Securities Fraud

Paul Renard of SII Investments Suspended Over Unsuitable Sales of Nontraditional ETFs

January 2, 2014 | by Staff Attorney

Paul Renard (Renard) a broker with SII Investments, Inc. (SII) was recently suspended for two years and fined $60,000 by The Financial Industry Regulatory Authority (FINRA) over allegations that Renard: (1) recommended that at least four customers buy and hold nontraditional ETFs without having reasonable grounds for believing that the recommended investments were suitable for those customers; (2) distributed at least nine independently prepared reprints to customers without Ameriprise’s review and approval; (3) used a personal email account, which Ameriprise did not monitor, to distribute the materials; and (4) failed to disclose two tax liens filed against him by the State of Wisconsin. In addition, at least 21 customer complaints have been filed against Renard.

Renard was previously a registered representative of Ameriprise Financial Services, Inc (Ameriprise) from August 21, 2009, until June 22, 2011, when Ameriprise terminated his registration alleging that Renard failed to comply with company policies by soliciting prohibited securities, use of external email account, and failed to properly update his disclosures. Prior to Ameriprise Renard was registered with Securities America, Inc. from November 2009 through May 2011. Renard’s BrokerCheck discloses that he is also the president of First Tee of Green Bay, a managing director of Reedsville Granary LLC, and employed with PDI Financial.

FINRA alleged that Ameriprise implemented a policy prohibiting its representatives from recommending or soliciting nontraditional ETFs. Under the policy, customers could hold existing nontraditional ETF positions but any new purchases could only occur on an unsolicited basis. On September 2, 2009, Renard entered a solicited buy order for an inverse ETF in a customer’s account. Ameriprise’s compliance department informed Renard that Ameriprise did not allow its representatives to solicit nontraditional ETF purchases. Nonetheless, according to FINRA, Renard continued to solicit customers to purchase nontraditional ETFs.

Broker Joseph Giordano of Capital Investment Group Sanctioned Over Empire Debenture Sales

December 19, 2013 | by Staff Attorney

Broker Joseph Anthony Giordano (Giordano) was recently barred from the financial industry by The Financial Industry Regulatory Authority (FINRA) over allegations that he participated in the distribution of unregistered debentures issued by Empire Corporation, a Maryland corporation (Empire Debentures) to customers of Capital Investment Group, Inc. (CIG). FINRA alleged that Giordano violated FINRA Rules by soliciting the sales of the Empire Debentures. In addition, FINRA found Giordano’s Empire Debentures sales to customers were without a reasonable basis for making such recommendation. Finally, FINRA found that Giordano engaged in securities fraud by making intentionally false and misleading statements in connection with the sales of the Empire Debentures to customers.

Giordano was registered with Capital Investment Group from September 1992 until his termination on June 20, 2012. Giordano’s U5 states that he was terminated for “selling away” and making false and misleading statements to the firm. On July 2, 2012, Giordano became registered with Meyers Associates, L.P. (Meyers) until his registration was terminated by Meyers on July 10, 2013. Giordano’s BrokerCheck states that he is the general manager of Giordano Asset Management LLC and treasurer of Giordano Holding Corporation.

FINRA found that Giordano sold approximately $3.1 million of the Empire Debentures to at least 45 customers of CIG. The Empire Debentures had varying maturities but the majority had a five-year maturity and promised interest at an annual compounded rate of ten percent paid at maturity. FINRA alleged that the Empire Debentures were speculative investments considering their high-yield, lack of credit analyses or an effective registration statement, and the complete absence of a secondary market. The sale of the Empire Debentures was in contravention of Section 5 of the Securities Act of 1933 requiring the registration of securities. The securities were also not registered with the State of Maryland. In addition, FINRA alleged that Giordano failed to conduct adequate due diligence regarding the registration status of the Empire Debentures prior to recommending and selling the debentures to customers.

