfied close-out requirement without first borrowing or arranging to borrow the shares.”

According to the U.S. Securities and Exchange Commission, “in a naked short sale, the seller does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard two-day settlement period. As a result, the seller fails to deliver securities to the buyer when delivery is due; this is known as a ‘failure to deliver’ or ‘fail.’” The agency last updated its rule on short selling in 2008 to curb abuses in the industry.

Stoltmann Law Offices is representing clients whose financial advisors have sold fraudulent cryptocurrency investments. In the past year, brokers have increasingly hawked investments that allegedly invest in digital cryptocurrencies. Some of these investments are fraudulent.

The U.S. Securities and Exchange Commission (SEC) recently filed an emergency action to stop an on-going fraudulent and unregistered crypto asset offering targeting Latino investors, run by defendants Mauricio Chavez and Giorgio Benvenuto through a company Chavez founded and controlled, CryptoFX, LLC. At the SEC’s request, a federal court issued a temporary restraining order halting the offering.

The SEC’s complaint alleges that, “in 2020, Chavez began holding paid classes for the ostensible purpose of educating and empowering the Latino community to build wealth through crypto asset trading. However, the complaint alleges Chavez had no background, education, or training in investments or crypto assets.”

Stoltmann Law Offices represents victims of investment fraud where financial advisors have robbed their clients through Ponzi schemes, often targeting vulnerable communities. The U.S. Securities and Exchange Commission (SEC) has charged Miami-Dade County resident Judith Paris-Pinder, alleging that she ”fraudulently raised approximately $2.3 million from over 280 investors through an unregistered securities offering, targeting members of the Haitian and Haitian-American community in South Florida and elsewhere.”

The SEC’s complaint alleges that from 2019 to 2021, “Pinder offered loan agreements to investors promising returns of up to 50%, within 30 to 90 days. As alleged, Pinder made statements to investors claiming the investment was safe and that investor funds would be used to make advance loans to personal injury clients of a prominent Miami-based attorney. In fact, as the SEC alleges, Pinder, misappropriated investor funds and used investor funds to make Ponzi-like distributions to investors.”

The SEC’s complaint also charges Pinder with violating the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC “seeks permanent injunctive relief, an officer-and-director bar, disgorgement of allegedly ill-gotten gains plus prejudgment interest, and civil penalties against Pinder.

Stoltmann Law Offices, a Chicago-based investment and securities fraud law firm, has been prosecuting claims on behalf of burned investors against banks and brokerage firms since 2005.  We have seen it all; from the Tech Wreck, where investors were torched by the advice to put their entire retirement funds into NASDAQ darlings; to the Financial Crisis where Wall Street engineers manufactured every sort of derivative possible to off load their risk onto the accounts of retirees and investors alike. Now, as interest rates rise, inflation grips the economy, and the market waivers, the old adage that some things never change, is prescient.

For the last decade, big banks like JP Morgan Chase, RBC, and Bank of America-Merrill Lynch have been creating “structured notes” and selling them to their clients by the billions. These “notes”, they claim, offer an investor some of the upside of owning a company’s stock or an index, and some of the perks of a fixed income investment. Now, the common-sense response to this would be, no, I’ll just invest in preferred stock, or traded-REITs if I want income with growth potential. But Wall Street’s salesmen and their masters dress-up these incredibly complicated and conflicted “notes” and pump them up with grandeur and promise.

What Are “Structured Notes”?
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