Securities Fraud

Investigation: Dawson James Securities’ Great Basin Scientific Stock Underwriting

November 15, 2015 | by Staff Attorney

In a memo available online, Dawson James Securities, Inc. (Dawson James) stated that it acted as the sole underwriter for a February 25, 2015 offering for Great Basin Scientific, Inc. (Great Basin) (stock symbol: GBSN). Great Basin is a molecular diagnostics company that commercializes technologies that improve ease-of-use and delivers sample-to-result molecular diagnostic testing. According to Dawson James, at the time of the offering, Great Basin traded at $2.55 and had a market cap of approximately $15 million. Despite having only a market capitalization of only $15 million Dawson James rose $24 million of up to 2,724,000 units at $8.80 per unit price of Series E preferred stock and eight Series C warrants. Each share of Series E preferred stock was to be convertible into four common stock shares.

The Dawson James offering has many signs of a classic pump and dump penny stock scheme. After the offering the stock price for the company reach a high of almost $5 in April 2015. However, since that time the price of Great Basin has collapsed to about only $.06 per share wiping out shareholders. Back in April 2015, Dawson James claimed that Great Basin had announced a strong quarter and updated investors on their progress and receiving of a significant patent award.

In a Seeking Alpha article, a writer stated that the Dawson James offering gave cause for concern due to Dawson James’ past regulatory infractions and its association with one of its previous brokers who was arrested in connection with a nationwide Ponzi Scheme. In addition, the Seeking Alpha article cited other instances where Dawson James has had other investment banking relationships with other stocks that considered to be pump and dumps as well as with a Chinese company accused of fraud whose registration was revoked by the SEC. Importantly, prior to the Dawson James offering Great Basin had only 5 million outstanding shares and that the February 2015 secondary offering created convertible preferred stock and warrants that will allow an additional 35 million Great Basin shares that would undoubtedly flood the market and collapse the company’s stock.

FINRA Bars Broker Robert Potter Over Failure to Respond to Regulatory Requests Concerning Comingled Funds

October 27, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred broker Robert Potter (Potter) (FINRA No. 2014041579901) alleging on August 10, 2015, the agency investigated allegations that Potter commingled customer funds with his personal funds and sent Potter a letter requesting that he provide documents and information by August 17, 2015. According to FINRA Potter’s counsel requested an extension of time but that later Potter’s counsel informed staff that Potter would not provide the requested documents and information. Potter failure to provide the requested documents and information resulted in an automatic bar from the industry.

Recently, the National Futures Association (NFA) also brought action against Potter alleging that there is reason to believe that NFA Requirements are being violated in that Potter is alleged to have solicited a customer to trade futures and instructed the customer to wire funds to Potter’s personal bank account. The NFA stated that Potter’s prior firm supervisor provided NFA with copies of text messages between Potter and the customer discussing the customer’s purported investment in a futures trading account. The NFA alleges that Potter acted as an unregistered futures commission merchant by having the customer wire funds to Potter’s personal bank account, that Potter converted the customer’s funds, and that Potter lied to the customer about the value of the customer’s supposed investment.

Potter entered the securities industry in June 1983. From December 2005, until August 2011, Potter was registered with Wells Fargo Advisors, LLC. Thereafter, from August 2011, until August 2015, Potter was a registered representative with Cambria Capital, LLC out of the firm’s Salt Lake City, Utah office location.

SEC Accuses Dawn Bennett of Misleading Investors On Her Radio Program

October 9, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Dawn Bennett (Bennett) has been the subject of at least six customer complaints over the course of her career. Customers have filed complaints against Bennett alleging securities law violations including that the broker made unsuitable investments, breach of fiduciary duty, negligence, misrepresentations, and excessive trading among other claims. In addition to customer complaints, The Securities and Exchange Commission (SEC) filed a press release announcing fraud charges against Bennett, a Maryland-based financial services firm and founder/CEO, accusing her of grossly inflating the amount of managed assets and exaggerating the investment returns actually obtained for customers.

Bennett entered the securities industry in 1987. From 2006, until October 2009, Bennett was associated with Royal Alliance Associates, Inc. Thereafter, from October 2009, till present Bennett is associated with Western International Securities, Inc.

The SEC’s allegations relate to Bennett’s attempts to inflate the firm’s profile and prestige by overhyping assets under management and customer returns. The SEC alleged that Bennett frequently touted to customers and on her paid radio program that highly profitable investment returns generated by Bennett Group Financial Services placed the firm in the top 1 percent of firms worldwide. However, the SEC charged that Bennett failed to disclose that the returns were calculated for a model portfolio and not based on actual investor performance. The SEC further alleged that Bennett and her firm claimed to be managing more than $2 billion in assets when in reality Bennett managed no more than one-fifth of that amount.

