FINRA Arbitration

Options for Victims of Lester “Chad” Burroughs of Lincoln Planning and Capital Analysts

January 17, 2020 | by Joe Wojciechowski

Stoltmann Law Offices is investigating on behalf of defrauded investors claims made by the Securities and Exchange Commission that Lester W. “Chad” Burroughs, a financial advisor for Lincoln Planning of Torrington, Connecticut, misappropriated client money for personal use. Burroughs was also a registered investment advisor through Capital Analysts. According to the SEC complaint filed on December 9, 2019 in the Federal District Court, District of Connecticut, Burroughs ran his scheme from November 2012 through at least January 2019. It was a simple scam, one that is all too common in fact. Burroughs offered victims an investment called a “Guaranteed Interest Contract”, also known as a “GIC”. The terms of these “GICs” offered by Burroughs included interest at either 4% or 7% per year for the term of the contract. Once again, and these scams are becoming so much more common, 4% to 7% per year is not an exorbitant return people typically think of when being sold a fraudulent investment. In fact, 4% per year barely pays more than the average rate of inflation.

In furtherance of his scheme to defraud his clients, Burroughs created fake account statements, and according to the SEC, the reason he sold GICs to subsequent investors was to pay off previous investors – the hallmark of a Ponzi scheme. According to his FINRA BrokerCheck Report, Burroughs is no stranger to customers complaints. When he was hired by Lincoln Planning, Burroughs had fourteen customer complaints disclosed on his CRD Report, which is a statistically enormous number. Burroughs also paid a fine to the Insurance Commission of the State of Connecticut in 2003 for violations. This history of complaints and compliance issues put Lincoln Planning on notice when they hired Burroughs in 2012 that he was a compliance risk. Standard operating procedure at a brokerage firm like Lincoln Planning under these circumstances would be to place the advisor on “heightened supervision”. These heightened supervision programs regularly require increased compliance surveillance like random, unannounced on-sight branch audits and direct communications with clients without the knowledge of the advisor. Certainly, had Lincoln Planning put the necessary resources into supervising Burroughs, he would not have so brazenly created and sold these phony GICs to clients.

This “heightened supervision” requirement for brokers like Burroughs with a history of customer complaints has been part of the regulatory lexicon required by FINRA for almost 20 years. In NTM 03-49, then NASD (now FINRA) explained to brokerage firms like Lincoln Planning that brokers with a history of customer complaints should be more closely monitored because they are a compliance risk. NASD provided some statistics in this notice which were pretty shocking when one considers the number of complaints Burroughs had on his record prior to even being hired. According to this notice, only 3.3% of all registered brokers had at least one customer complaint; 0.71% had two; 0.22% had three, and only 0.09% were subject to at least four customer complaints. The Fourteen complaints on Burroughs record put him in extremely rare company. Lincoln Planning had an obligation to adequately supervise Burroughs and the firm clearly failed to do that. As such, Lincoln Planning can be liable for the damages caused by Burroughs to his clients.

Worst Fears Confirmed For GPB Automotive Fund Investors

November 27, 2019 | by Joe Wojciechowski

The news continues to get worse for the thousands of retail investors with money locked-up in various GPB Capital Funds. Those funds include the GPB Automotive Fund, GPB Waste Management Fund, and GPB Fund II, amongst others. Stoltmann Law Offices has been investigating these funds for several months. We have filed roughly two dozen FINRA Arbitration claims on behalf of our clients to recover their losses in these funds from the brokerage firms responsible for soliciting them to invest in these ill-fated private placements.

On November 22, 2019, GPB sent a letter to their “partners” informing them of some really bad news. The recent indictment of GPB Capital’s Chief Compliance Officer by the United States Attorney for the Eastern District of New York for obstruction of justice, amongst other claims, has caused the auditing process to fall off the rails. All of those promises by GPB to investors, all of those promises repeated by financial advisors to their clients, that GPB was well on its way to finally providing restated, audited financial statements, have officially been broken. The letter states that GPB’s auditor has “decided to suspend work on outstanding financial statement audits. In addition, the Audit Committee has elected to resign effective ups the earlier of the completion of the Rosenberg Investigation or by November 27, 2019.” The “Rosenberg investigation” is the self-implemented third party investigation into how the company’s CCO obstructed justice, and what GPB knew and when it knew it. Well, according to the indictment, detailed on this blog last month, GPB hired the CCO with knowledge that he had confidential information obtained from his participation in the SEC’s investigation of GPB. They knew he had obtained information from the SEC in the course of its investigation, it would seem, and GPB made him their chief compliance officer.

