Selling Away

Gana LLP Files $3.7 Million FINRA Arbitration Complaint on Behalf of Investors In Connection with Paul Godlewski’s Investment Scheme

October 6, 2015 | by Staff Attorney

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Gana Weinstein LLP has filed an arbitration complaint before the Financial Industry Regulatory Authority (FINRA) alleging damages in excess of $3.7 million against Allstate Financial Services, LLC (Allstate) and the estate of Paul J. Godlewski (Godlewski). The complaint alleges improper supervision and selling away related to Godlewski’s fraudulent Ponzi scheme. Godlewski’s scheme was targeted at the retirement savings of around two dozen victims, mostly in the Pennsylvania area. The complaint alleges that Allstate failed to properly supervise and enforce compliance measures over Godlewski, one of Allstate’s registered representatives. The failure to supervise was alleged to cause violations of federal, state securities laws, and the financial industry’s rules and regulations. The complaint alleged that these investors, many of whom used IRA or 401K proceeds, have lost substantially all of their investment.

“I believe there are more victims out there who are in need of help to assert their rights under the securities industry rules,” according to securities attorney Adam Gana. As background on Godlewski, the broker was barred from the securities industry by FINRA in April 2015 after failing to respond to the regulator’s requests concerning his activities. In June 2015, Godlewski passed away. After Godlewski’s death many of his investors received letters from Godlewski’s estate stating that the estate was conducting a four to six months accounting on the assets and liabilities left behind by Godlewski. Beyond these brief correspondence, investors have been left in the dark as to the status of their funds.

In the complaint, it is alleged that Godlewski created a fictional persona of a brilliant venture capital fund manager in order to sell investors. Godlewski claimed that he created innovative trading algorithms and and managed funds with $100 million in assets under management. To promote this persona Godlewski made appearances on television talk shows such as Money Matters purporting to be the president of Global Enterprise Investment Venture Capital a/k/a GEIVC. GEIVC was one of the fraudulent funds that the complaint alleged Godlewski sold to claimants. Over time Godlewski’s scheme is alleged to evolved and improved in order to better protect Godlewski from being found out. These other more sophisticated funds include Tall Tree Note Fund I, LP (Tall Tree), another Godlewski fund, and 611 Swede Street LLC, a real estate property investment.

FINRA Bars Former PFS Investments Broker Malcolm Babin From the Industry

September 20, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred (FINRA AWC No. 20150454876-01) former PFS Investments, Inc. (PFS Investments) broker Malcolm Babin (Babin) after the broker failed to respond to a letter from the regulator requesting information. While BrokerCheck records kept by FINRA do not disclose the nature of the regulatory inquiry, in May 2015, Babin was permitted to resign from PFS Investments stating that the broker was terminated for 1 being involved in a misappropriation; 2) unlicensed security solicitation, and 3) an undisclosed outside business activity and potentially a private securities transaction – also referred to in the industry as “selling away.”

Babin entered the securities industry in 2007 with PFS Investments as a Series 6 broker. A Series 6 license only allows the broker to solicit variable contracts and open-end mutual funds and does not allow the broker to solicit general securities. FINRA alleged that on July 7, 2015 FINRA was investigating allegations that Babin converted customer funds and engaged in undisclosed outside business activities. FINRA requested that Babin provide documents and information by July 14, 2015. The regulatory stated that they received an email from Babin acknowledging receipt of FINRA’s requests for documents but informed staff that he would not cooperate. Consequently, the regulator barred Babin from the securities industry.

The conduct alleged against Babin constitutes a potential “selling away” securities violations. In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. However, even though when these incidents occur the brokerage firm claims ignorance of their advisor’s activities the firm is obligated under the FINRA rules to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.

