Articles Posted in Failure to Supervise

LPL terminated financial advisor Dain F. Stokes on August 28, 2019 for selling unregistered promissory notes to clients that purported to invest in a project in Africa allegedly sponsored by Taylor Swift. According to InvestmentNews, Stokes converted at least $576,000 from two clients, whom he solicited to invest in this phony charity project, which he sold as being created by Swift to help needy people in Africa. Stokes claimed to have a close relationship with Swift, telling clients that she personally hired him to manage the finances of the Africa project and to promote a new song release by her in June 2019. He also told clients that Bill Gates was involved in the project.

The State of New Hampshire Department of State Bureau of Securities Regulation filed a petition and order against Stokes after an investor (“Investor #1”) invested $201,000 in the Africa Project between August 1, 2018 and January 25, 2019. Stokes used promissory notes to facilitate these investments. According to the promissory notes, Investor #1 would receive the return of his entire principal plus 20% interest by making this investment. Payment on the first promissory note was initially due by November 8, 2018, however the due date was continually pushed back by Stokes. At one point, he even told his client that President Donald Trump allegedly froze his assets. Stokes was ordered to pay $201,000 plus interest in restitution to Investor #1 and a $20,000 fine for violating New Hampshire Blue Sky Laws, which prohibit the fraudulent sale of securities (RSA 421-B:5-501) and the sale of unregistered securities (RSA 421-B:3-301(a)). To date, a second investor who invested $375,000 has come forward.  The New Hampshire Department of State Bureau of Securities Regulation has since frozen Stokes’ assets and issued an injunction prohibiting him from speaking with those who invested in this scam.

New Hampshire authorities interviewed Stokes, who refused to provide any details about the African charity, claiming that all information, including the name, was privileged. He also refused to reveal whether the checks, which were made payable to him personally, were invested in his personal accounts.

Stoltmann Law Offices, P.C. continues to investigate investor claims and reports involving former Invest and LPL Financial  registered representative James T. Booth, of Norwalk, Connecticut, who was indicted on charges of securities fraud, wire fraud, and investment advisory fraud on September 30, 2019.  According to the unsealed indictment, Booth is alleged to have executed a Ponzi scheme which effectively converted almost $5 million from forty clients. The unsealed indictment was filed in the United States District Court for the Southern District of New York, Case No. 19-CRIM-699, and can be viewed here. Although Booth operated his own company called Booth Financial Associates, he was at all time relevant to this scheme a licensed and registered representative with FINRA member brokerage firms Invest Financial Corporation and LPL Financial.

As we previously discussed on this blog, James Booth was  terminated from LPL Financial on June 26, 2019 for allegedly converting $1 million from his clients. On July 1, 2019, Booth consented to a lifetime ban from the securities industry after FINRA investigated information provided to it by LPL established that Booth converted – or stole – $1 million from clients by depositing the funds into personal accounts for his own use. According to the FINRA Acceptance Waiver and Consent (AWC), Booth committed these alleged acts from approximately April 2014 to May 2019. Looking back, it appears that both LPL and FINRA underestimated the scope of this scam because the SDNY now alleges that Booth stole $4.9 million.

According to FINRA, numerous clients have filed complaints against Invest and LPL Financial to recover funds stolen by Booth. Some of these complaints have already been settled with full recoveries. FINRA Rules and securities industry regulations require brokerage firms like Invest Financial and LPL Financial to supervise their financial advisors. The foundation for this obligation to supervise to found in the Securities Exchange Act of 1934 which states:

FINRA permanently barred former Securities America financial advisor, Bobby Wayne Coburn (“Coburn”) on August 27, 2019 after he failed to appear at the disciplinary hearing. This came after Securities America terminated Mr. Coburn on March 20, 2019 for soliciting multiple clients to invest in an unapproved private securities transaction. He also tried to settle a complaint made by a customer without notifying the firm. According Mr. Coburn’s FINRA BrokerCheck report, the securities were in the form of promissory notes and real estate securities.

