Securities Lawyers Blog

BlackGold Opportunity Fund Investors Suffer Losses

May 4, 2015 | by Staff Attorney

The law offices of Gana Weinstein LLP continue to report on investment losses suffered by investors in oil and gas investments that brokerage firms have increasingly recommended to retail investors in recent years. These investments include private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks. See Overconcentrated in Oil and Gas Investments?, MLP Fund MainStay Cushing Royalty Energy Hurt by Failing Oil & Gas Prices; Oil and Gas Investments – Issuers Profit While Investors Take All the Risk

Recently, the according to Bloomberg, BlackGold Capital Management, the energy-focused hedge fund that manages the BlackGold Opportunity Fund LLC and BlackGold Opportunity Offshore Fund LLC (BlackGold Funds) announced that losses in December 2014 were almost triple its initial report after an auditor examined how it valued debt holdings and certain changes were made to the valuation.

According to SEC records, the BlackGold Opportunity Fund was launched in 2009. Since that time the Fund has touted an annualized rate of return of 20% since inception. In 2014, the Fund suffered 12 percent decline compared with a 13 percent loss for oil and gas companies in the Bloomberg high-yield bond index. KKR & Co., which acquired nearly a 25% stake in BlackGold Capital Management reported that BlackGold lost only 6 percent in December originally which was recently revised to 17%. Given the enormous decline already experienced, it is possible that the BlackGold Funds will continue to suffer substantial declines unless the price of oil experiences a tremendous rebound in the near future.

Wells Fargo Broker Joseph DiRago Jr. Sanctioned for Unauthorized Trading

April 30, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) in an acceptance, waiver, and consent action (AWC) Wells Fargo Advisors, LLC (Wells Fargo) broker Joseph DiRago Jr. (DiRago) concerning allegations that between June 2011, and October 2012, while registered with Morgan Stanley & Co. LLC (Morgan Stanley), DiRago effected transactions exercising discretion without written authorization in one customer’s account in violation of NASD Conduct Rule 2510(b) and FINRA Rule 2010.

In addition, DiRago has been the subject of at least five customer complaints over the course of his career. These claims primarily involve claims of unsuitable investment recommendations and misrepresentations. All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. The number of complaints made by investors against DiRago is relatively large by industry standards. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Brokers must disclose different types of events, not necessarily all of which are customer complaints. These disclosures can include IRS tax liens, judgments, and even criminal matters.

According to FINRA, NASD Conduct Rule 2510(b) provides that brokers cannot exercise any discretionary power in a customer’s account unless such customer has given prior written authorization and the account has been accepted by the firm as evidenced in writing by the member.

Broker Investigation: Gregory Dean Churning Claims

April 29, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Gregory Dean (Dean) has been the subject of at least 4 customer complaints over the course of his career. Customers have filed complaints against Dean in recent years alleging that the broker made unsuitable investments and churned their accounts. Other claims concerning Dean’s handling of customer accounts include allegations of failing to execute trades.

Dean has been registered with FINRA since 2005. From January 2007 until November 2011, Dean was registered with J.D. Nicholas & Associates, Inc. Currently, Dean is associated with Worden Capital Management LLC.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. When brokers engage in churning the investment trading activity in the client’s account serves no reasonable purpose for the investor and is transacted to profit the broker through the generation of commission payments. The elements to establish a churning claim, which is considered a species of securities fraud, are excessive transactions of securities, broker control over the account, and intent to defraud the investor by obtaining unlawful commissions. A similar claim, excessive trading, under FINRA’s suitability rule involves just the first two elements.

Gana LLP Broker Spotlight: LPL Financial Advisor Karl Romero’s Private Placement Sales

April 27, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Karl Romero (Romero) has been the subject of at least 9 customer complaints over the course of his career. Customers have filed complaints against Romero alleging that the broker made unsuitable investments primarily in private placements and alternative investment related products. Some of the claims appear to involve Romero’s handling of customer accounts and recommendations in the LaeRoc Income Fund, a troubled real estate private placement.

