Articles Posted in FINRA

Think financial crooks are much smarter than you are?  Usually not.  They can be lazy, looking for the simpler ways to make a buck like many of us.  And like home burglars they are seeking the easiest way to loot. The open basement window is a quicker way to get in and come out not empty handed than the dead-bolted front door.

For a Wells Fargo representative, wide-open basement windows were Navajo Indians who were both elderly and didn’t speak English. CNN reported the Navajos sued Wells in 2017, claiming workers from the financial giant stalked basketball games and other community events from 2009 to 2016 to prey on its members by selling them unnecessary accounts.  To settle the claims of fraud, Wells paid the Nation $6.5 million.

In announcing the settlement in a press release, the Nation said Wells had conducted a long campaign of predatory and unlawful practices.  The Nation originally filed a suit against Wells in December 2017.  After a judge in that case dismissed it on the grounds Wells Fargo had settled with U.S. federal authorities in 2016, the Nation filed a separate lawsuit in Navajo Nation District Court during November 2018 reasserting its tribal and common law claims.

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.

Would you complain about your broker to the Financial Investor Regulatory Authority (FINRA) if you thought your odds of success were good?  They are, at least so far in 2019.  In the first half of 2019, investors won 44 percent of the arbitration cases they filed against brokers and brokerage firms from January through June of this year, according to FINRA statistics.  This is an improvements from the 38 percent investor win rate five years ago.

Another piece of good news for investors is mediation cases are being decided faster.  Mediation is a common way to resolve investor cases filed with FINRA without having to go through an arbitration hearing.   The turnaround time it takes to resolve cases through mediation has shrunk from 126 days to 93 days, a 26 percent improvement.

The number of private equity claims filed by investors cases are increasing as more of these types of investment products are appearing in the portfolios of retail investors with 63 claims filed in the first half of 2019 compared to 54 filed in all of 2018.  Investors are also bringing more actions involving Real Estate Investment Trusts (REITS) while claims involving Exchange Traded Funds (ETFs) declined by close to half from January to June 2019 (60) compared to January to June 2018 (104).  Claims involving muni bonds, a mainstay of retirees aiming to safeguard their principal, have also dropped from 331 from 462.

Hungry, creepy creatures are crawling abundantly on the web eager to swallow your money and your stocks and bonds and ETFs from your brokerage account.  But while many of the crooks employ the latest technology to do their dirty work, you can use a centuries old salve to thwart (some) of them: An ounce of prevention is worth a pound of cure.

A good way to start is with the off button on a computer or your broker’s web site.  You could still leave the door open to cyber thieves if you simply close or minimize your browser or type in a new Web address when you’re done using your online brokerage account, warns the broker self-regulatory body, the Financial Industry Regulatory Authority (FINRA).  So be sure to hit the “log off” button on your broker’s web site when you are finished or turn off the computer or mobile device completely.

Generally turning off your computer when it is not in use or at least disconnecting it from the Internet can also keep intruders from your account.  Regularly check your brokerage account for unauthorized transactions—especially withdrawals or wire transfers to an account that is not yours —and ask the firm to investigate if you find any, the brokerage regulator suggested.

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 is pursuing investment losses for investors in IGF Investment Grade Funds I, LP (“IGF Fund”). IGF Fund is a real estate private placement that invests in single-tenant, net leased commercial properties, with 75% of the portfolio being “investment grade rated tenants with the remainder being of quality private credit tenants or those trending to investment grade.” IGF Fund advertises that it pays 6% annual returns to investors, paid monthly, with two-thirds of the income being tax-deferred. On its website, IGF Fund solicits property owners and brokers for “single tenant triple net or double net leased assets…retail, office, restaurants, and C-stores, and leases backed by investment grade tenant credit of AAA or BBB-“. While IGF solicits properties from $1 million to $16 million, it raised less than $12 million as of August 2018. IGF Partners Realty LLC is the general partner of the IGF Fund and is headquartered in Santa Barbara, California. The IGF Fund is a Delaware limited partnership and a Regulation D private placement.

Generally, Regulation D private placements should only be sold to accredited investors, with some exceptions. Some of the criteria considered is the investor’s annual income, net worth, and sophistication and investment experience. In order to qualify as an “accredited investor”, an investor must have a $200,000 annual income, or $300,000 joint income for the past two years, or a net worth of $1 million (excluding their home). When considering the suitability of a real estate investment for a client, a broker must take into consideration the client’s current asset allocation. For most client’s, their home is already one of the largest pieces of their net worth, so investing in more real estate (and particularly illiquid real estate investments, like IGF Fund) simply does not make sense.

IGF Fund is desperate to raise cash. The initial offering of $60 million was made on March 29, 2016. As of August 21, 2018, the fund raised only $11,720,000. This means that over 80% was left to be sold two years after the initial offering. Because of this, IGF Fund notified investors in early 2019 that it was extending its offering period from December 31, 2018 to April 30, 2019. IGF Fund and brokers selling this investment have been wining and dining current and potential investors to convince them to invest more cash. The lack of capital raised limits IGF Fund’s ability to purchase properties, thus minimizing any potential return for investors. Moreover, extending the offering period also extends the time period before the Fund can be liquidated. The IGF Fund is still paying distributions to investors, however without sufficient funding to purchase assets it will run dry, leaving investors with nothing.

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.

It is time for GPB Fund investors to seriously consider their legal options. Over the last year, the GPB Capital Funds have been beset by serious issues raising red flags for investors:

  • On April 30, 2018, GPB missed a mandatory filing date with the SEC
  • In August 2018, GPB announced that is was “overhauling” and restating its 2015 and 2016 financials

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