Securities Lawyers Blog

Gana LLP Investigating Claims Against Success Trade Securities for Sale of Promissory Notes

August 29, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has filed a complaint against Success Trade Securities, Inc (STS) and its CEO and President Fuad Ahmed (Ahmed) accusing them of improperly selling $18 million worth promissory notes. The promissory notes were issued by STS’ parent company Success Trade, Inc. (STI) to 58 investors. The notes were sold primarily to sports athletes in the NFL or NBA.

The FINRA complaint alleges that the STI notes were part of ponzi scheme to simply raise capital and fund STS’ operations while purportedly offering investors 12-26% returns. The investors were not aware of the risks of investing in the STI notes. For example, STS was at all times financially insolvent and could only meet its ongoing expenses by selling more STI notes and by continuing the scheme. Crucial risks such as the viability of the company are material risks that need to be disclosed to investors. The complaint also alleges that STS and Ahmed failed to register the STI notes as a private placement offering as required under Regulation D.

Problems with the notes began to emerge once the STI notes became due in 2012 through 2013. At that time, STS and Ahmed solicited noteholders to roll over or extend the terms of the STI notes at higher interest rates or offered customers an equity interest in STS. The complaint also alleges that in connection with the rollover and extended note sales the firm failed to disclose to some investors that the firm is financially unable to repay the notes that have become due.

Karl Hahn Ordered by FINRA to Pay An Investor $11 Million

August 28, 2013 | by Staff Attorney

Former Merrill, Lynch Pierce, Fenner & Smith, Inc. (Merrill Lynch), Deutsche Bank Securities (Deutsche Bank), Inc., and Oppenheimer & Co., Inc. (Oppenheimer), broker Karl Edward Hahn (Hahn) was ordered by the Financial Industry Regulatory Authority (FINRA) to pay former clients over $11 million for misconduct in April 2013. Hahn was accused of common law fraud, negligent misrepresentations, and breach of fiduciary duties.

Hahn worked at Merrill Lynch from 2004 until 2008, at Deutsche Bank from 2008 to mid-2009, and at Oppenheimer from 2009 to early 2011. Hahn allegedly recommended various unsuitable investments to customers including covered calls, a premium financed life insurance policy, and $2.3 million fraudulent real estate financing project “involving East Coast” properties. Hahn allegedly recommended the life insurance policy for the the large commissions he stood to earn. Hahn also allegedly pocketed the money that was supposedly going to finance the East Coast properties.

Other claims made against Hahn include churning of investment accounts. Churning is a type of financial fraud where the broker engages in excessive trading in a client’s account for the purpose of generating commission but does not provide the investor with suitable investment strategy.

FINRA Charged Commonwealth Capital Securities Corp. and Kimberly Springsteen-Abbott With Misusing Investor Funds

August 27, 2013 | by Staff Attorney

On May 3, 2013 the Financial Industry Regulatory Authority (FINRA) filed a complaint against Commonwealth Capital Securities Corp. (CCSC) and Kimberly Springsteen-Abbott, owner, chief executive, and head of compliance for CCSC, for misusing investor funds. CCSC employs about 22 registered representatives and sells private placements and direct investments. Since 1993, CCSC marketed and sold 13 different equipment leasing funds raising $240 million for various technology equipment leases. The technology leases were supposed to have durations of 12 to 36 months.

Instead, according to FINRA, from December 2008 until February 2012, Kimberley Springsteen-Abbot misused investor funds to pay for various personal credit card charges and other expenses totaling at least $334,798. Some of those personal expenses include a $1,971 family vacation in 2010, and a $12,414 board of directors meeting in Hawaii in 2010. In total, FINRA alleges that 2,272 credit card charges related to misuse of funds.

In addition, FINRA alleges that during the agency’s examination in 2011, Kimberley Springsteen-Abbot and CCSC falsified and backdated a memo accounting for tickets to Disney World. Kimberley Springsteen-Abbot’s and CCSC’s manipulations of the records caused the brokerage firm’s books and records to be inaccurate.

vFinance Investments Inc. Settles Dispute Concerning Private Placements

August 26, 2013 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has settled a dispute with vFinance investments, Inc. (vFinance) concerning several violations of the securities laws including selling private placements in violation of the securities laws, failure to supervise, failure to disclose that the firm had worked with a statutorily disqualified person, and failure to retain and review email communications.

vFinance has been a FINRA member since 1998 has approximately 8 branch offices and employs about 40 registered representatives. The recent settlement is not the first time vFinance has been investigated by regulators. According to CRD records, there have been a total of 16 SEC, state, and FINRA regulatory actions initiated against vFinance in the past ten years.