FINRA Sanctions Sylvester King Jr. Over Improper Loans and Private Securities Transactions

August 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned (Case No. 2013036262101) broker Sylvester King Jr. (King) concerning allegations that from July 2009, through November 2012, while King was registered Morgan Stanley Smith Barney LLC (Morgan Stanley) and later Wells Fargo Advisors, LLC (Wells Fargo), circumvented Wells Fargo’s policies and procedures by assisting another broker in concealing nearly $400,000 in loans to three firm customers, loaned $25,000 to a customer without permission, participated in an undisclosed private securities transaction, otherwise referred to in the industry as “selling away”, where eight customers invested more than $3 million, and provided false information to Morgan Stanley on two separate questionnaires.

King entered the securities industry in 1999. From 2006, until June 2009, King was registered with Citigroup Global Markets Inc. (Citigroup). From June 2009, until October 2010, King was associated with Morgan Stanley. Thereafter, from October 2011, until May 2015, King was associated with brokerage firm Wells Fargo. On April 27, 2015, Wells Fargo filed a notice of Termination Form U-5 on the same day that FINRA entered into its agreement with King in which King accepted a fine and sanctions stating that King was discharged from the firm because of the settlement with FINRA which included an 18 month suspension. Thereafter, FINRA filed a second regulatory action stating that King failed to pay the $35,000 required as part of the settlement as of July 28, 2015.

FINRA alleged that in 2009, King and his partner referred to by the initials “AP”, formed PKG, a d/b/a branch office located in Florida registered through Morgan Stanley and then Wells Fargo. PKG allegedly provided financial “concierge” services to professional athletes who played in the NFL and the NBA. FINRA alleged that King committed the violations contained in the complaint for the supposed benefit, of several of these athletes.

Julius Kenney Formerly of LPL Financial Barred Over Outside Business Activities Investigation

August 11, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Julius Kenney (Kenney) concerning allegations Kenney refused cooperate with requests made by FINRA in connection with an investigation into possible outside business activities. Such activities may, under certain circumstances also involve investment transactions referred to as “selling away” in the industry. According to FINRA BrokerCheck records Kenney has disclosed that he operates as a LPL Financial LLC (LPL Financial) broker under the DBA Frank Kenney Wealth Management in Calhoun, Georgia. There is one customer complaint against Kenney alleging that the broker solicited an investment in a business referred to as Mellow Mushroom in or around October 2013.

Kenney entered the securities industry in 2008, when he became associated with Edward Jones. Thereafter, Kenney became associated with LPL Financial in 2011 before leaving for Dempsey Lord Smith, LLC in July 2012 through September 2013. Finally, in September 2013, Kenney came back to LPL Financial until his termination in June 2015. On May 22, 2015, LPL Financial filed a termination notice (known as a Form U5) with FINRA disclosing that Kenney was discharged from the firm for participating in an undisclosed outside business activity.

The conduct alleged against Kenney may lead to “selling away” securities violations. In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. However, even though the brokerage firm claim ignorance of their advisor’s activities, under the FINRA rules, a brokerage firm owes a duty to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away often occurs in brokerage firm that either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.

FINRA Bars Advisor James Ham Over Outside Business Activities

August 7, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker James Ham (Ham) has been the subject of at least two customer complaints, one financial matter, three regulatory events, two employment separations, and one judgement/lien. Recently, FINRA barred the broker for failing to cooperate in the agencies investigation into allegations that a customer of Ham’s deposited of approximately $170,000 into Ham’s undisclosed outside business. Such activities are referred to as “selling away” in the industry. The customer complaints against Ham allege a number of securities law violations including that the broker made unsuitable investments concerning variable annuities among other claims.

Ham entered the securities industry in 1988. From March 2006, until October 2014, Ham was registered with First Independent Financial Services (First Independent). Upon termination from First Independent the firm filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Ham was due to allegations by the firm that Ham executed discretionary transactions in a variable annuity owned by customers without obtain authorization from the customers or the firm to make such trades.

The latest FINRA investigation is not the only action the regulatory took against Ham. In October 2014, Ham entered into another consent order with FINRA concerning the reasons for his termination from First Independent, namely that he made discretionary trades in the variable annuity accounts of his customers without authorization. That consent order resulted in a 60 day suspension and a $5,000 fine. However, it appears FINRA was not paid the fine and the agency brought a second action against Ham. At some point FINRA then began to investigate the outside business activity that ultimately resulted in Ham being ousted from the industry.

