Articles Posted in Fraud

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with brokers who have sold highly unsuitable investments to their clients. Brokers have a legal obligation to sell investments that are suitable for their clients’ age, risk tolerance, financial sophistication, and mental capacity. Sometimes, though, they ignore all of these safeguards to take advantage of older customers to generate what they think are easy commissions.

The worst cases that we’ve represented usually involve wealthy elderly clients whose portfolios are pilfered and re-invested in risky vehicles that lose large amounts of money, often leaving them impoverished. These practices are commonly known in the industry as “selling away,” or diverting assets away from investments brokerages normally deem inappropriate for older clients.

Eduardo Tarajano, Sr., 80, is suing his broker Jorge Sonville for investing more than $4 million in a Key Biscayne, Florida, liquor store, which was later sold for $585,000. Sonville, working for Merrill Lynch, had allegedly drained Tarajano’s family trust to buy a stake in the store. Tarajano’s federal suit alleges that Sonville worked with Tarajano’s son and the broker’s cousin to “pilfer the accounts Merrill Lynch was managing.” The cousin reportedly received a commission for the liquor store transaction.

Stoltmann Law Offices is investigating allegations in a grand jury indictment in the United States District Court for the Eastern District of Texas, levied against Keith Todd Ashley, of Collin County, Texas.  According to the indictment, which was filed on November 13, 2020, Ashley ran a Ponzi scheme while a registered representative for Parkland Securities, formally known Sammons Securities Company, and Midland National, a life insurance and annuity company. According to the indictment, Ashley recommended investors purchase UITs (Unit Investment Trusts) through Parkland and another entity called SmartTrust, which was an investment offered by another brokerage firm, Hennion & Walsh. The indictment alleges that Ashley made representations via email to clients that these investments offered returns of anywhere between 3% and 9% per year, with no risk to the investor’s principal, and that the securities were offered through Parkland and SmartTrust.  The indictment further alleges that instead of investing the money as represented, Ashley converted a substantial amount of it – more than $1 million – for his own use.

If you invested with Keith Ashley and believe you have suffered losses in connection with his alleged Ponzi scheme, please contact Stoltmann Law Offices, at 312-332-4200 for a free, no obligation consultation with a securities attorney.  

The news in connection with Mr. Ashley and his scheme turned quite dark just this afternoon when the publication Investment News ran a story indicating that Ashley was arrested in Carrolton,Texas on suspicion of committing murder. The story reports that Ashley is accused of murdering an investor-client in February 2020, staging the murder as a suicide, in some attempt to gain access to the victim’s money. Ashley was discharged from Parkland Securities in October suggesting he was fired for failing to disclose outside business activities.  This is a common response by brokerage firms when it turns out that one of their registered representatives has been running a Ponzi scheme.

Stoltmann Law Offices, a Chicago-based securities and investor rights law firm continues to investigate claims by investors who were sold investments in the fraudulent note scheme Future Income Payments. Investors have rights and if you were solicited to invest in Future Income Payments by your financial advisor, you may have a claim to pursue for negligence or fraud. According to an article that appeared on ThinkAdvisor, former SagePoint financial advisor Troy Baily solicited several clients to invest in securities offered by Future Income Payments (“FIP”).  FIP turned out to be a multi-million dollar pension scam with investors losing everything.  According to the article, Baily submitted to what is called an “Acceptance, Waiver, and Consent” with the Financial Industry Regulatory Authority as a result of these ill-fated solicitations.

An AWC  is essentially the formal settlement of a regulatory investigation conducted by FINRA of a licensed financial advisor. In this instance, Baily accepted FINRA’s conclusion that he solicited four SagePoint clients to invest a total of $210,000 in securities offered by Future Income Payments.  In so doing, he violated FINRA Rule 3280 and FINRA Rule 2010. As punishment for his violations, Baily accepted a six-month suspension and a fine in the amount of $5,000.  Although an AWC is technically not an admission of fault or guilt, the facts alleged by FINRA are clear and do not require interpretation – Baily sold FIP investments to his SagePoint clients.

