Securities Lawyers Blog

FINRA Files Complaint Against Jamie Diaz Concerning Soliciting Clients for Investments in Nuela Restaurant, Nordica Development, and Marca Restaurant

January 29, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has filed a complaint against broker Jamie Diaz (Diaz) concerning allegations that form December 2009, through November 2011, Diaz engaged in securities fraud through deceptive and manipulative devices to convert approximately $850,000 from four customers. FINRA alleges that Diaz also converted $50,000 from a registered representative who worked with Diaz’s at National Securities Corporation (“National Securities”).

According to FINRA, Diaz told customers that their funds would be used to invest in two new restaurants in New York City and told another customer that the funds would be invested in real estate in New York City and a resort in Bermuda. However, FINRA alleged that Diaz did not invest the funds as he had represented to his customers. Instead, FINRA alleges that Diaz converted the funds for his personal use including to paying expenses related to his branch office business and to pay earlier investors.

Diaz first became employed in the securities industry in November 2000. Thereafter, from 2003 through 2007, Diaz was registered with GunnAllen Financial, Inc. (“GunnAllen”). From July 2007 through December 2011, Diaz was associated with National Securities. According to Diaz’s BrokerCheck Diaz was also associated with or employed by Worldwide Asset Protection, an insurance and estate planning company, Worldwide Wealth Management, Worldwide Asset Management, The Water Initiative LLC, and Nuela Restaurant LLC.

New Jersey Files Complaint Against George Bussanich Over Fraudulent Note Scheme

January 28, 2014 | by Staff Attorney

The Division of Law of the New Jersey Bureau of Securities has filed suit and taken administrative action against George J. Bussanich, 55, of Park Ridge and his son, George Bussanich, 34, of Upper Saddle River alleging they engaged in securities fraud in connection with sales to 26 New Jersey of $3.5 million of unregistered notes. The Bussanichs allegedly used the investor funds for their own personal enrichment. New Jersey also alleged that George J. Bussanich also provided funds to various members of his family as well. New Jersey alleged that investor funds were used to purchase three homes and exotic vehicles including two Maseratis and a Ferrari.

According to New Jersey, investors were told that their money would be used for Metropolitan Ambulatory Surgical Center, LLC (Metro Ambulatory) and George J. Bussanich’s other companies. Contrary to its name, Metro Ambulatory is not a surgical center but rather a holding company controlled by George J. Bussanich. New Jersey stated that the notes sold to investors purchased carried a 6% to 8% annual rate of return.

Acting New Jersey Attorney General John J. Hoffman said “This was not a legitimate investment gone bad but a scam by the defendants to line their pockets and live the high life.” New Jersey filed an Order to Show Cause with the Court asking the Court to freeze the assets of the defendants, appoint a receiver to take title to and possession of defendants’ property, and review all financial books and records.

Ex- Stratton Oakmont Broker Accused of Churning

January 27, 2014 | by Staff Attorney

Christopher Veale, a broker who worked at Stratton Oakmont Inc., was accused by Massachusetts securities regulators of excessive trading in the account of an 81-year-old person from 2010 to 2012.

The regulators said today in a statement that they’re seeking to bar Veale from the securities business in Massachusetts, along with his former colleague, Ali Habib Mayar, and their firm Brookville Capital Partners LLC, the brokerage where they worked at the time.

Martin Scorsese depicted Stratton Oakmont, Inc. in the film The Wolf of Wall Street. Prosecutors said that Stratton Oakmont generated millions of dollars in illicit profits by aggressively selling penny stocks and manipulating their prices from its offices in Lake Success, New York, before being shut down by regulators in 1996.

Howard Allen, Joseph McGowan, and Peter Pak Settle FINRA Charges Concerning Allen Partners Promissory Notes

January 24, 2014 | by Staff Attorney

Brokers Howard Allen (Allen), Joseph McGowan (McGowan), and Peter Pak (Pak) have settled charges brought by the Financial Industry Regulatory Authority (FINRA) concerning allegations that the brokers, while employed by J.P. Turner & Company, L.L.C. (JP Turner) and Portfolio Advisors Alliance, Inc. (PAA), participated in 12 private securities transactions without providing prior written notice to their firms in violation of NASD Conduct Rules 3040 and 2110 and FINRA Rule 2010.