The LaeRoc Funds manage over $650 million in assets and focuses on income producing properties in the western US. The LaeRoc 2005-2006 Income Fund LP in 2011 attempted to raise $11 million to $14.5 million to pay off at least $49 million of debt. The claims against Romero claim breach of fiduciary duty and unsuitable investments.

Romero has been registered with FINRA since 1971. From 1989 to present Romero has been registered with LPL Financial, LLC (LPL). According to public records Romero operates out of a DBA business called Karl H Romero & Assoc Inc.

Gana LLP Broker Spotlight: Pasquale “Pat” Vitucci Sales of Variable Annuities

April 27, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Pasquale “Pat” Vitucci (Vitucci) has been the subject of at least 19 customer complaints over the course of his career. Customers have filed complaints against Vitucci alleging that the broker made unsuitable investments primarily in variable annuity related products. Other claims concerning Vitucci’s handling of customer accounts include allegations of misrepresentations, breach of fiduciary duty, churning, and fraud. In total investors have complained of over $1 million in losses.

Vitucci has been registered with FINRA since 1992. From October 2005 until October 2008, Vitucci was registered with AIG Financial Advisors, Inc. Thereafter, Vitucci has been associated with National Planning Corporation (National Planning). According to public records Vitucci operates out of a DBA business called Vitucci & Associates Insurance Services.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. Thus, the product or investment strategy being recommended must be appropriate for the investor and the advisers must convey the potential risks and rewards before bringing it to an investor’s attention.

Former RBS Securities Advisor Matthew Katke Plead Guilty For RMBS and CLO Fraud

April 25, 2015 | by Staff Attorney

According to the Department of Justice (DOJ), Matthew Katke (Katke) recently waived his right to indictment and pleaded guilty today in Hartford federal court to participating in a multimillion securities fraud scheme. Katke was registered with RBS Securities, Inc. (RBS Securities), during the time of the DOJ’s investigation. Currently, Katke is associated with Nomura Securities International, Inc. and has been since August 2013.

According to the DOJ, Katke also entered into an agreement to cooperate in the government’s ongoing investigation. Allegedly, between April 2008 and August 2013, Katke was a managing director at RBS Securities, a global securities firm with headquarters in Stamford, Connecticut. Katke and other members of RBS’s Asset Backed Products division traded fixed income investment securities in residential mortgage-backed securities (RMBS) and collateralized loan obligations (CLOs) through RBS trading floor. Katke admitted in his guilty plea that he and others conspired to increase RBS’s profits on CLO bond trades at the expense of their own customers by, among other things, making misrepresentations to induce customers to pay inflated prices and selling customers to accept deflated prices for CLO bonds. Katke misrepresented the CLO seller’s asking price to the buyer and kept the difference between the price paid by the buyer and the price paid to the seller for RBS. In another device used by Katke he misrepresented to the CLO buyer that bonds were held in RBS’s inventory were being offered for sale by a fictitious third-party seller invented by Katke allowing Katke to charge extra commission.

The DOJ’s investigation revealed many fraudulent transactions that cost at least 20 victim millions of dollars. In a statement U.S. Attorney Deirdre M. Daly of the District of Connecticut said that “Broker-dealers, and the people who work for them, need to understand that a market practice that is at odds with the securities law is a crime that carries serious repercussions. We urge others to follow Mr. Katke’s example and cooperate with investigators. We want to thank SIGTARP and the FBI for their efforts to date in this continuing investigation. Additionally, we acknowledge our other partners at the Department of Labor Office of the Inspector General, the Federal Housing Finance Administration Office of Inspector General and the Fraud Section of the Department of Justice for their hard work in the numerous ongoing investigations into this market.”

Top Merrill Lynch Broker Thomas Buck Terminated Under Unusual Circumstances

April 22, 2015 | by Staff Attorney

According to news sources, Thomas Buck (Buck) and his daughter Ann Buck, were recently terminated by Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), now known as Bank of America, NA (Bank of America) under unusual circumstances. Buck’s team managed nearly $1.5 billion in investor assets at the time. Buck has been associated with Merrill Lynch since 1982 according to Financial Industry Regulatory Authority (FINRA) records and became one of the company’s largest producers.

