Articles Posted in Fraud

Stoltmann Law Offices is investigating allegations that Linan Abrego (aka Ma Rosa Linan Abrego) misappropriated client funds at Merrill Lynch. According to published reports,  Abrego was barred by FINRA for failing to appear or respond to an inquiry in connection with her termination from Merrill Lynch on June 10, 2019 for misappropriating client funds. The misconduct reported by FINRA alleges that Linan Abrego of McAllen, Texas, failed to appear as required by FINRA Rule 8210 and accepted a lifetime ban from the securities industry, instead of answering FINRA or providing information in furtherance of FINRA’s investigation. According to her publicly available FINRA BrokerCheck Report, Ms. Linan Abrego was registered with Merrill Lynch as a broker and financial advisor from December 6, 2016 to June 10, 2019 when she was terminated for cause by Merrill Lynch for “misappropriating client funds.” Pursuant to FINRA Rule 8210, if FINRA requests a broker sit for on the record testimony (called an OTR) and the broker either refuses or simply does not show up or refuses to provide answers to written questions, or refuses to produce documents requested by FINRA in the course of their investigation, this can be grounds for being permanently barred from the securities industry. It is the equivalent of a career death sentence. Once a broker is barred for life by FINRA, absent extraordinary circumstances, that person will need to seek a career change.

Typically, brokers who refuse to show up for a Rule 8210 request do so knowing they are sacrificing their securities licenses. Some brokers may be near retirement or are not interested in maintaining their licenses, so they rather not submit themselves to an OTR, which can be stressful and require retaining legal counsel. Other brokers fail to show up for an OTR because they fear the testimony they will give may be incriminating if they are truthful. The FINRA AWC agreed to and signed by Ms. Linan Abrego only states he failed to show up for the OTR and provides no further explanation for barring her from the securities industry. Linan Abrego did this willingly, and instead of providing testimony from FINRA about why she was fired by Merrill Lynch, she chose to accept a lifetime ban from the securities industry.

Routinely, financial advisors who steal money from their clients do it in such a manner which should have alerted the firm’s compliance or supervision departments. Many times this sort of theft is facilitated by the broker simply forging withdrawal forms or requests. Another common way brokers steal money is to set up a third party LLC or other entity to which the broker directs client money directly from their accounts through wire transfers.  Sometimes the clients allow these transfers because the broker tells them these transfers are an investment in a company, or it’s where her commissions are paid to. No matter the ruse, sophisticated brokerage firms like Merrill Lynch are required to have procedures in place to catch their brokers if they attempt to steal client money. Whether there were unauthorized withdrawals or transfers from your accounts, every FINRA brokerage firm, like Merrill Lynch must have robust Anti-Money Laundering rules and regulations in order to ensure a level of alertness in these circumstances. Failing to properly execute these procedures which results in a broker stealing client money results in liability for the firm for negligent supervision, putting Merrill Lynch on the hook for the losses.

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.

LPL terminated financial advisor Dain F. Stokes on August 28, 2019 for selling unregistered promissory notes to clients that purported to invest in a project in Africa allegedly sponsored by Taylor Swift. According to InvestmentNews, Stokes converted at least $576,000 from two clients, whom he solicited to invest in this phony charity project, which he sold as being created by Swift to help needy people in Africa. Stokes claimed to have a close relationship with Swift, telling clients that she personally hired him to manage the finances of the Africa project and to promote a new song release by her in June 2019. He also told clients that Bill Gates was involved in the project.

The State of New Hampshire Department of State Bureau of Securities Regulation filed a petition and order against Stokes after an investor (“Investor #1”) invested $201,000 in the Africa Project between August 1, 2018 and January 25, 2019. Stokes used promissory notes to facilitate these investments. According to the promissory notes, Investor #1 would receive the return of his entire principal plus 20% interest by making this investment. Payment on the first promissory note was initially due by November 8, 2018, however the due date was continually pushed back by Stokes. At one point, he even told his client that President Donald Trump allegedly froze his assets. Stokes was ordered to pay $201,000 plus interest in restitution to Investor #1 and a $20,000 fine for violating New Hampshire Blue Sky Laws, which prohibit the fraudulent sale of securities (RSA 421-B:5-501) and the sale of unregistered securities (RSA 421-B:3-301(a)). To date, a second investor who invested $375,000 has come forward.  The New Hampshire Department of State Bureau of Securities Regulation has since frozen Stokes’ assets and issued an injunction prohibiting him from speaking with those who invested in this scam.

New Hampshire authorities interviewed Stokes, who refused to provide any details about the African charity, claiming that all information, including the name, was privileged. He also refused to reveal whether the checks, which were made payable to him personally, were invested in his personal accounts.