FINRA Sanctions Donald Levin Over Unsuitable Mutual Fund Switching

October 5, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Donald Levin (Levin) (FINRA No. 2014040335101) alleging that between December and April 2014, Levin hosted a weekly radio show and during that show he made statements that were unbalanced, promissory, misleading and lacked reasonable basis in violation of the FINRA Rules. According to Levin’s BrokerCheck records Levin also has a long and troubled history of customer complaints, regulatory actions, and employment separations. In September 2012, FINRA accepted an settlement with Levin where he accepted the entry of findings that Levin made unwarranted and misleading statements on his weekly radio show. At that time Levin agreed to accept a five month suspension and a $30.000 fine. Going back to December 2008, the Securities and Exchange Commission (SEC) issued a cease and desist order to Levin fining him $25,000 for his violations in the offering and selling mutual fund class A shares to retail customers without adequate disclosure of material information about the availability of breakpoint discounts for which customers could have qualified.

In addition to the regulatory actions, Levin has approximately 15 customer complaints filed against him dating back to 1999. The customer complaints allege a host of securities laws violations concerning a variety of investment products. Some of the more recent complaints allege that Levin failed to conduct due diligence in private placement securities some of which include oil & gas private placements. In another customer complaint, the customer alleged that he was induced to take out a home equity loan in order to purchase securities and suffered losses of $440,000 as a result. Other investor complaints involve alternative investments and mutual funds.

Levin first became associated with a FINRA member in 1980. From 2004 until June 2012, Levin was a registered representative of Milkie/Ferguson Investments, Inc. Thereafter, from June 2012, until September 2012, Levin was associated with Berthel, Fisher & Company Financial Services, Inc. Finally, from January 2014, unitl August 2014, Levin was a registered representative of Titan Securities.

FINRA Bars Former NYLife Broker Jonathan Williams Over Outside Business Activities

September 29, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Jonathan Williams (Williams) (FINRA No. 20150452689) resulting in a bar from the securities industry alleging that Williams failed to provide FINRA staff with information and documents requested. The failure to provide those documents and information to FINRA resulted in an automatic bar from the industry. FINRA’s document requests related to the regulators investigation into claims the Williams falsified certain bank records and potentially commingled client funds in a bank account under his control.

FINRA’s investigation appears to stem from Williams’ termination from NYLife Securities LLC (NYLife) in March 2015. At that time NYLife filed a Form U5 termination notice with FINRA stating in part that the firm discharged Williams under circumstances where there was allegations that Williams commingled client funds. It is unclear the nature of the outside business activities from publicly available information at this time. However, from the three customer complaints filed against Williams potentially relating to these activities, the clients allege that Williams sold those customers CDs that were issued by Mid-Atlantic Financial and that the funds used to purchase these CDs were withdrawn from accounts with NYLife.

Williams entered the securities industry in 2000. From February 2006, until April 2015, Williams was associated with NYLife out of the firm’s Timonium, Maryland office.

FINRA Sanctions Five Brokers Affiliated with HFP Capital Markets

September 3, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned five brokers formerly associated with now expelled brokerage firm HFP Capital Markets LLC (HFP Capital) (Case No. 2010024522103) including brokers Jonah Engler (Engler), Brett Friedberg (Friedberg), Jonathan Sheklow (Sheklow), Joshua Turney (Turney), and Hector Perez (a/k/a Bruce Johnson) (Perez) concerning allegations that between December 2009, and February 2011, the five brokers fraudulently sold a total of nearly $3 million worth of Senior Secured Zero Coupon Notes (MMM Notes) issued by Metals, Milling and Mining LLC in a private placement offering to 59 customers.

FINRA alleged that the brokers misrepresented material facts about the offering by promising to pay a return of 100 percent in one year by purportedly extracting precious metals from materials left over from mining operations. In reality, FINRA determined that the investors lost all of the money that they invested in the MMM Notes, with the exception of three investors who were repaid with funds from new investors in a Ponzi scheme like fashion. FINRA determined that the brokers also recklessly failed to conduct a reasonable investigation, or due diligence, of the viability and legitimacy of company in the face of numerous red flags that it was a fraud.

In addition, FINRA alleged that the brokers recklessly misrepresented to customers that: (a) the MMM Notes were collateralized by certain barrels of ore concentrate; and (b) the collateral ore concentrate was of sufficient value to secure the investment in the MMM Notes. In fact, FINRA found that there was no collateral for the MMM Notes because the company did not own any ore concentrate. FINRA determined that the broker’s representations concerning the MMM Notes were recklessly and misrepresented material facts regarding the MMM Notes in willful violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 (the anti-fraud provision) as well as several industry rules. In sum, the brokers failed to obtain even basic information about the company necessary to the due diligence process in order to understand an investment in the company and therefore lacked a reasonable basis to recommend the MMM Notes to investors.

SEC Charged 36 Brokerage Firms Over Municipal Bond Offerings

August 12, 2015 | by Staff Attorney

The Securities and Exchange Commission (SEC) announced enforcement actions against 36 municipal bond underwriting brokerage firms for material misstatements and omissions in municipal bond offering documents. The SEC offered favorable settlement terms to municipal bond underwriters and issuers who self-reported securities law violations leading to the settlements.

