Articles Posted in Investment Fraud

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 is pursuing investment losses for investors in IGF Investment Grade Funds I, LP (“IGF Fund”). IGF Fund is a real estate private placement that invests in single-tenant, net leased commercial properties, with 75% of the portfolio being “investment grade rated tenants with the remainder being of quality private credit tenants or those trending to investment grade.” IGF Fund advertises that it pays 6% annual returns to investors, paid monthly, with two-thirds of the income being tax-deferred. On its website, IGF Fund solicits property owners and brokers for “single tenant triple net or double net leased assets…retail, office, restaurants, and C-stores, and leases backed by investment grade tenant credit of AAA or BBB-“. While IGF solicits properties from $1 million to $16 million, it raised less than $12 million as of August 2018. IGF Partners Realty LLC is the general partner of the IGF Fund and is headquartered in Santa Barbara, California. The IGF Fund is a Delaware limited partnership and a Regulation D private placement.

Generally, Regulation D private placements should only be sold to accredited investors, with some exceptions. Some of the criteria considered is the investor’s annual income, net worth, and sophistication and investment experience. In order to qualify as an “accredited investor”, an investor must have a $200,000 annual income, or $300,000 joint income for the past two years, or a net worth of $1 million (excluding their home). When considering the suitability of a real estate investment for a client, a broker must take into consideration the client’s current asset allocation. For most client’s, their home is already one of the largest pieces of their net worth, so investing in more real estate (and particularly illiquid real estate investments, like IGF Fund) simply does not make sense.

IGF Fund is desperate to raise cash. The initial offering of $60 million was made on March 29, 2016. As of August 21, 2018, the fund raised only $11,720,000. This means that over 80% was left to be sold two years after the initial offering. Because of this, IGF Fund notified investors in early 2019 that it was extending its offering period from December 31, 2018 to April 30, 2019. IGF Fund and brokers selling this investment have been wining and dining current and potential investors to convince them to invest more cash. The lack of capital raised limits IGF Fund’s ability to purchase properties, thus minimizing any potential return for investors. Moreover, extending the offering period also extends the time period before the Fund can be liquidated. The IGF Fund is still paying distributions to investors, however without sufficient funding to purchase assets it will run dry, leaving investors with nothing.

On June 10, 2019, the Illinois Securities Department, Massachusetts Securities Division, New Hampshire Bureau of Securities Regulation, and New Jersey Bureau of Securities each charged Glenn C. Mueller of West Chicago, Illinois, and his companies for selling unregistered securities. Mueller developed his scheme for over 40 years, building a web of at least 32 real estate development companies and selling at least $47 million of unregistered securities in the form of promissory notes in these companies to consumers. He referred to these promissory notes as “CD alternatives”, “CD IRAs”, or represented them as being real estate investment trusts (“REITs”). His companies include, but are not limited to, Northridge Holdings, Ltd., Eastridge Holdings, Ltd., Southridge Holdings, Ltd., Cornerstone II Limited Partnership,  Unity Investment Group I, 561 Deere Park Limited Partnership, 1200 Kings Circle Limited Partnership, & 106 Surrey Limited Partnership (collectively referred to as “Mueller Entities”). Mueller organized Northridge in North Dakota with the subsidiaries incorporated in Illinois.

Northridge, founded by Mueller in 1984, is the primary property management company through which Mueller ran his scheme and is the general partner of many of his other limited partnerships. Mueller, through Northridge and the Mueller Entities, owned properties through the Chicagoland area. Mueller set up a “CD Account” through the Northridge website for investors. Once Northridge received the funds, he solicited investors to use the funds in their Northridge CD Account to invest in his various companies.

The Illinois Securities Department filed a Temporary Order of Prohibition against Mueller, Northridge, and several of the Mueller Entities. Mueller solicited 140 Illinois residents to invest over $19 million through 244 promissory notes. Some of these investments were sold to clients in their IRAs.

Stoltmann Law Offices, P.C is investigating recent filings by both FINRA and Ameritas Investment Corp. regarding the sales practices of James F. Anderson of Dakota Dunes, South Dakota. Mr. Anderson also serviced clients through offices in Iowa and Nebraska. According to Mr. Anderson’s publicly-available FINRA BrokerCheck Report, Mr. Anderson was registered with Ameritas Investment Corp. from July 2004 until he was terminated by the firm for cause in February 2019. According to Ameritas, Mr. Anderson was discharged after the conclusion of an internal investigation which determined he had sold clients indexed annuities and promissory notes without authorization from the firm.  Not surprisingly, about two months later the first customer complaint appeared on Mr. Anderson’s BrokerCheck report, alleged that he sold $400,000 in promissory notes to the investor. Just this past week, on June 3, 2019, FINRA finally stepped in and barred Mr. Anderson from the securities industry for life. Mr. Anderson was technically barred for failing to respond to requests for information and to provide on-the-record (OTR) testimony pursuant to FINRA Rule 8210. Although the FINRA Acceptance, Waiver, and Consent does not reference his selling away activities, it does not take a grand leap of faith to conclude that his termination and the customer complaint specifically referencing selling away and selling promissory notes to clients was the crux of the investigation by FINRA. By refusing to show up and provide testimony, Mr. Anderson’s silence about his misconduct is deafening indeed.

