Articles Posted in Investment Fraud

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:

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.

Chicago-based Stoltmann Law Offices continues to investigate investor claims related to UBS YES products.  In recent years, with savings yields at rock bottom, investors have been eager to attempt to safely earn a higher return on their money. Wall Street has responded with so-called “yield enhancement strategies” (YES) designed to pump up returns. But these strategies eek out this extra yield by employing extremely risky options trading strategies.

What brokers haven’t told investors in countless pitches, however, is that yield enhancement products are complicated and carry numerous hidden risks. The UBS YES program, involving an “iron condor” options trading plan, has attracted a great deal of attention recently. Investors are suing UBS, the Swiss wealth management firm, claiming they lost money when UBS brokers enrolled them in the strategy. Arbitration claims against the company have also been filed with FINRA, the securities industry regulator.

Investors who invested in the UBS YES program claim they suffered losses, even though the firm claimed the strategy was “conservative” and “low risk,” according to Wealthmanagement.com. What investors apparently were not told is how complex and convoluted the YES strategy was:

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses due to recommendations by financial advisors and brokers to invest in Exchange-Traded Products (ETPs). With market gyrations giving average investors motion sickness this year, it’s understandable for many to find ways of hedging volatility. When the market is up one day and down another, it’s pretty unnerving.

That’s why Wall Street invented Exchange Traded Products linked to volatility indexes, which track the nervy fears of the market at large. When anxiety is high, these indexes are high. One of the most popular such indexes is the so-called VIX, which is managed by the Chicago Board Options Exchange. Brokers and advisors often recommend ETPs based on the VIX for clients who want to hedge against market volatility.

ETPs are securities traded on stock exchanges that can track anything from baskets of bonds to precious metals. For many investors, they can be efficient ways of owning commodities or hedging prices on nearly any kind of security. But each have their own risk profile. Some are clearly unsuitable for unprepared investors.

Stoltmann Law Offices, P.C. is investigating allegations made by the Financial Industry Regulatory Authority (FINRA) that Jose Yniguez sold clients approximately $99,000 worth of investments in an outside company. Fortunately for defrauded investors, TransAmerica Advisors, the company with whom Mr. Yniguez was licensed and registered, could ultimately be liable for any losses in connection with these illicit investment recommendation. Victims of investment fraud can file claims through the FINRA Arbitration process to recover investment losses.

The allegations against Yniguez were unveiled just this week through FINRA regulatory filing called an Acceptance, Waiver, and Consent (AWC).  In this document, which is signed by Yniguez, FINRA Department of Enforcement alleges that on November 19, 2018, TransAmerica reported in a Uniform Termination Notice for Securities Industry (Form U-5) that Yniguez was terminated for “engaging in undisclosed activities with and referring firm and non-firm customers to investment with an outside entity without TransAmerica’s approval.” That Form U-5 spurred FINRA Department of Enforcement’s interest and it launched an investigation into Mr. Yniguez pursuant to FINRA Rule 8210.  FINRA concluded that Yniguez violated FINRA Rules 3270 and 2010 by failing to disclose his involvement with an outside company to TransAmerica. He also solicited eight firm customer to invest in the entity, which is a violation of FINRA Rule 3280.

Just because this activity was undisclosed, does not mean TransAmerica is off the hook. FINRA Rule 3110 requires TransAmerica to adequately supervise its financial advisors. Further, to the extent “red-flags” existed that Mr. Yniguez was engaging in this unauthorized activity, that creates an obligation to “peel the onion” and act. TransAmerica, for example, cannot just ignore emails sent by Yniguez discussing this outside company. It must act and protect both its clients and its own business interests. By failing to reasonable supervise Yniguez, TransAmerica can be liable for negligence to the investors in this scheme. Likewise, due to the fact that outside investments were securities; were sold by a securities broker; to clients of a securities brokerage firm; regardless of whether Yniguez disclosed it to the firm, TransAmerica can be liable for damages due to apparent agency or Respondeat Superior.

Stoltmann Law Offices is a Chicago-based securities and investment fraud law firm that offers nationwide representation to victims of Ponzi schemes and other securities frauds.  We are currently investigating allegations made by the United States Securities and Exchange Commission (SEC) and the US Attorney for the Southern District of New York that contend the Belize Infrastructure Fund I, LLC was a Ponzi scheme.  According to published reports, Minish “Joe” Hede and Kevin Graetz sold $9.6 million worth of promissory notes to their clients, many of whom were customers of their brokerage/dealer firm Paulson Investment Company.

