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Chicago-based Stoltmann Law Offices is investigating allegations against Eric Hollifield that came to light as a result of a regulatory filing by the Financial Industry Regulatory Authority (FINRA).  According to FINRA, the regulator launched an investigation into Eric Hollifield who was a registered representative of LPL Financial and Hamilton Investment Counsel.  The investigation was in connection with a customer complaint filed in arbitration against Dacula, Georgia-based Hollifield that alleges he stole or misappropriated $1,240,000 from the account of an elderly client. This complaint was filed on August 25, 2021 and came on the heels of LPL terminating Hollifield for cause for “failing to disclose an outside business activity.”  On September 1, 2021 Hamilton Investment Counsel followed LPL’s lead and terminated Hollifield for cause or failing to disclose an outside business activity.

Since Hollifield failed to respond to FINRA’s request for information, pursuant to FINRA Rule 8210, Hollifield accepted a lifetime ban from the securities industry.  Brokers agree to these lifetime bans, instead of cooperating with an investigation, for any number of reasons.  Obviously, given the allegations made by the pending customer complaint and the terminations from LPL and Hamilton, a reasonable conclusion to draw is, Hollifield chose to accept a lifetime bad from FINRA as opposed to disclosing or admitting information to FINRA that could be used against him by criminal authorities. It is important to realize, the facts in the customer complaint and the information contained in the FINRA AWC are mere allegations and nothing has been proven.

LPL has a long history of failing to supervise its financial advisors, like Hollifield. We have blogged on these issues numerous times.  Pursuant to FINRA Rule 3110, brokerage firms like LPL have an iron-clad responsibility to supervise the conduct of their brokers, like Hollifield.  Similarly, brokers have an obligation to disclose “outside business activities” to their member-firm pursuant to FINRA Rule 3270.  LPL cannot get off the hook, however, just because Hollifield failed to disclose an outside business. There are a few reasons for this and they are important.  First, brokers do it all the time and LPL knows it. Therefore, as required by both FINRA regulations and LPL’s open internal policies the procedures, LPL’s compliance and supervision apparatus is geared towards detecting undisclosed outside business activities because it is commonly through these outside businesses, that financial advisors execute their worst schemes and frauds on their clients.  Further, to the extent red flags existed that Hollifield was running an undisclosed outside business or doing something else that violated securities regulations, then LPL can be held liable for negligent supervision, at a minimum. Case law supports the imposition of liability on LPL under these circumstances.  See McGraw v. Wachovia Securities, 756 F. Supp. 2d 1053 (N.D. Iowa 2010).

Stoltmann Law Offices, a Chicago-based securities, investor, and consumer rights law firm has spoken to victims of the DeepRoot Funds scam and continues to investigate claims against third parties to recover these losses. On August 20, 2021, the Securities and Exchange Commission filed a complaint against Robert J. Mueller, DeepRoot Funds, LLC, Policy Services, Inc., and several other “relief defendants” alleging that Mueller and DeepRoot abused their roles as investments advisors to the two primary DeepRoot funds; the 575 Fund, LLC and the Growth Runs Deep Fund, LLC. The SEC flat-out alleges that Mueller used these funds as his personal piggy bank, including paying for weddings to wives number 2 and 3, and paying for the divorce from wife number 2.  Investors are likely looking at a total loss of funds invested amounting to nearly $58 million. Because the SEC has already gone after Mueller and the Funds, investors need to look for viable third parties that could have liability for investor losses.

The first and most obvious target for investors here would be the financial or investment advisor that solicited the transactions in the first place.  If your RIA or broker solicited you to invest in DeepRoot, it is almost certain this solicitation constituted a breach of fiduciary duty. RIAs will, with a straight face, ask clients in these situations rhetorically “how were we supposed to know?” Well, the investment advisor with the licenses, training, education, and statutory fiduciary duties to their clients are paid to know.  Whether your advisor is a FINRA registered broker or a Registered Investment Advisor (RIA), they have obligations to understand and know the products they sell to their clients.  On their faces, these DeepRoot Funds were unregistered, private, unproven, and speculative private-investment plays. Right there is enough information to disqualify these funds for investment by almost every retail investor in America.

