Articles Posted in Fraud

Stoltmann Law Offices, a boutique securities, investment, and consumer fraud law firm in Chicago, has represented victims of fraud and Ponzi schemes since 2005, recovering tens of millions of dollars for out clients and restoring their financial security and freedom.  On September 9, 2022, it was reported that an Ameriprise financial advisor, Dusty Lynn Sternadel, was barred from the securities industry by FINRA for failing to cooperate with FINRA’s requests for information in connection with an investigation launched by the regulator.  The investigation stemmed from a regulatory filing made by Ameriprise wherein it stated it had terminated Sternadel for cause “for violation of company policies for misappropriation of client funds.”

The FINRA investigation into Sternadel did not get very far because she refused to cooperate with the regulator.  When financial advisors fail to cooperate with a FINRA investigation, FINRA Rule 8210 provides FINRA with the authority to essentially end the advisor’s career. The penalty for not cooperating with the regulatory investigation is harsh and brokers like Sternadel know this, yet she chose to take the lifetime ban instead of cooperate.  The FINRA AWC states that FINRA sent Sternadel a request to testify and produce documents, and that on August 30, 2022, during a phone call, Sternadel stated she would not cooperate or appear and understood the penalty for her refusal.

The Ameriprise disclosure regarding her termination is very vague, yet combined with the FINREA action, is disconcerting. According to the Ameriprise filing, Sternadel was terminated for cause for misappropriating (converting) client funds. Neither the Ameriprise termination notice nor the FINRA AWC state how much money was allegedly misappropriated or from how many Ameriprise customers. There are no customer complaints disclosed yet on Sternadel’s FINRA  Broker/Check Report.

Stoltmann Law Offices is investigating cases where brokers have overtraded to generate commissions in risky investments. FINRA, the federal securities industry regulator, has fined Next Financial Group, a broker-dealer owned by Atria Wealth Solutions, $750,000 to settle charges that it failed to supervise ‘unsuitable’ trading of mutual funds and municipal bonds by one unnamed broker, according to citywireusa.com.

FINRA found that the broker “engaged in short-term trading of Class A mutual fund shares in 19 client accounts, resulting in ‘unnecessary’ front-end sales charges of $925,000 from 2012 until February 2019.” All told, the broker racked up some $5 million in sales charges in the seven-year period. Additionally, FINRA found that “from June of 2013 to November of 2016, the broker engaged in short-term trading of Puerto Rican municipal bonds in 16 customer accounts, concentrating five of the accounts in these bonds.”

‘These bonds carried risks not associated with other municipal bonds because of concerns about the Puerto Rican economy and subsequent restructuring of Puerto Rican debt. The risk of such concentration was compounded by frequent trading in the PR Bonds because of the repeated payment of upfront costs that would decrease any investment returns,” FINRA said in its complaint. The investors in the Next case lost more than $4 million from their Puerto Rican bond investments.

Chicago-based Stoltmann Law Offices is investigating allegations made by the United States Securities and Exchange Commission (SEC) regarding former LPL Financial Advisor Eric Hollifield and stealing over $1 million from a client.  This is not the first time an LPL financial advisor has been caught red-handed stealing from LPL firm clients. Given the independent contractor model employed by LPL Financial over its financial advisors, these sorts of scams are all too easy to pull off and continue to happen.

According to the SEC’s complaint, Hollifield, who worked out of Dacula, Georgia, executed several fraudulent ruses designed to hide his true intent. First, he solicited investors to put money into a company called Century Warehouse, Inc., which was allegedly involved in the warehousing and shipping industry. From October 2019 through October 2020, Hollifield is alleged to have raised $5.35 million from advisory clients for Century Warehouse. Hollifield’s alleged fraud were his representations to investors that Century intended to use investors funds to buy PPE and other COVID-related supplies for the benefit of veterans.  According to the SEC, at least $1 million of the money raised from investors went back to Hollifield’s bank account where he spent the money on personal expenses.  The SEC also alleges that Hollifield used $1.7 million in misappropriated investor money to purchase a home sitting on 37 acres in Winder, Georgia.  The SEC alleges further that Hollifield lied to a client about setting up a “high yield” account at Goldman Sachs and instead stole the money.

