Chicago-based Stoltmann Law Offices is investigating cases where investors have suffered losses from “robo-advisors.” In recent years, the rise of robo-advisors has been dramatic. These highly automated platforms will not only recommend securities and mutual funds, but create entire portfolios online or through a do-it-yourself (DIY) phone app.

The convenience and speed of making trades on your smartphone, however, doesn’t always reduce the chance that you’ll lose money. Many of the algorithms used to push securities don’t pay close attention to personal risk tolerance and are often loaded with hidden fees. And many robo accounts may automatically funnel customers funds into cash accounts, which are a money-losing proposition when you account for inflation.

The mega-brokerage Charles Schwab, which operates one of the largest robo platforms (Intelligence Portfolios), recently disclosed that it will take a $200 million charge in the second quarter regarding the U.S. Securities and Exchange Commission’s (SEC) probe into its robo practices.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered investment losses from “rogue” brokers. Without question, securities firms are legally obligated to protect your money from brokers who run afoul of the law. Yet these “rogue” brokers often get away with theft right under the noses of their employers.

The case of Hector May, a former broker with Securities America, is a case in point. May, who was employed by Securities America from 1994 to 2018, pled guilty to stealing some $8 million from his clients in 2018, according to Investment News. May was sentenced to 13 years in prison and ordered to pay $8.4 million in restitution in 2019. Was May’s firm responsible for protecting his clients? In charging Securities America for “allegedly failing to safeguard clients” from May, the U.S. Securities and Exchange Commission (SEC) fined Securities America $1.75 million. Securities America Advisors neither admitted to nor denied the SEC’s findings.

The SEC reported that Securities America had knowledge that May wasn’t doing right by his clients. “The SEC alleged that one Securities America surveillance system generated multiple alerts for potentially suspicious withdrawals from client accounts, but its analysts failed to carry out the prescribed processes for investigating those alerts,” Investment News reported. “The commission also alleged that the firm permitted disbursements without the required signatures, and another group failed to contact clients to verify that they had initiated disbursement requests.”

Chicago-based Stoltmann Law Offices is currently representing investors who’ve suffered losses from financial advisor and brokers who sold them private offerings in GPN Automotive Fund, GPB Holdings Fund II, and GPB Waste Management Fund.

Earlier this year, executives with GPB Capital were indicted for fraud and allegedly running a $1.8 billion Ponzi scam involving more than 17,000 investors. Also involved in the swindle were 60 broker-dealers who sold the GPB “private placements” to investors, reaping 8% commissions on each sale, based on shoddy due diligence.

Financial advisors and brokers who sold GPB limited partnerships could be on the hook as investors attempt to recover their losses. Jeffery Raymond Dixson, a former broker registered with Madison Avenue Securities in Vancouver, Washington, for example, faces multiple investor disputes for selling GPB vehicles.

Chicago-based Stoltmann Law Offices, P.C. represents clients nationwide in securities and investment arbitrations and litigation. One area we are very familiar with, is to look for all liable parties when investment advisors commit securities fraud. In many instances, there are multiple potentially liable parties beyond the primary bad actors, including banks that facilitate the illegal movement of funds and brokerage/clearing firms that facilitate illegal trading schemes.  Cherry-picking is one of those trading schemes that brokerage or clearing firms are geared to supervise for and prevent. In the event you are a victim of a cherry-picking scheme orchestrated by your trusted investment advisor, you may have a viable claim against the brokerage firm or custodial firm that executed the trades on behalf of the investment advisor.

According to published reports, Barrington Asset Management and Gregory D. Paris executed an allocation scheme which resulted in profits to the firm and losses to firm advisor clients.  In a civil complaint filed June 28, 2021, the Securities and Exchange Commission alleged that Barrington Asset Management and Gregory D. Paris, who was the firm’s chief compliance officer, executed this “cherry-picking scheme” in violation of several federal securities laws including Sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act (“Exchange Act”) and Rules 10b-5(a), 10b-5(b) and 10b-5(c) thereunder; and Sections 206(1) and 206(2) of the Investment Advisers Act (“Advisers Act”). According to the SEC complaint, Barrington Asset Management executed this scheme through a pooled trading fund called the Barrington Opportunity Fund.