To put it bluntly, the law obligates fiduciary investment advisors to understand the risks and characteristics of the investments they offer to their clients. Failing to do so constitutes a breach of a fundamental and basic duty. Investment advisors can be liable to their clients for this fundamental breach of duty. How are they supposed to know? They are paid to know and they are licensed professionals who are obligated to know whether the fund that are recommending uses investor funds to legitimately invest, or, as with DeepRoot, used investor funds to pay for divorces, a wedding, amongst other abuses.

Chicago-based Stoltmann Law Offices represents investors who’ve suffered losses from financial advisors who’ve swindled investors by converting or stealing their money.

Marcus E. Boggs, a Chicago-based registered investment advisor and former Merrill Lynch financial advisor, told his clients that he would use their funds to buy securities. Instead, in the ultimate deceit, he stole their money to pay for his personal expenses. According to the U.S. Attorney’s Office in Chicago, Boggs “spent more than $3 million of his clients’ funds over a ten-year period to pay his personal credit cards and the mortgage on his residence.  His credit card purchases included international vacations, expensive dinners at restaurants, and rent for multiple apartments that Boggs leased in Chicago.”

Moreover, Boggs even stole money from a client who received a wrongful imprisonment settlement. “One of the defrauded clients was wrongfully imprisoned for several years after being convicted of a 1991 sexual assault, kidnapping, and murder of a teenage girl.  After DNA testing exonerated the client and led to his release from prison, he received approximately $5 million from the State of Illinois and retained Boggs to manage and invest some of the money.  Boggs instead stole approximately $800,000 of the client’s funds.”

Chicago-based Stoltmann Law Offices is investigating regulatory filings establishing that former Fifth Third and Merrill Lynch financial advisor David S. Wells has accepted a permanent bar from the securities industry. According to a publicly filed Acceptance, Waiver, and Consent (AWC) filed with the Financial Industry Regulatory Authority (FINRA), Wells accepted the lifetime ban in lieu of appearing for or providing information to FINRA pursuant to FINRA Rule 8210. Wells did not admit to any misconduct. He chose to accept a lifetime bar from the securities industry instead of sitting for an OTR (on the record) interview, answer questions, or provide information to FINRA.

According to David Wells’s FINRA broker/check report, he “resigned” from Fifth Third Securities on June 30, 2021 after admitting he misappropriated funds from three clients. There is no other information available publicly about how much Wells stole or whether he refunded the victims. One fact is certain: his registration with Fifth Third Securities gives victims a change to recover those stolen funds. As a a matter of law, Fifth Third Securities is responsible for the conduct of their agents, like David Wells. Fifth Third had a duty to supervise Wells, his office, his client accounts, and to exercise supervisory authority over Wells to prevent violations of securities rules and regulations. These supervision rules and regulations are a critical part of the securities industry regulatory system and brokerage firms like Merrill Lynch and Fifth Third Securities can be held liable for damages for failing to properly supervise financial advisors like David Wells.

FINRA wields mighty authority over the registered representatives they license under Rule 8210. When FINRA comes calling for information in connection with an investigation under FINRA Rule 8210, financial advisors have two options. 1) They can cooperate fully with FINRA’s investigation or 2) they can voluntarily accept a lifetime bar. It would seem obvious why a financial advisor would accept the life time bar – they do not want to provide FINRA with any information because FINRA is on to something.  Its not quite that simple however. Complying with and responding to a FINRA Rule 8210 request can be difficult and if done without counsel is not advisable. If the registered representative is not being supported by his brokerage firm, it can be a terrifying experience.