There are two primary compliance and supervisory models that have existed in the brokerage industry for decades.  The first is the one most people think of when they hear the term “brokerage firm”.  They envision a huge office with fifty cubicles and telephones ringing. This office model is still common in the large “wire house” brokerages like Merrill Lynch and Morgan Stanley. In that structure, a branch manager is stationed at his post on-sight, reviews all incoming and outgoing correspondence, reviews a daily trade blotter, and reviews a daily transaction ledger that shows all checks sent and received for accounts in his branch. This branch manager wanders the office, peaks over shoulders, and should ensure his brokers are living up to the standards of a licensed securities broker.

Chicago-based Stoltmann Law Offices is representing clients who’ve suffered investment losses from advisors who sold fraudulent investments products and offerings. Firms like UBS argue these are frequently, “selling away” claims, suggesting they have no liability for the wrongs of their brokers who go far afield to rip off their clients. The big banks are wrong.

UBS Financial Services is suing Robert Turner, of McGregor, Texas, on fraud allegations and is asking a judge to seize Turner’s assets to help UBS offset the cost of repaying its customers for some $17 million in losses. Turner is a former broker with UBS.

The lawsuit alleges Turner solicited at least 23 UBS customers to buy “purported investments” issued by Fairfax Financial Corporation. UBS claims the products were not authorized by the broker and didn’t know Turner was selling them. Turner, 67, worked at UBS for 25 years before going to work for Stifel, Nicolaus & Co. in October 2021. He has since resigned from Stifel and has lost his license as a financial adviser.

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses as a result of conflicted, fraudulent, and negligent financial advice.  Sometimes the investments advisors recommend are themselves engaged in a fraud or some other scheme. These sorts of games can happen in any investment fund, but are far more common in private equity or other private investment funds.

The Securities and Exchange Commission (SEC) has charged James Velissaris, the former Chief Investment Officer and founder of Infinity Q Capital Management, with overvaluing assets of funds his company sold by more than $1 billion while pocketing tens of millions of dollars in fees. The SEC’s complaint alleges that, “from at least 2017 through February 2021, Velissaris engaged in a fraudulent scheme to overvalue assets held by the Infinity Q Diversified Alpha mutual fund and the Infinity Q Volatility Alpha private fund.” According to the SEC complaint, “Velissaris executed the overvaluation scheme by altering inputs and manipulating the code of a third-party pricing service used to value the funds’ assets. Velissaris allegedly collected more than $26 million in profit distributions through his fraudulent conduct and without disclosing his activities to investors.

“While Velissaris marketed the mutual fund as a way for retail investors to access investment strategies typically reserved for high-net-worth clients,” the SEC alleges, “what he actually offered them were fraudulent documents, altered performance results, and manipulated valuations.” The SEC also alleges that, “by masking actual performance, Velissaris sought to thwart redemptions by investors who likely would have requested a return of their money had they known the funds’ actual performance, particularly in the volatile markets in the wake of the COVID-19 pandemic. The complaint alleges that at times during the pandemic, the funds’ actual values were half of what investors were told.”

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from investing in unregistered securities based on the recommendation of their financial advisor.  All too often, brokers pitch investors on making a quick profit on unregistered securities. These investments, typically not on the radar screen of regulators, can easily lose money. They can skirt the safeguards of state and federal securities laws.

A group of securities regulators recently launched a crack-down on a company marketing unregistered securities. The North American Securities Administrators Association (NASAA) and the U.S. Securities and Exchange Commission (SEC) jointly announced a “$100 million settlement with BlockFi Lending, LLC (BlockFi) concerning its lending products and practices. Thirty-two state securities regulators have agreed to the terms of a settlement with BlockFi to resolve its past unregistered activities. More jurisdictions are expected to follow.”

The settlement focused on BlockFi’s sales of unregistered securities to retail investors through BlockFi interest accounts (BIAs).  “BlockFi promoted its BIAs with promises of high returns for investors who purchased the products. The company took control of and pooled its investors’ loaned digital assets, and exercised sole discretion over the pooled digital assets, including how to use those assets to generate a return and pay investors the promised interest.”

Chicago-based Stoltmann Law Offices is representing investors who’ve been victims of cryptocurrency thefts. These days, cryptocurrencies or “digital cash” are all the rage. You can speculate with it, buy a few consumer goods, and even play games. Unfortunately, like any currency that is a store of value, it can be stolen.

One of the largest heists in the short history of cryptocurrencies occurred recently when customers of Axie Infinity, a play-to-earn online game, lost some $625 million to a thieving hacker.