As investment advisors, Barrington Asset Management cannot execute securities transactions. They must use a FINRA registered broker/dealer to do so. In this circumstance, this brokerage firm plays the role of “custodial” firm, where the firm physically holds cash on behalf of the RIA’s clients and also executes or brokers securities trades. These are generally back-office functions and these companies, like Schwab, Fidelity, TD Ameritrade, and Interactive Brokers, typically disclaim away any responsibility to supervise for the suitability of the transactions at issue. What they cannot disclaim away, however, are their obligations under the Bank Secrecy Act and Patriot Act to supervise for illegal activities. One of the most common schemes executed by RIAs like Barrington Asset Management is the “cherry-picking” scheme, and these firms typically do have compliance and supervisory systems in place to check for and prevent such illegal activity. When they fail to detect this sort of scam, they could be secondarily liable for aiding and abetting breach of fiduciary duty, or for negligent supervision.  Here, the facts also reflect that Barrington Asset Management trading in leveraged ETFs, which are extremely high risk and volatile investments.  According to the SEC complaint, the manner in which trades were allocated statistically represented a 1 in a billion outcome for the Advisor – Paris. The SEC identifies these firms as “clearing broker A”and “clearing broker B”.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers who churn customer accounts. One of the most perennial abuses in the brokerage industry is when broker-adviser “churn” accounts to generate extra commissions or fees. When that happens, it’s difficult for clients to make money because their accounts are consumed by transaction fees.

Marc Augustus Reda, a registered representative for Spartan Capital Securities in New York City, was recently charged by FINRA, the securities industry regulator, with overcharging clients some $2 million. “From 2017 through 2019,” reports fa-mag.com, “Reda, among other things, recommended unsuitable investments to his clients and traded excessively in those accounts, the FINRA complaint said. His activities resulted in 66 clients paying a total of $952,764 in commissions and fees, while incurring total net losses of $934,482,” FINRA said.

Reda generated the excessive fees through an “active trading” strategy in which he made trades without his clients’ specific permission. FINRA noted that “Reda failed to consider that the substantial commissions and costs associated with his investment strategy made it unlikely his customers could make any profits.”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with financial advisors and insurance agents who sell unsuitable insurance products. All too often, securities brokers who lose their licenses to sell stocks, bonds, and mutual funds find an escape hatch to remain in the financial services industry: They move on to sell insurance products. These “rogue” brokers, however, haven’t necessarily changed their ways. They may continue their abusive sales practices by selling insurance products instead.

A recent academic paper profiling “wandering” financial advisers who jump from securities to insurance found that “a little over one-third of advisors who exit the brokerage industry remain in at least one other regime, that advisors are significantly more likely to change regimes after committing serious misconduct, and that wandering advisors with a history of misconduct are significantly more likely to engage in future misconduct.”

In this study, “regime” means transitioning from selling securities to insurance products, noting “wandering advisors with a history of serious misconduct disproportionately end up in the highly-fragmented state insurance regimes.”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers and advisers in FINRA, AAA, and JAMS arbitrations for over fifteen years. One of the biggest problems with resolving investor or consumer complaints is that people are forced to go through a mandatory arbitration process. While this system avoids having to go to court – and can be less expensive – it’s often patently unfair because of lack of diversity among arbitrators.

Another overwhelming issue is that mandatory arbitration, which is in nearly every brokerage and consumer dispute resolution agreement, takes away your right to sue a firm that’s wronged you. That often limits your ability to be made whole and collect damages. And who sits on arbitration panels may restrict your legal options even more.

