Articles Tagged with LPL

Chicago-based Stoltmann Law Offices is investigating allegations made by the United States Securities and Exchange Commission (SEC) regarding former LPL Financial Advisor Eric Hollifield and stealing over $1 million from a client.  This is not the first time an LPL financial advisor has been caught red-handed stealing from LPL firm clients. Given the independent contractor model employed by LPL Financial over its financial advisors, these sorts of scams are all too easy to pull off and continue to happen.

According to the SEC’s complaint, Hollifield, who worked out of Dacula, Georgia, executed several fraudulent ruses designed to hide his true intent. First, he solicited investors to put money into a company called Century Warehouse, Inc., which was allegedly involved in the warehousing and shipping industry. From October 2019 through October 2020, Hollifield is alleged to have raised $5.35 million from advisory clients for Century Warehouse. Hollifield’s alleged fraud were his representations to investors that Century intended to use investors funds to buy PPE and other COVID-related supplies for the benefit of veterans.  According to the SEC, at least $1 million of the money raised from investors went back to Hollifield’s bank account where he spent the money on personal expenses.  The SEC also alleges that Hollifield used $1.7 million in misappropriated investor money to purchase a home sitting on 37 acres in Winder, Georgia.  The SEC alleges further that Hollifield lied to a client about setting up a “high yield” account at Goldman Sachs and instead stole the money.

There are two primary compliance and supervisory models that have existed in the brokerage industry for decades.  The first is the one most people think of when they hear the term “brokerage firm”.  They envision a huge office with fifty cubicles and telephones ringing. This office model is still common in the large “wire house” brokerages like Merrill Lynch and Morgan Stanley. In that structure, a branch manager is stationed at his post on-sight, reviews all incoming and outgoing correspondence, reviews a daily trade blotter, and reviews a daily transaction ledger that shows all checks sent and received for accounts in his branch. This branch manager wanders the office, peaks over shoulders, and should ensure his brokers are living up to the standards of a licensed securities broker.

Chicago-based Stoltmann Law Offices, P.C., has represented hundreds of investors over the years in both arbitration and litigation against LPL Financial. Many of these claims involved situations where the financial adviser sold the investor an investment that ended up being a Ponzi-like scheme. Rhett Bedwell, it would seem, falls into that category of former LPL brokers who sold clients fraudulent investments.

According to published reports, Rhett Bedwell, of Rogers, Arizona, while a registered broker with LPL Financial allegedly transferred a client’s IRA to an IRA custodian, using forged documents, and invested the client’s IRA in a Ponzi scheme. According to regulatory documents filed by LPL Financial, Bedwell was under an internal investigation at the firm at the time he was “permitted to resign” and was also subject to customer complaints, event though there is only one customer complaint disclosed on his FINRA BrokerCheck Report.   On February 10, 2021, Bedwell signed a FINRA Acceptance, Waiver, and Consent (AWC) which barred him for life from the securities industry. By failing to respond to FINRA’s request for information in connection with a regulatory investigation, Bedwell sealed his professional fate.

In circumstances like this, investors need to realize the brokerage firm with whom the broker was registered, in this instance, LPL Financial, is legally responsible for his misconduct under two independent legal theories. First, as a licensed, registered financial adviser, anything Bedwell did as a financial adviser, is part of the scope and course of his agency with LPL Financial. Investors don’t sue the brokerage firm when brokers cause property damage, for example, because LPL is not responsible for what the firm’s brokers do outside of providing financial and investment advice. But in this circumstance, surely from the investor’s perspective, Bedwell was providing financial and investment advice at all times.  The second road that should be taken is a direct claim against LPL for negligent supervision.  The securities rules are clear and the obligations are rock solid that LPL must maintain adequate supervision and compliance over its brokers in order to prevent and to deter violations of state and federal securities laws. Either way, LPL can be liable for the misconduct of its brokers.

LPL terminated financial advisor Dain F. Stokes on August 28, 2019 for selling unregistered promissory notes to clients that purported to invest in a project in Africa allegedly sponsored by Taylor Swift. According to InvestmentNews, Stokes converted at least $576,000 from two clients, whom he solicited to invest in this phony charity project, which he sold as being created by Swift to help needy people in Africa. Stokes claimed to have a close relationship with Swift, telling clients that she personally hired him to manage the finances of the Africa project and to promote a new song release by her in June 2019. He also told clients that Bill Gates was involved in the project.