The November 22, 2019 notice also eviscerates another false narrative promoted by GPB and passed along to clients by financial advisors, who are scrambling at this point to come up with excuses. Despite operating in a red-hot economy where car sales are through the roof, the GPB Automotive Fund has managed to lose over $200 million and GPB Holdings II has lost roughly $125 million. To add insult to injury to the investors stuck holding this rapidly depreciating asset, GPB is not allowing investors to unload their units on secondary markets. Unfortunately for investors, this is what a Ponzi scheme looks like when it is no longer able to attract new investor money.

GPB Capital Executive Charged with Obstruction of Justice by Feds

October 23, 2019 | by Stoltmann Law Offices

The smoke has been steadily rising from GPB Capital Holdings for about a year at this point. Over the last few months, however, it has been all quite on the GPB Capital front. The main talking points being communicated by GPB Capital to brokers and financial advisors to then deliver to their investor-clients, have been that everything at GPB Capital is fine and that the audited financial statements will be delivered in no time. Well, as the Wizard of Oz said, “Pay no attention to that man behind the curtain.” Just today, InvestmentNews published a story reporting that an executive at GPB Capital has been indicted for obstruction of justice. Nothing happening indeed.

According to a press release issued by the United States District Court for the Eastern District of New York, on Wednesday, October 23, 2019, a superseding indictment was unsealed charging Michael S. Cohn, Managing Director and Chief Compliance Officer with obstruction of justice, unauthorized computer access, and unauthorized disclosure of confidential information. According to the indictment, Mr. Cohn was an employee of the United States Securities and Exchange Commission (SEC) when he left the commission for a position with GPB Capital Holdings. In the course of that transition, Mr. Cohn is alleged to have stolen investigatory files and materials relevant to the ongoing SEC investigation into GPB Capital and then delivered those materials to his brethren at GPB Capital. FBI Assistant director-in-charge William Sweeney was quoted in the press release stating, “When Cohn left the SEC to join GPB, he left with more than his own career ambitions.” What’s worse, when Cohn was interviewing for his job with GPB, he let them know he had this information and shared it. The grand jury indictment contains allegations, which if proven beyond a reasonable doubt, could land Mr. Cohn in prison for decades.

The fact that GPB Capital hired Mr. Cohn after he told them that he had inside information about the SEC’s ongoing investigation into GPB, is as clear an indication yet that GPB Capital is running an unreliable and highly questionable business, where at a minimum, ethics are of no concern. Investors should be concerned about this latest development because it indicates a few important points. First, it’s an indication that the SEC’s investigation into GPB is still ongoing. Second, the indictment reflects the acts of an allegedly corruptible person who was entrusted at GPB with being the company’s chief compliance officer – a position for the incorruptible. It is staggering that GPB would hire Mr. Cohn after he approached the firm with clearly illegally obtained information and highly confidential documents.

UPDATE – James Booth Formerly of LPL Financial Arrested and Criminally Charged

October 3, 2019 | by Joe Wojciechowski

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:

Legal Options For Harvest Volatility Management Product Investors

September 3, 2019 | by Stoltmann Law Offices

Has the Harvest Volatility Management Collateral Yield Enhancement Strategy (“Harvest CYES”) been a deceptively bitter harvest for you? You are not alone in your complaint. Well known brokerage firms like Merrill Lynch, Morgan Stanley, J.P. Morgan, Schwab and Fidelity have sold the product from the 11-year-old little known vendor of options-focused portfolios. But as time goes by dozens of investors have complained they weren’t told by their brokers that the product is excessively risky. Many of these investors were seeking low-risk places to put their money.

Harvest CYES is an complex “Iron Condor” investment structure that was peddled by multiple asset management firms in recent years. Investopedia describes iron condor as a strategy “constructed by selling one call spread and one put spread (same expiration day) on the same underlying instrument.” Most often, the underlying asset is one of the broad-based market indexes, such as the S & P 500 Index (SPX); the NASDAQ-100 Index (NDX); or the Russell 2000 Index (RUT), the financial dictionary adds.

Investopedia goes on to show the head-scratching complexity of the Harvest Volatility Management and Collateral Yield Enhancement Strategy and its ilk by saying it involves selling an at-the-money put with a strike price closer to the current cost of the underlying asset. “Sell one at-the-money call having a strike price just above the current price of the underlying asset. Buy one out-of-the-money call with a strike price further above the current price of the underlying asset. The out-of-the-money call option will protect against a substantial upside move,” Investopedia explains.

FINRA Bars Former Securities America Advisor, Bobby Wayne Coburn, After Selling Unregistered Real Estate Investments

August 28, 2019 | by Deanna Besbekos-LaPage

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.