According to the complaint filed by the SEC, Brent Borland, the principal of the Belize Infrastructure Fund who is also under indictment, approached Paulson Investment Company to act as “placement agent” for this fund. After the sales pitch, Paulson declined to act as the placement agent and disapproved of the investment. Whether Paulson Investment Company approved of the deal or not, meant nothing to Hede and Graetz who went on to sell almost $10 million worth of notes issued by the bogus company to at least 21 Paulson clients.  In so doing, Graetz and Hede violated numerous FINRA Rules and SEC rules and regulations by selling a fund that was not approved of by their broker dealer.  The SEC complaint also alleged that Hede and Graetz received hundreds of thousands of dollars in illicit commissions from selling notes issued by the Belize Infrastructure Fund.

Paulson Investment Company can still be held liable for the conduct of the firm’s registered brokers, Hede and Graetz. First, even though Paulson Investment did not formally approve of these sales, Hede and Graetz were still registered with the firm as brokers when these sales occurred so that means Paulson had an obligation to supervise their activities pursuant to FINRA Rule 3010. Additionally, “red-flags” that brokers may be “selling away” increase that responsibility. Certainly, having sold almost $10 million in this fund to 21 Paulson clients means there was, at a minimum: 1) a paper trail that they were selling these notes; 2) communications via email discussing the Belize fund; 3) transactional records, including the sale of securities in the clients’ legitimate Paulson accounts in order to fund the Belize Fund investments; and 4) client meetings.  Furthermore, brokers with numerous disclosures on their CRD Report require firms to put those advisors on “heightened supervision.”  According to his FINRA BrokerCheck Report, Graetz had numerous tax liens and customer complaints on his record before he started selling the Belize Fund to his clients.  Paulson Investment Company should have had him under a supervisory microscope. Instead, as is typical at brokerage firms like Paulson, the company invests minimally in its compliance and supervisory structure and brokers like Graetz and Hede end up selling firm clients almost $10 million in a Ponzi scheme.

Stoltmann Law Offices, P.C, a Chicago-based securities law firm specializing in representing investors nationwide, continues to hear from investors who have suffered devastating losses in alternative investments.  One of the most common and popular alternative investments peddled by brokers over the last several years are “business development companies” or “BDCs”. The most common issuer of BDCs is a company called Franklin Square, and brokerage firms have pushed hundreds of millions of dollars in these speculative investments to unsuspecting investors for a decade.

FSKR, the publicly-traded BDC called FS KKR Capital Corp. (NYSE: FSKR), was created by the merger of four Franklin Square non-traded BDCs in December 2019:

  • FS Investment Corporation II (FSIC II)

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses as a result of financial advisors who sell investments that are technically “unauthorized” by their firms. These side gigs, while profitable for the broker due to high commissions, are prohibited by FINRA, the industry regulator.

Brokers may pitch clients on a private securities transaction, for example. Of course, the investors rarely have any clue that what they are being asked to invest in is “unauthorized” or a “private securities transaction.” Sometimes these take the form of stock offerings that are unlisted. Broker Henry A. Taylor III, for example, then working for the Cetera brokerage firm, sold $30,000 in private stock that invested in a trucking firm. Taylor did not notify his firm of the sale and had initially deposited his client’s check in his personal account.

After a FINRA arbitration claim was filed, the regulator fined Taylor $7,500 and suspended him for three months earlier this year. Taylor neither admitted nor denied the findings of the FINRA action. The original transaction took place three years ago.

Chicago-based Stoltmann Law Offices has represented hundreds of investors who have been victims of one of the most egregious investment frauds: Ponzi schemes. These swindles promise quick riches and rely upon an increasing number of “investors” to keep the operation going, sometimes over a period of years. The schemes eventually blow up when new investors can’t be found to perpetuate it or promoters are outed by investors or associates for faking returns.

The most famous Ponzi scheme – and perhaps one of the largest – involved broker-money manager Bernie Madoff. Over a period of 17 years, Madoff defrauded thousands of investors, lying about profitable trades. In 2009, he was sentenced to 150 years in prison, after pleading guilty to a $65 billion swindle of some 65,000 victims around the world. Many of Madoff’s victims, which ranged from non-profit organizations to celebrities, were financially ruined. A court-appointed “Madoff Victims Fund” has distributed nearly $3 billion to investors. His sons, who worked for their father’s firm, turned Madoff into authorities when they learned of the scam.

Despite the notoriety of the Madoff swindle, Ponzi schemes are still ensnaring innocent investors. As one of the oldest investment fraud vehicles around, the Ponzi scheme has two selling points: Promoters promise outrageous returns in a short period of time and rely upon continuing stream of new victims to “pay off” early investors in fake profits. This perennial false promise of easy riches makes it one of the most durable schemes for dishonest brokers, who continue to sell them — until the frauds collapse.

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