Articles Posted in Investment Fraud

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.”

Stoltmann Law Offices, P.C. is a Chicago-based securities and investment fraud law firm that offers representation to victims on a contingency fee basis, nationwide. We are investigating claims for investor/victims of Ron Harrison’s alleged options trading scheme. On September 30, 2021, the SEC filed a civil complaint against Ron Harrison and his company Global Trading Institute, LLC seeking an injunction and to have a restraining order put in place to freeze his assets.  The SEC complaint alleges that Harrison ran a substantial options trading scheme where he charged clients a percentage of alleged gains in their brokerage accounts on a monthly basis. The problem is, as alleged by the SEC, there were no gains, only losses. According to the complaint, Harrison traded directly through access to his clients’ brokerage accounts.  Twenty-two investor victims suffered losses of over $2 million.  The SEC alleges that Harrison received at least $900,000 in ill-gotten fees from the scheme, a lot of which was transferred to his Russian fitness instructor girlfriend.

Harrison was not licensed to provide investment advice or trade securities with any regulator or state. In fact, he was barred from the securities industry way back in 1992 for misappropriating funds and excessively trading customer accounts. This trading scam dates back to 2016 and continued on well into 2021.  Records reviewed by Stoltmann Law Offices reveals that Harrison’s clients used TD Ameritrade as their broker/dealer. Part of Harrison’s scheme was to have investors provide him with their credentials to log into their brokerage accounts and trade options pursuant to his alleged strategy.  The options trading Harrison engaged in was highly speculative and aggressive, including writing naked put options and using hefty amounts of margin.  Because of the activity Harrison engaged in, and because of the highly regulated market options trading takes place in, TD Ameritrade could be liable to Harrison’s victims for aiding and abetting his scheme.

In order to trade options in any brokerage account, the brokerage firm must perform a high level and detailed know your customer analysis. To qualify for the level of margin Harrison used, referred to as portfolio margin, the account owner in many cases has to take a test to even qualify for that level of margin clearance.  Furthermore, technical metrics and electronic log-ins and tracing would have revealed that Harrison was logging into multiple client accounts from the same device and IP address. Since he was unlicensed, he could not do this and TD Ameritrade’s compliance system should have caught on to what he was doing, but failed to do so.  FINRA Rules, Anti-Money Laundering, and Bank Secrecy Act regulations mandate that TD Ameritrade have adequate compliance systems to detect and deter violations of this sort.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses in the LJM Preservation and Growth Fund. When broker-dealers sell you investments, they are responsible for fully informing you of the risks at the point of sale. When they fail to give you an honest, transparent disclosure on what they are selling – and the investments tank — you may have an arbitration case that you can pursue to get your money back.

Cambridge Investment Research, Merrill Lynch, and other brokerage firms sold a mutual fund called the LJM Preservation and Growth fund to their customers. The fund’s “value plummeted 80% over two days in early February 2018, after brokers in the previous two years sold $18 million of its shares to more than 550 customers, prompted by sales calls in May 2016 from an LJM wholesaler,” the securities regulator FINRA stated. “The fund was liquidated and dissolved in March 2018.”

What made the fund so volatile that led to its demise? It employed a risky strategy called “uncovered options,” but failed to tell investors that it was a highly complex vehicle prone to catastrophic losses.

Stoltmann Law Offices previously posted about Scott Wayne Reed, former broker at Wells Fargo Advisors, selling away to his customers, including customers of Wells Fargo. On December 15, 2020, the Arizona Corporation Commission filed a “Notice of Opportunity for Hearing Regarding Proposed Order to Cease and Desist, Order for Restitution, Order for Administrative Penalties, Order for Revocation and Order for Other Affirmative Action” against Reed, his wife, Sarah Reed, Pebblekick, Inc. and Don K. Shiroishi, the Chief Executive Officer and President of Pebblekick.

According to the ACC’s notice, Mr. Reed sold at least $3.5 million of investments in short-term, high-interest notes issued by Pebblekick. Mr. Reed sold these notes as offering an annualized rate of return of sixty-percent (60%). In turn, Pebblekick paid at least $191,340 to Reed. He sold these notes to clients as “100% safe” investments and represented that he also invested in Pebblekick. He went as far as personally guaranteeing $100,000 of the $200,000 investment made by one investor.Reed also sold other outside investment to customers, which he alleged were connected to Pebblekick, including but not limited to Precision Surgical, Mako Studio, and Ascensive Creator.

Reed was a registered representative of Wells Fargo Advisors at the time that he sold this investment, but did not disclose that he was selling notes in Pebblekick or that he received nearly $200,000 in commissions and fees for selling Pebblekick. According to the ACC, “when Reed’s firm reported him for potentially selling away and the Securities Division requested Reed to provide information and documents concerning the allegation, Reed impeded the Division’s investigation by providing responses that were false, incomplete, and misleading.”

