Articles Posted in Fraud

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.”

Stoltmann Law Offices is representing investors whose brokers or financial advisors sold them GWG Holdings, Inc. L Bonds. Brokerage firms, including but not limited to Aegis Capital, recommended this speculative private placement to clients, collecting up to 5% of the Bond’s market price as their commission. The L Bonds are high-yield life insurance bonds used to finance the purchase of life insurance on the secondary market. Any type of investment in the secondary life insurance market is an extremely risky investment, and these bonds certainly were not suitable for many, if any, clients. Given recent events, default on the L Bonds seems to be imminent, and may leave investors with a total loss of their investments. These investment losses may be recoverable from the financial advisors who sold the L Bonds as a result of their due diligence failures, and for making unsuitable recommendations.

According to their filings with the Securities and Exchange Commission (“SEC”), GWG has halted the sale of the L Bonds and failed to issue $10.35 million of interest payments and $3.25 million of principal payments to L Bond investors by the January 15, 2022 due date. If these payments are not made by the end of the 30-day grace period on February 14, 2022, GWG will be in default. Pursuant to GWG’s Amended and Restated Indenture, when in default, noteholders or trustees holding at least 25% of the aggregate outstanding principal amount of the L Bonds may elect to accelerate liquidation of the Bonds.

By halting the sale of the L Bonds, GWG has also cut-off a main source of its liquidity. If the “interest” payments that GWG was making on the L Bonds was actually paid from incoming principal from new investors, rather than revenue, then GWG will not be able to make interest payments any time soon. GWG is underwater based on its balance sheets.  While it has close to $1 billion in tangible assets, GWG has over $1.5 billion in outstanding L Bonds, plus $327.7 million in senior credit facilities. Based on these numbers, if liquidation of the L Bonds is accelerated, GWG will not have enough in assets to cover the liquidation.

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who’ve robbed their accounts. There’s no shortage of incidents where brokers have taken advantage of older Americans to “churn” or over-trade their accounts to generate commissions. In many cases, their clients may be unaware of the abuses or unknowingly granted power of attorney to facilitate broker theft of customer funds. Other times, brokers go rogue and flat out steal from their clients.  That is the unfortunate reality for Totowa, New Jersey-based PFS Investments financial advisor Jeffrey Dampf.

FINRA, the federal securities regulator, has barred ex-Primerica/PFS broker Jeffrey Dampf, who had joined the firm in 2009, according to Thinkadvisor.com. “On Oct. 30, 2020, Ocean County Prosecutor Bradley D. Billhimer announced that Dampf, then 69, of Brick Township, New Jersey, was charged with attempted theft and conspiracy to commit theft. Meanwhile, Robert Tindall, then 46, and Leanna Guido, then 47, both of Toms River, New Jersey, were charged with theft for their roles in the same scheme.” An investigation by the Ocean County Prosecutor’s Office “revealed that Dampf, in his capacity as the power of attorney and accountant for two senior siblings, was misappropriating funds entrusted to him while caring for the two older clients,” according to Billhimer.

Dampf “allegedly attempted to electronically transfer $500,000 to an investment account from the victims’ bank account for his own benefit. The transfer was ‘flagged,’ however, and the money was not transferred from the victims’ account,” according to Billhimer. “Tindall and Guido received funds they were not entitled to in an amount exceeding $1.5 million” from the victims, Billhimer said. “The funds were allegedly misappropriated through check or electronic transfer executed by Dampf and drafted to appear as though they were legitimate reimbursements for money spent on the care and for the benefit of the clients.”

Chicago-based Stoltmann Law Offices is investigating allegations against Eric Hollifield that came to light as a result of a regulatory filing by the Financial Industry Regulatory Authority (FINRA).  According to FINRA, the regulator launched an investigation into Eric Hollifield who was a registered representative of LPL Financial and Hamilton Investment Counsel.  The investigation was in connection with a customer complaint filed in arbitration against Dacula, Georgia-based Hollifield that alleges he stole or misappropriated $1,240,000 from the account of an elderly client. This complaint was filed on August 25, 2021 and came on the heels of LPL terminating Hollifield for cause for “failing to disclose an outside business activity.”  On September 1, 2021 Hamilton Investment Counsel followed LPL’s lead and terminated Hollifield for cause or failing to disclose an outside business activity.

Since Hollifield failed to respond to FINRA’s request for information, pursuant to FINRA Rule 8210, Hollifield accepted a lifetime ban from the securities industry.  Brokers agree to these lifetime bans, instead of cooperating with an investigation, for any number of reasons.  Obviously, given the allegations made by the pending customer complaint and the terminations from LPL and Hamilton, a reasonable conclusion to draw is, Hollifield chose to accept a lifetime bad from FINRA as opposed to disclosing or admitting information to FINRA that could be used against him by criminal authorities. It is important to realize, the facts in the customer complaint and the information contained in the FINRA AWC are mere allegations and nothing has been proven.

LPL has a long history of failing to supervise its financial advisors, like Hollifield. We have blogged on these issues numerous times.  Pursuant to FINRA Rule 3110, brokerage firms like LPL have an iron-clad responsibility to supervise the conduct of their brokers, like Hollifield.  Similarly, brokers have an obligation to disclose “outside business activities” to their member-firm pursuant to FINRA Rule 3270.  LPL cannot get off the hook, however, just because Hollifield failed to disclose an outside business. There are a few reasons for this and they are important.  First, brokers do it all the time and LPL knows it. Therefore, as required by both FINRA regulations and LPL’s open internal policies the procedures, LPL’s compliance and supervision apparatus is geared towards detecting undisclosed outside business activities because it is commonly through these outside businesses, that financial advisors execute their worst schemes and frauds on their clients.  Further, to the extent red flags existed that Hollifield was running an undisclosed outside business or doing something else that violated securities regulations, then LPL can be held liable for negligent supervision, at a minimum. Case law supports the imposition of liability on LPL under these circumstances.  See McGraw v. Wachovia Securities, 756 F. Supp. 2d 1053 (N.D. Iowa 2010).

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