The State of New Hampshire Department of State Bureau of Securities Regulation filed a petition and order against Stokes after an investor (“Investor #1”) invested $201,000 in the Africa Project between August 1, 2018 and January 25, 2019. Stokes used promissory notes to facilitate these investments. According to the promissory notes, Investor #1 would receive the return of his entire principal plus 20% interest by making this investment. Payment on the first promissory note was initially due by November 8, 2018, however the due date was continually pushed back by Stokes. At one point, he even told his client that President Donald Trump allegedly froze his assets. Stokes was ordered to pay $201,000 plus interest in restitution to Investor #1 and a $20,000 fine for violating New Hampshire Blue Sky Laws, which prohibit the fraudulent sale of securities (RSA 421-B:5-501) and the sale of unregistered securities (RSA 421-B:3-301(a)). To date, a second investor who invested $375,000 has come forward.  The New Hampshire Department of State Bureau of Securities Regulation has since frozen Stokes’ assets and issued an injunction prohibiting him from speaking with those who invested in this scam.

New Hampshire authorities interviewed Stokes, who refused to provide any details about the African charity, claiming that all information, including the name, was privileged. He also refused to reveal whether the checks, which were made payable to him personally, were invested in his personal accounts.

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.

AdobeStock_112465076-1-300x164The Financial Industry Regulatory Authority (FINRA) barred former LPL broker Laura Shean from the industry for allegedly converting approximately $124,000 in customer funds between March 2017 and October 2017. Shean allegedly made tax payments for her own benefit to the IRS by improperly directing the IRS to debit funds from a customer’s brokerage account. The payments totaled $124,000. This resulted in a permanent bar from the industry by FINRA. Shean was previously registered with Merrill Lynch in New York, New York from March 1996 until March 1999, and LPL in Medford, Oregon from March 1999 until November 2017. She has one customer dispute against her, one regulatory pending matter, one investigation and one employment separation after allegations. She is not currently registered as a broker.

AdobeStock_17723177-1-300x175Two former brokers, Christopher Cervino and Larry Werbel were allegedly involved in a scheme to inflate the market for VGTel Inc. shares, a penny stock company. Their scheme allegedly defrauded more than 100 investors out of more than $15 million. Mr. Cervino was sentenced to one year and a day in prison last year, after he was found guilty of securities fraud by a federal court in New York. Mr. Werbel has pleaded guilty to fraud charges and is waiting for sentencing. Both were ordered by the Financial Industry Regulatory Authority (FINRA) to pay James Mirgliotta and the estate of his late wife, Bette, $595,000 in compensatory damages and $250,000 in punitive damages.

Christopher Cervino was previously registered with H.J. Meyers & Co., Sharpe Capital Inc., Ladenburg, Thalmann & Co., Carlin Equities, RBC Capital Markets, Lighthouse Financial Group, GFI Securities, Delaney Equity Group, Wilson-Davis & Co., COR Clearing, and Primary Capital in New York, New York from October 2014 until January 2016. He has one customer dispute pending against him, two regulatory matters, one civil and one criminal pending charge. He has been permanently barred from the industry, according to public FINRA records.

Mr. Werbel was previously registered with Cigna Financial Advisors, FSC Securities Corp, LPL Financial, Summit Brokerage Services, and Concorde Investment Services in Chagrin Falls, Ohio from April 2015 until January 2016. He has seven customer disputes against him, three regulatory matters, one civil pending dispute, and one criminal pending charge. This is according to FINRA, as well. He has also been permanently barred from the industry.

AdobeStock_78306447-1-300x199The Financial Industry Regulatory Authority (FINRA) ordered LPL to make a “very substantial” payment for the firings of an office of supervisory jurisdiction (OSJ) manager and a compliance delegate. The individuals brought a $20 million claim against the firm. Brandon Marinelli and Meagan Donahue also won expungement of their records that occurred on February 16th, without LPL disclosing the exact amount. Another OSJ manager in October was seeking $30 million from the firm, which LPL did not have to pay. In the same month, a former UBS advisor who was terminated from the firm won $3 million in connection with his defamation claim. Marinelli and Donahue’s former practice, Northstar Wealth Partners, remains affiliated with LPL, and both argued that they were wrongfully terminated in March 2016.
An arbitrator wrote: “The record (including LPL’s internal documents) are remarkable in the lack of credible evidence showing wrongdoing by Donahue. It appears that Marinelli’s actions were consistent with his obligations and in the few ambiguous instances explicitly approved by LPL. At a minimum, LPL did not appear to engaged with Marinelli to examine in good faith Marinelli’s actions in regard to the events causing concern.” The firm asserted that Marinelli and Donahue failed to detect or report problematic annuity transactions by a representative under their supervision. Donahue claimed and testified, however, that the firm reviewed the transactions and found them acceptable after discussing them with the clients. Evidence produced in the case also showed that LPL had itself found that two loans by Marinelli to a representative were not violations of its policies and approved a representative’s holdings of certain penny stocks. The panel concluded that LPL fired the two individuals “at least in part” in order “to impede Marinelli and his business partner from moving Northstar’s book of business elsewhere.”
According to public records with FINRA, Marinelli is now registered with Raymond James in West Hartford, Connecticut, and has been since May 2016. He was previously registered with LPL in West Hartford from October 2008 until April 2016. Meagan Donahue was previously registered with LPL in West Hartford from June 2014 until April 2016, and is not currently registered with any member firm.