The best bet for victims, especially those who were Baily’s clients, is to pursue his broker-dealer, SagePoint through FINRA Arbitration. As we have said in the past, brokerage firms are ultimately responsible and liable for the misconduct of their agents. Here, there are two separate routes investors can take to recover against SagePoint. The first is through the legal theory of apparent agency, or Respondeat Superior. This is an age-old legal concept that the principal is responsible for the conduct of its agent, so long as the conduct is performed in the course and scope of that agency relationship. Here, Baily sold securities, provided investment and financial advice, to clients to invest money in FIP. That is clearly within the scope of his agency relationship with SagePoint.

Chicago-based Stoltmann Law Offices is representing investors who were solicited by their financial advisors to invest in junk-bonds offered by now bankrupt Hornbeck Offshore. The bonds sold to our clients were rated D by Standard and Poor’s at the time of the solicitation, which is as low as bond ratings go.  This was not even speculation, it was financial homicide. The financial advisor at issue in our clients’ cases, Thomas M. Bonik was registered with NTB Financial Corporation (f/k/a Neidiger, Tucker, Bruner), which is headquartered in Colorado and has offices all over the country.  Mr. Bonik’s office was primarily in St. Augustine, Florida.

Hornbeck Offshore had been struggling financially for years.  The company is primarily engaged in offshore oil drilling and transportation. The persistently low prices for oil and gas for the past few years resulted in Hornbeck struggling financially due to a heavy debt load. Part of that debt was in the form of bonds purchased by investors.  Covid was the last straw for this struggling company and in June it filed a pre-packaged Chapter 11 plan in the Bankruptcy Court for the Southern District of Texas.  These pre-packaged plans are negotiated in advance with the “Secured” creditors, and typically burn bond holders like our clients. No surprise, our clients have lost every dime they invested in these Hornbeck bonds.

Financial advisors recommend clients invest in corporate or municipal bonds that are technically “junk” rated because these bonds have much higher yields than higher rated bonds. In the persistent low-rate environment in the US and to some degree the worldwide economy has been in since after the financial crisis, investors and advisors alike reach for higher yields, often investing in esoteric alternatives to grab that extra yield.  In this instance, the recommendation was to invest in corporate bonds that were rated “D” by S&P, which defines this rating as:

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with brokers who’ve fleeced clients. This is a sad occurrence, but sometimes brokers take advantage of clients and steal their money. We’ve investigated countless cases when this has happened.

The instances are all too familiar to us: Usually it’s elderly, retired women who are preyed upon. A recent case involving a 73-year-old client is a case in point. A former LPL broker, Matthew O. Clason, of Chesire, Connecticut, is accused of stealing more than $300,000 from the client, “with whom he formed a personal relationship.” Clason, who had been a registered broker since 2004, sold securities from his client in 45 transactions over the last 20 months, the SEC said in its suit filed against the broker.

“He transferred about $330,000 [from proceeds of the sales of client assets] to a joint checking account they had opened at a large national bank, funding most of it through securities sold from a non-retirement account that charged the client 1.54% of her assets under management,” the SEC reported. The agency is requesting “that the court enter an order freezing Clason’s assets and requiring an accounting. The SEC also seeks permanent injunctive relief, disgorgement plus prejudgment interest, and civil penalties.” Clason, who was registered with LPL and Integrated Wealth Concepts, could not be reached for comment, according to AdvisorHub.com. He was fired by LPL on August 13 for failing to comply with firm policies with respect to handling client funds, the SEC said.

Chicago-based Stoltmann Law Offices continues to see a surge of complaints from investors who bought unlisted or non-traded Real Estate Investment Trusts (REITs). For most investors, the prospect of getting a higher yield on any investment has been alluring. With rates near zero, it’s been hard to earn a return that beats inflation. Enter REITs and funds that invest in them. These are special vehicles that bundle real estate properties into one investment: You can invest in everything from apartment buildings to storage units.

