Articles Posted in Firm News

shutterstock_93851422-300x240The securities fraud attorneys at Gana LLP have recently filed a complaint with The Financial Industry Regulatory Authority (FINRA) on behalf of clients alleging that Erryn Barkett (Barkett) engaged in securities fraud by selling unapproved investments and inappropriate and costly alternative investments and private placements to the clients.  The claim was brought against brokerage firm Next Financial Group, Inc.  (Next Financial) alleging that the firm failed to supervise Barkett’s misconduct.  Barkett is currently associated with LPL Financial LLC (LPL).

According to Barkett’s brokercheck records Barkett has been subject to one regulatory complaint, four customer complaints, and has six financial disclosures.  The regulatory complaint involves allegations that Barkett solicited multiple investors to invest in an unapproved security called Voyager Financial Group, LLC.

Barkett has disclosed at least 11 outside business activities.  These activities include Barkett’s d/b/a Barkett Allen Capital LLC.  In addition, Barkett disclosed his involvement with SkyPix, LLC, BAS, LLC, Flagship Properties, LLC, Sunnyside Ranch, LLC, Produce Insight Panel, and Wheelman, LLC.  The providing of loans or selling of notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.  Often times brokers who engage in this practice use outside businesses in order to market their securities.  In this case the claimants alleged that Barkett solicited them to invest in several business ventures including SkyPix and a land deal.

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shutterstock_183525509-300x200The securities fraud attorneys at Gana LLP have recently filed a complaint on behalf of a client alleging that Dean Mustaphalli (Mustaphalli) engaged in securities fraud.  The claim was brought against brokerage firms Sterne Agee Financial Services, Inc. (Sterne Agee) and Interactive Brokers LLC (Interactive Brokers) alleging that the firms failed to supervise Mustaphalli’s misconduct.

The complaint alleges that starting in December 2009, Mustaphalli established a securities related outside business activity (OBA) in the form an advisory firm and a hedge fund.  Mustaphalli registered the investment advisor with the SEC under the name Mustaphalli Advisory Group, LLC (MAG) until December 2014.  Subsequently, Mustaphalli filed a From D with the SEC in January 2011 for a hedge fund called Mustaphalli Capital Partners Fund, L.P. (MCPF) and opened an account for the fund.

The complaint alleged that Mustaphalli failed to inform Sterne Agee of his transactions through MCPF although Mustaphalli did disclose the MAG RIA.  The complaint also alleges that in or around mid-2014 Mustaphalli transferred MAG’s accounts and the MCPF account to Interactive Brokers.  Also around May 2013 FINRA began investigating Mustaphalli’s, MAG’s, and MCPF’s activities.  In December 2014, FINRA suspended Mustaphalli for two years and imposed a fine and disgorgement for engaging in private securities transactions through MCPF without notifying Sterne Agee.  Dep’t of Enforcement v. Dean Mustaphalli, AWC No.  2013036880302 (Dec. 15, 2014).

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shutterstock_25054879The investment attorneys of Gana LLP have brought a claim on behalf of an investor who suffered substantial losses due to investment recommendations made by his Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) advisor, Craig Kinard (Kinard) a proprietary Merrill Lynch fund called the MLCXX6LSER Index (MLC Index).  The fund is also referred to as “The Merrill Lynch Commodity Index eXtra—(Excluding Precious Metals) Excess Return Index.”  The MLC Index was run at Merrill Lynch by Guido Graff (Graff), Director of Ultra Structured Solutions at Merrill Lynch. 

The complaint alleged that the MLC Index is one of the most complex investment products that could be sold to a retail investor and consequently is suitable for very few investors.  The strategy involves extreme leverage, commodities, derivatives, options, and swaps risk.  Any investor without significant prior experience in all of these categories will not be able to understand the risks or likely performance of the investment under different market conditions.  Indeed, in this case the risks and expected performance of the MLC Index proved to be too great a challenge even for the fund managers to understand.  In addition, to these problems the MLC Index was offered by Merrill Lynch to clients subject to enormous costs and fees.

The MLC Index is an absolute return strategy investment fund in the long-short commodity arbitrate space.  Absolute return investing seeks to produce positive returns over time regardless market conditions.  Even when markets are falling, an absolute return fund is advertised to still have the potential to make money.  Arbitrage strategies attempt to benefit from an assumed correlation between different market instruments or different markets.

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shutterstock_175298066The securities lawyers of Gana LLP are pleased to announce an award on behalf of their client against Centaurus Financial, Inc. (Centaurus) in the amount of $150,000 plus costs.  The complaint was filed The Financial Industry Regulatory Authority (FINRA) and involved multiple brokerage firms that hired advisor Ahmad Hashemian.

The Claimant alleged that Hashemian invested over $2,000,000 in exclusively high cost products and 50% of those investments were in alternative investments such as private placements, oil and gas partnerships, and non-traded real estate investment trusts (REITs).  The other 50% was invested in variable and equity-indexed annuities.  All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds.  Brokers, enticed by the high commissions, often times misled their clients into investing in these products.

In this case the panel found that “the investments Hashemian recommended while at Centaurus were not suitable and in Margaret Polito’s best interests. Margaret Polito also provided sufficient evidence to meet her burden of proof to support her allegations in her Statement of Claim that the actions by Hashemian, for which Centaurus is responsible, constitute fraudulent and negligently made material misrepresentations and omitted material information in the sale of the investments to Margaret Polito.”  Award Can Be Found Here.