The recent FINRA allegations concern several alleged violations. First, FINRA alleged that vFinance violated Regulation M. Regulation M is intended to prevent manipulative practices in the course of a securities offering by persons with an interest in the outcome by preventing conduct that could artificially influence a security’s market. In this case, FINRA alleged that vFinance representatives solicited nearly $6 million from investors for the PERF Go-Green Holdings, Inc. (PGOG) private placement. During the offering period, vFinance placed the PGOG’s common stock on the firm’s restricted list in order to avoid any potential conflict. However, despite the PGOG being placed on the firm’s restricted list, 22 customers of two representatives have been accused of selling 255,300 shares of the common stock of PGOG when the issuer was on the firm’s restricted list.

Broker-Dealers Settle with Massachusetts Securities Division Over the Alleged Improper Sales of Non-traded REITs

August 25, 2013 | by Staff Attorney

The Massachusetts Securities Division reached a settlement of $9.6 million with five independent broker dealers concerning allegations that the firms improperly sold non-traded real estate investments trusts (REITs) to hundreds of investors within the state. The firm’s fined include Ameriprise Financial Services Inc., Commonwealth Financial Network, Royal Alliance Associates, Inc. Securities America, Inc., and Lincoln Financial Advisors Corp. The Secretary of the Commonwealth of Massachusetts William Galvin announced that a part of the settlement would be used to distribute $6.1 million to investors as restitution.

A REIT is a security that invests in real estate directly either through properties or mortgages. REITs can be publicly traded on a national exchange or privately held. Private REITs are often referred to as non-traded REITs. Non-traded REITs have become increasingly popular as increased volatility in the stock market has led many investors to look for investment products that offer more stable returns. However, non-traded REITs may not be as safe and stable as advertised. Because non-traded REITs do not trade publicly the REIT itself determines its own asset values and only publishes updated valuations sporadically. Thus, a REITs volatility includes not only real estate market volatility but also management decisions and potentially leverage positions that investors may simply not be informed about.

Massachusetts alleged that the firms engaged in a “pattern of impropriety” selling these “popular but risky investments.” Massachusetts alleged significant and widespread problems with the firms’ compliance policies, practices, and procedures in the sale of non-traded REITs. In addition, Massachusetts alleged that the firms failed to only sell non-traded REITs to qualifying investors. Massachusetts allegations concerning each firm are as follows:

FINRA Files Complaint Against David Mickelson Over Private Placement Sales

August 24, 2013 | by Staff Attorney

David Mickelson has been accused by the Financial Industry Regulatory Authority (FINRA) of improperly selling approximately $8.3 million worth of various private placements to at least 71 customers without informing his brokerage firm (a practice known as “selling away“).

From 2004 through May 2011, Mickelson was associated with NFP Securities, Inc. (NFP). Mickelson’s private placement sales during this time included investments in Micro Pipe Fund I, LLC (Micro Pipe Fund), The Nutmeg Fund/Michael Fund LLLP, The Nutmeg/Fortuna Fund, LP, the Nutmeg/Patriot Fund, LLLP, and Lone Wolf, Inc. FINRA alleged that Mickelson created Micro Pipe Capital Management, LLC, Mickelson Investment Management, LLC, Hannahlu Ventures, LP, and DFM Agency, LLC in order to manage the various private placement offerings.

In order to promote his private placements, Mickelson allegedly marketed Micro Pipe Fund and other investments using misleading websites and advertisements communicated to customers using email accounts not monitored by NFP. Mickelson’s websites included: mickelsoninvestmentmanagement.com/mickinvest.com; astuteasset.com; and mickelsonlife.com. These websites contained securities-related communications including detailed discussions of private investment in public equity (PIPE) funds.

First Allied Securities Has Been Accused of Selling Advanced Equities Securities By Misleading Investors

August 23, 2013 | by Staff Attorney

The brokerage firm Advanced Equities, Inc. (Advanced Equities) specialized in so called late-stage private equity private placements. Advanced Equities had been particularly active in the clean-tech space. Through First Allied Securities, Inc. (First Allied), Advanced Equities private placements including Advanced Equities GreenTech Investments, LLC, AEI 2007 Venture Investments, LLC, AEI 2010 Cleantech Venture, LLC, and AEI Fisker Investments, LLC, were sold to hundreds of investors. Customers have alleged that First Allied misrepresented the Advanced Equities private placements to investors and failed to conduct adequate due diligence concerning the offerings.