Chicago-based Stoltmann Law Offices is investigating cases where investors have suffered losses from “robo-advisors.” In recent years, the rise of robo-advisors has been dramatic. These highly automated platforms will not only recommend securities and mutual funds, but create entire portfolios online or through a do-it-yourself (DIY) phone app.

The convenience and speed of making trades on your smartphone, however, doesn’t always reduce the chance that you’ll lose money. Many of the algorithms used to push securities don’t pay close attention to personal risk tolerance and are often loaded with hidden fees. And many robo accounts may automatically funnel customers funds into cash accounts, which are a money-losing proposition when you account for inflation.

The mega-brokerage Charles Schwab, which operates one of the largest robo platforms (Intelligence Portfolios), recently disclosed that it will take a $200 million charge in the second quarter regarding the U.S. Securities and Exchange Commission’s (SEC) probe into its robo practices.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from brokers and advisers in FINRA, AAA, and JAMS arbitrations for over fifteen years. One of the biggest problems with resolving investor or consumer complaints is that people are forced to go through a mandatory arbitration process. While this system avoids having to go to court – and can be less expensive – it’s often patently unfair because of lack of diversity among arbitrators.

Another overwhelming issue is that mandatory arbitration, which is in nearly every brokerage and consumer dispute resolution agreement, takes away your right to sue a firm that’s wronged you. That often limits your ability to be made whole and collect damages. And who sits on arbitration panels may restrict your legal options even more.

A recent study by the American Association for Justice found three major, disturbing flaws in the private arbitration system:

Stoltmann Law Offices, P.C., a boutique Chicago-based law firm that offers representation nationwide to investors, has been fighting brokerage firms and investment firms for decades over variable annuities and insurance products.  Variable annuities, equity-indexed annuities, whole life insurance, variable life insurance, whatever they are called, and the names can get really complicated, these insurance products are designed to do two things.  First, they are designed to move money from your pocket to the insurance company.  Second, they are designed to pay handsome commissions to the salesmen who solicit clients to invest or purchase these annuity and insurance products.

Recently, FINRA, which is the regulatory body responsible for policing the brokerage/investment markets, fined O.N. Equity Sales Company, out of Cincinnati, Ohio, for failing to supervise and surveil the sale and switching of annuities and insurance policies by their clients.  FINRA penalized ON Equity $275,000 and ordered the firm to pay restitution to aggrieved investors in the amount of $1,001,146.86.  FINRA’s investigation found that O.N. Equity (ONESCO) failed to establish, maintain, and enforce a supervisory system reasonably designed to supervise the sale of variable annuities. Because of ONESCO’s failures, the firm failed to detect and deter sales practice abuses by Richard Wesselt. In a parallel action, Wesselt consented to a permanent bar from the securities industry as a result of his misconduct. According to the FINRA action, he violated FINRA Rule 2111 (suitability), in connection with the recommendation to 78 investors to purchase variable annuities, that were inconsistent with the customers’ investment profiles, risk tolerance, liquidity needs, and time horizon.  Using what he called his “Infinite Banking” strategy, he pursued investors to liquidate their retirement accounts, including 401(k)s or IRAs, and use the  proceeds to buy variable annuities, and then liquidate the variable annuities to build cash value in whole life insurance policies. Wesselt was ONESCO’s highest producer in 2016 – big surprise given his proclivity to sell high commission products like variable annuities and life insurance policies.

If a financial advisor ever recommends the liquidation of mutual funds or other securities in an IRA or 401(k) account in order to buy a variable annuity, stop what you are doing and start looking for a new financial advisor.  The main attraction to variable annuities has always been that the money grows tax-deferred like an IRA.  By investing IRA funds in a variable annuity, that benefit is irrelevant. Instead, what you are doing is agreeing to pay your broker a huge 5%+ up front commission and the insurance company 3%-4% of your money per year in various fees and charges.  Variable annuities also charge huge surrender fees for money withdrawn in the first several years, although some offer a 10% withdrawal without penalty. Lastly, the mutual fund options for variable annuity sub-accounts are greatly reduced versus what an investor can invest in through a traditional IRA.  Variable annuities are rarely suitable for any investor. Unless you check the following boxes, variable annuities are not for you: 1) you maximize your tax-deferred retirement savings every year, i.e., you are contributing the max amount to your 401Ks and IRAs; 2) You actually need life insurance; and 3) you are young enough that you don’t need the money invested in the annuity for at least ten years.  Few people check these boxes, and yet according to reports, there is almost $2 trillion dollars locked away in these products, with more than $35 billion in sales in 2020.

