Articles Posted in Private Placement

Stoltmann Law Offices, P.C. continues to investigate, file, and prosecute cases on behalf of investors that were burned in the volatility spike from early February 2018, including the Frontier Permo Fund. A few mutuals funds, like LJM Preservation and Growth Fund which invested in uncovered S&P 500 index options, were absolutely crushed in a matter of hours as the United States equity markets swung hundreds of points in minutes, sending the VIX into chaos and creating havoc for those holding options exposed to this volatility. Many other investments, including hedge funds and private placement funds, also had shocking losses in reaction to this volatility spike. One of those private funds was the Frontier Permo Fund.

The Permo Fund, offered in several iterations like the Esulep LLC Permo Fund, (Esulep is the name of the company’s CEO – John Peluse – spelled backwards, how clever) or the Frontier Permo Fund, LLC. Whatever the name, Esulep Management LLC has at all times been the manager and owner of the fund company. Permo Fund markets itself as an absolute return, pooled investment fund utilizing a proprietary trading strategy to maximize value and performance for its investors.  The fund generally invested in index options in February 2018, when the volatility spike caused serious dislocation in the market for S&P 500 index options. So much money had piled into short-VIX related options, that those same investors tended to be long the S&P 500. Because of Permo Fund’s exposure to S&P 500 index options, amongst other issues, the Permo Fund saw whipsaw losses of approximately 36% in days.

Frontier Wealth Management, a fiduciary Registered Investment Advisory firm headquartered in Kansas City, Missouri, contracted with the Permo Fund in 2017 to raise capital for a pooled investment vehicle for their advisory clients to access the Permo Fund. According to a Form D filed with the Securities and Exchange Commission, this private offering raised at least $27,900,000 from 148 investors, all likely fiduciary clients of Frontier Wealth Management. This offering was dated March 13, 2017 and less than a year later, the fund plummeted.  Clients of Frontier Wealth Management who were sold private placement interests in the Frontier Permo Fund may have claims to pursue against Frontier to recover those losses.

The securities fraud attorneys at Stoltmann Law Offices, P.C. are continuing to investigate due diligence and suitability claims against brokerage firms that sold their clients investments in various GPB Capital Holdings offerings.  The most recent news has to do specifically with the Waste Management Fund, which buys and sells private waste haulers and garbage collectors. Not exactly the most glamorous of funds certainly, but new allegations have surfaced that GPB Capital purchased a company called Five Star Carting in March 2017, which has been embroiled in litigation amid allegations of a poor safety record. To make matters worse for GPB Waste Management, according to an InvestmentNews report,  GPB’s director of waste strategy – that is seriously the reported title – is Rod Proto, formally of Waste Management. He was fired from his position as President and COO of Waste Management 1999 and then charged with insider trading in 2003 by the SEC for which he paid a $3.7 million fine and stipulated to a ban from serving as an officer or director of a publicly traded company for five years.  It is unknown at this time if the FBI search warrant or other searches conducted by the New York City Business Integrity Commission – which happens to regulate waste haulers in New York City – has anything to do specifically with the GPB Waste Management Fund. In any event, the continued bad press and regulatory pressure is not good for GPB Fund investors.

Almost weekly more negative news comes out about GPB Capital Holdings. We have written considerably about many of these issues.  Brokers sell private placements like GPB Waste Management Fund, or the more popular GPB Automotive Fund for one reason – commissions. There is no other logical reason and exposure to a particular sector is not an excuse. If an investor needs exposure to the automobile sector, there are hundreds of publicly traded, low-commission options, including common stocks of car companies  or the companies from the automotive supply chain. If an investor is seeking a high-income investment, there are literally thousands of publicly-traded corporate or municipal bond options available at a fraction of the cost of a private placement like the GPB Funds. These private placements offer investors a toxic cocktail of 1) illiquidity, meaning once your money goes in it does not come back out until GPB says it does, 2) speculative risk, meaning the highest risk investment product available, and 3) a poor risk/return profile, meaning the risk you are taking is not being compensated by some potential of a high return. GPB Funds  were simply bad deals for investors. The only people that make out in situations like this are the brokerage firms like NewBridge Securities, FSC Securities, Cetera Advisors, Royal Alliance, and many others, who sold an estimated $1.5 billion of these funds to their clients.  At a 10% commission rate, these brokerage firms generated approximately $150 million in revenue just from selling these speculative and opaque funds.

If you were sold investments in any of the GBP Capital offerings by your financial advisor and wish to know your legal options, please call 312-332-4200 for a no obligation free consultation with an attorney. Stoltmann Law Offices is a Chicago-based  contingency fee firm which means we do not get paid until you do.

Many retail investors who were recommended GPB Capital Holding related investments by their financial advisors are asking the question “What’s next”?  Unfortunately, the answer will likely be unpleasant.  GPB Capital Holdings, LLC is a New York-based issuer of private placements offered under the “GPB” moniker. Over the last several years, GPB has raised at least $1.3 billion dollars from mostly retail investors through eight separate private offerings. These offerings include the GPB Automotive Portfolio, LP along with the GPB Waste Management Fund, and GPB Holdings Fund, I, II, and III, GPB New York Development, LP, and GPB Cold Storage, LP.  The GPB Automotive Portfolio was organized as Delaware limited partnership on May 27, 2013 with an expressed purpose to acquire, operate, and resell auto dealerships. The sale of these Class A units were expressly intended to be sold only to “accredited” investors, as that term of art is defined in Regulation D.