AdobeStock_78306447-1-300x199A Financial Industry Regulatory Authority (FINRA) arbitration panel awarded $462,000 to former clients of Charles Fackrell, a former LPL broker serving prison time currently. Fackrell pleaded guilty to a $1.4 million ponzi scheme, and has many pending and future claims against the firm because of his misconduct. The bank may face more than 50 clients over charges against Fackrell. Total penalties, restitution, arbitration awards and settlements relating to the broker have reached $1.9 million. Fackrell will pay restitution of $819,918 to the victims, but LPL may face having to pay more than $1 million. He allegedly stole more than $700,000 of his clients’ $1.4 million from 2012 until 2014, telling them that he would invest their money in gold and other precious metals, but, instead spent most of the money on personal items. He was sentenced to five years in prison in December 2016 after he pleaded guilty to securities fraud, and after he spent almost half the investments he controlled between that time period. He allegedly suffers from bipolar disorder and post traumatic stress disorders and major depressive disorder. State regulators in North Carolina and Washington have sanctioned LPL over its supervision of Fackrell. Former clients to date have won more than $276,000 from LPL in arbitration.
Mr. Fackrell was previously registered with Morgan Stanley in Winston-Salem, North Carolina from August 2007 until February 2008, SunTrust Investment Services in Yadkinville, North Carolina from July 2008 until December 2009, Wells Fargo in High Point, North Carolina from December 2009 until June 2010 and LPL in Yadkinville from June 2010 until December 2014. He has 10 customer disputes against him, three of which are pending, alleging unsuitability and poor performance of investments, misrepresentation, breach of fiduciary duties, failure to supervise, violation of the North Carolina Securities Act, breach of contract, and fraud, among other things. He has two criminal charges against him, both of which are pending. According to his online, public FINRA BrokerCheck report, he has been permanently barred from the industry.

AdobeStock_33766885-1-300x200According to a recent InvestmentNews article, a former LPL broker, James E. “Jeb” Bashaw, lost a securities arbitration decision last month in which he sought $30 million in damages, claiming the company ruined his career. Bashaw was fired from LPL in 2014, and sued the firm and its former CEO, Mark Casady, two years later. Bashaw was fired from LPL for allegedly participating in private securities transactions without written disclosure or approval; engaging in a business transaction without written disclosure or approval; and borrowing money from a client. These are all against securities laws. According to the arbitration decision, “LPL commenced an audit in furtherance of its plan to raid JebCo’s employees, steal Bashaw’s clients, and to destroy his career.” He also claimed defamation, intentional infliction of emotional distress, raiding and other allegations.
According to his BrokerCheck with the Financial Industry Regulatory Authority (FINRA), Jeb Bashaw was previously registered with Merrill Lynch, Kidder, Peabody & Co., Thomas F. White & Co., First America Equities Corp, Augusta Securities Corp, SunTrust Equitable Securities, J.C. Bradford & Co., UBS, LPL in Houston, Texas from November 2001 until October 2014 and Wunderlich Securities. He is currently registered with International Assets Advisory in Houston, Texas and has been since October 2014. He has three customer disputes against him, one of which is currently pending.

According to his Letter of Acceptance, Waiver and Consent (AWC) with the Financial Industry Regulatory Authority (FINRA), John Bernard allegedly violated securities laws. Mr. Bernard was accused of exercising discretion without written authorization in the accounts of seven customers, while he was registered with LPL. Between January 2013 and December 2014, Mr. Bernard exercised discretion in the accounts of seven customers, and LPL had not accepted the accounts for discretionary trading. For this misconduct, he was fined $5,000 and suspended from association with any FINRA member firm in any capacity for 20 business days.

According to his online FINRA BrokerCheck report, Mr. Bernard was previously registered with Morgan Stanley in Purchase, New York from October 1995 until November 2005, and LPL in Shell Beach, California from November 2005 until March 2015. He is currently registered with Independent Financial Group in San Luis Obispo, California, and has been since February 2015. He has two customer disputes against him, alleging unsuitability, churning, failure to supervise and alleged unauthorized trading. Churning is a particularly egregious form of misconduct, because it is excessive trading in a customer’s account. It typically results in losses and unnecessary fees for the client and large commissions for the broker. It is against securities laws.

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