The brokers were associated with the same firms at approximately the same times. The brokers were associated with JP Turner from 2002 until 2008. Thereafter, the brokers were associated with Allen Partners from May 2008 until June 2009. Finally, since 2009 the brokers have been associated with PAA. Pak has not been registered since 2011. Both Allen and McGowan are currently registered with PAA.

According to FINRA the three brokers owned and controlled two companies – Allen Partners Capital, LLC (APC) and Allen Partners, LLC (AP). Allen was a managing member of both companies. While at JP Turner and PAA, Allen conducted his branch office operations through AP. FINRA found that while the brokers were associated with JP Turner and PAA they raised money for both APC and AP.

FINRA Addresses Conflicts of Interest In the Sales of Securities

January 23, 2014 | by Staff Attorney

In the securities industry conflicts of interest can arise where a duty of care or trust exists between two or more parties. While the existence of a conflict does not always mean that one party will be harmed by the other party’s interest, brokerage firms have been involved in many situations where they did not effectively and fairly manage conflicts of interest.

The Financial Industry Regulatory Authority (FINRA) recently issued a “Report on Conflicts of Interest” that focused on enterprise-level frameworks to identify and manage conflicts of interest; approaches to handling conflicts of interest distributing new financial products; and approaches to compensating their associated persons.

Part of FINRA’s focus on conflicts on interests focused on the introduction of new financial products. FINRA recommended a number of effective practices to address conflicts in the issuance of new securities. First, firms can use a new product review process that includes identifying and mitigating conflicts that a product may present. Second, firms should disclose those conflicts in plain English to ensure that customers comprehend the conflicts that a firm or registered representative have in recommending a product. FINRA reminded firms that conflicts may be particularly acute where complex financial products are sold to less knowledgeable investors, including retail investors.

Rive, Leavell & Co. Sanctioned Over Misleading Communications In the Sale of Church Bonds

January 22, 2014 | by Staff Attorney

Brokerage firm Rives, Leavell & Co. (Rives) was recently sanctioned by the the Financial Industry Regulatory Authority (FINRA) over allegations that the firm disseminated to the investing public 29 advertisements including newspapers, brochures, offering documents, and pastor letters related to church bond investments that failed to comply with FINRA’s advertising rules. FINRA determined that these communications generally failed to adequately explain or highlight the risks associated with the investments, contained misleading language, or failed to explain investment terms sufficiently.

Rives is a broker-dealer based in Jackson. Mississippi, employs twelve registered brokers and has no branch office locations. NASD Conduct Rule 2210(d)(1) establishes content standards for public communications. All member communications with the public are to be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or service. Further, FINRA prohibits members from omitting any material fact. In addition, NASD Rule 2210(d)(1)(B) prohibits claims that are false, exaggerated, unwarranted or misleading. FINRA has reminded firms that members must consider the nature of the audience to which the communications will be directed and that different levels of explanation or detail may be necessary depending on the audience to which a communication is directed.

During the first review period FINRA examined, the agency found that Rives disseminated two newspaper advertisements, five brochures, one pastor letter, one mailed advertisement, and two offering documents that contained improper content. For example, FINRA found that a number of the communications promoted the bonds’ high interest rates but failed to disclose various risks associated with the investment including that the bonds were unrated by a rating agency, were potentially illiquid and might result in a loss of principal. The communications also failed to explain and contrast the difference between different interest options on the bonds.

The Problem of Senior Investor Abuse – A Securities Attorney’s Perspective

January 21, 2014 | by Staff Attorney

The financial abuse of seniors continues to be a significant problem in the United States. Nearly 40 million people are age 65 and older and the number is expected to grow to 89 million by 2050. However, even though seniors comprise of a large portion of the population they make up the vast majority of clients that seek our firm’s assistance as securities attorneys.