Promissory notes are an all too common tool used by brokers and financial advisors to lure investor money into their pockets. First, it is important to understand that in almost all circumstances, promissory notes are securities, which means in order to be legal in your state, they must either be registered with the state securities department, or they must be exempt from registration. The exemption is still something that must be filed with the state. So, if your financial advisor wants to sell you a promissory note, or a loan agreement, or a “memorandum of indebtedness”, it does not really matter what they call it, functionally its the same: its a promissory note. Do yourself a favor and decline the offer and call your state securities department.  Stoltmann Law Offices has prosecuted dozens of cases involving “promissory notes”, many of which turned out to be Ponzi Schemes. Just recently, we have been litigating on behalf of investors who were sold promissory notes – called “Memorandum of Indebtedness” – in now bankruptcy 1 Global Capital.

The good news for investors who get swindled into investing in promissory notes, including those who bought them from Mr. Anderson, regardless of whether Ameritas says these were approved, Ameritas is legally bound to supervise the activities of all of its registered representatives.  Further, because a promissory note is a security, and because Mr. Anderson’s job through Ameritas was to provide financial advice and sell securities, Ameritas can be liable for Mr. Anderson’s conduct through what is called Respondeat Superior. This legal theory means that the principal (Ameritas) is responsible for the conduct if its agent (Anderson) performed within the scope of his employment (selling securities and providing investment advice).  So, for investors who purchased promissory notes through Mr. Anderson, you have two avenues of recovery against Ameritas and Stoltmann Law Offices urges you to call our Chicago-based law firm at 312-332-4200 to discuss filing a FINRA Arbitration claim to recover your losses.

If you or someone you know is a victim of financial fraud perpetrated by Ed Matthes of Oconomowoc, Wisconsin, there is legal recourse that could lead to the recovery of those stolen funds.  According to published reports, Ed Matthes, who was a registered representative for Mutual of Omaha Investor Services until March 12, 2019, missappropriated and stole upwards of $1 million from his clients.  According to the cease and desist order entered by the Wisconsin Department of Financial Institutions, Matthes stole money from client annuities after convincing them to give him authority to enter transactions and withdraw funds on their behalf.  Providing this level of authority to a financial advisor is rarely a good idea, but Ed Matthes was able to elicit a substantial level of trust and confidence from his clients. He created fake account statements which masked the withdrawals he had been taking, hiding his misconduct for years.  Matthes was also barred by FINRA – the regulatory body charged with overseeing and disciplining financial advisors and their firms.

According to Matthes’s FINRA Broker/Check report, several customer complaints have been filed against Matthes’s former firm, Mutual of Omaha Investor Services. These claims were filed as arbitration actions through FINRA’s Dispute Resolution program. Mutual of Omaha is certainly a viable target for Matthes’s fraudulent scheme since at all times he was a registered representative of the firm and as such, Mutual of Omaha had a duty to supervise his activities.  Case law establishes that brokerage firms like Mutual of Omaha can be held liable for negligent supervision even when the activities of the schemer fall outside the scope of his employment with the firm.  See McGraw v. Wachovia Securities, 756 F. Supp. 2d 1053 (N.D. Iowa 2010). Here, Mutual of Omaha had an obligation to supervise the withdrawal of funds from Matthes’s clients’ annuities to ensure they were legitimate, as part of the firm’s anti-money laundering compliance apparatus mandated by the Bank Secrecy Act, and NASD Notice to Members 02-21 and NASD Notice to Members 02-47.

Similarly, the annuity companies from which these funds were converted could have liability to the victims too. Anytime investors withdraw substantial amounts of money from annuities, the annuity company should be on alert, and presumably Matthes had the funds directed to a third party, which is a serious red flag. Stoltmann Law Offices will pursue all viable options to recover our clients’ funds.

