Securities Lawyers Blog

Advanced Equities Fined Over Allegations of Failure to Disclose Information Concerning Fisker Automotive Private Placements

July 25, 2014 | by Staff Attorney

Our firm has covered the supervisory and due diligence failures concerning the sale and recommendation of Advanced Equities private placement since the SEC brought charges against the firm and its principals for selling one of its products by making material misrepresentations to investors. We also represent numerous clients who have unfortunately invested in these products that were alleged to have been sold as “late-stage private equities” by First Allied Securities brokers among others. Below are posts with additional information concerning these products.

Investor Alert: Brokers Matthew Bell and Craig Josephberg Indicted in CodeSmart Holdings (OTC: ITEN) Scam

July 23, 2014 | by Staff Attorney

Gana Weinstein LLP is investigating claims were brought by securities and exchange commission (SEC) against Matthew Bell (Bell) and Craig Josephberg (Josephberg) in connection with participation in a $300 million securities fraud market manipulation scheme. The SEC brought charges against Abraxas J. Discala (Discala), Marc E. Wexler (Wexler), and Ira Shapiro (Shapiro), for manipulating the stock price of sale of CodeSmart Holdings (OTC: ITEN), Cubed, Inc. (OTC: CRPT), StarStream (OTC: SSET) and The Staffing Group, Ltd. (OTC: TSGL).

According to the complaint, in 2013, Discala and Wexler conspired with Bell and Josephberg, both registered representatives with different brokerage firms, to inflate the price of the stock of CodeSmart. The SEC found that Discala, Wexler, Bell, and Josephberg then profited by selling their shares at inflated values at the expense of Bell’s clients and Josephberg’s customers.

Bell was taken into custody by the FBI and appeared in federal court in San Antonio. In Court, Bell was informed of a 10-count indictment returned in Brooklyn, New York, and was released on bond. Bell has a long history of customer complaints and two firm terminations.

Gana LLP Investigates Broker Angelo Talebi’s Investment Activities: Attention Iranian Investors in California

July 23, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating claims that broker Angelo Talebi (Talebi) made misrepresentations regarding investments in alternative investments such as Real Estate Investment Trusts (REITs) and oil and gas limited partnerships. Upon information and belief, Talebi is targeting Iranian investors in California. According to Talebi’s BrokerCheck, at least 13 customer complaints have been filed regarding Talebi’s sales practices in FINRA arbitration. Some of the complaints also allege that Talebi unsuitably invested clients in various investments including variable annuities and private placements including KBS 1 REIT, Leaf Equipment finance, Inland American Real Estate Trust, Atlas Resources. Another complaint alleges unsuitable equity investments and excessive use of margin.

From 1999 through December 2012, Talebi was associated with LPL Financial LLC (LPL Financial). Thereafter, until April 2014, Talebi was a registered representative of Royal Alliance Associates, Inc. Currently, Talebi is associated with Independent Financial Group, LLC.

The investment products that Talebi is alleged to have inappropriately recommended to clients are part of a growing industry trend of placing investors heavily in alternative investments and illiquid products. Many times brokers tell investors that these products are more stable and predictable than the stock market. After the financial crisis many investors were receptive to these sales pitches. However, brokers sometimes fail to disclose that the stability of these investments is artificially generated by the lack of disclosure and trading market for these products. In the cases of REITs and oil and gas private placements investors may only learn years after investing that the value of these assets has fallen substantially and some investors do not know of their losses until the investment goes completely bust.

SEC Alleges Broker Craig Josephberg Involved in a $300 Million Market Scheme of CodeSmart Stock (Part II)

July 22, 2014 | by Staff Attorney

In our prior post, our offices, Gana Weinstein LLP, noted its investigation of the July 17, 2014, claims brought by securities and exchange commission (SEC) against Craig Josephberg in connection with his participation in a $300 million securities fraud market manipulation scheme. The SEC brought charges against Abraxas J. Discala (Discala), Marc E. Wexler (Wexler), Matthew A. Bell (Bell), Craig L. Josephberg (Josephberg), and Ira Shapiro (Shapiro), for manipulating the stock price of four publically traded companies, CodeSmart Holdings, Inc. (CodeSmart), Cubed, StarStream Entertainment Inc., and the Staffing Group, Ltd.

According to the complaint, in 2013, Discala and Wexler conspired with registered representatives Bell and Josephberg to inflate the price of the stock of CodeSmart. The SEC found that Discala, Wexler, Bell, and Josephberg then profited by selling their shares at inflated values at the expense of Bell’s clients and Josephberg’s customers.

Josephberg has a long and troubled regulatory, criminal activity, debts, customer complaints, among a host of other supervisory “red flags” of potential misconduct in the handling of his clients. Josephberg entered the securities industry in 1996. Thereafter, he was associated with eight different firms including Maxim Group LLC, ICM Capital Markets, LTD, vFinance Investments, Inc., Halcyon Cabot Partners, LTD. (Halcoyon), and most recently Meyers Associates, L.P. (Meyers Associates). Indeed, when Josephberg was terminated from Halcoyon he was under investigation by the firm for sales practice violations including the selling of unsuitable securities, unauthorized trades, and securities fraud in connection with the sale of penny stocks including VHGI and Cell Therapeutics.

