Chicago-based Stoltmann Law Offices is investigating financial advisors and brokers who trade excessively in client accounts.  “Churning,” or trading excessively to generate broker commissions, is one of the perennial abuses in the securities industry. Investors have been losing millions due to these practices.

FINRA, the U.S. securities industry regulator, said it has ordered New York City-based Aegis Capital Corp. to “pay approximately $2.8 million, including $1.7 million in restitution to 68 customers whose accounts were potentially excessively and unsuitably traded by the firm’s representatives.” FINRA also imposed a $1.1 million fine for Aegis’s supervisory violations, according to fa-mag.com.

“Aegis supervisors failed to detect or act on information that eight Aegis reps excessively and unsuitably traded customer accounts over a period of more than four years, generating $2.9 million in trading costs that would have required the investments to generate more than 71% returns to offset costs,” FINRA stated. FINRA found that “from July 2014 to December 2018, Aegis failed to implement a supervisory system reasonably designed to comply with FINRA’s suitability rule. As a result, Aegis failed to identify and address its representatives’ potentially excessive and unsuitable trading in customer accounts, including trading by eight Aegis representatives who excessively traded 31 customers’ accounts,” the regulator said.

Chicago-based Stoltmann Law Offices is investigating financial advisors who switch clients into more expensive investments that trigger unnecessary fees. Financial advisors and brokers who work on commission often make “exchanges” that switch clients from one investment into a very similar different investment. They often use the rationale that “you’ll make more money” in these new investments, but the truth is that they’ll make more in commissions and fees.

NY Life Securities has agreed to “pay a total of $263,347 to settle allegations that, as a result of supervisory failures, it failed to prevent several of its clients from being charged excessive, unnecessary fees after one of its brokers engaged in unsuitable mutual fund and cross-product switches,” according to FINRA, the federal securities regulator, as reported by ThinkAdvisor.com.

“On hundreds of occasions” between January 2015 and March 2019, a broker at the firm, identified only as “Broker A,” recommended that 10 clients buy and sell Class A mutual funds after holding the shares for short periods of time, according to FINRA

Stoltmann Law Offices, P.C., a Chicago-based securities and investment fraud law firm with offices throughout the Chicago-land area, is investigating claims made by the United States against Ronald T. Molo.  It is important to realize the allegations made by the US Attorney are unproven and Mr. Molo is entitled to a presumption of innocence until provide guilty.  Molo has been indicted on six counts of wire fraud, which means money was transmitted electronically for fraudulent purposes, simply put.  According to the indictment, Mr. Molo was a Financial Advisor for a “national financial services firm,” working from an office in Joliet.

According to his FINRA BrokerCheck Report, Mr. Molo was a licensed financial advisor with Edward Jones & Company from May 2001 to June 2021 when he was terminated for cause. According to Edward Jones, Mr. Molo was terminated because customer funds were transferred to outside accounts in his control after soliciting some purported investment opportunity.  The BrokeCheck Report also shows that Edward Jones has already paid out $875,000 to victims of this alleged fraud to settle claims.  The allegations in the indictment support the contentions made by Edward Jones when it terminated Mr. Molo.  According to the Indictment, Molo, who the grand jury found had fiduciary duties to his clients, falsely advised multiple clients that he had a good investment opportunity for them. The investment allegedly was some sort of tax-exempt, interest-bearing bonds.  He advised these clients that the investment opportunity would pay regular, periodic interest at 5%, that the interest would be tax-exempt, like a municipal bond, and was being offered through reputably investment houses like Lord Abbett, Spire Investment Partners, and Ivory Stone Investment Partners.  None of this was true, alleges the Indictment, and Molo knew his representations were untrue and made with intent to defraud. Molo had his clients, it has been alleged, execute authorizations to transfer funds from their Edward Jones accounts to an outside account, which unbeknownst to the victims, was an account Molo controlled personally.

This case is another example of a Ponzi scheme that lacks one of the most well-known hallmarks of one – the “it sounds too good to be true” concept.  Molo’s alleged scam offered 5% interest per year, not 50% or some other unrealistic on  its face return.  Many Ponzi schemes involve alleged investments that offer outlandish or unrealistic returns.  Bernie Madoff changed this perception and is one of the many reasons why his scheme lasted so long and did so much damage.  Bernie Madoff never provided outlandish returns to his clients, only stable, consistent returns for years.  Brokerage firms like Edward Jones have legal duties and responsibilities to supervise the conduct of their licensed representatives. The securities industry is heavily regulated at both the state and federal level, and many of these regulations have to do with supervision and compliance. Money being sent out of a client account to an unaffiliated 3rd party account is a huge red flag and implicates anti-money laundering rules and regulations, which are very serious issues for brokerage firms like Edward Jones.