Legal Options For Clients of Merrill Lynch Broker Patrick Dwyer

August 23, 2019 | by Stoltmann Law Offices

This week the sun has set on the near quarter of a century career of Bank of America Merrill Lynch top private wealth manager Patrick Dwyer. The top earning Dwyer, who wore both the broker and adviser hats for the firm has departed in the wake of company concern about a $25,000 political contribution he made in a suspected attempt to pressure the Financial Investor Regulatory Authority (FINRA) to wipe out customer complaints on his record.

That record includes a claim where customers were trying to seek more than $7.2 million in damages. All but one of the complaints were closed or denied without being resolved as detailed by the Miami Herald. The campaign contribution went to Florida Chief Financial Officer Jimmy Patronis who is one of the Florida officials who oversees the state banking regulator. That paper said an arbitration panel agreed to remove the complaints, but FINRA itself balked.

Dwyer had seven customer complaints filed against him between 2001 and 2009. Two were denied, one was settled and the rest were closed without any action. Six of the complaints alleged he had made unsuitable investment recommendations. In the one dispute that was settled, the client received $111,000 in 2001 after complaining Dwyer didn’t delay the purchase of an investment as the investor instructed. As is customary, the firm disclosed the matter was settled to avoid the expense of litigation and that the complaint arose from a misunderstanding between Dwyer and the investor. Before leaving, Dwyer had run a 12-person unit that had close to $4 billion in assets under management and took in $10 million in revenue for the firm annually.

Robert W. Baird Behaving Badly…Again

August 20, 2019 | by Stoltmann Law Offices

This week the Financial Industry Regulatory Authority (FINRA), which oversees brokers fined Milwaukee based brokerage firm Robert W. Baird & Co. $150,000 and censured the firm for failing to disclose a conflict of interest arising from the interview where there was substantial likelihood that a reasonable investor would have considered the conflict important to his or her investment decision. In a consent decree, Baird neither admitted nor denied the charges.

Here’s the story: Six years ago, the CEO of a company being followed by a research analyst at Robert W. Baird, a broker, asked the professional if he or she would like to come in for a job interview with the company’s chief and its chief financial officer. The interview came off favorably.

The meeting escalated into a conflict of interest that drew the attention of FINRA when the CEO told senior Baird management about the interview; that the chances were good it could lead to the analyst jumping ship for the company he or she was writing on and asked Baird if the firm had any objections. When the analyst told management at his brokerage about the interview, he was told he could still write about the company he was interviewing at and following, but try to avoid learning about any material, non-public information.

FINRA Statistics From First Half of 2019 Show Surging Investor Win Rate

August 20, 2019 | by Stoltmann Law Offices

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.

Class Action Not Best Bet For GPB Investors to Recover Their Losses

August 17, 2019 | by Joe Wojciechowski

On August 2, 2019, a class action complaint was filed against GPB Capital Holdings and several affiliated entities in the United States District Court for the Southern District of New York, Case No. 19-cv-7250. There are two named plaintiffs, one an investor in the GPB Automotive Fund, there other an investor in the GPB Holdings Fund II. The class action is actually quite limited in scope, broadly alleging that the investors have been damaged by GPB Capital because the funds have collectively failed to provide audited financial statements as required by the private offering memoranda and the Securities and Exchange Commission. The class action complaint has two counts: breach of contract and breach of fiduciary duty. There are no allegations of fraud or other misconduct and the complaint parrots many of the published claims about GPB, including many of the same facts identified on this blog before.

Investors should not be lulled into complacency by the filing of this class action complaint, as if it will be from where their investment losses are recovered. Investors need to continue to honestly assess their individual situations and determine whether their financial advisors or brokers sold them these funds based on misrepresentations or omissions of material fact. Many of the GPB investors represented by Stoltmann Law Offices have made allegations of unsuitability and breach of fiduciary duty against the brokerage firm responsible for selling GPB Funds to them. Those FINRA arbitration claims also include other alternative investments too, because brokers who sell private placements tend to sell more than just one. Many of our investors have serious concentration issues, with substantial percentages of their assets under management – some near 100% – in alternative, private placements including the GPB Funds.

GPB Capital utilized a network of independent brokerage firms, including Madison Avenue Securities, FSC Securities, Royal Alliance, amongst about 60 others, to sell almost $2 billion worth of their securities to retail investors. Now investors are locked into investments that have been marked down up to 70% in some instances, with no dividends being paid, and with a constant drip of negative news. Brokers are telling their clients not to worry; to sit tight; to wait it out. Advisors are telling investors this will “blow over” and that GPB will be paying dividends again in no time. These “lulling” statements should not be relied on by investors. Brokers and advisors have no more information about what is happening inside GPB Capital than the investors do at this point, and any statement or advice from a broker to “hold tight” is self-serving. Investors should ask their brokers 1) how much money in commissions they were paid to sell them GPB Funds; and 2) ask to see the due diligence file the broker created on GPB prior to selling it. The responses will not be friendly.