It was disclosed this week that the Federal Bureau of Investigation (FBI) is investigating GPB Capital and made an unannounced appearance at the headquarters last week.  As we have previously discussed , last year, the firm stopped taking in new investor money and ceased distributions.  It also restated its financial statements on top of an investigation by Massachusetts Secretary of the Commonwealth William Galvin.  While the company took great pains to point out that it has not been named in any action by any regulatory authority and it is not the target of any active investigation, the events of recent weeks gives all of the appearances that a major financial disaster is in store for investors in GPB.

Brokers at firms like Royal Alliance, FSC Securities, NewBridge Securities, and Cetera Advisors heavily peddled these high risk investors to investors.  Why?  Because of the fees and commissions. The GPB Fund paid out brokers between 8% and 11% of every dollar sold to clients. So for selling a $100,000 investment in the GPB Fund, brokers and their firms received between $8,000 and $11,000 for this one recommendation.  It is useful to put this extraordinary commission into context with those received for more standard, marketable securities like stocks, bonds, or mutual funds.  Financial Advisors in the traditional brokerage setting employed by an independent broker/dealer like NewBridge Securities, would earn between 0.5% and 1.5% on equity trades or corporate/municipal bonds trades.  Mutual funds, depending on share class, charge sales loaded and back-end fees that can be as high as 4.5%, but ETFs like those offered by Vanguard, are virtually fee-free. Moreover, many brokerage firms offer electronic trading for clients on a per trade basis as low as $4.95 per trade regardless of the amount of the transaction. Crucially, there are no break-point discounts available for private placements, meaning if an investor invests a million dollars, the broker gets the same commission rate. Publicly traded options like mutual funds and UITs, however, offer commission breakpoints; the more money an investor invests, the lower the commission rate. At 8%-11%, there is simply nothing that competes with this level of compensation, which is why many brokers spent their career selling “alternative investments” like GPB.

The investor advocate attorneys at Stoltmann Law Offices, P.C. view the latest news about GPB Capital Holdings as  potentially bad news for investors.  According to published reports, along with the SEC and FINRA, the FBI is now investigating GPB Holdings after an “unannounced” visit to GPB’s New York office last week. According to GPB Capital, along with the FBI, the New York City Business Integrity Commission also paid a visit.

We have written considerably about issues related to GPB Capital Holdings since December 2018 and it seems every month something else happens.  We also have since been retained by investors to pursue claims against the brokerage firms that sold these various GPB Capital funds to them. The one misnomer we continue to see published about clients who invested in GPB Capital Holdings offerings is that these investors were “accredited” or “sophisticated.” These labels are routinely bandied-about whenever an offering like GPB Capital Holdings burns investors.  The fact is, these labels are nothing more than defenses used by the brokerage firms that sell these exempt, private-placement securities to their clients. In fact, an investor usually must qualify as “accredited” to even participate in these offerings as an investor.  According to FINRA Regulatory Notice 10-22 and FINRA Rule 2111, these labels do not obviate the brokerage firm’s obligation to only recommend investments that 1) have been vetted by the firm prior to offering it and that 2) are suitable in light of the client’s investment objectives and risk tolerance. In order for the brokerage firm to adhere to this standard of care, it must satisfy both of these requirements. A brokerage firm cannot rely blindly on the representations made by an issuer like GPB Capital, nor is the disclosure of risks in an offering memorandum sufficient to satisfy the firm’s due diligence obligations which are intended to be gatekeeper in nature.

Our investigation has revealed that NewBridge Securities, FSC Securities, Cetera Advisors, Royal Alliance, and a cacophony of other FINRA registered brokerage firms sold investors units or shares in various GPB Capital offerings. If you were sold investment in any of the GBP Capital offerings and wish to know your legal options, please call 312-332-4200 for a no obligation free consultation with an attorney. Stoltmann Law Offices is Chicago-based  contingency fee firm which means we do not get paid until you do.

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_198259345-300x200Our firm is investigating allegations made against Stephen C. Carver, who was a registered representative for Cetera Advisors in Peoria, Illinois. According to his FINRA BrokerCheck Report, an investor sued Cetera and Mr. Carver in FINRA Arbitration for upwards of $3 million. The complaint makes allegations of elder abuse, conversion, breach of fiduciary duty, and violations of both Illinois and Federal statutory and consumer protection statutes. The claim was filed in October 2018 and involves direct-participation programs, limited partnerships or also known as Private Placements.

Mr. Carver has several disclosures on his BrokerCheck Report in addition to this recent complaint. He was terminated by LPL Financial in 2009 for failing to disclose his involvement in an outside business, which is major red flag to brokerage compliance departments. He also discloses several tax liens on his record. He was then terminated by Cetera for failing to disclose a gift he received from a client, who he stated was his uncle.

Mr. Carver was also named in a Regulatory Complaint filed by FINRA for failing to disclose tax liens on his Form U-4.  FINRA’s By-Laws, specifically Article V, Section 2(c) require all financial advisors update their U-4 with information required to be disclosed within thirty days of learning of the event requiring the disclosure.  Tax liens are specifically disclosable events that financial advisors like Mr. Carver are obligated to report within thirty days or they are violating FINRA By-Laws along with FINRA Rule 1122 and FINRA Rule 2010.

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