Stoltmann Law Offices, P.C. is evaluating cases for Robinhood clients whose personal identifying information or other confidential information that was exposed to a hacker according to a November 8 notice sent out by the company. The notice sent to clients stated that, on November 3, 2021:

“The unauthorized party socially engineered a customer support employee by phone and obtained access to certain customer support systems. At this time, we understand that the unauthorized party obtained a list of email addresses for approximately five million people, and full names for a different group of approximately two million people. We also believe that for a more limited number of people – approximately 310 in total – additional personal information, including name, date of birth, and zip code, was exposed, with a subset of approximately 10 customers having more extensive account details revealed. We are in the process of making appropriate disclosures to affected people.”

Robinhood clients impacted by this data breach could have viable claims for recovery if the victim can establish actual damages. If your credit has been compromised, if you have paid for credit monitoring, if you are the victim of a subsequent data breach that cost you money, you could have a viable claim for recovery. Stoltmann Law Offices is exploring all options to help victims of this data breach.

Chicago-based Stoltmann Law Offices is investigating Special Purpose Acquisition Companies (SPACs). All the rage on Wall Street, “SPACs” are companies created to acquire or fund other firms by sidestepping much of the due diligence paperwork of traditional initial public offerings. These “blank check” entities can present problems for investors, however.

Both FINRA, the U.S. securities industry regulator, and the Securities and Exchange Commission (SEC) are probing SPACs. Earlier this year, the SEC began to focus on SPACs.  The agency “wanted information on SPAC deal fees, volumes, and what controls banks have in place to police the deals internally,” according to Reuters.

SPACs have surged globally to a more than $170 billion this year, outstripping last year’s total of $157 billion, Refinitiv data showed. Although SPACs have become popular with hedge funds and companies quickly raising capital, investors often have no idea what SPAC operators will buy.

Stoltmann Law Offices, P.C. is a Chicago-based investor rights and securities law firm that has represented investors nationwide for almost 17 years. Investors who are defrauded by financial advisors have rights and can pursue arbitration against firms like Wells Fargo in an attempt to recover investment losses.  On November 2, 2021, FINRA, which is the federal regulator of broker/dealers like Wells Fargo Advisors and James Seijas, issued an “Acceptance, Waiver, and Consent” (AWC) in which James Seijas consented to a life-time ban from the securities industry. The reason for the ban was a result of Seijas consciously failing to respond to FINRA’s requests for information authorized by FINRA Rule 8210. If an advisor does not comply or cooperate with FINRA’s investigation, then the regulator will seek to bar the advisor for life. This is a stiff sentence for non-compliance but is not uncommon when brokers facing seriously allegations by customers or regulators are asked to comply with information requests or sit for an interview on the record.

The AWC was prompted by a filing made by Wells Fargo on Form U-5, which is a securities industry form filed with regulators when a broker’s registered ends with a firm like Wells Fargo.  The U-5 Wells Fargo filed identified the reason for him no longer being registered with the firm and was enough to trigger an investigation by FINRA. The AWC does not say what that Form says, and even more peculiarly, his FINRA BrokerCheck Report does not say anything about him being terminated for cause, which is a required disclosure. What his BrokeCheck Report does reveal, however, is the existence of two pending customer complaints. Both complaints have to do with the recommendation to invest in a fraudulent hedge fund or an investment which was part of a Ponzi scheme.

According to AdvisorHub, Seijas is a defendant in a pending claim which alleges he was involved in a $30 million-plus crypto-currency investment scheme. This claim is pending in Hillsborough County, Florida, against Seijas and several other defendants, including Wells Fargo. The prevalence and sudden popularity of cryptocurrency creates a perfect storm for scammers and unsuspecting victims. There is a lot of “FOMO” – fear of missing out – when it comes to crypto-currency. Investors are eager to dip their toes into the pool but many are reluctant to dive in by opening accounts with crypto-exchanges like Coinbase. Instead, investors get involved with purported “hedge” funds that allegedly invest in crypto, like those that invested with Seijas.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered investment losses as a result of negligence, breach of fiduciary duty, and other violations by UBS Financial Services and its financial advisors.

Recently, FINRA, the U.S. securities industry regulator,  ordered UBS to pay more than $800,000 to two couples who had lost money in the company’s YES strategy, according to AdvisorHub.com.Investors Robert and Marcia Shinbrot recovered their full $269,337.09 loss plus prejudgment interest of $45,009.80 while Nicholas and Brigit Trentalange recovered their full $421,868.58 loss plus prejudgment interest of $70,499.93, according to the FINRA award.

Robert Shinbrot and Nicholas Trentalange were business partners in ForwardThink Group, a company acquired for $46 million by tech consulting firm Perficient in 2014. A separate FINRA panel awarded Houston investor Daniel Ferber the full $358,000 in damages he had sought, but denied his requests for interest and fees and costs.