HFP Capital Markets’ Employees Sanctioned Over Metals Millings and Mining Private Placement Offering

December 18, 2013 | by Staff Attorney

Advisor Thomas Mikolasko, (Mikolasko) of HFP Capital Markets LLC (HFP) was recently suspended and fined by The Financial Industry Regulatory Authority (FINRA) over allegations that Mikolasko engaged in the sale of $3 million in Senior Secured Zero Coupon Notes sold to 58 customers of HFP for Metals Millings and Mining LLC (MMM) in a private placement offering. The MMM Notes defaulted and investors were not repaid either principal or the 100 percent return promised. FINRA found that Mikolasko negligently caused material misrepresentations and omissions of material facts to be made in connection with the sale of MMM. FINRA also alleged that Mikolasko facilitated the offering even though he knew or should have known that HFP had conducted inadequate due diligence concerning the offering and that the limited due diligence the firm had conducted identified significant “red flags.”

Metals Millings and Mining LLC was an entity created in 2009 with HFP’s assistance. MMM was formed as a vehicle to aggregate and process certain ore materials. The investment’s sponsor had presented to HFP a plan to extract precious metals from the ore concentrate through a process known as “plasmafication.” HFP’s former chief executive, Vincent J. Puma was primary responsibility for HFP’s involvement in the MMM offering. From December 2009 to February 201l, HFP sold approximately $3 million of MMM Notes to 58 HFP customers. The MMM notes provided for the repayment of principal in one year together with the ownership of ore concentrate.

Pursuant to a repurchase agreement, MMM was then obligated repurchase the ore from the investors at an agreed price so that they would receive a 100 percent return on their investment in addition to the return of principal. There was no private placement memorandum for the transaction and investors were provided only with limited disclosures as forth in a subscription agreement. The MMM notes have defaulted and investors have not been repaid either principal or the promised 100 percent return.

Source Capital Group Employees Sanctioned Over Blue Ridge and Argyle Oil and Gas Private Placements

December 6, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Source Capital Group (Source Capital) registered representatives Kevin Cline (Cline), Robert Burr (Burr), Vincent Christopher (Christopher), and Thomas Gilleland (Gilleland). FINRA’s findings concerned allegations that the brokers failed to adequately disclose material facts and made sales through misstatements in oil and gas partnership interests in Blue Ridge Securities (Blue Ridge) and Argyle Securities. (Argyle).

According to FINRA, from at least October 11, 2006, and December 17, 2012, the named brokers violated the federal securities laws and FINRA rules in connection with selling Blue Ridge and Argyle offerings. Cline is the branch office manager for Source Capital’s Bowling Green, Kentucky branch office on Adams Street and Burr managed the Wright Street office where Christopher and Gilleland were brokers. Source Capital’s Adam Street branch office was the sole seller of private placement offerings of oil and gas securities issued by Blue Ridge’s limited partnerships all of which were managed by Blue Ridge Group, Inc. Source Capital’s Wright Street branch office was the sole seller of private offerings of Argyle limited partnerships managed by Argyle Energy, Inc. Blue Ridge and Argyle were both housed at the Adams Street branch office and were owned by Robert “Bob” Burr, the father of Burr as the controlling stockholder and former officer of both Blue Ridge and Argyle.

FINRA alleged that Cline failed to adequately disclose material information in selling Blue Ridge to investors. Specifically, FINRA found that Blue Ridge gave money to Cline that Cline used to pay Source Capital representatives a $2,000 monthly salary in advance of their draws which were not always repaid. FINRA concluded that the failure to adequately disclose that Cline used Blue Ridge funds to pay compensation to Source representatives was a material omission in violation of FINRA Rule 2010 and NASD Rule 2110, and Section 17(a)(2) of the Securities Act of 1 933, 15 U.S.C. § 77q(a)(2).

SEC Order Finds That Former JP Turner Broker Jason Konner Engaged In Churning

November 22, 2013 | by Staff Attorney

The Securities and Exchange Commission (SEC) recently found that broker Jason Konner (Konner) churned the brokerage account of James Carlson (Carlson). The SEC decision ordered Konner to: (1) cease and desist from committing fraud; (2) be barred from association with a broker, dealer, investment adviser, (3) disgorge $55,000 plus prejudgment interest, and (4) pay civil penalties of $150,000. In addition, at least three customer complaints have been initiated against Konner alleging churning, unsuitable investments, fraud, and breach of fiduciary duty.