In 2007, First Allied was acquired by Advanced Equities Financial Corp. (AEF) and became a sister corporation to Advanced Equities. At the time of the merger, Advanced Equities employed about 80 registered representatives while First Allied employed over 1,000 brokers. Utilizing First Allied’s customer and broker resources, AEI vastly expanded marketing of private placements to First Allied customers.

Sales materials developed for Advanced Equities and presented to investors touted the private placements as “late stage equities” or companies that were 12-36 months from going public through an initial public offering (IPO). The private placements were also represented as providing “higher near-term investment returns than the public equity markets” while possessing “greater short-term liquidity and lower risk profiles.”

Behringer Harvard REIT Fund Investor Losses Continue to Mount

August 22, 2013 | by Staff Attorney

Investors continue to suffer substantial losses from recommended investments in the Behringer Harvard REIT Funds. The Behringer Harvard REIT Funds including the Behringer Harvard Mid-Term Value Enhancement I, Behringer Harvard Short-Term Opportunity Fund I, and the Behringer Harvard REIT I and II (Behringer REITs) have sometimes been sold to investors as safe, stable, income producing real estate investment trusts. While the Behringer REITs were initially sold to investors for $10 per share, currently some of these REITs trade as low as approximately $2.00 on the secondary market. Worse still, some of the funds no longer pay a dividend or investors receive only a fraction of what their advisor initially told their clients they could expect the investment to yield.

The Behringer REITs are speculative securities, non-traded, and offered only through a Regulation D private placement. Unlike traditional registered mutual funds or publicly traded REITs that have a published daily Net Asset Value (NAV) and trade on a national stock exchange, the Behringer REITs raised money through private placement offerings and are illiquid securities. In recent years, increased volatility in stocks has led to an increasing number of advisor recommendations to invest in non-traded REITs as a way to invest in a stable income producing investment. Some non-traded REITs have even claimed to offer stable returns while the real estate market has undergone extreme volatility. Brokers are often motivated to sell non-traded REITs to clients due to the large commissions that can be earned in the selling the Behringer REITs.

Investors are now bringing claims against the brokerage firms that sold them the Behringer REITs alleging that their advisor failed to disclose important risks of the REITs. Some common risks that customers have alleged were not disclosed include failing to explain that Behringer REITs may not be liquidated for up to 8 to 12 years or more, that the redemption policy can be eliminated at any time, and that investor returns may not come from funds generated through operations but can include a return of investor capital.

Adorean Boleancu Fined and Barred By FINRA On Fraud Charges

August 21, 2013 | by Staff Attorney

On March 6, 2013, Adorean Boleancu reached a settlement with the Financial Industry Regulatory Authority (FINRA) concerning allegations that he converted at least $650,000 from a customer. By agreeing to the FINRA settlement Boleancu does not admit or deny any of the findings made against him but accepts a bar from associating with any broker dealer and to pay restitution in the amount of $650,000.

The complaint alleges that Boleancu converted at least $650,000 from an elderly widow while he was working at Wells Fargo Advisors, LLC (Wells Fargo). Boleancu worked for Wells Fargo from February 1, 2008 until his termination on December 6, 2011.

Boleancu allegedly was able to convert the money from the investor by issuing checks in her name without her authorization and issuing those checks to others including his own girlfriend. The checks were drawn from the investor’s two home equity lines of credit that were opened shortly after Boleancu became her adviser. In an attempt to keep his activities hidden, Boleancu allegedly made unauthorized payments through the investor’s checking account to pay interest accrued on the outstanding balances. In the end it is estimated that Boleancu converted approximately $650,000.

James Glover Settles Charges with FINRA Accepting a Ban From the Securities Industry

August 21, 2013 | by Staff Attorney

James R. Glover reached a settlement with the Financial Industry Regulatory Authority (FINRA) resulting in a permanent bar from the securities industry. Glover failed to appear and participate in FINRA’s investigation of his securities activities.

The FINRA complaint alleges that while Glover was employed by Signator Investors, Inc. (Signator), Glover misappropriated customer funds and sold unregistered securities products in violation of the securities laws.

From 1998 through May 2012, Glover was associated with Signtor. During this time, it has been alleged that Glover sold interests in private placements, limited liability companies, and real estate related ventures. Glover’s CRD lists that Glover is also employed by GW Financial Group, Inc. In addition to FINRA’s sanctions against Glover, at least 25 customer complaints have been filed against Signator for the firm’s failure to supervise Glover’s business activities. Nearly all of the customer complaints accuse Glover of selling fraudulent real estate related securities and of mishandling the customer’s accounts.