Securities regulators have taken increased interest in recent years to stress to brokerage firms the need to implement increased supervision and devise specific policies to address issue facing senior investors. FINRA recently published its 2014 Business Conduct Priorities where the regulator stated that its examiners will continue to focus on how firms engage with senior investors with a focus on suitability determinations as well as disclosures and communications. FINRA has also stated that firms must develop policies and procedures to identify and address situations where issues of diminished capacity may be present.

In a 2010 article published by the SEC, the regulator summarized practices that financial services firms and brokers must adhere to in order to properly service the accounts of senior investors in areas including:

FINRA Sanctions Bedminster Financial Group Concerning Allegations of Supervisory Failures

January 20, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned Bedminster Financial Group, Ltd. (BFG) and Robert M. Van Pelt (Van Pelt). FINRA alleged that at least four representatives of BFG used non-BFG email accounts for securities related communications to the public, customers and prospective customers and that Van Pelt failed to retain and review these emails. FINRA also found that BFG, through its President and Chief Compliance Officer Van Pelt, failed to enforce its written supervisory procedures by failing to 1) preserve business related emails; 2) review of business related mail; 3) inspect of non-branch offices; and 4) review and approve website content.

BFG’s main office is located in Holicong, Pennsylvania. BFG employs thirty-four registered persons, had six registered branch offices, and twenty-eight non-branch offices located across the country. BFG’s primary business is the receipt of finder’s fees for private placements and Private Investment in Public Equity (PIPE) offerings. Since 1996, Van Pelt has been registered with BFG and is the firm’s President, CCO, and majority owner.

The securities laws require firms to maintain and preserve for at least three years originals of all communications received and copies of all communications sent relating to the firm’s business. BFG’s supervisory procedures required representatives to use the firm’s email account for business related communications and prohibited employees from communicating with customers or prospects through their personal email accounts unless the outside account was first approved by the firm and records of the email activity were provided to the firm. Despite BFG’s prohibition against using personal email addresses, FINRA found that at least four representatives used their unapproved personal email accounts for business-related communications without copying or forwarding these emails to the firm.

Gana LLP, New York Real Estate Litigation Attorneys, File Action on behalf of a Luxury Condominium against Sponsors for Construction Defects

January 17, 2014 | by Staff Attorney

On December 5, 2013, the board of managers of 90 William Street condominium filed a construction defect case against SDS Procida and its managers and sister agencies (Defendants). SDS Procidia was the sponsor of the building. The complaint alleges that the building was marketed to potential and current owners as a luxury condominium project and was to provide innovative modern urban residences offering creative lifestyle and a social atmosphere.

The 113 unit condominium alleges that the building was built with inferior materials and contains pervasive construction defects, including serious health and safety issues in fire protection, roofing, windows, electrical, plumbing, insulation, elevator and domestic water systems of the building.

According to the complaint the Defendants concealed critical information about the 15 story building and improperly substituted materials and equipment from the owners of the units, the general public and prospective purchasers. In addition, the complaint states that the Defendants failed to construct the building in compliance with its offering plan.

Investor Tips to Avoid Losing Money in Private Placements and Alternative Investments

January 16, 2014 | by Staff Attorney

Private Placements are considered alternative investments and are issued under Regulation D under the Securities Act of 1933. Regulation D contains rules for issuing securities that provide exemptions from the more rigorous Securities and Exchange Commission (SEC) registration requirements and allows companies to issue securities without normal disclosures.

Investors who are recommended private placements must meet the “accredited investor” standard under Rule 501. Rule 501 defines “accredited investor” as any person who has a net worth in excess of $1,000,000, excluding residence, or annual income in excess of $200,000, $300,000 if filing jointly with a spouse, in the two most recent years.

According to a 2008 estimate, companies issued approximately $609 billion of securities through Regulation D offerings. While the private placement market allows many small companies to raise capital, regulators have raised a number of issues with due diligence procedures and brokerage firm sales efforts when selling private placements to investors. The North American Securities Administrators Association says private placements are one of the most common cause of regulatory action by state regulators. States brought more than 200 enforcement actions involving private placements in 2011, more than doubled the number of action in2007.