Chicago-Based Stoltmann Law Offices, P.C. is currently investigating reports that Michael Edward Magill raised $700,000 in purported private notes that turned out to be part of a criminal scheme. If you were sold investments by Mr. Magill and lost money as a result, you may have a claim to pursue to recover your investment losses through FINRA Arbitration.

According to a FINRA Acceptance, Waiver, and Consent (AWC) signed by Mr. Magill on December 7, 2020, Mr. Magill was hied by a private company to raise money for it. the FINRA allegations state that Mr. Magill solicited at least three investors to invest a total of $700,000 in this company, representing the investments as short term secured notes.  He urged investors to invest quickly because time was of the essence.  Mr. Magill was paid a salary by this company for his services and also received a commission for the investments he sold.  He also distributed marketing materials for the investments.  The investments were not registered with any regulatory agency and were sold in violation of applicable state and federal securities laws.  The principals of the company for whom Magill raised these funds pled guilty to conspiracy to commit wire fraud.

At all times relevant, Mr. Magill was a dually registered and licensed financial advisor with Foreside Fund Services and as a Registered Investment Adviser with WBI Investments, Inc. out of Boca Raton, Florida.  By virtue of FINRA Rules and the fiduciary duty owed by WBI Investments, both Foreside and WBI could be liable to investors who were caught-up in this scheme.  Stoltmann Law Offices has for many years pursued brokerage firms and investment advisers for these claims and has successfully recover money on victims’ behalf.  These companies have legal obligations to supervise the conduct of their registered representatives. Typically referred to in the securities industry as “selling away”, Magill allegedly did not advise the companies he was registered with of his illicit activities.  Nevertheless, there likely existed a stack of red flags that would have put Foreside Funds and WBI Investments on notice that Magill was participating in what was in reality a fraudulent scheme.

Stoltmann Law Offices is investigating allegations in a grand jury indictment in the United States District Court for the Eastern District of Texas, levied against Keith Todd Ashley, of Collin County, Texas.  According to the indictment, which was filed on November 13, 2020, Ashley ran a Ponzi scheme while a registered representative for Parkland Securities, formally known Sammons Securities Company, and Midland National, a life insurance and annuity company. According to the indictment, Ashley recommended investors purchase UITs (Unit Investment Trusts) through Parkland and another entity called SmartTrust, which was an investment offered by another brokerage firm, Hennion & Walsh. The indictment alleges that Ashley made representations via email to clients that these investments offered returns of anywhere between 3% and 9% per year, with no risk to the investor’s principal, and that the securities were offered through Parkland and SmartTrust.  The indictment further alleges that instead of investing the money as represented, Ashley converted a substantial amount of it – more than $1 million – for his own use.

If you invested with Keith Ashley and believe you have suffered losses in connection with his alleged Ponzi scheme, please contact Stoltmann Law Offices, at 312-332-4200 for a free, no obligation consultation with a securities attorney.  

The news in connection with Mr. Ashley and his scheme turned quite dark just this afternoon when the publication Investment News ran a story indicating that Ashley was arrested in Carrolton,Texas on suspicion of committing murder. The story reports that Ashley is accused of murdering an investor-client in February 2020, staging the murder as a suicide, in some attempt to gain access to the victim’s money. Ashley was discharged from Parkland Securities in October suggesting he was fired for failing to disclose outside business activities.  This is a common response by brokerage firms when it turns out that one of their registered representatives has been running a Ponzi scheme.

Chicago-based Stoltmann Law Offices is investigating incidences of investors whose brokerage accounts have been hacked. Market regulators are investigating reports that customers of the popular online trading app Robinhood were ripped off. Hackers reportedly obtained account information of Robinhood customers, then transferred funds out of their accounts. The customers have contacted the U.S. Securities and Exchange Commission and FINRA, the securities industry regulator, to probe the thefts.

How safe is your money in an online brokerage account? It should be protected by numerous safeguards, although lately cyberthieves have found a way to steal money directly from investors. During the COVID pandemic, online trading soared, with millions of day traders using their phones and other devices to trade stocks and other securities. But as a recent wave of customer complaints suggest, their accounts have been hacked and money taken from their accounts, according to Bloomberg News.

In a statement to Bloomberg, Robinhood did not take responsibility for the thefts:

Chicago-based Stoltmann Law Offices is representing investors who were solicited by their financial advisors to invest in junk-bonds offered by now bankrupt Hornbeck Offshore. The bonds sold to our clients were rated D by Standard and Poor’s at the time of the solicitation, which is as low as bond ratings go.  This was not even speculation, it was financial homicide. The financial advisor at issue in our clients’ cases, Thomas M. Bonik was registered with NTB Financial Corporation (f/k/a Neidiger, Tucker, Bruner), which is headquartered in Colorado and has offices all over the country.  Mr. Bonik’s office was primarily in St. Augustine, Florida.

