Articles Posted in Private Placements

shutterstock_184920014-300x199According to BrokerCheck records financial advisor Kevin Wilson (Wilson), currently employed by National Securities Corporation (National Securities) has been subject to at least four customer complaints.  According to records kept by The Financial Industry Regulatory Authority (FINRA), most of Wilson’s customer complaints allege that Wilson committed violations of the securities laws with respect to the sale of predominately private placement securities.  These private placement sales occurred while Wilson was employed by Laidlaw & Company (UK) Ltd. (Laidlaw).

The securities lawyers of Gana Weinstein LLP recently filed a complaint on behalf of a client alleging that Laidlaw & Company (UK) Ltd. (Laidlaw) recommended the investor purchase a micro cap stock underwritten by the firm in violation of the securities laws.  According to newsources and public filings Laidlaw and its brokers have been involved in the fraudulent promotion of small and micro cap stocks to their clients in violation of their duties to their clients to disclose conflicts of interests.

Recently, one of Laidlaw’s clients, Barry Hoing (Hoing), was charged by The Securities and Exchange Commission (SEC) for generating $27 million through a “classic pump-and-dump scheme.” The SEC’s allegations focus on stocks including BioZone Pharmaceuticals (now Cocrystal Pharma) (COCP), MGT Capital (OTC: MGTI), and MabVax Therapeutics (OTC: MBVX).   However, other public filings reveal Hoing was also involved in other stocks including Riot Blockchain (RIOT), PolarityTE (PTE formerly COOL), and Marathon Patent Group (MARA).  In addition, Laidlaw was involved in other private placement securities offerings including Aethlon Medical, Actinium, Boston Therapeutics, 5G Investment, Alliaqua, Aspen Group, Brazahav Resources, Fusion Telecoms International, Protea Biosciences Group, Aeolus Pharmaceuticals, Medovex Corp, Relmada Therapeutics, Sevion Therapeutics, Spectrascience, and Spherix.

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shutterstock_155045255-289x300Advisor Samuel Monchik (Monchik), currently employed by Geneos Wealth Management, Inc. (Geneos Wealth) has been subject to at least two customer complaints.  According to a BrokerCheck report many of the customer complaints concern alternative investments and direct participation products (DPPs) such as non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and equipment leasing programs.  The attorneys at Gana Weinstein LLP have extensive experience handling investor losses caused by these types of products.

In August 2018, a customer filed a complaint alleging that Monchik made unsuitable recommendations, breach of fiduciary duty, and failure to adequately disclose the risks in REITs and direct investments – DPP & LP interests purchased between March of 2008 and November of 2015.  The complaint is currently pending.

In July 2017 a customer filed a complaint alleging that Monchik made unsuitable recommendation of an oil & gas investment in June 2008.  The complaint was denied by the firm.

In September 2008 FSC Securities Corporation terminated Monchik’s alleging that he violated the firm’s policies with respect to transactions in Non-Traded REITs.

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shutterstock_189135755-300x300The law offices of Gana Weinstein LLP have previously reported on their investigation into GPB Capital Holdings (GPB Capital) and its dispute with a former business partner Patrick Dibre (Dibre) who allegedly reneged on the sale to GPB Capital of certain auto dealerships causing the fund to lose $40 million according to GPB’s complaint.  That litigation is still playing out in court.

GPB Capital has raised an astonishing $1.8 billion in investor money since 2013.  However as reported, GPB will stop raising new money for now to focus on accounting issues and financial statements of its two large funds.  Subsequent reporting has alerted the public that investors should no longer rely on 2015 and 2016 financial statements and independent accounts’ reports for: GPB Automotive Portfolio, ($622.1 million); GPB Holdings II, ($645.8 million); and GPB Holdings Qualified.  Apparently, these accounting revisions are only being made because GPB Capital missed an April 30 deadline to file financial statements with the Securities and Exchange Commission (SEC) which crossed industry thresholds for making such information public more than a year ago.

Investors should be concerned at this point as it is highly unusual for funds’ of this size to cease raising funds unless there are serious concerns.  Moreover, delays in reporting financials and the need to release new reports concerning financial statements made three years ago are highly troubling.  This suggests potentially multiple years of false information or a size and nature that is currently unknown.

