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.

The smoke emanating from the GPB Funds continues to build. As detailed in our post from November, the 1.8 billion-dollar GPB Capital Funds have been raising eyebrows for a few months now. Back in September, Massachusetts Secretary of State William Galvin announced an investigation into 63 brokerage firms that sold investments in GPB to its clients. According to a recent Investment News report, both FINRA and the SEC have now also inquired into brokerage firm sales practices connected to the GPB Capital Funds.

According to published reports, GPB paid brokerage firms a 12% commission to sell its speculative, high-risk private placements to retail investors.  This sort of commission is the driving force behind brokerage firms selling private placements. By comparison, a brokerage firm will generate a commission of about 1% on a stock trade and perhaps as high as 5% on a Class A mutual fund.  With the increasing popularity of cheap alternatives like Index Funds which only generate commissions of less than 0.5% in most instances, it is clear why brokerage firms peddle speculative investments like those issued by GPB Capital. A financial advisor would have to sell a lot of stocks and bonds to generate the same amount of commissions.

For example, if a financial advisor sells an investor a $100,000 unit of one of the GPB Capital private placements, the advisor and his firm would be paid $10,000-$12,000 for making this sale. If on the other hand, the advisor instead sold the investor a basket of Dow 30 stocks for $100,000, the take would be only $1,000-$2,000.  This advisor would have to sell over a million dollars of stocks to this client to make the same commissions.  Plus, selling a basket of stocks and bonds requires ongoing professional service and advice from the financial advisor.  Issues related to rebalancing and market volatility require ongoing financial advice.  Financial Advisors love selling private placements like those offered by GPB Capital because they feel like they can sell it and forget it. These private placements do not price to a market daily, creating the illusion that they are stable and that an investor’s principal is safe. It is really a no brainer for your trusted financial advisor.

On December 27, 2018, John G. Schmidt was charged in a 128 count indictment by the Montgomery County, Ohio Prosecuting Attorney. According to Investment News, the Prosecutor alleges that Schmidt, while employed a financial advisor for Wells Fargo Advisors, stole money from clients while operating a Ponzi scheme. The Prosecutor further alleges that Schmidt created fictitious account statements in order to hide his fraud from his investor clients.

According to Schmidt’s publicly available FINRA BrokerCheck Report, he was employed with Wells Fargo Advisors Financial from 2006 to October 24, 2017 when he was terminated for cause “after allegations of unauthorized money movement between clients, and after the Firm was notified of an allegation of the existence of inaccurate statements which appear not to have been generated or approved by the Firm.” Only days after Schmidt was fired by Wells Fargo, the customer complaints began rolling in alleging he had stolen money. Some of those cases have been settled but a few are still pending.  On September 25, 2018, the Securities and Exchange Commission filed a civil complaint against Schmidt outlining the details of this Ponzi scheme.

Schmidt’s Ponzi scheme is why the SEC and FINRA have mandated for generations now that brokerage firms adequately supervise their brokers.  In 1989 the SEC clearly outlined a brokerage firm’s supervisory responsibilities:

GPB Capital, a New York-based private equity firm and manager of several private placement funds, announced last week that the auditor of its funds’ financial statements, Crowe, LLP, had resigned. According to an article published by Investment News on November 14, 2018, Crowe walked-away from performing audits on GPB’s two largest funds amid concerns about “risks that Crowe determined fell outside of their internal risk tolerance parameters.”  This decision by the auditor to resign, as opposed to performing the audits, is a red-flag that these funds were, at a minimum, using investor money in a way that fell outside the express limitations or disclosures contained in the fund offering materials.

This latest news about GPB Capital comes on the heels of previous announcements to investors that it was suspending redemptions, meaning it was no longer honoring investor requests to pull  money out which is alarming, was restating its financials for 2015 and 2016, and was delaying filing its 2017 financials.

GPB Capital created several private placement funds in 2013 including the GBP Holdings, LP, GPB Holdings II, LP, GPB Automotive Portfolio, LP, and the GPB Waste Management Fund, LP. These fund are all “private placements” meaning they are registered with the Securities and Exchange Commission as being “exempt” from registration under SEC Rule 506. Being exempt from registration means the funds can raise capital from investors, but only those that are “qualified” or “accredited.”

Investors who are exposed to unscrupulous financial advisors are starting to feel some serious pain. If you have lost a substantial amount of money over the course of the last few months, and your account is on margin, it might get a lot worse.  The good news is, your losses may be recoverable by filing a claim through FINRA Arbitration.

Over the last few weeks the stock market has seen some pretty steep losses.  All major US equity indices, the Dow Jones Industrial Average, the S&P 500, the NASDAQ, and the Russell 2Kare all, as of the date of this post, down at least 10% from their late summer/early fall all-time highs – officially “correction” territory.  Even more disconcerting, all of these indices are now down between 4.4% and 11.5% year-to-date.