Gana LLP Investigates Craig Josephberg’s Alleged $300 Million Market Scheme

July 21, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating the July 17, 2014, claims brought by securities and exchange commission (SEC) against Craig Josephbergin connection with his participation in a $300 million securities fraud market manipulation scheme. According to the SEC, Abraxas J. Discala (Discala), Marc E. Wexler (Wexler), Matthew A. Bell (Bell), Craig L. Josephberg (Josephberg), and Ira Shapiro (Shapiro), assisted in manipulating the stock price of four publically traded companies, CodeSmart Holdings, Inc. (CodeSmart), Cubed, StarStream Entertainment Inc., and the Staffing Group, Ltd.

According to the complaint, in 2013, Discala and Wexler served as the CEO and President of OmniView Capital Advisors LLC (OmniView) conspired with registered representatives Bell and Josephberg to inflate the price of the stock of CodeSmart. The SEC found that Discala, Wexler, Bell, and Josephberg then profited by selling their shares at inflated values at the expense of Bell’s clients and Josephberg’s customers.

The SEC alleged that defendants accomplished their scheme following CodeSmart’s reverse merger into a public shell company in May 2013, whereby Discala and his associates, including Wexler, Bell, and Josephberg, obtained control of 3,000,000 shares of CodeSmart. Later in May 2013, the SEC found that Discala and Wexler flooded the market with CodeSmart’s shares and found ready buyers in Bell’s advisory clients and Josephberg’s brokerage customers.

Unsuitable Variable Annuity Sales A Continuing Concern for Regulators

July 18, 2014 | by Staff Attorney

As reported by InvestmentNews, A Financial Industry Regulatory Authority (FINRA) official recently expressed concern over the sale of variable annuities as the products continue to evolve and become more complex. Carlo di Florio, chief risk officer and head of strategy at FINRA was quoted as stating that variable annuities are now taking on features that resemble complex structured products. Structured products typically have features such as caps that limit returns during market rallies and floors that limit losses during market slumps. Now these features are appearing in variable annuity products. Variable annuities are already extremely complex products that are not suitable for all investors. Adding yet an additional level of complexity only heightens concerns that investors must understand what they are buying when they are recommended these vehicles.

As a background variable annuities are complex financial and insurance products. Recently the Securities and Exchange Commission (SEC) released a publication entitled: Variable Annuities: What You Should Know. The SEC encouraged investors considering a purchase of a variable annuity to “ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity is right for you.”

A variable annuity is a contract an investor makes with an insurance company where the insurer agrees to make periodic payments to you. A variable annuity may be purchased either in a single payment or a series of payments over time. In the annuity account the investor chooses investments and the value of the annuity “varies” over time depending on the performance of the investments chosen. The investment options for variable annuities are generally mutual funds.

FINRA Fines Merrill Lynch For Overcharging Mutual Fund Customers

July 17, 2014 | by Staff Attorney

On June 16, 2014, the Financial Industry Regulatory Authority (FINRA) announced that it fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $8 million for charging excessive fees relating to the sales of mutual funds in retirement accounts. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to those customers who had been wrongfully overcharged. The mandated restitution was in addition to the $64 million Merrill Lynch has already paid to compensate disadvantaged investors.

Mutual funds offer several different classes of shares. Each class has separate and distinct sales charges and fees. Generally, Class A shares have the lowest fees as compared to Class B and Class C. Class A shares, however, charge customers an upfront sales charge. This initial sales charge, however, is usually waived for retirement accounts, with some funds also waiving these fees for charities.

Merrill Lynch’s retail platform offers a variety of different mutual funds. Most of those funds explicitly offered to waive the upfront sales charges and disclosed those waivers in their respective prospectuses. According to FINRA, despite these disclosures, Merrill Lynch did not actually waive the sales charges many times since at least January 2006. On various occasions, Merrill Lynch charged the full sales charges to certain customers who qualified for the waiver. In doing so, Merrill Lynch allegedly caused nearly 41,000 small business retirement plan accounts and 6,800 charities and 403(b) retirement accounts for ministers and public school employees to pay sales charges when purchasing Class A shares. Those that did not want to pay the fee for the Class A shares were forced to purchase other share classes that needlessly exposed them to greater ongoing costs and fees. According to FINRA, Merrill Lynch became aware of the fact that its small business retirement plan customers were being overcharged, but yet they continued to sell the costly mutual fund shares and never reported the issue to FINRA for over five years.

