Articles Posted in Investment Fraud

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.

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.

If you invested money with Robert Walberg, Stoltmann Law Offices may be able to help you recover your money. On January 24, 2019, the Illinois Securities Department issued a Temporary Order of Prohibition against Robert C. Walberg, Chartwell Strategies LP, and Chartwell Advisory Group LLC. Chartwell Strategies LP is a hedge fund created and sold by Robert C. Walberg and his company, Chartwell Advisory Group LLC. According to the Illinois Securities Department, Mr. Walberg solicited an Illinois resident at the end of 2017 and early 2018 to invest in Chartwell Strategies LP. Mr. Walberg allegedly commingled his client’s funds with his personal assets. Mr. Walberg also solicited investors outside of Illinois, including Pennsylvania, and relied on other financial professionals, like accountants, to refer investors to him and Chartwell. Over $2 million has been invested in Chartwell Strategies. In the Order, the Illinois Securities Department found that Mr. Walberg violated Section 12.F and 12.I of the Illinois Securities Law, which prohibit the fraudulent sale of securities to Illinois residents. Walberg and Chartwell are still under investigation and the Illinois Securities Department has reached out to investors to notify them of these scheme.

Mr. Walberg was a registered FINRA broker on and off from 1984 through 2013, but he has not been registered with the SEC or FINRA since November 2013. Some of the firms with who was registered include T3 Trading Group LLC, Waddell & Reed, Inc., Capstone Investments, E.F. Hutton & Co., and Francis Manzo & Co., Inc.

Chartwell Strategies was registered with the Securities and Exchange Commission as a Regulation D offering on August 10, 2015. According to Form D, Mr. Walberg and Chartwell operate out of Rolling Meadows, Illinois and Mr. Walberg is the Executive Officer and Promoter of Chartwell Strategies L.P. The minimum investment is $25,000 and Mr. Walberg receives a 1% annual management fee of the total assets under management. A Regulation D private placement allows a company to raise capital without registering with the SEC, other than filing a Form D. However, given that Mr. Walberg has not been registered to sell securities since 2013, he was not allowed to sell the Chartwell hedge fund to anyone, and violated the Illinois Securities Law by doing so.

AdobeStock_78306447-1-300x199Stoltmann Law Offices continues to investigate Anthony Diaz, a broker with IBN Financial Services in Pennsylvania. Diaz allegedly began over-concentrating a client’s irreplaceable retirement assets into high-risk, commission-laden private placements, real estate investment trusts (REITs), and other illiquid, alternative investments. The customer was looking to generate income, while protecting his principal. He agreed to move his assets to IBN with the understanding that he was looking for stable investments. REITs, private placements and other alternative investments that Diaz recommended and sold to him, did not align with the customer’s wishes, and Diaz, as his financial advisor, had a duty to only recommend and sell to him those investments that were suitable for him, based on his age, net worth, investment objectives and investment sophistication and risk tolerance levels.
In November 2012, Diaz solicited the customer to purchase $350,000 worth of Bakken Drilling Fund III, which is now defunct. It is an oil, gas and energy stock, and these tend to be highly risky and illiquid investments. The fund filed for bankruptcy in October 2016, after raising over $20 million from 309 investors. This is according to a filing with the Securities and Exchange Commission (SEC). He also put him into Ameritech College Holdings for $95,000, ARC NY REIT, and ICAP Pacific Northwest Opportunity Fund.
According to publicly available records with FINRA online, Anthony Diaz has been permanently barred from the securities industry, and has 56 disclosures on his CRD report. 44 of these are customer complaints against him. He was registered with IBN Financial Services in Scotrun, Pennsylvania from September 2012 until April 2015. IBN can be liable for losses if you lost money because of Anthony Diaz.

AdobeStock_77502568-1-300x199Former UBS broker John MacColl was charged with defrauding more than 15 retail investors in a $4 million scheme. He used high-pressure sales tactics that targeted mostly elderly retirees, according to a complaint filed with the Securities and Exchange Commission (SEC) in federal court in Michigan. He persuaded clients to invest in a “highly-sought-after” private fund that would diversify their portfolios and provide investment returns as high as 20%, exceeding the returns they would receive with investments at UBS. Between 2008 and 2018, MacColl told investors to sell or take a line of credit out against the securities in their accounts and to deposit the money into their personal bank accounts, according to the complaint. He then told them to make checks payable to “Mac 011” or “Mac01”. He then added his name to the payee line and deposited the checks into his own account. Other criminal charges were filed in a federal court in Michigan this week. One victim invested her life savings and money from her deceased husband’s life insurance payout, which she was going to use to pay for college for her three children. MacCall spent the money on personal expenses, and about $410,000 was used to pay back other investors in a ponzi-scheme fashion.

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