Many REITs are listed and traded on stock exchanges, but some are not, which are called “private” or “unlisted” REITs. In their heyday, REITs routinely paid double-digit yields. Unlisted or “non-traded” REITs have been a consistent sore spot for investors in recent years. Many are loaded with fees and commissions, which dramatically lower investors’ net returns. They even may be money losers, even though they are sold with the promise that 90% of the income generated by properties they hold must be paid to investors. Middleman expenses, which can be as high as 15%, eat up returns in most cases.

Disclosure of the actual financial condition of these vehicles has also been troublesome. It’s hard for investors to know the true value of the properties within these vehicles, which have been aggressively sold by broker-dealers, who make high commissions selling them. When the COVID-19 crisis wracked the economy earlier this year – at first hitting commercial real estate developers and owners particularly hard – REITs that specialized in retail and office properties got clobbered. Retail and Hotel REITs were down 48% and 53%, respectively (as of April 15), according to Deloitte. Investors in these funds, of course, may be still experiencing large losses.

Chicago-based Stoltmann Law Offices continues to investigate investor claims related to UBS YES products.  In recent years, with savings yields at rock bottom, investors have been eager to attempt to safely earn a higher return on their money. Wall Street has responded with so-called “yield enhancement strategies” (YES) designed to pump up returns. But these strategies eek out this extra yield by employing extremely risky options trading strategies.

What brokers haven’t told investors in countless pitches, however, is that yield enhancement products are complicated and carry numerous hidden risks. The UBS YES program, involving an “iron condor” options trading plan, has attracted a great deal of attention recently. Investors are suing UBS, the Swiss wealth management firm, claiming they lost money when UBS brokers enrolled them in the strategy. Arbitration claims against the company have also been filed with FINRA, the securities industry regulator.

Investors who invested in the UBS YES program claim they suffered losses, even though the firm claimed the strategy was “conservative” and “low risk,” according to Wealthmanagement.com. What investors apparently were not told is how complex and convoluted the YES strategy was:

Stoltmann Law Offices, P.C. is investigating allegations made by the Financial Industry Regulatory Authority (FINRA) that Jose Yniguez sold clients approximately $99,000 worth of investments in an outside company. Fortunately for defrauded investors, TransAmerica Advisors, the company with whom Mr. Yniguez was licensed and registered, could ultimately be liable for any losses in connection with these illicit investment recommendation. Victims of investment fraud can file claims through the FINRA Arbitration process to recover investment losses.

The allegations against Yniguez were unveiled just this week through FINRA regulatory filing called an Acceptance, Waiver, and Consent (AWC).  In this document, which is signed by Yniguez, FINRA Department of Enforcement alleges that on November 19, 2018, TransAmerica reported in a Uniform Termination Notice for Securities Industry (Form U-5) that Yniguez was terminated for “engaging in undisclosed activities with and referring firm and non-firm customers to investment with an outside entity without TransAmerica’s approval.” That Form U-5 spurred FINRA Department of Enforcement’s interest and it launched an investigation into Mr. Yniguez pursuant to FINRA Rule 8210.  FINRA concluded that Yniguez violated FINRA Rules 3270 and 2010 by failing to disclose his involvement with an outside company to TransAmerica. He also solicited eight firm customer to invest in the entity, which is a violation of FINRA Rule 3280.

Just because this activity was undisclosed, does not mean TransAmerica is off the hook. FINRA Rule 3110 requires TransAmerica to adequately supervise its financial advisors. Further, to the extent “red-flags” existed that Mr. Yniguez was engaging in this unauthorized activity, that creates an obligation to “peel the onion” and act. TransAmerica, for example, cannot just ignore emails sent by Yniguez discussing this outside company. It must act and protect both its clients and its own business interests. By failing to reasonable supervise Yniguez, TransAmerica can be liable for negligence to the investors in this scheme. Likewise, due to the fact that outside investments were securities; were sold by a securities broker; to clients of a securities brokerage firm; regardless of whether Yniguez disclosed it to the firm, TransAmerica can be liable for damages due to apparent agency or Respondeat Superior.

