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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.

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 has represented investors who’ve suffered losses from dealing with brokers selling unsuitable investment products. Sometimes brokers break so many rules in hurting their clients that they are barred from the industry by FINRA, the industry’s primary regulator.

Case in point: Marshall Owen Isaacson, a former broker with Newbridge Securities of Boca Raton, Florida, was recently expelled from the industry. Isaacson, who had worked with 13 different brokerages, was barred for his involvement in making “unsuitable investment recommendations” while with Newbridge. Of course, one violation doesn’t get you kicked out of the industry. Isaacson had a string of violations going back several years. According to the FINRA BrokerCheck record, which is required to post broker infractions in its public database, Isaacson had 10 separate disclosed complaints, disputes or judgements going back to 2012.

In the last recorded complaint by FINRA, Isaacson  “consented to the sanction and to the entry of findings that he refused to provide documents and information requested by FINRA in connection with its investigation into whether he made unsuitable investment recommendations,” the FINRA record stated.  In plain language, Isaacson didn’t cooperate with FINRA investigators and agreed to the regulator’s final disciplinary action. That means he loses his license to sell securities. Needless to say, there’s more to the story. Brokers can often compile of trail of complaints and customer disputes for decades while still selling investment products.

Stoltmann Law Offices, P.C. is a Chicago-based securities, investor protection, and consumer rights law firm that offers victims representation on a contingency fee basis nationwide.  Our lawyers have grown accustomed to suing telecom carriers like AT&T and Sprint in arbitration for hacking victims. AT&T, Sprint, and T-Mobile customers fall victim all too often to SIM-Swapping or SIM-porting scams where crooks gain access to their cell phone numbers and from there, can execute any number of plays to gain further access to these victims’ banks accounts.  The most common type of account that gets hacked in these situations based on our lawyers’ experiences – by far – are Coinbase accounts where these crooks transfer Bitcoin or other crypto assets to third party accounts. When these investors complain to Coinbase that their accounts were robbed, Coinbase typically goes palms-up and says, too bad, so sad, and victims are left stunned that unauthorized access to their accounts, including transfers to unauthorized third parties, was allowed.

Coinbase is lightly regulated to say the least.  But, it is a money services business and is registered with FinCen (the U.S. Department of the Treasury, Financial Crime Enforcement Network).  On its website, Coinbase admits that it is required to comply with any number of laws and regulations, including on a state by state basis in which they operated, along with the U.S. Bank Secrecy Act, and the U.S. Patriot Act.  Coinbase is not a bank or brokerage firm so although it is regulated, as far as financial services are concerned in the United States, entities like Coinbase are on the fringe of regulation. Crypto is already the wild-wild west of the quasi-securities world and Coinbase is a primary facilitator of that market.  Still, Coinbase must follow certain regulations, including what are generally known as the “Know Your Customer” (KYC) Rule and anti-money laundering (AML) rules and regulations.  At the state level, in Illinois for example, Coinbase is licensed as a Money Transmitter through the Illinois Department of Financial and Professional Regulation.

Like our cases against AT&T and Sprint for losses in connection with SIM Swap scams, claims against Coinbase have to be brought through the American Arbitration Association (AAA) Consumer Rules process.  First though, customers have to comply with a specific pre-dispute complaint process or risk having their case thrown out of arbitration for failing to comply with these policies.  If you had more than $50,000 stolen from you as a result of your Coinbase account being hacked or accessed, you should call Stoltmann Law Offices, P.C. at 312-332-4200 for a no-obligation, initial consultation with an experienced arbitration attorney.  We are a contingency fee law firm which means we do not get paid unless you do.

 

Chicago-based Stoltmann Law Offices continues to investigate the Vida Longevity Fund. Managed by Vida Capital, the limited partnership invests in annuities and life- and structured settlements. It’s a complex product that has mostly invested in insurance products.

Vida managers had originally promised investors a 10% to 14% annualized return, although in recent years, the fund has been posting negative returns. Managers may have mispresented the investments and risk profile of the vehicle, which is operated as a hedge fund.

Like many investments promising high returns, Vida seemed appealing at a time when savings rates are near rock bottom, especially for federally guaranteed accounts. That’s why companies offering “alternative” products with “non-correlated” strategies have attracted billions in investor dollars. They promise high returns with seemingly little risk.

Stoltmann Law Offices, P.C., a Chicago-based securities and investment fraud law firm offering nationwide representation to investors who are victims of fraud and negligence of their financial and investment advisers, is currently representing clients who have suffered losses in connection with several Eco-Vest sponsored conservation easements, including Hammersmith Landing Holdings LLC.

Investors in Hammersmith Landing Holdings run the risk of facing steep IRS penalties as a result of the potentially fraudulent nature of the easement structure. On its face, Hammersmith offered investors a 4.1 – 1 deduction to investment ratio, which is more than double the ratio considered by the IRS to be reflective of a questionable tax avoidance transaction.  EcoVest, the issuer of Hammersmith and hundreds of other conservation easements, has been under active investigation by the Department of Justice since 2018 and by the Senate Finance Committee since as early as 2016.  A new wrinkle in the governments enforcement and investigation into these tax avoidance schemes is the recent revelation that President Trump has taken advantage of these conservation easements for many years and could have participated in structures that the IRS now considers to be illegal.

What investors actually get when they purchase a conservation easement is a Regulation D private placement – it is a security sold by a broker/dealer. As such, financial advisors and brokerage firms have numerous duties and obligation to vet the investment and to perform reasonable due diligence on the security prior to even offering it for sale.  There are several regulatory notices from FINRA that speak directly to this obligation, including Regulatory Notice 10-22, NASD Notice to Members 03-71 which discussed vetting of “non-conventional investments”, NASD Notice to Members 05-26, which discusses the vetting of “new products” and more recently, FINRA Regulatory Notice 13-31 which addresses supervision issues specific to advisors who sell a lot of these same products to several clients. Fundamentally, the due diligence and vetting process is rooted in FINRA’s Suitability Rule, specifically, FINRA Rule 2111.05(a).

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.

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