The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have brought action (FINRA Here, SEC Here) against Timothy Dembski (Dembski) and Walter Grenda (Grenda) concerning allegations that they made false and misleading statements to their clients at Reliance Financial Group (Reliance) an investment advisory firm, in recommending and selling investments in a risky hedge fund called Prestige Wealth Management Fund, LP (Prestige Fund). Also mentioned as a manager of the fund was Scott Stephan (Stephan).
Dembski was a registered broker with FINRA starting in 1995. From October 2006 until March 2011, Dembski was registered with Wall Street Financial Group, Inc. (Wall Street). Thereafter, Dembski was registered with Mid Atlantic Capital Corporation (Mid Atlantic) until August 2013. In January 2011, Dembski co-founded and was the managing partner at Reliance Financial and also co-founded the Prestige Fund.
Grenda has been a registered broker with FINRA since 1981. From October 2006 until March 2011, Grenda was registered with Wall Street. Thereafter, Grenda was registered with Mid Atlantic until July 2013.
Stephan was a broker registered with FINRA from August 2009 until March 2011 with Wall Street. Thereafter, in early 2011, he co-founded the Prestige Fund and was the Fund’s Chief Investment Officer and sole portfolio manager.
The SEC alleged that the Prestige Fund’s trading strategy was described to prospective investors as being fully-automated by a computer algorithm. The SEC alleged that Dembski and Grenda sold interests in the Prestige Fund to clients of their investment advisory and tax preparation services. The SEC alleged that Dembski and Grenda preyed upon these clients knowing that these advisory and/or tax clients were retired or near retirement, on fixed incomes, and lacked investment acumen.
The SEC also alleged that Dembski and Grenda knew that the Prestige Fund was a highly speculative, risky investment and that neither Dembski nor Stephan had any experience in managing a hedge fund. In fact, the SEC alleged that Stephan’s had virtually no investing experience. The SEC alleged that Dembski and Grenda used false and misleading statements to their clients in order to create the appearance that an investment in the Prestige Fund was less risky. The SEC claimed that Dembski and Grenda provided their clients with a private placement memorandum (PPM) that greatly exaggerated Stephan’s experience in the securities industry, led certain of his clients to falsely believe that he both created the algorithm and monitored the Fund’s performance, and created the false impression for certain of his clients that sophisticated institutional investors were interested in acquiring the algorithm.
At the recommendation of Dembski and Grenda their clients respectively invested approximately $4 million and $8 million in the Prestige Fund which started trading in April 2011. The Prestige Fund did not have positive returns and in approximately October 2012 Grenda withdrew his clients from the Prestige Fund. Thereafter, in approximately December 2012, the Prestige Fund collapsed losing approximately 80% of its value as a result of Stephan placing manual trades.
Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of unsuitable investments in high risk securities. Our consultations are free of charge and the firm is only compensated if you recover.