Articles Tagged with Securities and Exchange Commission

Stoltmann Law Offices, P.C. is a Chicago-based securities and investor rights law firm that offers representation on a contingency fee basis to victims of investment fraud nationwide. On August 20, 2021, the Securities and Exchange Commission (SEC) filed a complaint in United States District Court for the Northern District of Georgia (Atlanta) alleging that John Woods “has been running a massive Ponzi scheme for over a decade.” That is the first line of the complaint, which goes on to allege that more than 400 investors are owed over $110,000,000 on alleged investments in Horizon Private Equity Group, III, LLC.  The complaint also names Livingston Group Asset Management Company, d/b/a Southport Capital, which is a registered investment adviser firm owned and controlled by John Woods.

The sales pitch for these investments in Horizon promised returns of 6-7% interest guaranteed for 2 or 3 years.  These are not the sort of huge returns typically promised in a Ponzi scheme. In fact, these are pretty low returns when compared to the rate of return on the S&P 500 or even alternative investments like non-Traded REITs.  Ironically, now disgraced GPB Capital – which is also alleged by the SEC to be a massive Ponzi scheme, promised returns of 8%.  This sort of Ponzi scheme is more incendiary and falls into the Bernie Madoff category of promising lower, but consistent, rates of return. Investors who are victims of a Ponzi scheme promising 6-7% returns cannot say they should have known better because it was too good to be true.  Woods and his RIA represented that they would take investor funds and invest them in government bonds, stocks, and real estate projects. Investors were never told their money would be used to pay interest to earlier investors, which is what the SEC alleged they did on a massive scale. Horizon did not earn nearly enough returns through legitimate investments to pay investor interest payments and as such had to rely on new investor money to maintain those interest payments – a hallmark of a Ponzi scheme.

Victims need to look to potentially liable third parties for recovery while the SEC freezes Woods’ and Horizon’s assets and begins an accounting process that will likely take years.  The first target could be Oppenheimer.  According to the SEC complaint and FINRA, Woods was a registered representative for Oppenheimer until he was “asked to resign” in 2016 for failing to accurately disclose his involvement with Southport and Horizon. Many of his Oppenheimer clients invested in Southport and Horizon and unless Oppenheimer reached out to each of those clients and warned them that what Woods was doing was, at a minimum, not fully disclosed to Oppenheimer in violation of FINRA rules, then Oppenheimer could have liability to victims here.  Further, the SEC complaint states that Horizon primarily used two banks to move money, Bank of America and Iberiabank. They also used a custodial trust company.  These entities, depending on the details of their involvement, could also have liability to victims of this scam.

Stoltmann Law Offices is a Chicago-based securities and investor rights law firm dedicated to a nationwide practice to recover money lost by investors as a result of the misconduct of financial advisors and their brokerage and investment firms. We have prosecuted at least one hundred cases over the years against Morgan Stanley and were not surprised to learn about David Todd Levine and his being barred by FINRA, the State of Colorado, and the Securities and Exchange Commission. These bars were “by consent” meaning none of the allegations made against Mr. Levine were proven. It just means instead of fighting them, Mr. Levine will instead never be able to legally provide investment advice to anyone for the rest of his life.

According to an Order Instituting Administrative Proceedings (OIP) filed by the SEC, which parroted claims made by the Colorado Securities Commissioner, Mr. Levine recommended that clients invest in a Bitcoin investment being run by his brother. In so doing, Mr. Levine allegedly failed to disclose that his brother was a fugitive from the law in the United States, living abroad. The Commission further alleged that Mr. Levine failed to disclose this criminal history to any of his clients and further failed to verify the legitimacy and ownership of the Bitcoin that was apparently part of this investment scheme. The SEC also alleged that Mr. Levine failed to develop a method for ensuring the transfer of funds and Bitcoin, which allowed his brother to steal $1.5 million. Levine also allegedly failed to disclose the high risk nature of this investment scheme.  If you are a victim of Mr. Levine’s alleged Bitcoin scam, and you were a client of his and Morgan Stanley, you could have a viable claim to pursue against Morgan Stanley.