On notice of Coburn’s violations, FINRA promptly initiated an investigation into Coburn in July 2019. According to the Acceptance, Waiver, and Consent (“AWC”) FINRA entered against Coburn, Securities America learned in January 2019 that Coburn sold unregistered securities to clients in 2010 and 2011. Securities America also discovered the Coburn settled a customer complaint relating to this scheme in 2016 without providing the required notice to his firm and FINRA.  When FINRA requested documents and information from Coburn, he informed FINRA that he was no longer working in the securities industry and refused to produce the documents and information, in violation of FINRA Rule 8210. FINRA also found that Coburn violated Rule 2010, which is a “catch all” rule requiring that brokers and firms conduct business with “high standards of commercial honor” and maintain “just and equitable principles of trade”. FINRA permanently barred Coburn from the securities industries for violating these rules.

Coburn’s career in the financial services industry began in 1986 at Ameritas Investment Corp. During his thirty-three year career, he bounced from firm to firm, and landed at Securities America in January 2009. He worked from the Fort Meade, Florida branch office. Two customers have filed complaints against Coburn, including one complaint related to the real estate investment scheme. According to his BrokerCheck report, Coburn sold the client an investment in a Costa Rica real estate development, which did not make the required payments pursuant to the promissory note. The complaint for $32,000 was settled for $7,000. The entire settlement was paid by Coburn. Another client of Coburn and Securities America formally complained about an unsuitable variable annuity that Coburn sold, and the $5,000 complaint was settled for nearly $55,000, with Coburn contributing $5,000.

On August 5, 2019, FINRA fined Morgan Stanley registered representative Ken Kavanagh $25,000 and suspended him from practicing in the securities industry for eighteen after discovering that he concealed his outside business activity. According to FINRA’s order, beginning in 2003, Kavanagh provided personal management services to professional athletes. In October 2007, he registered his business as CEO-Sports in New Jersey, then formed another LLC in Pennsylvania, MGMT LLC. His services included coordinating travel and dinner arrangements, housing, bill payment, opening and managing bank accounts, and referrals to other professionals for tax return preparations and wills. Kavanagh had approximately 42 clients and generated at least $5 million in fees from 2012 through 2018 for providing these services.

FINRA Rule 3270 (formerly NASD Rule 3030) prohibits FINRA financial advisors from engaging in outside businesses unless they are properly disclosed to and approved by the advisor’s  brokerage firm. Mr. Kavanagh did not disclose his interest in MGMT or CEO-Sports to Morgan Stanley. He also attested in annual questionnaires required by Morgan Stanley that he was not involved with any outside business activities. He named a close relative as the sole owner or member of MGMT and CEO-Sports and also as the authorized representative on the each company’s bank accounts.  As a result of these FINRA Rule violations, FINRA fined Kavanagh $25,000 and suspended him for eighteen months.

As Stoltmann Law Offices previously alerted investors, Kavanagh has not been registered in the securities industry since resigning from Morgan Stanley in April 2018 after a client complained of his undisclosed outside business activities. On August 15, 2018, a customer also complained that Kavanagh placed unauthorized trades and forged documents.

If you lost money in investments with John Hoidas, a registered representative of Uhlmann Price Securities LLC, contact our office. We are representing investors who lost hundreds of thousands of dollars in private placements and annuities that were sold to them by Mr. Hoidas, including GPB, LiquidSpace and IGF Investment Grade Fund. These investments were sold to unsophisticated clients who could not afford the risk that these investments presented.