A recent study by the American Association for Justice found three major, disturbing flaws in the private arbitration system:

Stoltmann Law Offices, P.C, a Chicago-based investor-rights law firm, has recovered millions of dollars for investors who were sold shares in non-traded Real Estate Investment Trusts (REITs). We have filed over one hundred claims in FINRA arbitration against the brokerage and investment firms responsible for soliciting investors to invest in these illiquid, speculative, and high-commissioned investments. Usually, a common scam is used to justify the sale of these awful investment products to their clients – they are “non-correlated” to the stock market. The ruse is, they are non-correlated because they are non-traded!  They do not trade daily and reset their net-asset-value/share price. So, non-traded REIT investors have no idea how much what they own is worth because the investment has only a very thin secondary auction market. If your financial advisor wants to sell you a non-traded REIT, ask these two questions. 1) My home is one of my largest assets, why do I need more real estate in my portfolio? and 2) Why can’t I invest in publicly-traded REITs?

Hospitality Investors Trust, formally of the scandal-ridden American Realty Capital, has cost investors likely hundreds of millions of dollars. Now that the entity is formally in bankruptcy, it means investors can expect little to no return of the money they invested in this poorly-run REIT.  If you were solicited by a financial advisor to invest in Hospitality Trust, you may have a viable claim to recover these losses through the FINRA Arbitration process. When brokers sell alternative investments like non-traded REITs, most of their firms require them to limit the total exposure of the client’s net worth in these products to a maximum of 30%, and sometimes less.  This is a red-flag right off the bat that these investments are speculative and potentially unsuitable.  Brokers have for decades weaseled around these limitations imposed by their compliance department by inflating net-worth numbers on client new account forms or alternative investment trade tickets. The higher the net worth listed on these forms, the more the brokers can sell to their clients.

Brokers sell non-traded REITs like Hospitality Trust because they offer very high commissions, usually between 8%-12%. It is extremely rare for an investor to buy a non-trader REIT unsolicited; non-traded REITs are sold, not bought, goes the saying.  Our firm has written extensively on the foibles of Non-Traded REITs even as this sector gains popularity once again with brokers.  Regulators like FINRA have warned about non-traded REITs for more than a decade.  Hospitality Trust investors are now likely facing a near total-loss of their investment given the bankruptcy filing and need consider their options for securing some recovery.

Stoltmann Law Offices, P.C. is a Chicago-based investment fraud and investor rights law firm that offers representation to victims of investment fraud nationwide. We have tried and won many cases against LPL Financial over the years and represented hundreds of investors who were victims of various types of investment fraud as a result of the misconduct of LPL financial advisors.

According to multiple reports, including a complaint filed by the Securities and Exchange Commission, for upwards of ten years, James K. Couture, while a registered representative for LPL Financial based in Boston, Massachusetts, stole upwards of $2.9 million from clients.  Couture pulled this off by convincing his clients to sell legitimate securities in their accounts and transfer the funds to an “investment” in a company owned and controlled by Couture called Legacy Financial.  Once Couture gained control of his clients’ money, he converted it and spent it for his own use. This is a classic scheme in the brokerage and advisory world known as “selling away”.  According to the SEC and the indictment filed by the U.S. Attorney for the District of Massachusetts, Couture kept the scam going by fabricating account statements for his clients that showed money being “reinvested” and also provided account reviews which disguised the fact that he was committed rote fraud.  When clients would request withdrawals, Couture would take money from Client A and pay it to Client B, which is the classic sign of a Ponzi scheme.

According to his FINRA BrokerCheck Report, Couture was registered as a licensed securities broker and advisor through LPL Financial from February 2009 through July 2020 out of offices in Worcester and Springfield, Massachusetts.  At that point, LPL fired him for cause based on the same misconduct that led to his indictment and the SEC complaint. A few months later, in October 2020, Couture accepted a permanent bar from the securities industry from FINRA when he knowingly failed to respond to a request for information from the regulator in connection with an investigation into his misconduct.

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