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors who lost money in retirement plan investments. Hands down, one of the most secure things you own should be your retirement assets. Nobody should be able to pilfer them. But in the internet age, criminals are finding ways into company-sponsored plans.

The Government Accountability Office (GAO), the congressional watchdog agency, recently warned that retirement plans may be compromised by cybercrooks who break into programs like 401(k)s through the Internet. Why are cybercriminals going after these supposedly secure entities? Because that’s where the money is: As of 2018, there were 106 million people in private retirement plans that had more than $6.3 trillion in assets. The main issue with retirement plan security is that plan providers may share data with third parties. That may expose the plan to breaches. Since there’s little to no modern federal guidance how to protect this valuable information, that’s a huge threat.

Why is this information at risk? There are any number of ways that thieves can break in and steal valuable personal data. The GAO found that “personally identifiable information is shared throughout the chain of providers, starting at the plan sponsor and moving back and forth through third-party administrators, recordkeepers, custodians and payroll providers.” That means crooks may be able to take Social Security and bank account numbers.

Chicago-based Stoltmann Law Offices represents investors nationwide who’ve suffered losses from dealing with broker-advisors who’ve sold them fraudulent investment products.

Broker-advisers should be looking out for you when it comes to the investments they sell. But sometimes they drop the ball in a big way, although they are still legally responsible to ensure that what they sell you is legitimate. Brokers across the world have been selling products from Northstar Financial Services (Bermuda). The company was known for its variable annuities, which combine mutual funds within a “wrapper” of an insurance policy. You can invest in a range of vehicles from bonds to stocks. When you’re ready to retire, you can “annuitize” the product into monthly payments. When you die, your survivors will be paid a death benefit.

Northstar filed for bankruptcy last year, leaving investors holding the bag. Lawyers have been filing claims for investors as the company is being liquidated by the Bermuda Monetary Authority. What does that mean for investors who bought the company’s annuities? The news is not good.  “Clearly now that these investments have appointed a liquidator and are being unwound investors are quickly realizing their fear that their principal may never get returned in full as promised,” noted one law firm representing investor claims. For U.S. investors, though, it’s possible to file an arbitration claim if a FINRA-registered brokerage firm sold you Northstar products.

Chicago-based Stoltmann Law Offices has represented professional athletes who’ve suffered losses from dealing with broker-advisors who’ve swindled them. Sometimes having fame, extreme riches, and athletic prowess is inadequate protection against getting swindled by a broker. Although professional athletes can certainly afford to hire the best financial advisors, all too often they get thrown in the dirt by dishonest professionals.

Aroldis Chapman is a flame-throwing relief pitcher for the New York Yankees, possessing one of the highest-velocity fastballs in the game. He also briefly helped the Chicago Cubs win a World Series in 2016. But his throwing skill didn’t benefit him when a financial advisor allegedly embezzled millions from him to fund a lavish lifestyle.

In October (2020), Chapman filed a lawsuit against Pro Management Resources in Coral Springs, Florida, for reportedly embezzling $3 million from his account. The company is a commission-based financial advisory firm. Chapman has accused PMR advisor Benito Zavala of “misappropriating Chapman’s funds toward extravagant purchases, including an $836,000 home in Valrico, Fla., first-class plane tickets, clothes, cars and jewelry.” The firm declined to comment on the suit.

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