Stoltmann Law Offices, P.C. is investigating recent reports that James T. Booth, of Norwalk, Connecticut, was terminated from LPL Financial on June 26, 2019 for stealing upwards of $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 egregious acts from approximately April 2014 to May 2019. If you or someone you know was victimized by Booth, you should contact Stoltmann Law Offices to discuss your legal options.

According to FINRA, Booth’s spree occurred while he was registered with Invest Financial Corporation and then LPL Financial. Depending on when an investor’s funds were actually converted by Booth, either Investment Financial or LPL Financial could be held responsible for this misconduct. In almost every case where a financial advisor like Booth converts or steals client money, there are various red flags and compliance failures that facilitate the theft. For example, in some cases, financial advisors will arrange for transfers of funds from a client account to a third party account, like an LLC or some outside business, from which the advisor then steals the money. In other cases, the advisor asks the clients to write a check or wire funds to either the advisor to a company he owns. In any instance, the brokerage firm’s knowledge of what their agent is up to is a phone call away. Part of a compliance department’s responsibility to supervise their agents includes making contact with clients directly to make sure they are satisfied with how their accounts are being managed and to inquire with them about their experience. It does not take a brilliant compliance examiner to figure out that a broker has been stealing money from clients for upwards of five years, like Booth.

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:

The securities fraud attorneys at Stoltmann Law Offices, P.C. continue to investigate investor claims against brokerage firms that sold their clients investments in various GPB Capital Holdings offerings.  On March 22, 2019, attorney Joe Wojciechowski announced the filing of a Statement of Claim with FINRA Dispute Resolution for an investor who was sold units in GPB Automotive Fund, L.P. The claim was filed against NewBridge Securities and also includes allegations in connection with various non-traded REITs issued by American Realty Capital (ARC). The claim is for a retail investor whose financial advisor recommended she invest nearly 100% of her accounts in alternative investments offered by GPB Capital and ARC.  The claim alleges misrepresentations and omissions of material facts in violation of the Securities Act of Washington, consumer fraud in violation of the Washington Consumer Protection Act, negligence for violating numerous regulatory rules including FINRA Rules 2111 (suitability) and 3110  (supervision), and breach of fiduciary duty. Our client seeks rescission of her GPB Automotive Fund investment and compensatory damages for her realized losses in the ARC REITs, plus attorneys fees, costs, interest, and punitive damages.

Investors who were solicited by financial advisors and brokers to invest in GPB Capital funds should consider their legal options to seek rescission of those investments.  Under the state securities laws (frequently referred to as the Blue Sky Laws), the primary remedy for investors is called rescission, which means the investor sues to force the brokerage firm to buy the investment back.  The rescission remedy seeks to put the investor back in the same place she was prior to purchasing the investment. This is important for investors who own alternative investments like GPB Capital Funds.  These are not liquid or tradable investments, meaning an investor cannot call their advisor and sell it and realize a gain or a loss. Essentially, the investor is stuck. Given the troubling news about GPB Capital over the last several months, something Stoltmann Law Offices has written about extensively, investors are correct to be wary and should consider an exit strategy. Unfortunately, because there is no way out of the GPB Funds, the only option for investors may be to pursue arbitration claims against the brokerage firm responsible for soliciting the investments in the first place.

In the last several years, as interest rates remained very low, it has been difficult for investors to find fixed income investments, like corporate and municipal bonds, that offered higher yields without exposing them to speculative risk. Likewise, due to the long term low interest rate environment, the principal value of the bonds begin to drop as interests rates have risen. The solution to these problems for brokerage firms has been to sell “alternative investments” that offer relatively high yields, but because they are non-traded and do not report any real market value, they have the appearance of a stable value for investors. The bonus for brokerage firms is that these alternative investments offer the advisors commissions they could never achieve by selling standard fixed income securities like corporate bonds or municipal bonds. Advisors sell the sizzle of a high yield and fixed prices and either gloss over or completely misrepresent the speculative risk being taken by investors who entrust their money to private entities like GPB Capital.

Investors who were solicited to invest in Direct Lending Investments (DLI) in Glendale, California by their financial advisor may have actionable claims to recover their money.  This week, the Securities and Exchange Commission (SEC) charged registered investment advisor Direct Lending Investments LLC with a fraud spanning multiple years that caused an $11 million over charge of management and performance fees to its private funds https://www.sec.gov/litigation/litreleases/2019/lr24432.htm.  The company allegedly fraudulently inflated it annual returns by 2 percent to 3 percent per year for multiple years.