David Chu Formerly of NYLife Securities Barred Over Private Transactions Investigation

July 21, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred David Chu (Chu) concerning allegations Chu refused cooperate with requests made by FINRA in connection with an investigation into possible outside business activities and private securities transactions. Such activities are often referred to as “selling away” in the industry. According to FINRA BrokerCheck records Chu has no outside business activities listed. It is unclear what businesses or investments FINRA’s investigation concerns.

Chu entered the securities industry in 2004, when he became associated with NYLife Securities LLC (NYLife). Chu held a Series 6 license which is a license that only allows the broker to sell investment companies (i.e. mutual funds) and variable contracts products. On March 16, 2015, NYLife filed a termination notice (known as a Form U5) with FINRA disclosing that Chu was discharged from the firm under circumstances that included a notification from the SEC that the agency was reviewing Chu’s books and records including his outside business activities and private securities transactions. NYLife conducted its own review and believed that Chu’s activities exceeded the scope of his approved activities with the brokerage firm.

According to FINRA, in April 2015, the agency began investigating whether Chu had engaged in outside business activities by soliciting investments or promissory notes. As part of its investigation FINRA sent a request to Chu for certain documents and information. According to FINRA, Chu provided a partial response to FINRA but thereafter through subsequent communications stated on a call with FINRA staff that he will not cooperate with the investigation. Consequently, Chu was barred by FINRA.

Former Wells Fargo Broker Douglas Melzer Barred Over Private Securities Transactions

June 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Douglas Melzer (Melzer) concerning allegations that between November 2011, and May 2012, while registered with Wells Fargo Advisors, LLC (Wells Fargo), Melzer solicited four customers to invest $2,000,000 in an outside investment without providing his firm notice. According to FINRA Melzer was compensated at least $26,500. Unapproved sales activities and transactions are referred to as “selling away” in the industry.

Melzer entered the securities industry in 2008 when he became registered with Wells Fargo. Wells Fargo terminated Melzer’s registration in January 2013 in connection with his unapproved sales activity. Melzer was registered with Park Avenue Securities LLC from March 2013, through January 2015.

The conduct alleged against Melzer is a “selling away” securities violations. In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. However, even though the brokerage firm claim ignorance of their advisor’s activities, under the FINRA rules, a brokerage firm owes a duty to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.

Wells Fargo Broker Aaron Parthemer Barred Over Private Securities Sales

May 19, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred broker Aaron Parthemer (Parthemer) concerning allegations that Parthemer engaged in private securities transactions – also known as “selling away.” FINRA alleged that from June 2009, through March 2013, Parthemer engaged in several undisclosed outside business activities, loaned nearly $400,000 to three firm customers without permission from his firm, presented an undisclosed private securities transaction through which eight firm customers invested more than $3 million, and provided false information and false documents to Morgan Stanley, Wells Fargo, and FINRA.

In October 1994 Parthemer first became registered with FINRA firm. From June 2009, through October 21, 2011, he was registered through Morgan Stanley Smith Barney LLC (Morgan Stanley). On November 4, 2011, Morgan Stanley filed a filed a termination notice stating that Parthemer’s termination from the firm was voluntary. From October 21, 2011, until May 2015, Parthemer was registered with Wells Fargo Advisors, LLC (Wells Fargo).

FINRA found that from approximately July 2009, through February 2012, Parthemer participated in a private securities transaction regarding a company referred to by the initials “GVC”, a startup internet branding company managed by a friend of Parthemers referred to by the initials “GH”. FINRA alleged that Parthemer referred several of his NFL and NBA clients to his friend for the purpose of investing in GVC. Subsequently, approximately eight of Parthemer’s clients purchased approximately $3.08 million of preferred GVC stock. FINRA found that Parthemer facilitated the transactions by hosting a presentation for investors conducted by GH at Parthemer’s home, sending PowerPoint presentations and other information concerning GVC to potential investors, and forwarding and retrieving required documentation to and from investors.