In July 2019, three customers filed complaints against Uhlmann Price and Hoidas. He also has a laundry list of financial disclosures on his CRD Report, including over $67,000 in IRS and state tax liens. Hoidas disclosed several outside business activities, including:

  • Consultant with Gerson Lehrman Group;

If you lost money with Puerto Rico financial advisor Pedro Gonzalez-Seijo, Stoltmann Law Offices may be able to help you recover these losses. Gonzalez-Seijo, a registered representative of Transamerica Financial Advisors, Inc. from September 1991 through May 2016, solicited clients to purchase variable annuities, but instead deposited their money into his personal bank account. The Securities and Exchange Commission barred Gonzalez-Seijo from the securities industry on July 5, 2019. Through its investigation, the SEC found that he stole $480,813.15 from five clients between 2013 and 2016. He pled guilty to one count of bank fraud in the criminal action that was pending against him in the United States District Court for the District of Puerto Rico on January 31, 2019.

Rather than terminate Gonzalez-Seijo, Transamerica gave him a slap on the wrist when they discovered “unauthorized check withdrawals” in client accounts and permitted him to resign. He did not register with any other broker dealer after resigning from Transamerica in May 2016 and, given the bar imposed by the SEC last week, he will no longer be allowed to work in the securities industry in any capacity. According to his FINRA BrokerCheck Report, Gonzalez-Seijo also sold life insurance and annuities through PGS Insurance, Inc. There are two client complaints disclosed on his BrokerCheck report for this scheme, one has been closed and one is pending.

Stoltmann Law Offices is highly experienced in representing investors who lost money in similar theft and selling away, or “Ponzi” schemes. You can find information on just a few of those cases in which Stoltmann Law Offices successfully recovered their clients’ stolen assets, and in some cases attorney’s fees, costs, interest and punitive damages on our website. “Selling away” is when a broker sells an investment to clients that is either unregistered, or not approved by the brokerage firm. Common forms of these alleged investments are promissory notes, bonds, and limited partnerships. Often times the advisor uses a shell company to misappropriate client funds. In some cases the advisor will even represent that he is investing the money in publicly traded stocks and mutual funds and will go as far as creating phony account statements to hide the theft. If the broker is not properly supervised by his firm, he can engage in this scheme for a long enough time period to abscond with the money, leaving their clients with nothing by the time they discover that the investment was fake.

Stoltmann Law Offices, P.C. is investigating claims regarding now former LPL Financial Advisor Kerry Hoffman, of Mundelein, Illinois. According to a complaint filed by the Securities and Exchange Commission on July 1, 2019, Hoffman along with a co-conspirator and convicted securities recidivist Thomas Conwell, sold investors securities in a company called GT Media, Inc. The SEC further alleges that the pair raised over $3.3 million from 46 investors, across twelve states. According to Hoffman’s FINRA BrokerCheck Report, he is currently registered as a financial advisor for Union Capital Company in Chicago, Illinois. On September 7, 2018, Hoffman was allowed to “resign” voluntarily from LPL Financial after more than 8 years with the firm. According to public filings, Hoffman’s “voluntary resignation” from LPL was in connection with raising money from clients for a private company. This wasn’t the first time Hoffman departed a place of employment under questionable circumstances. In 2007 he was discharged for cause from UBS Financial for unauthorized trading.

The allegations against Hoffman state that he sold approximately $850,000 in GT Media stock and promissory notes to five of his LPL clients. The SEC also alleges that Hoffman loaned funds to GT Media and was paid back using investor funds. The allegations made by SEC state that Hoffman failed to disclose conflicts of interest to clients to whom he sold GT Media securities and further failed to disclose he would be paid back on loans he provided to the company through investor funds.

What is really disconcerting about this scam is that Hoffman knowingly exposed his clients to Conwell and his company even though Conwell was sentenced to forty-eight months of prison time for wire fraud (see U.S. v Conwell, Case No. 03- Cr-334-1 (N.D. Ill.) and had been barred by the securities industry almost twenty years ago. (See In the Matter of Thomas V. Conwell, Exchange Act Rel. No. 43006, 72 SEC Docket 2011 (July 3, 2000).  Hoffman knew about Conwell’s past because the two have known each other since they were children.