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shutterstock_143685652-300x300The law offices of Gana Weinstein LLP are investigating Premium Point Investments, LP (Premium Point) and allegations made by The Securities and Exchange Commission (SEC) announcing that it has charged the New York based investment adviser with inflating the value of private funds it advised by over $200 million dollars.  In the complaint the SEC also charged Premium Point’s CEO Anilesh Ahuja (Ahuja) and Amin Majidi (Majidi), a former partner and portfolio manager at the firm, among others charged.

According to the complaint, Premium Point described itself as focused on investment opportunities in securities, mortgages, loans, real property, and consumer receivables.  However, the fund did not perform well the SEC alleged it ran a scheme from at least September 2015 through March 2016 by inflating the value of its portfolio to hide the poor performance.  The fund purportedly engaged in a secret deal where in exchange for sending trades to a broker-dealer, Premium Point received inflated broker quotes for certain mortgage-backed securities (MBS).  Another deceptive technique was the alleged use of imputed mid-point valuations that further inflated the value of securities.

Premium Point’s fraud began to unravel after its auditor questioned the valuation practices in 2015.  At that time Premium Point told investors it had overvalued all of its funds by 13 percent to 15 percent from September 2015 to March 2016.  However, there are substantial variation between funds and Premium’s flagship fund – the Mortgage Credit Hedge Fund, is alleged to have been mismarked by as much as 24 percent dating back to at least January 2014.

shutterstock_145368937-300x225The law offices of Gana Weinstein LLP are investigating GPB Capital Holdings (GPB Capital) and its dispute with a former business partner Patrick Dibre (Dibre) who allegedly reneged on the sale to GPB Capital of certain auto dealerships causing the fund to lose $40 million according to GPB’s complaint.  The complaint alleged that between December 2013 and April 2015 GPB Capital advanced Dibre $42 million for auto dealerships he then failed to deliver.  The lawsuit claims that Dibre failed to provide required notices to start the sales process of five dealerships.

Dibre owned auto dealerships in the New York area and purportedly held himself out to the GPB Capital as the person who could build out GPB Capital’s auto dealership business.  Instead of that happening, the complaint alleges that Dibre informed automobile manufacturers that they should withhold their approval of GPB Capital owning and operating dealers because of claimed malfeasance.  However, GPB Capital alleges that Dibre is negotiating for the sale of the same dealerships to an investment fund.

At this time it unclear the ultimate financial impact this failed transaction will have on GPB Capital Holding’s funds which include:

shutterstock_57938968-200x300According to BrokerCheck records the CEO and Chief Compliance Officer of Firm Financial West, Gene Valentine (Valentine) has been subject to one customer complaint, three tax liens, and one regulatory action.  According to records kept by The Financial Industry Regulatory Authority (FINRA) Valentine has been accused by FINRA of failing to have supervisory procedures for due diligence on private placement offerings.

FINRA alleged that from October 1, 2008, through June 30, 2015, Financial West’s written supervisory procedures failed to address the firm’s due diligence process for private placements. FINRA found that Financial West’s written supervisory procedures did not describe the process for approving private placement offerings and did not describe how or when to evaluate private placement offerings.  FINRA also found that the firm failed to consistently follow the written procedures that did exist such as failing to document the review as described in the procedures.

Under FINRA Regulatory Notice 10-22 firms are provided with detailed guidance while reminding them of their “obligation to conduct a reasonable investigation of the issuer and the securities they recommend” in private placement offerings.  The notice also provides that a firm’s supervisory procedures must be reasonably designed to ensure that the firm engages in a rigorous due diligence process.  In order to comply with FINRA’s rules and “[t]o demonstrate that it has performed a reasonable investigation, a [firm] should retain records documenting both the process and results of its investigation.”  In this case, FINRA found that Financial West failed to meet these requirements.

shutterstock_94632238-300x214The securities lawyers of Gana Weinstein LLP are investigating investor losses in Behavioral Recognition Systems (BRS) – now known as Giant Grey.  Investors have contacted our firm concerning Scott Reed a former executive at brokerage firm David A. Noyes & Company (David Noyes) who recommended stock in BRS to dozens of clients raising millions of dollars for the company.  David Noyes also sold other private placements including Power Energy Systems, Farris Floral, Evotem, and Digonex Technologies to investors.