The SEC allegations against Konner also involved several other J.P. Turner & Company, LLC (JP Turner) registered representatives including Michael Bresner (Bresner), Ralph Calabro (Calabro), and Dimitrios Koutsoubos (Koutsoubos). The SEC alleged that Calabro, Konner, and Koutsoubos between January 1, 2008, and December 31, 2009, churned the accounts of seven customers by engaging in excessive trading for their own gains in disregard of their clients’ investment objectives and risk tolerances. The SEC claimed that Calabro, Konner, and Koutsoubos generated charges totaling approximately $845,000, for their benefit while the clients suffered aggregate losses of approximately $2,700,000.

JP Turner is a registered broker-dealer headquartered in Atlanta, Georgia, with two majority owners. From 2008 to 2009, JP Turner had approximately 200 small or one-person branch offices. Konner joined JP Turner in 2006 and left in December 2011. Thereafter, Konner became employed with DPec Capital.

Former Merrill Lynch Broker David Zeng Barred From the Financial Industry

November 21, 2013 | by Staff Attorney

David G. Zeng (Zeng) was recently barred from the financial industry by The Financial Industry Regulatory Authority (FINRA) over allegations that the broker failed to respond to the regulator’s inquiries concerning at least a dozen customer disputes initiated against the broker. The customer complaints against Zeng include claims of misrepresentations, fraud, unsuitable investments, and unauthorized trading concerning stock investments.

It is also possible that Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch), Zeng’s employing firm during the majority of the customer complaints, failed to properly supervise Zeng’s securities activities. Under FINRA Rule 3010, a brokerage firm is obligated to properly monitor and supervise its employees. The rule states that “[e]ach member shall establish and maintain a system to supervise the activities of each registered representative…that is reasonably designed to achieve compliance with applicable securities laws and regulations…” Thus, brokerage firms are responsible for monitoring a broker’s investment recommendations to clients, outside business activities, and representations to investors.

Zeng became registered with FINRA in 2001 at Morgan Stanley Dean Witter Inc until June 2005. From June 2005 until May 2009, Zeng was associated with UBS Financial Services, Inc. Thereafter, from April 17, 2009, until December 20, 2011, Zeng was employed by Merrill Lynch and worked out of the firm’s Santa Fe, New Mexico office.

Have You Been a Victim of Securities Fraud?

November 15, 2013 | by Staff Attorney

How do you know if you have been the victim of securities fraud? The answer to this question usually begins with the feeling that something is not right with your investments. Maybe your broker is all of a sudden dodging your calls or having their subordinate answer their calls. Perhaps your broker told you that an investment would become payable to you at a certain point and despite the fact that the time for payment has long come and past, nothing seems to have happened. Its often hard to believe that the person you trusted with your savings or retirement has lied and let you down.

Securities fraud describes a whole genera of inappropriate investment activity. In some instances the broker may sell a customer a security by falsely representing the properties of the security including its terms by either written or oral statements. The broker may also provide misleading marketing materials in connection with the sales pitch. Under the securities laws misrepresentations or omissions of fact are material if a reasonable investor might have considered the fact important in the making of the investment decision. Thus, brokers have a duty to truthfully disclose all material information to an investor in order to evaluate the recommendation being made.

Other types of securities frauds involve some form of broker theft such as in cases of churning (excessive trading) or Ponzi schemes. In the case of churning, the broker engages in investment trading activity that is excessive and serves little useful purpose and is conducted solely to generate commissions for the broker. While Ponzi schemes involve the diverting of securities funds meant to be used for a certain investment purpose. Instead the funds are diverted from the purpose represented to the investor to another purpose such as a different investment vehicle or straight into the Ponzi schemer’s pocket.