Chicago-based Stoltmann Law Offices has been representing investors nationwide against unscrupulous brokerage firms and their financial advisors for more than fifteen years. Sometimes one of the best ways to avoid bad brokers is to do a little homework. Doing a simple background check can reveal a number of red flags that will help you steer clear of bad actors. All broker records are publicly accessible through the regulator FINRA’s website on a service called BrokerCheck.

What does BrokerCheck tell you? While it may not give you a complete background profile, it will show you if they have been disciplined or fined by FINRA, the US Securities and Exchange Commission (SEC) and other agencies. A pattern of multiple violations is a sure signal that you should avoid them. BrokerCheck will also give you an employment history and information on the firms that employed them. Although it’s not unusual for brokers to jump from one firm to another, repeated employment disruptions may be a warning sign as well.

As the prime securities brokerage regulator, FINRA can fine, sanction and bar brokers from the industry. Complaints about brokers must be investigated – and recorded – by FINRA. If brokers refuse to cooperate with the regulator, they can lose their securities licensing and be expelled from the business.

Stoltmann Law Offices is a Chicago-based securities and investment fraud law firm that offers nationwide representation to victims of Ponzi schemes and other securities frauds.  We are currently investigating allegations made by the United States Securities and Exchange Commission (SEC) and the US Attorney for the Southern District of New York that contend the Belize Infrastructure Fund I, LLC was a Ponzi scheme.  According to published reports, Minish “Joe” Hede and Kevin Graetz sold $9.6 million worth of promissory notes to their clients, many of whom were customers of their brokerage/dealer firm Paulson Investment Company.

According to the complaint filed by the SEC, Brent Borland, the principal of the Belize Infrastructure Fund who is also under indictment, approached Paulson Investment Company to act as “placement agent” for this fund. After the sales pitch, Paulson declined to act as the placement agent and disapproved of the investment. Whether Paulson Investment Company approved of the deal or not, meant nothing to Hede and Graetz who went on to sell almost $10 million worth of notes issued by the bogus company to at least 21 Paulson clients.  In so doing, Graetz and Hede violated numerous FINRA Rules and SEC rules and regulations by selling a fund that was not approved of by their broker dealer.  The SEC complaint also alleged that Hede and Graetz received hundreds of thousands of dollars in illicit commissions from selling notes issued by the Belize Infrastructure Fund.

Paulson Investment Company can still be held liable for the conduct of the firm’s registered brokers, Hede and Graetz. First, even though Paulson Investment did not formally approve of these sales, Hede and Graetz were still registered with the firm as brokers when these sales occurred so that means Paulson had an obligation to supervise their activities pursuant to FINRA Rule 3010. Additionally, “red-flags” that brokers may be “selling away” increase that responsibility. Certainly, having sold almost $10 million in this fund to 21 Paulson clients means there was, at a minimum: 1) a paper trail that they were selling these notes; 2) communications via email discussing the Belize fund; 3) transactional records, including the sale of securities in the clients’ legitimate Paulson accounts in order to fund the Belize Fund investments; and 4) client meetings.  Furthermore, brokers with numerous disclosures on their CRD Report require firms to put those advisors on “heightened supervision.”  According to his FINRA BrokerCheck Report, Graetz had numerous tax liens and customer complaints on his record before he started selling the Belize Fund to his clients.  Paulson Investment Company should have had him under a supervisory microscope. Instead, as is typical at brokerage firms like Paulson, the company invests minimally in its compliance and supervisory structure and brokers like Graetz and Hede end up selling firm clients almost $10 million in a Ponzi scheme.

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