According to the SEC:

Brendan Ross, DLI’s owner and then-chief executive officer, arranged with QuarterSpot to falsify borrower payment information for QuarterSpot’s loans and to falsely report to Direct Lending that borrowers made hundreds of monthly payments when, in fact, they had not. The SEC alleges that many of these loans should have been valued at zero, but instead were improperly valued at their full value, because of the false payments Ross helped engineer.

The Chicago-based securities and investment fraud attorneys at Stoltmann Law Offices are investigating claims by victims of former Securities America financial advisor Hector May. According to the criminal information filed against Mr. May in the United States District Court for the Southern District of New York, Mr. May was indicted on charges of conspiracy to commit wire fraud and investment advisory fraud in Case No. 18-cr-00880. On January 14, 2019, May’s guilty plea was formally accepted by Judge Vincent L. Briccetti. His sentencing date has yet to be provided by the court. By pleading guilty, May consented to a monetary judgment of $11,452,185 and agreed to forfeit certain property including multiple fur coats, Cartier bracelets, and Rolex watches.

According to published reports, on February 14, 2019, the SEC formally barred May from the securities industry. This bar seems obvious given he pleaded guilty to criminal charges, but the SEC cannot proceed with any portion of a civil case until the criminal matter wraps up. The SEC complaint against May provides some details about his scam which included selling bonds to his fiduciary advisory clients that did not exist. The SEC states May’s scam bilked at least $7.9 million from at least 15 advisory clients. The SEC also states that May executed this scheme with his daughter, Vania May Bell. This father-daughter duo devastated several families.

At all times relevant, May was a licensed, registered representative of Securities America which is a registered broker/dealer and subsidiary of Ameriprise Financial. May also provided his investment advisory services under the umbrella of a Registered Investment Advisor called Executive Compensation Planners, Inc.  According to FINRA Rules, Securities America had an obligation to supervise Mr. May and his conduct even if it was executed through Executive Compensation Planners. According to FINRA Rule 3280 and  at least three NASD Notices – NTMs 91-32, 94-44, and 96-33 – Securities America was responsible for supervising May’s conduct. In a case decided by the Federal District Court for the Northern District of Iowa, the court ruled that this duty and obligation to supervise can apply to even those people that are not formally clients or account owners of the firm, like Securities America here. See McGraw v.Wachovia Securities, 756 F. Supp. 2d 1053 (N.D. Iowa 2010 ).

For the few hundred investors who bought about $28 million in preferred stock in SteadyServ Technologies, the recent bankruptcy filing by the company is terrible news. Stoltmann Law Offices has spoken to SteadyServ investors about their legal options. According to the Chapter 11 filings, SteadyServ has liabilities of $6,457,359, most of which are secured, on assets of less than $50,000. SteadyServ further discloses gross revenue of $664,666 in 2017 and only $379,010 in 2018. To make matters more challenging for SteadyServ, the primary secured creditor is an individual who assumed bank debt for the company and was a former executive of SteadyServ who wanted to take the company in a much different strategic direction than where it ended up going. A lawsuit filed by this individual in Indiana state court is what forced the company to file for Chapter 11 relief. Unless this secured creditor is willing to negotiate and make some major concessions, SteadyServ could be in real trouble as a going concern.

The reality for shareholders is, SteadyServ Technologies will cease to exist as an entity, wiping out shareholders completely. In other words, if you invested in SteadServ, your investment is gone. If the Chapter 11 plan works, a new SteadyServ entity will emerge from Bankruptcy, but how that effects current shareholders is unknown. You might get a slight discount, maybe 10%, on shares in the new company and the first shot to invest. This is probably the best case scenario for investors. So, in order to get any return on your current SteadyServ investment, you will need to invest more money in the new entity.

For investors who are already in the hole, this is a pretty large ask and other options should be explored to recover this money. The financial disclosures by SteadyServ are really glaring when compared to advertising materials and “estimates” contained in offering memoranda for the company’s preferred stock. These ad slicks, which we have reviewed, were presented by financial advisors and brokerage firms who sold SteadyServ preferred stock to their clients.  The financial “projections” contained on these advertising materials appear to be totally baseless.  They reflect a company projected to experience explosive growth including revenue increases of some 600% year over year 2016-2017-2018.  Although these materials were presented and drafted in 2016, they include revenue projections for that year of over $4 million, when any brokerage firm promoting and selling shares in this start-up company would have to know such a projection was completely ridiculous. In reality, SteadyServ had revenue of only $664,600 in 2016, as disclosed in their bankruptcy filings. These advertising materials were used by brokerage firms to promote this company and entice investors to put their money into SteadyServ. Unfortunately, these materials were false, misleading, and at a minimum, the brokerage firm responsible for disseminating these materials could be liable to investors who relied on them to their detriment.

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