Articles Posted in Failure to Supervise

Stoltmann Law Offices and its securities arbitration practice group are investigating Jay Weiser of small-town Mendota, Illinois in LaSalle County in connection with serious allegations involving the sale of notes offered by Woodbridge and notes offered by Future Income Payments (FIP). Both of these entities have been exposed as Ponzi schemes. According to Mr. Weiser’s FINRA BrokerCheck Report, he was discharged with cause from DesPain Financial in connection with allegations he sold Woodbridge and FIP notes to investors. Mr. Weiser was then barred from the securities industry by FINRA on January 17, 2019 when he refused to provide information to FINRA pursuant to FINRA Rule 8210.  As we have discussed in previous blogs, there are various reasons why brokers refuse to provide “on the record testimony” (OTR) or provide documents in connection with a FINRA regulatory investigation pursuant to FINRA Rule 8210. Sometimes it is because a broker simply is no longer interested in being licensed and is making a career change and does not want to go through the hassle or the expense of complying with FINRA’s requests. Other times it is because submitting information or testimony to FINRA may do the broker more harm than good.  Here, given the allegations made by two clients against Weiser that he sold them notes in Woodbridge and FIP, it is reasonable to conclude Mr. Weiser voluntarily submitted to a lifetime ban from the securities industry because his misconduct is serious.

According to a Notice of Hearing filed the the Illinois Securities Department on November 5, 2018, Mr. Weiser, while affiliated with Weiser Financial and DesPain Financial, sold at least $611,000 in investments in FIP to at least six Illinois residents. According to the publicly available Notice, Mr. Weiser also sold at least $795,000 in Woodbridge notes to at least seventeen Illinois investors. According to the Illinois Securities Department, by selling interests in FIP and Woodbridge, Mr. Weiser violated numerous provisions of the Illinois Securities Law, including Section 12.A, Section 12.F, Section 12.G, Section 12.H, and Section 12.I.

The Notice of Hearing, along with the FINRA action, both find that Weiser failed to disclose these activities to his broker/dealer firm, DesPain Financial. It is critical not to confuse Weiser’s failure to disclose certain activities as if it in any way disclaims potential liability of DesPain or any other entity responsible for supervising Weiser, his firm, and his dealing with investors, because it does not. This failure to disclose does not alleviate the  regulatory, statutory, and common law responsibility to supervise the conduct of Mr. Weiser and specifically, if there are “red flags” present that Weiser was conducting investor business with FIP or Woodbridge, the burden would be on DesPain Financial to establish reasonable measures taken in reaction to these “red flags” of potential misconduct.

The Chicago-based securities and investment fraud attorneys at Stoltmann Law Offices are investigating claims by victims of former Securities America financial advisor Hector May. According to the criminal information filed against Mr. May in the United States District Court for the Southern District of New York, Mr. May was indicted on charges of conspiracy to commit wire fraud and investment advisory fraud in Case No. 18-cr-00880. On January 14, 2019, May’s guilty plea was formally accepted by Judge Vincent L. Briccetti. His sentencing date has yet to be provided by the court. By pleading guilty, May consented to a monetary judgment of $11,452,185 and agreed to forfeit certain property including multiple fur coats, Cartier bracelets, and Rolex watches.

According to published reports, on February 14, 2019, the SEC formally barred May from the securities industry. This bar seems obvious given he pleaded guilty to criminal charges, but the SEC cannot proceed with any portion of a civil case until the criminal matter wraps up. The SEC complaint against May provides some details about his scam which included selling bonds to his fiduciary advisory clients that did not exist. The SEC states May’s scam bilked at least $7.9 million from at least 15 advisory clients. The SEC also states that May executed this scheme with his daughter, Vania May Bell. This father-daughter duo devastated several families.

At all times relevant, May was a licensed, registered representative of Securities America which is a registered broker/dealer and subsidiary of Ameriprise Financial. May also provided his investment advisory services under the umbrella of a Registered Investment Advisor called Executive Compensation Planners, Inc.  According to FINRA Rules, Securities America had an obligation to supervise Mr. May and his conduct even if it was executed through Executive Compensation Planners. According to FINRA Rule 3280 and  at least three NASD Notices – NTMs 91-32, 94-44, and 96-33 – Securities America was responsible for supervising May’s conduct. In a case decided by the Federal District Court for the Northern District of Iowa, the court ruled that this duty and obligation to supervise can apply to even those people that are not formally clients or account owners of the firm, like Securities America here. See McGraw v.Wachovia Securities, 756 F. Supp. 2d 1053 (N.D. Iowa 2010 ).

Stoltmann Law Offices is investigating misconduct reported by FINRA alleging that Kristian Gaudet of Cut Off, Louisiana, utilized customer funds for personal use. According to his publicly available FINRA BrokerCheck Report, FINRA initiated an investigation into Mr. Gaudet on November 30, 2018 based on suspicions that Mr. Gaudet was involved in potentially fraudulent activities. Only a few weeks later, Mr. Gaudet was terminated by Ameritas Investment Corp., alleging Mr. Gaudet used client funds for personal use. Finally, on January 24, 2019, FINRA barred Mr. Gaudet for failing to appear for  on-the-record testimony in connection with the allegations he used client funds for personal use.  Pursuant to FINRA Rule 8210, if FINRA requests a broker sit for on the record testimony (called an OTR) and the broker either refuses or simply does not show up, it can be grounds for being permanently barred from the securities industry.  FINRA also cited Mr. Gaudet for violating FINRA Rule 2010.

Typically, brokers who refuse to show up for a Rule 8210 request do so knowing they are sacrificing their securities licenses. Some brokers may be near retirement or are not interested in maintaining their licenses, so they rather not submit themselves to an OTR, which can be stressful and require retaining legal counsel. Other brokers fail to show up for an OTR because they fear the testimony they will give may be incriminating if they are truthful. The FINRA AWC agreed to and signed by Mr. Gaudet only states he failed to show up for the OTR and provides no further explanation for barring him from the securities industry.

Routinely, financial advisors who steal money from their clients do it in such a manner which should have alerted their firm’s compliance or supervision departments. Whether there were unauthorized withdrawals or transfers from your accounts, every FINRA brokerage firm, like Ameritas, is required to adhere to Anti-Money Laundering rules and regulations in order to ensure a level of alertness in these circumstances. Failing to properly execute these procedures which result in a broker absconding with clients money results in liability for the firm for negligent supervision.

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