Chicago-based Stoltmann Law Offices is investigating exchange-traded funds (ETFs) linked to digital currencies. For a few years now, digital currencies have been on the forefront of a new age of speculation. Representing bits of computer code, the vast majority of these virtual coins aren’t backed by tangible things like gold, silver, or the full faith and credit of the U.S. government. But these cryptocurrencies have gained a lot of prominence over the last few years because of rapid increases in valuation on an exponential scale.  Investors want in, but many are reluctant to buy directly through myriad coin-exchanges. Wall Street wants their piece of the action too.  So, they’ve engineered a product, which will likely be the first of many, that will expose investors to the price of various cryptocurrencies, without requiring ownership of the underlying asset.  These investments are Exchange-traded funds based on futures contracts linked to these currencies and will be available to investors. Since there are multiple unknown variables in how these coins will trade, they present a dangerous new wave of risk for unwary investors.

The ProShares Bitcoin Strategy ETF (BITO) is the first such investment that will be offered to retail investors. Like most derivatives, the ETF will not directly hold the underlying asset, in this case the digital currency Bitcoin.  ProShares states “the Fund seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts.” A futures contract is a bet that an underlying asset will go up or down by a specific time. This is a derivatives strategy exposed to the price of Bitcoin which has historically been incredibly volatile.

According to Investment News, “the ETF employs a strategy like the Bitcoin Strategy ProFund Investor mutual fund (BTCFX) that ProShares’ affiliate company launched in July, which invests in Bitcoin futures contracts as opposed to the actual cryptocurrency, which is not yet allowed by U.S. regulators.”

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who’ve sold bonds from Puerto Rico.

In the case of Eugenio Garcia Jimenez, Jr., the US Securities and Exchange Commission (SEC) charged Garcia, who is based in Orlando, Florida, with defrauding the Municipality of Mayagüez, Puerto Rico and misappropriating $7.1 million of taxpayer funds.

According to Investment News, Garcia opened an account at LPL in 2016 “to further his scheme to defraud his client, the Municipality of Mayagüez, Puerto Rico. LPL did not verify certain identification documents before opening the account, although it was required to do so by its own procedures,” according to the SEC. Jimenez, Jr., is not directly affiliated with LPL.

Chicago-based Stoltmann Law Offices is investigating allegations against Eric Hollifield that came to light as a result of a regulatory filing by the Financial Industry Regulatory Authority (FINRA).  According to FINRA, the regulator launched an investigation into Eric Hollifield who was a registered representative of LPL Financial and Hamilton Investment Counsel.  The investigation was in connection with a customer complaint filed in arbitration against Dacula, Georgia-based Hollifield that alleges he stole or misappropriated $1,240,000 from the account of an elderly client. This complaint was filed on August 25, 2021 and came on the heels of LPL terminating Hollifield for cause for “failing to disclose an outside business activity.”  On September 1, 2021 Hamilton Investment Counsel followed LPL’s lead and terminated Hollifield for cause or failing to disclose an outside business activity.

Since Hollifield failed to respond to FINRA’s request for information, pursuant to FINRA Rule 8210, Hollifield accepted a lifetime ban from the securities industry.  Brokers agree to these lifetime bans, instead of cooperating with an investigation, for any number of reasons.  Obviously, given the allegations made by the pending customer complaint and the terminations from LPL and Hamilton, a reasonable conclusion to draw is, Hollifield chose to accept a lifetime bad from FINRA as opposed to disclosing or admitting information to FINRA that could be used against him by criminal authorities. It is important to realize, the facts in the customer complaint and the information contained in the FINRA AWC are mere allegations and nothing has been proven.

LPL has a long history of failing to supervise its financial advisors, like Hollifield. We have blogged on these issues numerous times.  Pursuant to FINRA Rule 3110, brokerage firms like LPL have an iron-clad responsibility to supervise the conduct of their brokers, like Hollifield.  Similarly, brokers have an obligation to disclose “outside business activities” to their member-firm pursuant to FINRA Rule 3270.  LPL cannot get off the hook, however, just because Hollifield failed to disclose an outside business. There are a few reasons for this and they are important.  First, brokers do it all the time and LPL knows it. Therefore, as required by both FINRA regulations and LPL’s open internal policies the procedures, LPL’s compliance and supervision apparatus is geared towards detecting undisclosed outside business activities because it is commonly through these outside businesses, that financial advisors execute their worst schemes and frauds on their clients.  Further, to the extent red flags existed that Hollifield was running an undisclosed outside business or doing something else that violated securities regulations, then LPL can be held liable for negligent supervision, at a minimum. Case law supports the imposition of liability on LPL under these circumstances.  See McGraw v. Wachovia Securities, 756 F. Supp. 2d 1053 (N.D. Iowa 2010).

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