FINRA Files Regulatory Action Against Beverly Hills Broker Bambi Holzer

October 31, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) filed a civil enforcement action on October 18, 2013 against Bambi Holzer, a formerly registered broker and investment advisor in Beverly Hills, California. FINRA alleged in its complaint that between February and March 2008, Holzer, then a broker at Wedbush Securities, Inc. in Los Angeles, made unsuitable recommendations to seven of her clients to purchase speculative and illiquid investments issued by Provident Shale Royalties 8, LLC. The complaint further alleged that after investing in Provident 8, Holzer’s clients’ accounts were overly concentrated in the highly risky private placement. FINRA highlighted that one of the seven victims of Holzer’s alleged misconduct was an 86 year-old widow who is now deceased. This particular investor’s objectives were income and preservation of principal, meaning the risky and illiquid Provident 8 was blatantly outside the scope of her investment objectives.

In connection with these unsuitable recommendations, Holzer is accused of either knowingly or negligently submitting false net worth information regarding six of the seven customers. Additionally, FINRA alleged that between April 2010 and August 2012, Holzer willfully failed to disclose an arbitration award and judgment and a pending regulatory action on her Form U4, a required regulatory filing. Holzer is also accused of providing false testimony during on-the-record interviews conducted by FINRA.

Early in 2008, Wedbush Securities entered into an agreement with Provident 8 that allowed the investment firm to sell Provident 8’s privately issued securities. Holzer subsequently began recommending Provident 8 to her customers and received a 100 percent commission for those clients that invested. Based on allegations that Provident had commingled assets and investor funds, the Securities and Exchange Commission obtained a Temporary Restraining Order against Provident Royalties, LLC in July 2009. Provident ultimately filed for Chapter 11 bankruptcy and Holzer’s customers’ investments in Provident 8 became worthless.

FINRA Files Amended Complaint Against John Carris Investment LLC for Stock Manipulation and Unsuitable Offerings

October 10, 2013 | by Staff Attorney

On September 30, 2013, FINRA filed an amended complaint against John Carris Investments LLC (JCI), its founder George Carris and others. In the complaint, FINRA alleges JCI engaged in: stock manipulation, unsuitable self-offerings of securities, operating a securities business without sufficient net capital, use of firm funds to pay the expenses of principal officers at JCI, providing false tax documents, and failing to pay payroll taxes.

JCI is a Wall Street Investment Bank and wholly-owned subsidiary of Invictus Capital, Inc. (Invictus). In 2009, Carris formed JCI. Carris has served as JCI’s CEO, President, and Managing Director of Investment Banking since its inception. Shortly after forming JCI, Carris formed Invictus and transferred complete ownership of JCI to Invictus.

FINRA alleges that from May 1, 2010 through September 30, 2010, JCI’s head trader Jason Barter engaged in manipulative trading of Fibrocell Science, Inc. (Fibrocell), a biotechnology company specializing in skin and tissue rejuvenation. During that period, JCI acted as a placement agent for Fibrocell and sold shares of Fibrocell through unregistered PIPE deals. A PIPE deal is a private investment in public equity, which companies pursue when capital markets cannot provide financing and traditional alternatives do not exist for that issuer.

FINRA Suspends Broker Anthony Mediate for 60 Days Over Allegations of Excessive Trading (Churning) and Unauthorized Trading

October 9, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) suspended broker Anthony Mediate (Mediate) for 60 days concerning allegations of excessive trading (churning) and unauthorized trading. “Churning” is excessive investment trading activity that serves little useful purpose or is inconsistent with the investor’s objectives and is conducted solely to generate commissions for the broker. Churning is also a type of securities fraud.

FINRA alleged that Mediate violated NASD Rules 2110 and 2310. NASD Rule 2310(a) provides that when recommending the purchase, sale, or exchange of any security a broker “shall have reasonable grounds for believing that the recommendation is suitable for such customer…” A broker’s recommendations must “be consistent with his customer’s best interests.” NASD IM-2310-2(a)(1) also require that the broker must “’have reasonable grounds to believe that the number of recommended transactions within a particular period is not excessive.” NASD IM-2310-2(b)(2) prohibits brokers from excessively trading in customer accounts.

An excessive trading violation occurs when: 1) a broker has control over the account and the trading in the account, and 2) the level of activity in that account is inconsistent with the customer’s objectives and financial situation. Where an intent to defraud or reckless disregard for the customer’s interests is present the activity is also churning.