Former Sterne Agee Broker Dean Mustaphalli Alleged to Have Wrongfully Run $6 Million Hedge Fund

July 15, 2014 | by Staff Attorney

The attorneys at Gana Weinstein LLP are investigating claims that former Sterne Agee Financial Services Inc. (Sterne Agee) broker Dean Mustaphalli (Mustaphalli) solicited millions of dollars from investors running to run a $6 million hedge fund on the side without formerly disclosing the activity to his brokerage firm. As reported by InvestmentNews, the Financial Industry Regulatory Authority (FINRA) charged Mustaphalli for founding and receiving commissions from a hedge fund he created called Mustaphalli Capital Partners in or about 2011 without informing his. Mustaphalli sold the investment through his registered investment advisory firm, Mustaphalli Advisory Group.

According to allegations made, Mustaphalli solicited money for the fund from at least 25 investors over six months during 2011. The fund invested in publicly traded equity and debt securities has since declined by approximately 90% according to investors. At least some of Mustaphalli’s clients were direct customers of Sterne Agee as well. According to FINRA, Mustaphalli was not cooperating with the agencies requests to provide account statements for the hedge fund. Typically in these cases if a broker does not cooperate with FINRA’s department of enforcement and the agency proves he withheld information the broker would be barred from the securities industry among other remedies that could be imposed.

Mustaphalli disclosed the existence of the Mustaphalli Advisory to Sterne Agee but did not disclose that he was managing the hedge fund through the firm according to FINRA. However, under the FINRA rules, brokers must fully disclose hedge funds for approval to their member firm and be supervised by the firm under Rule 3040.

Wells Fargo Broker Michael Frew Accused of Running Fictitious “Real Estate” Scam

July 14, 2014 | by Staff Attorney

The attorneys at Gana Weinstein LLP are investigating claims that broker Michael Frew (Frew). Frew allegedly solicited millions of dollars from investors including his friends and family on claims that he said would use the money to invest in real estate to rehabilitate properties in areas hit by natural disasters. Frew has now accused been accused of orchestrating a Ponzi scheme and converting these funds. Recently, the Financial Industry Regulatory Authority (FINRA) has sanctioned and barred Frew concerning these allegations and for Frew’s failure to properly respond to the agencies investigation requests.

Our attorneys have significant experience recovering investor funds by holding brokerage firms and Ponzi schemer’s responsible. In a similar real estate related fraudulent investment scheme our attorneys obtained a $2.8 million award on behalf of a group of defrauded investors including $1.9 million in punitive damages. See Reuters, Arbitrator orders alleged Ponzi-schemer to pay $2.8 million (Aug. 8, 2013) and the Award here.

Frew entered the securities industry in 1975. From 1988 to 2003, Frew was associated with Prudential Securities Inc. In 2003, Frew became registered with Wells Fargo Advisors, LLC (Wells Fargo). According to FINRA, Wells Fargo permitted Frew to resign in January 2014 when Frew refused to provide the firm bank records the firm requested in their investigation into whether Frew had received funds from customers. In February 2014, FINRA began investigating whether Frew accepted loans from customers and potentially converted those funds. Thereafter, FINRA stated that between March and May 2014, Frew failed to fully respond to FINRA’s requests for documents and information and refused to appear for testimony. For failing to respond to FINRA’s requests, the agency imposed a permanent bar from the securities industry.

Bank Loan ETFs – Buyer Beware

July 11, 2014 | by Staff Attorney

A recent statement by BlackRock Inc (BlackRock) Chief Executive Larry Fink concerning leveraged exchange traded funds (Leveraged ETFs) has provoked a chain reaction from the ETF industry. Fink runs BlackRock, the world’s largest ETF provider. Fink’s statement that structural problems with Leveraged ETFs have the potential to “blow up the whole industry one day” have rattled other ETF providers – none more so than those selling bank loan ETFs. Naturally, sponsors of Leveraged ETFs, a $60 billion market, called the remarks an exaggeration.

As a background, leveraged ETFs use a combination of derivatives instruments and debt to multiply returns on an underlining asset, class of securities, or sector index. The leverage employed is designed to generate 2 to 3 times the return of the underlining assets. Leveraged ETFs can also be used to return the inverse or the opposite result of the return of the benchmark. While regular ETFs can be held for long term trading, Leveraged ETFs are generally designed to be used only for short term trading – sometimes as short as a single day’s holding. The Securities Exchange Commission (SEC) has warned that most Leveraged ETFs reset daily and FINRA has stated that Leveraged ETFs are complex products that are typically not suitable for retail investors. In fact, some brokerage firms simply prohibit the solicitation of these investments to its customers, an explicit recognition that a Leveraged ETF recommendation is unsuitable for virtually everyone.

Despite these dangers, bank loan Leveraged ETFs may be an easy sell to investors. Investors in fixed income instruments are compensated based upon the level of two sources of bond risk – duration risk and credit risk. Duration risk takes into account the length of time and is subject to interest rate changes. Credit risk evaluates the credit quality of the issuer. For example, U.S. Treasury’s have virtually no credit risk and investors are compensated based on the length of the bond. At the other end of the safety spectrum are low rated floating-rate debt – what bank loan Leveraged ETFs invest in. These funds are supposed to reset every 90 days in order to get exposure to the credit side but not take on much duration risk.