Although it is alleged that Levine failed to disclose this investment and his involvement in it to Morgan Stanley, that does not automatically release Morgan Stanley from potential liability.  Whether Morgan Stanley can be found liable by FINRA arbitrators depends on two issues regardless of disclosure by Levine.  1) Were there sufficient red flags that Levine was soliciting his clients to invest in this Bitcoin investment so has to put Morgan Stanley on constructive notice of it? 2) Were clients reasonable to believe that Levine was acting within the course and scope of his employment with Morgan Stanley in recommending an investment in a Bitcoin related deal? Typically, advisors leave enough of a paper trail behind them that reasonable supervision and compliance should discovery this sort of outside activity. Levine was offering it to Morgan Stanley clients after all, so a few phone calls by Morgan Stanley and they would have uncovered what was happening. Moreover, investors would certainly be reasonable in assuming what Levine was doing was legitimate and was through or at least tacitly approved by Morgan Stanley.  This “apparent agency” issue could make Morgan Stanley liable for your losses. Courts agree. See McGraw v. Wachovia Securities, 856 F. Supp. 2d 1053 (N.D. Iowa 2010).

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 investment losses from “rogue” brokers. Without question, securities firms are legally obligated to protect your money from brokers who run afoul of the law. Yet these “rogue” brokers often get away with theft right under the noses of their employers.

The case of Hector May, a former broker with Securities America, is a case in point. May, who was employed by Securities America from 1994 to 2018, pled guilty to stealing some $8 million from his clients in 2018, according to Investment News. May was sentenced to 13 years in prison and ordered to pay $8.4 million in restitution in 2019. Was May’s firm responsible for protecting his clients? In charging Securities America for “allegedly failing to safeguard clients” from May, the U.S. Securities and Exchange Commission (SEC) fined Securities America $1.75 million. Securities America Advisors neither admitted to nor denied the SEC’s findings.

The SEC reported that Securities America had knowledge that May wasn’t doing right by his clients. “The SEC alleged that one Securities America surveillance system generated multiple alerts for potentially suspicious withdrawals from client accounts, but its analysts failed to carry out the prescribed processes for investigating those alerts,” Investment News reported. “The commission also alleged that the firm permitted disbursements without the required signatures, and another group failed to contact clients to verify that they had initiated disbursement requests.”

Chicago-based Stoltmann Law Offices, P.C. represents GPB investors in claims against brokerage firms and financial advisors who solicited investments in the GPB Capital Funds.  GPB was named in a criminal indictment by the U.S. Department of Justice on February 4. GPB’s top executives were charged with fraud and running a Ponzi scheme. The government charged three GPB executives — David Gentile, Jeffrey Schneider and Jeffrey Lash — with securities fraud, wire fraud and conspiracy.

According to Investment News, “GPB raised $1.8 billion from investors starting in 2013 through sales of private partnerships, but it has not paid investors steady returns, called distributions, since 2018. More than 60 broker-dealers partnered with GPB to sell the private placements and charged customers charged clients commissions of up to 8%.” Stoltmann Law Offices pursues those brokerage firms for their investor-clients to recover GPB losses.

Gentile, the owner and CEO of GPB Capital, and Schneider, owner of GPB Capital’s agent Ascendant Capital, are charged with lying to investors about the source of money used to make 8% annualized investor payments, according to the SEC’s complaint. Using the marketing broker-dealer Ascendant Alternative Strategies, GPB told investors that the unusually high payments were paid exclusively with monies generated by GPB Capital’s portfolio companies, the SEC alleged. At first glance, the distributions were highly appealing to investors, since ultra-safe U.S. Treasury Notes are yielding around 1%.

Chicago based Stoltmann Law Offices, P.C. has been representing GPB investors in FINRA Arbitration cases since January 2019.  Our securities lawyers continue to file claims against brokerage firms involving solicitations to invest in GPB Automotive Fund, GPB Holdings Fund II, GPB Waste Management, and GPB Cold Storage.  These claims are for violating FINRA rules and regulations in connection with offering speculative private placements to clients, fraud, and violations of state securities regulations.

On February 4, 2020, the Securities and Exchange Commission dropped the hammer on GPB, its funds, its owners. The complaint filed by the SEC alleges that GPB ran a massive securities fraud scheme for at least four years, defrauding investors of upwards of $1.7 billion.  Over the last few years, Stoltmann Law Offices has spoken to hundreds of GPB investors and many of them were not ready to move forward with claims against the brokerage firms responsible for selling them GPB based mostly on the ongoing representation of both GPB and their financial advisors that “everything will be fine” and “GPB just needs to get the audits done and you’re investment will come back.”  These dilatory and lulling tactics started with GPB and filtered through to financial advisors who were more concerned for their own best interests as opposed to what was in the best interest of investors.

INVESTORS NEED TO ACT NOW TO PRESERVE THEIR CLAIMS. Contact Stoltmann Law Offices at 312-332-4200 for a free, no obligation consultation with a securities attorney to determine whether you have a viable case against the brokerage firm that sold you GPB.  

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