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:

Stoltmann Law Offices has been investigating Northridge Holdings and Glenn Mueller on behalf of several clients over the last several months. On September 5, 2019, the Securities and Exchange Commission (SEC) filed a complaint against Glenn Mueller, Northridge Holdings, and several other Mueller-controlled companies, in the United States District Court for the Northern District of Illinois.  The complaint alleges that since at least 2014, Mueller, through his tangled web of entities, has orchestrated a veritable Ponzi scheme, raising in access of $40 million from investors based on the representation that he was purchasing properties with those funds. The truth is, Mueller has not purchased a piece of property since 2012. Instead of using investor money to purchase properties, Mueller used new investor funds to make interest and principal payments to previous investors, in class Ponzi-payment fashion. These funds were also used to pay “finders” commissions for referring new investors to Northridge. The SEC also alleges that Mueller used investor funds for personal and family use, including to make loans to family members and trade stocks and options in personal brokerage accounts.

The SEC’s allegations blow the lid off of Northridge and Mueller’s schemes. Although Mueller and his finders represented the “notes” sold by by Northridge were “secured” by property, they are not. In fact, although Mueller claims the full liquidation value of his real estate is over $100 million, he owes investors and mortgages on those properties more than that. Despite all of his representations to the contrary, Mueller and his companies are “upside-down”.  The Daily Herald also details the religion-based sale pitches used by Mueller which is an all too common hook used by schemers.

The next steps for investors is to await the appointment of a receiver. According to the docket report for this case, there is a hearing on Wednesday, September 11 during which the SEC will request the court appoint a receiver and freeze all of Mueller’s and his subsidiaries’ assets. Assuming this request is granted, which given the allegations seems likely, the receiver will begin the process of marshaling assets, selling off properties, and collecting funds to repay creditors and investors.  How long this process takes and how much money investors can expect to get out of this is anyone’s guess. The fact of the matter is, and according to the SEC, Mueller owes more money than his properties are estimated to be worth. Further, any liquidation of real estate creates a buyer’s market, so whatever purported value these properties have, they will likely be sold at a discount eventually.

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.

No yield hungry investor wants to miss out on the next Google, the next big thing.  But as this Securities and Exchange Commission civil prosecution shows the only big things in some start-ups may be fraud.  A number of high net worth individuals thought an Orange County, California investment adviser was appealing.  But they were mistaken and taken to the cleaners for $14 million for undisclosed and excessive fees, claims the SEC.

According to an SEC court filing, Stuart Frost and his investment advisory firm, Frost Management Company, raised $63 million from the investors to put into another firm he owned, Frost Data Capital (FDC) that was supposedly performing operational support and other services to help incubate a portfolio of start-ups.  In reality, much of the money was said to have been diverted to fund a lavish lifestyle for him which included a boat, luxury cars and an archery range.

“When Frost needed more cash to fund his lavish lifestyle, he created new portfolio companies and, after investing more fund capital into the new companies, FDC then extracted even more incubator fees,” according to the SEC complaint.  The SEC is alleging Frost and his investment advisory firm violated their fiduciary duties by keeping the super-charged fees hidden from the investors.

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, P.C. is investigating claims regarding now former LPL Financial Advisor Kerry Hoffman, of Mundelein, Illinois. According to a complaint filed by the Securities and Exchange Commission on July 1, 2019, Hoffman along with a co-conspirator and convicted securities recidivist Thomas Conwell, sold investors securities in a company called GT Media, Inc. The SEC further alleges that the pair raised over $3.3 million from 46 investors, across twelve states. According to Hoffman’s FINRA BrokerCheck Report, he is currently registered as a financial advisor for Union Capital Company in Chicago, Illinois. On September 7, 2018, Hoffman was allowed to “resign” voluntarily from LPL Financial after more than 8 years with the firm. According to public filings, Hoffman’s “voluntary resignation” from LPL was in connection with raising money from clients for a private company. This wasn’t the first time Hoffman departed a place of employment under questionable circumstances. In 2007 he was discharged for cause from UBS Financial for unauthorized trading.

The allegations against Hoffman state that he sold approximately $850,000 in GT Media stock and promissory notes to five of his LPL clients. The SEC also alleges that Hoffman loaned funds to GT Media and was paid back using investor funds. The allegations made by SEC state that Hoffman failed to disclose conflicts of interest to clients to whom he sold GT Media securities and further failed to disclose he would be paid back on loans he provided to the company through investor funds.

What is really disconcerting about this scam is that Hoffman knowingly exposed his clients to Conwell and his company even though Conwell was sentenced to forty-eight months of prison time for wire fraud (see U.S. v Conwell, Case No. 03- Cr-334-1 (N.D. Ill.) and had been barred by the securities industry almost twenty years ago. (See In the Matter of Thomas V. Conwell, Exchange Act Rel. No. 43006, 72 SEC Docket 2011 (July 3, 2000).  Hoffman knew about Conwell’s past because the two have known each other since they were children.

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