Stoltmann Law Offices, P.C. is evaluating investor claims in connection with recently disbarred financial advisor Philip Nalesnik from Pottsville, Pennsylvania.  According to a document signed by Mr. Nalesnik on April 15, 2019, he voluntarily consented to a permanent bar from FINRA. This is a professional death sentence for anyone who wants to provide financial services or financial advice to clients. The Acceptance, Waiver, and Consent (AWC) states that Mr. Nalesnik refused to provide on-the-record testimony to FINRA in connection with its investigation into his outside business activities.  Prior to signing the AWC, according to his FINRA BrokerCheck Report, Mr. Nalesnik was terminated for cause by LPL Financial on July 8, 2018 as a result of LPL’s internal investigation into his outside businesses, including not cooperating with LPL’s investigation.

Mr. Nalesnik’s FINRA BrokerCheck Report reveals a few other troubling red flags.  He has been named in five customer complaints, with one of them resulting in an adverse arbitration award in November 2010.  He filed for Chapter 7 bankruptcy protection in January 2012 and more recently, was hit with two tax liens.  Financial troubles like these can be red flags or indications that a financial advisor could slip into various forms of misconduct, including selling away, where an advisor has investor-clients invest money in an outside entity without the formal authorization of his firm.

Mr. Nalesnik did prominently disclose several outside businesses on his CRD Report.  These include Ridgeview Wealth Management which was disclosed as a company through which Mr. Nelsnik sold non-variable insurance products.  He also disclosed Integrated Insurance Management, LLC which looks to be an insurance agency. Mr. Nalesnik also reports an affiliation with Private Advisor Group, LLC, which is a registered investment advisory firm headquartered in Morristown, New Jersey. Doing business with any of these entities would be required to be supervised by LPL Financial.

If you or someone you know is a victim of financial fraud perpetrated by Ed Matthes of Oconomowoc, Wisconsin, there is legal recourse that could lead to the recovery of those stolen funds.  According to published reports, Ed Matthes, who was a registered representative for Mutual of Omaha Investor Services until March 12, 2019, missappropriated and stole upwards of $1 million from his clients.  According to the cease and desist order entered by the Wisconsin Department of Financial Institutions, Matthes stole money from client annuities after convincing them to give him authority to enter transactions and withdraw funds on their behalf.  Providing this level of authority to a financial advisor is rarely a good idea, but Ed Matthes was able to elicit a substantial level of trust and confidence from his clients. He created fake account statements which masked the withdrawals he had been taking, hiding his misconduct for years.  Matthes was also barred by FINRA – the regulatory body charged with overseeing and disciplining financial advisors and their firms.

According to Matthes’s FINRA Broker/Check report, several customer complaints have been filed against Matthes’s former firm, Mutual of Omaha Investor Services. These claims were filed as arbitration actions through FINRA’s Dispute Resolution program. Mutual of Omaha is certainly a viable target for Matthes’s fraudulent scheme since at all times he was a registered representative of the firm and as such, Mutual of Omaha had a duty to supervise his activities.  Case law establishes that brokerage firms like Mutual of Omaha can be held liable for negligent supervision even when the activities of the schemer fall outside the scope of his employment with the firm.  See McGraw v. Wachovia Securities, 756 F. Supp. 2d 1053 (N.D. Iowa 2010). Here, Mutual of Omaha had an obligation to supervise the withdrawal of funds from Matthes’s clients’ annuities to ensure they were legitimate, as part of the firm’s anti-money laundering compliance apparatus mandated by the Bank Secrecy Act, and NASD Notice to Members 02-21 and NASD Notice to Members 02-47.

Similarly, the annuity companies from which these funds were converted could have liability to the victims too. Anytime investors withdraw substantial amounts of money from annuities, the annuity company should be on alert, and presumably Matthes had the funds directed to a third party, which is a serious red flag. Stoltmann Law Offices will pursue all viable options to recover our clients’ funds.

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.

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