The SEC alleged that between 2010 and 2014, 36 brokerage and financial firms violated federal securities laws by selling municipal bonds using offering documents that contained materially false statements or omissions about the bond issuers’ compliance with their obligation to disclosure. The firms were also alleged by the SEC to have failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers.

The municipal bond market is a $3.7 trillion market. Continuing disclosure provides municipal bond investors with information about the solvency and financial fitness of issuers on an ongoing basis. The SEC had previously identified issuers’ failure to comply with their continuing disclosure obligations as being a major challenge for investors seeking up to date information about their municipal bond holdings.

Gana LLP Investigation: Broker James Connors

July 28, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker James Connors (Connors) has been the subject of at least two customer complaints. The customer complaints against Connors allege a number of securities law violations including that the broker made unsuitable investments and engaged in churning (excessive trading) among other claims.

Connors entered the securities industry in 1995. From August 2006 through October 2009, Connors was associated with J.P. Turner & Company, L.L.C. (JP Turner). Thereafter from October 2009, until November 2010, Connors was registered with Brookstone Securities, Inc. Brookstone Securities was thereafter expelled from the industry by FINRA. From there, Connors was associated with Meyers Associates, L.P. Finally, Connors became associated with First Standard Financial Company LLC.

Some of these firms Connors has been associated with have been known to house troublesome brokers. For instance, Meyers Associates has an unusually high number of brokers with complaints on their records. According to FINRA, approximately twelve percent of registered representatives have some form of disclosure on their record. However, as we have previously reported, forty seven out of seventy five, or nearly sixty-three percent of the brokers employed by Meyers Associates, have a marked-up history as revealed by BrokerCheck. Even more disturbing is the fact that of those forty seven brokers have on average of 4.5 disclosure events per broker.

Former LPL Financial Broker Robert Tricarico Accused of Stealing Customer Funds

June 25, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Robert Tricarico (Tricarico) concerning allegations that Tricarico failed to respond to the regulator’s requests to provide information and documents concerning the an investigation into claims that Tricarico may have stolen money from clients.

Tricarico entered the securities industry in 1986. From June 2003, until April 2009, Tricarico was associated with Citigroup Global Markets Inc. Thereafter, from March 2009, to May 2011, Tricarico became registered with Wells Fargo Advisors Financial Network, LLC (Wells Fargo). Finally, from May 2011, until January 2015, Tricarico was associated with LPL Financial LLC (LPL).

On a Form U5, LPL terminated Tricarico alleging that the broker was the subject of a lawsuit by the executrix of a deceased client that alleged misappropriation of funds. Thereafter, FINRA sought to investigate LPL’s statements by sending Tricarico requests for information. On January 22, 2015, FINRA sent a letter to Tricarico requesting that Tricarico provide documents and information including his personal bank account records. Despite, multiple requests for information and some additional correspondence with Tricarico and his counsel the broker did not provide sufficient documents and information to cover FINRA’s requests. Accordingly, FINRA imposed a bar from the securities industry.

Michael Oppenheim Charged With $20 Million Theft of Client Funds

April 20, 2015 | by Staff Attorney

In parallel actions The Securities and Exchange Commission (SEC) announced fraud charges and filed a complaint against Michael Oppenheim (Oppenheim), a financial advisor formerly with J.P. Morgan Securities LLC (JP Morgan), accusing him of stealing at least $20 million from customers to fund his own brokerage accounts and then spending the majority of the money in highly unprofitable options trading. In addition, the United States Attorney for the Southern District of New York and the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (FBI), announced that Oppenheim was charged with wire, securities, and investment adviser fraud, as well as embezzlement.

The charges stem from allegations that from at least March 2011, to March 2015, Oppenheim abused his relationship of trust with his clients in converting at least $20 million belonging to at least seven clients whose investment advisory accounts at JP Morgan he purported to manage. The allegations state that in some instances, Oppenheim induced clients to consent to the withdrawal of hundreds of thousands, and in some cases millions, of dollars from their accounts at JP Morgan based on false and misleading representations that Oppenheim would invest their money in low-risk municipal bonds to be held in an account at JP Morgan. In other instances, Oppenheim is alleged to have simply withdrew hundreds of thousands of dollars from clients’ accounts without their knowledge.

According to the allegations Oppenheim did not invest client money in low-risk municipal bonds as promised but instead Oppenheim, without the client’s knowledge, used the money to obtain cashier’s checks purporting to be remitted by the clients. Oppenheim then allegedly deposited the cashier’s checks in at least three online brokerage accounts he controlled and used the funds for his own personal use including on-line trading and to pay for personal expenses such as a home loan and bills. Oppenheim allegedly embarked on sizeable trading of stocks and options in his personal accounts for securities including Tesla, Apple, Google, and Netflix. Oppenheim then lost nearly the entire amount of each deposit and his brokerage accounts currently show minimal cash balances.