It was reported that the Axie account was hacked on March 23rd, although it was only revealed on Tuesday, March 29th.  According to Yahoo News, “Axie Infinity remains one of the most popular play-to-earn games, and users continued to log on Wednesday after news of the crypto heist. Hackers targeted a vulnerability in the bridge — or a software mechanism for exchanging types of crypto tokens — to drain funds in two separate transactions.”

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from being scammed by their financial advisors and the firms for whom they work. For operators peddling scam investments, every crisis is an opportunity. The tragic war in Ukraine is a sad example. Scamsters are ramping up their games to take advantage of people concerned about the crisis – and those hoping to profit from it.

Since the U.S. and European Union have frozen conventional Russian assets, global attention has shifted to the marketing of cryptocurrencies. These “virtual” coins are computer code not backed by hard assets or governments. They can be “minted” by anyone at any time. They are seen are alternative forms of cash, although many of them can be fraudulent.

Ukraine had been a center of cryptocurrency scams before the war.  Last year Ukrainian officials shut down “six illegal call centers. The operation carried out by the Security service of Ukraine has stopped these operations from continuing their cryptocurrency investment scams. From their base of operations, the crypto scammers were reaching out to countless potential victims to try to defraud them with promises of non-existent investment opportunities.”

Stoltmann Law Offices is a Chicago-based investor rights law firm offering representation to defrauded investors on a contingency fee basis.  On February 24, 2022, the United States Securities and Exchange Commission (SEC) filed a civil complaint against Arthur Stewart Hoffman alleging he breached his fiduciary duty to several clients he recommended invest in an entity called Zima Global Ventures.  The SEC alleges that Zima Global was to pool investor money to then invest in a crypto-currency trading operation. Investors who put their hard-earned money into Zima as a result of the recommendation by Hoffman may have viable claims for recovery against Ameriprise Financial, the brokerage and investment advisory firm Hoffman was registered with at the time he made these solicitations.

According to his FINRA BrokerCheck Report, Hoffman was registered with Ameriprise from November 2016 until his termination for cause on May 13, 2020.  Two days after he was terminated, FINRA barred Mr. Hoffman from the securities industry for failing to cooperate and provide documents and information in response to a Rule 8210 request for information. Mr. Hoffman also filed for Chapter 7 bankruptcy protection in Arizona in May 2020. Importantly, on February 16, 2016, a customer filed a complaint against Hoffman which alleged a million dollars in damages in connection with securities fraud, breach of fiduciary duty, and fraudulent concealment. The regulator reports that this case was settled for $329,500, making it a very meaningful customer claim and supervisory issue for Hoffman moving forward.  Ameriprise should have kept Hoffman on a very short leash, but the facts seem to be, they allowed him to operate on a proverbial island where he was able to run an outside business and funnel Ameriprise client money to this Zima crypto-scam.

Brokerage firms like Ameriprise are legally responsible for supervising their financial advisors. Included in this mandate is to adequately supervise outside businesses, even if they are not disclosed, if red flags exist that the advisor is operating an outside entity. Here, Ameriprise clients invested money in Zima based on Hoffman’s solicitations.  Red flags do not get much more serious than that. Simply phone calls and monitoring of client accounts would have revealed that Hoffman was selling securities in an outside entity.  Ameriprise’s supervisory procedures were insufficient and not up to industry standards, which could make Ameriprise liable for negligence.

Chicago-based Stoltmann Law Offices offers representation on a contingency fee basis to investors nationwide that have suffered investment losses as a result of unscrupulous financial advisors who’ve misrepresented the risks of investments or traded their accounts without express permission.

The U.S. Securities and Exchange Commission (SEC) has obtained a partial judgement against Michael F. Shillin, a former Raymond James financial advisor, “accused of defrauding at least 100 investment advisory clients, many of whom were elderly, by fabricating documents and making misrepresentations about their investments,” according to thediwire.com.

Shillin, according to the SEC, “allegedly told certain clients that they had subscribed for Initial Public Offering or pre-IPO shares, or that he had bought stocks on their behalf, in certain `coveted companies.’ He also is accused of misrepresenting the purchase of life insurance policies with long-term care benefits, with several clients rolling over their existing policies into new ones, which were either non-existent or had far fewer benefits than he claimed.”

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