Even more shocking is the fact that some of these activities occurred while Hashemian was under heightened supervision.  Nonetheless, Centaurus failed to supervise Hashemian’s misconduct that included having his client sign blank forms and inflating her financial information so that she could qualify for the investments he was recommending.

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shutterstock_15963142The investment attorneys of Gana LLP have brought a claim on behalf of an investor who suffered a loss of nearly all of their assets due to investments made by their Wells Fargo Advisors, LLC (Wells Fargo) advisor, Andrew Kevlahan (Kevlahan), almost exclusively in master limited partnerships (MLPs), Business Development Corporations (BDC), commodities linked investments, and other private equity high yield funds. The investor is 79 years old and retired with her husband.

The complaint alleges that on or about May 2011, the couple had become completely retired and had a securities backed loan with Wells Fargo secured by their investment account. The complaint alleged that due to these major lifestyle and financial circumstance changes, which were disclosed and known to Kevlahan, the couple’s investment objectives, income needs, and risk tolerance had changed requiring suitable investments that would diversify and protect the couple’s savings.

Instead, the complaint alleges that Kevlahan failed to properly advise the investor and breached his fiduciary duty to his client by continually increasing the concentration of the account in risky high yielding investments. By May 2011, the complaint alleges that concentration of high yield investments and MLPs grew to more than 50% of all of the investor’s assets. Despite the change in life circumstances, the complaint alleges that Kevlahan used his discretionary authority in order to continually increase the amount of risk in the account and by August 2014, the investor had a concentration of 62% of the couple’s assets in MLPs and 18% in other high yield investments – a total of 80% of the couple’s assets were exposed to extreme risk.

As a result of Kevlahan’s investment strategy the investor claimed that the account was exposed to tremendous risk and performed nothing like the broader market. While the Dow Jones gained about 30% over the time period the investor claimed that the account lost approximately 70% of its value.

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shutterstock_113066620Gana LLP recently filed a claim against Legend Securities, Inc. (Legend) on behalf of a customer with the Financial Industry Regulatory Authority (“FINRA”) alleging that Legend and Legend broker, Michael Guilfoyle, recommended unsuitable investments while churning his account and executing unauthorized trades in violation of FINRA rules and other applicable law.

In 2013, the customer received a cold call from Guilfoyle soliciting his business. Guilfoyle assured the client that he would only invest according to his investment objectives. In reliance upon Guilfoyle’s assurances, the client transferred his money to Legend. In early 2014, Guilfoyle and Legend also coaxed the client into investing his wife’s money, which she inherited from her parents.  Soon after the client transferred the funds to Legend, Guilfoyle allegedly leveraged over concentrated the portfolio and began to churning the account. “Churning” is the Wall St. vernacular when there is unnecessarily high or excessive trading activity in an investor’s account, simply for the purpose of generating commissions for the broker. This is a violation of Securities and Exchange Commission (“SEC”) and FINRA rules.

More egregiously, Guilfoyle failed to contact the client concerning the trades being made in his account and acted without any prior authorization. Guilfoyle allegedly day-traded different stock positions earning fees for himself while providing no benefit to the client. For example, Guilfoyle concentrated the client’s account in speculative small cap stocks, such as Voxeljet AG (Voxeljet) that had only recently gone public.  At the time, analysts warned that Voxeljet was a highly volatile stock, not suited for investors looking for long-term growth. Guilfoyle’s misconduct ultimately cost client nearly his and wife’s entire account value.

According to its website, Legend claims to have “retained long term relationships with clients through trust, loyalty, and a commitment to service that is unique to the securities industry” while boasting “over 100 years combined securities industry experience [and an] an in-depth expertise in all securities markets and investments.” Despite such claims, Legend allegedly failed to supervise Guilfoyle, who was then able to take advantage of an innocent investor. Continue Reading

The Daily Bulletin recently published an article about new rules governing civil litigation in New York. According to Charisma Troiano, the author of the article in 2013 the Office of Court Administration issued a letter supporting proposed changes to the New York Civil Procedure Legal Rules Section 2106. The new rule allows affirmations obtained outside of the United States, Puerto Rico and the Virgin Islands to hold the same evidentiary weight as a sworn affidavit within the United States. Adam Gana supported the new rule.

The article can be found here.

Congratulations to Scott Woller who was recently featured on LawCrossing.com. LawCrossing, one of the largest legal career advice websites, contacted Scott and asked to profile him on their website. “We are very proud of Scott and all of our attorneys’ many accomplishments,” said Adam Gana, the firm’s managing partner, “Scott’s career is impressive to say the least.” Scott explained in the article (which can be read in its entirety here) that his role with Gana LLP and his role with Airfasttickets, Inc. have placed him in a position to both do corporate work and litigation. Scott has had a storied career to date having clerked at both the trial and appellate level in the federal courts and having worked at some of the most prestigious law firms in the country. Scott graduated number 1 in his class at New York Law School and continues to push his careers to new heights. Congratulations Scott!

 

Adam Gana of Gana LLP received the Avvo’s Clients’ Choice Award for 2014. “This is a tremendous honor,” said Mr. Gana, “Clients are the life blood of our business and we work tirelessly to make sure they are happy.” Mr. Gana received the award on August 19, 2014.