What our experience in representing investors in arbitration and litigation for almost twenty years  has taught us is in circumstances like this market, with increased short-term losses spilling into a longer-term trend, like a year-to-date loss, is investors who have been overexposed to excessive trading or churning and margin abuses get hammered hard and fast. The previous seven or eight years has marked a perfect storm for brokers to engage in churning and margin trading without consequences because the markets have largely gone straight up since the spring of 2009, with only minor blips along the road. When investors don’t notice losses in their accounts, they simply are not alerted to what their broker may be doing. If your broker trades too much in your account, this generates commissions which eats away at your return. If the trading is done on margin, that only increases the drag on the account because of margin interest. The higher this Cost-Equity Ratio gets, the more your account has to earn just to may for the broker’s fees and commissions. Margin also can exponentially increase the risk profile of an account. Investors may not notice this wear and tear until the market performance no longer keeps up with the cost of the trading, at which point the losses can accumulate rapidly.

The State of Indiana recently imposed a $450,000 civil penaltyagainst LPL Financial for failing to supervise the company’s financial advisors on a state-wide basis.  The fine was based on two material deficiencies in LPL’s supervisory system. First, due to an alleged software glitch, LPL supervisors were not monitoring or supervising an undisclosed number of emails. There is an obligation for LPL to supervise all incoming and outgoing correspondence with firm clients. This obligation is rooted in FINRA Rule 3110(b)(4), which provides:

The supervisory procedures required by this paragraph (b) shall include procedures for the review of incoming and outgoing written (including electronic) correspondence and internal communications relating to the member’s investment banking or securities business. The supervisory procedures must be appropriate for the member’s business, size, structure, and customers. The supervisory procedures must require the member’s review of:

(A) incoming and outgoing written (including electronic) correspondence to properly identify and handle in accordance with firm procedures, customer complaints, instructions, funds and securities, and communications that are of a subject matter that require review under FINRA rules and federal securities laws.

AdobeStock_198259345-300x200If so, the investment losses you sustained might be recoverable through the FINRA arbitration claims process.  This week, Wells Fargo was ordered to pay a client of the firm damages, including $100,000 in punitive damages, for securities fraud in the purchase and sale of Quicksilver Resources.  Punitive damages are rare in the FINRA arbitration forum.  This award comes after another arbitration award against Wells Fargo for $75,383 for sales of these same securities.  If you were a Wells Fargo customer and invested in Quicksilver Resources please contact our Chicago based securities fraud law firm. 

AdobeStock_35532974-1-300x200Stoltmann Law Offices is investigating Adam Lopez, of Springfield, Illinois, who the State of Illinois has alleged swindled clients out of at least $403,000.  According to a Temporary Order Of Suspension and Prohibition filed by the Illinois Securities Department, # 1800493, Lopez advised clients, including family members, to transfer funds out of their Country Capital controlled accounts and in order to participate in better investments, needed to then write checks to Lopez. This fraudulent conversion of his clients’ money also resulted in tax consequences for some of these clients because the money withdrawn was from tax-deferred IRAs.

On September 5, 2018, Country Capital discharged Lopez for cause, apparently related to this conversion scheme. Country Capital’s public disclosure found on FINRA BrokerCheck states that Lopez was “terminated due to termination by affiliated insurance companies for alleged violation of provisions in his insurance agent contract relating to obligations of honesty. Not securities related.”  This self-serving public disclosure by Country Capital does not appear to be forthright. According to the allegations made by the State of Illinois, the recommendations by Lopez to sell certain investments and withdraw IRA funds clearly involve securities and goes well beyond mere dishonesty. Country Capital makes generic disclosures like this in order to deflect responsibility for supervising Lopez, which the complaint by the State of Illinois establishes, the company failed to do in any reasonable manner.

If you or someone you know lost money as a result of misconduct engaged in by former Country Capital financial advisor Adam Lopez, please contact our securities investor-protection law firm in Chicago for a free no obligation consultation with an attorney.  We are a contingency fee firm meaning unless we recover money for you we do not get paid.

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Business diagram shows change of the prices for oil

Were you a client of Creative Planning and TD Ameritrade? Did you have unauthorized trades placed in your account in oil and gas related echange traded notes or funds?  If so the FINRA arbitration claims process can be used to recover those losses.  Please contact our law firm in Chicago for a no cost review by an attorney as to how Creative Planning and TD Ameritrade can be sued in the FIRNA arbitration forum.

Forest-Oil-Uses-Spotfire-to-Drill-Down-to-Real-Results-300x174Were you recommended oil and gas investments by Stifel Nicolaus financial advisor Andrew Elsoffer (30100 Chagrin, Suite 101, Pepper Pike, OH, 44124)?  If so, those losses are potentially recoverable in the FINRA arbitration forum.  Brokers are obligated to make investment recommendations that are suitable and consistent with their clients objectives, net worth, age and other holdings.  Recommendations in Lynn Energy and other oil and gas concentrated investments may have been unsuitable and therefore entitle the investor to damages.   If you were recommended oil and gas related investments by Andrew Elsoffer, please contact our law firm for a free review by a lawyer.

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