James Neilsen and Catherine Sheridan Accused of Being Involved Ulysses Partners Unregistered Securities

May 11, 2015 | by Staff Attorney

The attorneys of Gana Weinstein LLP are investigating a series of actions by the Connecticut Department of Banking (the Commissioner) involving James Neilsen (Neilsen), Neilsen Financial Services (NFS), Ulysses Partners, LLC (Ulysses), and Catherine Sheridan (Sheridan) and allegations that Neilsen sold over $10,000,000 in unregistered securities offerings to customers. The actions are Docket No. CRF-13-8014-S and CRF-15-8175-S. The Commissioner alleged that from approximately November 2005 through approximately December 2010, Neilsen offered and sold approximately $10 million of securities to at least ten Connecticut investors who were mostly his CPA clients. These funds were allegedly used primarily to finance Ulysses’ business expenses.

Neilsen was previously registered as a broker-dealer agent of Tradition Asiel Securities Inc. (Tradition Asiel) from December 17, 2004 to July 2, 2007, and with Sound Securities, LLC (Sound Securities) from August 7, 2008 to December 9, 2009. Neilsen was also registered with the National Futures Association (NFA) as an associated person of Longship Alternative Asset Management (Longship) from April 5, 2010 to December 29, 2010. In addition, Neilsen has been a Certified Public Accountant (CPA) with the Connecticut State Board of Accountancy since October 9, 1986. Neilsen was a founding member, chief financial officer, and treasurer of Ulysses and handled all of Ulysses’ day-to day financial decisions. Ulysses is now a defunct Illinois limited liability company but was a third-party marketer of hedge funds whose main function was to introduce and market hedge funds to financial institutions in exchange for the hedge funds paying Ulysses a fee.

According to the Commissioner Neilsen along with three other parties formed Ulysses as a self-described “third-party marketer” to solicit and refer prospective institutional investors to hedge funds. Two of those parties resigned from Ulysses within several months of Ulysses’ inception and were never actively involved in Ulysses’ activities. The third party, Sheridan was alleged to be a founding member, chief executive officer, and control person of Ulysses until she resigned from Ulysses in 2010. The Commissioner claimed that Sheridan handled all of the marketing and networking functions at Ulysses. The Commissioner found that Sheridan and Neilsen split revenues generated by Ulysses equally. In addition, Sheridan was previously registered as a broker-dealer with Tradition Asiel from August 10, 2004 to July 2, 2007, and with Sound Securities from July 25, 2007, to October 7, 2010. Sheridan is currently registered with FINRA as a general securities representative, general securities principal, options principal and equity trader with the brokerage firm North South Capital, LLC (North South). Sheridan is also currently registered with PE Investments LLC, a commodity pool operator associated with the NFA.

Former Edward Jones Advisor Daniel Retzke Barred Over Private Securities Investigation

April 21, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Daniel Retzke (Retzke) concerning allegations Retzke refused to appear for on-the-record testimony requested by FINRA in connection with an investigation into possible private securities transactions and the soliciting of a loan (also referred to as “selling away”). According to FINRA BrokerCheck records Retzke has disclosed outside business activities include Country Inn & Suites, Galena Lodging Photography, Galena Lodging, and Retzke LLC. It is unclear whether FINRA’s investigation concerns these particular outside business activity. In addition, there have been at least three customer complaints filed against Retzke some which allege unsuitable investments.

ln December 1983, Retzke first became registered with a FINRA firm. In January 1992, Retzke became associated with Edward Jones. On November 13, 2014, Edward Jones filed a Uniform Termination Notice with FINRA disclosing that Retzke was discharged on October 14, 2014.

According to FINRA, in January, 2015, the agency began investigating whether Retzke had engaged in a private securities transaction and solicited a loan from a client. As part of its investigation, on January 30, 2015, FINRA sent a request to Retzke. According to FINRA, Retzke stated on a call with FINRA staff on February 3, 2015, that he will not cooperate with the investigation. Consequently, Retzke was barred by FINRA.