Hornbeck Offshore had been struggling financially for years.  The company is primarily engaged in offshore oil drilling and transportation. The persistently low prices for oil and gas for the past few years resulted in Hornbeck struggling financially due to a heavy debt load. Part of that debt was in the form of bonds purchased by investors.  Covid was the last straw for this struggling company and in June it filed a pre-packaged Chapter 11 plan in the Bankruptcy Court for the Southern District of Texas.  These pre-packaged plans are negotiated in advance with the “Secured” creditors, and typically burn bond holders like our clients. No surprise, our clients have lost every dime they invested in these Hornbeck bonds.

Financial advisors recommend clients invest in corporate or municipal bonds that are technically “junk” rated because these bonds have much higher yields than higher rated bonds. In the persistent low-rate environment in the US and to some degree the worldwide economy has been in since after the financial crisis, investors and advisors alike reach for higher yields, often investing in esoteric alternatives to grab that extra yield.  In this instance, the recommendation was to invest in corporate bonds that were rated “D” by S&P, which defines this rating as:

Scott Wayne Reed (“Agent Reed”), of Scottsdale, Arizona, has been engaging in various misconduct in customer accounts for years now. Most recently, earlier this year a Wells Fargo customer alleged that Agent Reed solicited him to invest in “an investment opportunity in a company not offered by Wells Fargo Advisors”, Reed broker-dealer at the time. Upon information and belief, Reed tried to solicit several customers to invest in outside business activities sponsored by Hollywood producers. This “selling away” activity led to Reed’s departure from Wells Fargo on April 7, 2020.

Several of Agent Reed’s customers have complained that he sold them unsuitable investments in private placements, oil and gas investments, hedge funds, and mutual funds and over-concentrated their accounts in private placements. In 2017, elderly clients of Reed filed a complaint against Reed’s previous brokerage firms, Accelerated Capital Group (“ACG”) which is now out of business, and Coastal Equities, and later adding him personally to the complaint, for selling them several unsuitable investments. Included in these investments were various Staffing 360 issuances, Aeon Multi-Opportunity Fund, which became Kadmon, and Aequitas, which ended up being a Ponzi scheme. The clients lost their entire investment in Aequitas. They lost between 92% to 99% of their investments in Staffing 360 and lost 70% of their investments in Aeon/Kadmon. Reed sold these investments to his clients even after there were red flags that these companies were completely failing and drowning in debt.

Agent Reed has bounced around several brokerage firms, and has also worked as a registered investment advisor. From 1999-2001, he was registered at Ameritrade. His longest tenure was at Fidelity from 2001 through July 2010. He had brief stints at Strategic Advisors, Inc. and Meridian United Capital before joining Accelerated Capital Group from 2010 through 2015. Agent Reed was registered with Coastal Equities for only five months then joined Wells Fargo from April 2016 through April 2020. While his CRD Report states that he “voluntarily resigned” from Wells Fargo, the explanation details that his resignation came while he was under investigation for selling away. He has been registered with First Financial Equity Corporation since April 2020. Reed was also a dually registered RIA with Gentry Wealth Management from July 2010 through April 2016, which became Ashton Thomas Financial in 2015. According to his FINRA BrokerCheck Report, Mr. Reed operates as “Reed Private Wealth”.

Chicago-based Stoltmann Law Offices continues to represent investors who’ve suffered losses in connection with financial advisors who have oversold energy stocks and other energy-related investments. With the COVID-19 pandemic depressing demand for everything from gasoline to jet fuel, it’s been a mostly rotten year for energy stocks. In fact, when news first hit the markets in early March, stocks in many oil & gas companies and funds that invested in them crashed. At one time, the Energy Select SPDR (XLE), an exchange-traded fund that invests in energy companies, was down as much as 58%.

The net effect of tens of millions of Americans sheltering in place, avoiding travel and not commuting slashed demand for fuels. Only a handful of people were getting on jets, buses, ships, trains, or driving to work. That resulted in energy companies eliminating dividends and losing money.  While the economy has recovered somewhat as more states have re-opened in recent months, energy demand is nowhere near where it was at the beginning of 2020. The U.S. economy is now in a recession, which may continue into 2021.

What is important to realize about oil/gas prices is, the decline in energy demand actually began a few years ago – primary energy consumption dropped by half in 2019 alone — hasn’t stopped brokers from selling investments in oil & gas companies. They have sold stocks, limited partnerships, and mutual funds that concentrate in fossil fuels, which are volatile commodities and have a long history or volatility.

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