Articles Posted in Investment Fraud

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.

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.

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.

AdobeStock_66548440-1-300x169The Financial Industry Regulatory Authority (FINRA) has barred former Comprehensive Asset Management broker Pamela Shuttleworth, from the securities industry. Ms. Shuttleworth had violated securities laws and internal firm rules. Ms. Shuttleworth failed to respond to a FINRA investigation against her, which resulted in her automatic bar. FINRA was investigating her regarding allegations that she was the supervisor responsible for monitoring the emails of a former representative of her brokerage firm, Comprehensive Asset Management. Pamela Shuttleworth was a registered representative of Comprehensive Asset Management and Servicing from December 2014 until June 2017. She worked in the Parsippany, New Jersey branch. Comprehensive may be liable for losses in the FINRA arbitration forum because the firm had a duty to reasonably supervise Shuttleworth while she was employed there. We take cases on a contingency fee basis only.

AdobeStock_112465076-1-300x164Stoltmann Law Offices continues to investigate National Securities Corp broker Jonathan Aschoff and his recommendations of the following Biotech securities:

Avenue Therapeutics Inc (ATXI.O);

Checkpoint Therapeutics Inc (CKPT.O); and

AdobeStock_82110313-1-300x125According to a recent Letter of Acceptance, Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA), former Robert W. Baird broker Patrick Phillips has violated securities laws. Mr. Phillips allegedly accepted two loans from a firm customer totaling $70,000. He also used a personal email account for business purposes in contravention of policies. This prevented CGMI from discovering emails related to the customer loan. For this misconduct, he was fined $10,000 and suspended from the industry for five months.
Patrick Jermaine Phillips, according to online records, is not currently registered as a broker, and has been suspended from the securities industry. He has one customer dispute against him, alleging the taking of a loan from a firm customer, and one regulatory matter against him. He was previously registered with MSI Financial Services in Chicago, Illinois from October 2016 until December 2016, Citigroup Global Markets in Orland Park, Illinois from August 2013 until July 2016, Ameriprise Financial Services in Chicago from August 2010 until August 2013, and Robert W. Baird in Chicago from December 2006 until August 2010. Robert W. Baird may be liable for Phillips losses on a contingency fee basis in the arbitration forum. The firm had a duty to reasonably supervise its brokers.

AdobeStock_200379710-300x200Stoltmann Law Offices continues to investigate Healthcare Trust REIT, a non-traded real estate investment trust (REIT), that seeks to acquire a diversified portfolio of real estate properties focusing primarily on healthcare-related assets including medical office buildings, seniors housing, and other healthcare-related facilities. This is according to the company’s website. Recent news suggests that Healthcare Trust may be in further decline, and that investors may have lost money in the REIT. REITs are not suitable for all investors. They tend to be highly illiquid and risky investments, and a broker must take into account a customer’s age, net worth, investment objectives and investment risk tolerance, among other factors before recommending or selling any investment. If he does not, his brokerage firm may be liable for losses on a contingency fee basis, because the firm has a duty to reasonably supervise its representatives in order to make sure they do not violate securities laws or internal firm rules. You may have options if your broker recommended or sold you Healthcare Trust REIT investments. We take cases on a contingency fee basis only.

AdobeStock_194438920-300x200Former LPL broker Sanders Spangler was barred from the securities industry by the Financial Industry Regulatory Authority (FINRA). LPL terminated him for executing unauthorized trades in non-discretionary customer accounts in February 2017. In March 2018, FINRA barred him due to his failure to appear for an on-the-record testimony. Failure to appear for this results in an automatic bar from the industry. In March 2018, Spangler’s ex-wife alleged that he was forging her account documents. This dispute is currently pending. In October 2017, according to Spangler’s FINRA BrokerCheck report within the industry, available online, a customer alleged that he was over-concentrating the customer’s investments in risky energy stocks. He also alleged that Spangler liquidated his account without permission from the customer. This dispute is also currently pending. In June 2017, a customer alleged that Sanders Spangler instigated unsuitable, unauthorized trades in a non-discretionary customer account without the customer’s knowledge or permission. These are all against securities laws and internal firm rules.
Advisors must have the full consent and written approval of the customer before placing any trades. Unauthorized trading occurs when a broker sells a security without the proper written consent needed from the investor. An advisor must also take into account a customer’s age, net worth, investment objectives and investment risk tolerance, among other things when recommending and selling an investment. If he does not, his brokerage firm may be liable for losses. Energy investments, such as the ones Spangler sold to at least one customer, tend to be highly illiquid, unsuitable investments. If investors lose money because of a broker’s recommendation or sale, the brokerage firm may be liable for losses on a contingency fee basis in the FINRA arbitration forum, because the firm has a duty to reasonably supervise its employees while they are registered there.
Sanders Spangler, according to his online, FINRA BrokerCheck report, was previously registered with Edward Jones in St. Louis, Missouri from July 2000 until October 2005 and LPL in San Antonio, Texas from October 2005 until March 2017. He has six customer disputes against him, one of which is currently pending. They allege suspected forgery, over-concentration in energy stocks, account liquidation without client knowledge, unsuitable investments, unauthorized trading, poor performance, and discretion. He has one regulatory matter against him. He has been permanently barred from the securities industry.

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