BRS marketed itself to investors as a company that makes artificial intelligence technology that analyzes video information. Ray Davis (Davis) founded Behavioral Recognition Systems in 2005 and ran the company until 2015.  Davis raised $47 million for BRS and in 2010 hired his son, Charles, to be an executive vice president.

According to a lawsuit BRS (Giant Gray) accused Davis of defrauding the company out of $15 million by setting up a series of companies to disguise transactions as legitimate services. Instead, the company claims that Davis invoiced millions of dollars for non-existent services and used the money to support his lavish lifestyle.

shutterstock_184149845The Securities and Exchange Commission (SEC) announced that ICON Capital LLC, an entity that manages equipment leasing funds, agreed to settle charges that it caused four of its funds to report materially inaccurate financial results in their SEC filings and pay a $750,000 penalty.

Our firm has represented many clients in equipment leasing products like LEAF and ICON.  All of these investments come with high costs that do not compensate investors for the extreme risk being taken.  Equipment leasing funds historically underperform even safe benchmarks, like U.S. treasury bonds.  Investors are destined to lose money in equipment leasing programs like LEAF Equipment Leasing Income Funds I-IV and ICON Leasing Funds Eleven and Twelve.  The high costs and fees associated with these investments make significant returns virtual impossibility.  Further, investor often fail to understand that they have lost money under many years after agreeing to the investment.  In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.

On top of these high risks, the SEC has now found that the funds’ opaque nature has allowed the funds to hide more investor losses.  According to the SEC’s order instituting a settled administrative proceeding, the four funds’ financial results were misstated due to accounting errors relating to the impairment of assets and that ICON failed to comply with Generally Accepted Accounting Principles (GAAP) on multiple occasions.

shutterstock_52426963The securities lawyers of Gana Weinstein LLP are investigating a customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Mark Trewitt (Trewitt).  According to BrokerCheck records Trewitt has been subject to at least four customer complaints.  The customer complaints against Trewitt allege securities law violations that including unsuitable investments and misrepresentations among other claims.   Many of the complaints involve direct participation products (DPPs) and private placements including non-traded real estate investment trusts (REITs), and other alternative investments.

Our firm has represented many clients in these types of products.  All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds.  For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed.  However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them.  Further, investor often fail to understand that they have lost money until many years after agreeing to the investment.  In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client.  In order to make a suitable recommendation the broker must meet certain requirements.  First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors.  Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

shutterstock_183525509The investment attorneys at Gana Weinstein LLP have recently filed a case on behalf of an investor in the Vertical Fund private placements.  The investor purchased a Vertical Fund private placement through Financial West Group broker Jeffrey Gieseke.  The Vertical Funds include Vertical Recovery Management, LLC, Vertical Mortgage Fund I, LLC, Vertical US Recovery Fund, LLC, and Vertical US Recovery Fund II, LLC.  These funds were marketed to investors as as buying real estate notes at a discount that would pay income and then allow investors to profit through a future sale.  However, in September 2015, these funds entered a bankruptcy alternative through a General Assignment for Benefit of Creditors under California law.  Investors can expect to suffer substantial losses on their investment.

In addition, an action is pending against the accounting company for the Vertical Funds naming Haynie & Company of California Accountancy Corporation and Michael Zurovski as defendants for aiding and abetting the conversion of funds among other claims.  According to the complaint, beginning at least as early as 2011, assets from Vertical Funds I and II were diverted to Vertical Fund Group and other entities.  Assets were falsely titled “Acquisition Deposits” in the amounts of over $1.9 and $4.0 million respectively for the two funds.  These accounts were titled in a way to suggest they were related to the acquisition of mortgages in the ordinary course of business but instead these amounts represented transfers to Vertical Fund Group seemingly for use in paying the costs of operation of the entirety of the Vertical Group.  The complaint alleges that these payments were impermissible advances and were an improper use of funds under the terms of the offering documents and operating agreements and represent a breach of fiduciary duty on behalf of the fund manager.

Private placement offerings are among the most speculative and costly investment products offered to retail investors. While the size of the private placement market is unknown, according to 2008 estimates, companies issued approximately $609 billion of securities through Regulation D offerings. Private placements allow many small companies to efficiently raise capital. However, regulators continue to find significant problems in the due diligence and sales efforts of some brokerage firms when selling private placements to investors. These problems include fraud, misrepresentations and omissions in sales materials and offering documents, conflicts of interest, and suitability abuses.