According to news sources, Buck was terminated for allegedly making unauthorized trades in client accounts. Advisors are not allowed to engage in unauthorized trading. Such trading occurs when a broker sells securities without the prior authority from the investor. The broker must first discuss all trades with the investor before executing them under NYSE Rule 408(a) and FINRA Rules 2510(b). These rules explicitly prohibit brokers from making discretionary trades in a customers’ non-discretionary accounts. The SEC has also found that unauthorized trading to be fraudulent nature.

The termination occurred on March 6, 2015, and stunned the firm’s other employees because the termination appeared out of the blue and without explanation leading to rumors. One person was quoted in the news saying “There is a lot more out there. I think it’s a little bit of heavy-handedness on Merrill’s part. Tom was shocked.”

Former Ameriprise Advisor Jack McBride Discharged Over Soliciting Leveraged ETFs

April 22, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Jack McBride (McBride) has been the subject of at least 4 customer complaints over the course of his career. Customers have filed to recent complaints against McBride alleging that the broker made unsuitable investments in leveraged ETFs and the use of margin. McBride has been registered with FINRA since 1994. From that time until August 2014, McBride was registered with Ameriprise Financial Services, Inc. (Ameriprise). In August 2014, Ameriprise discharged McBride claiming that the broker violated the company’s policies relating to making a settlement and for soliciting prohibited securities.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. Part of the suitability requirement is that the broker must have a reasonable basis to believe, based on appropriate research and diligence, that all recommendations are suitable for at least some investors. Thus, the product or investment strategy being recommended must be appropriate for at least some investors and the advisers must convey the potential risks and rewards before bringing it to an investor’s attention.

In the case of Non-Traditional ETFs, these products contain drastically different risk qualities from traditional ETFs that most investors and many brokers are not aware of. While traditional ETFs simply seek to mirror an index or benchmark, Non-Traditional ETFs use a combination of derivatives instruments and debt to multiply returns on underlining assets, often attempting to generate 2 to 3 times the return of the underlining asset class. Non-Traditional ETFs can also be used to return the inverse or the opposite result of the return of the benchmark.

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.

Michael Oppenheim Charged With $20 Million Theft of Client Funds

April 20, 2015 | by Staff Attorney

In parallel actions The Securities and Exchange Commission (SEC) announced fraud charges and filed a complaint against Michael Oppenheim (Oppenheim), a financial advisor formerly with J.P. Morgan Securities LLC (JP Morgan), accusing him of stealing at least $20 million from customers to fund his own brokerage accounts and then spending the majority of the money in highly unprofitable options trading. In addition, the United States Attorney for the Southern District of New York and the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (FBI), announced that Oppenheim was charged with wire, securities, and investment adviser fraud, as well as embezzlement.

The charges stem from allegations that from at least March 2011, to March 2015, Oppenheim abused his relationship of trust with his clients in converting at least $20 million belonging to at least seven clients whose investment advisory accounts at JP Morgan he purported to manage. The allegations state that in some instances, Oppenheim induced clients to consent to the withdrawal of hundreds of thousands, and in some cases millions, of dollars from their accounts at JP Morgan based on false and misleading representations that Oppenheim would invest their money in low-risk municipal bonds to be held in an account at JP Morgan. In other instances, Oppenheim is alleged to have simply withdrew hundreds of thousands of dollars from clients’ accounts without their knowledge.

According to the allegations Oppenheim did not invest client money in low-risk municipal bonds as promised but instead Oppenheim, without the client’s knowledge, used the money to obtain cashier’s checks purporting to be remitted by the clients. Oppenheim then allegedly deposited the cashier’s checks in at least three online brokerage accounts he controlled and used the funds for his own personal use including on-line trading and to pay for personal expenses such as a home loan and bills. Oppenheim allegedly embarked on sizeable trading of stocks and options in his personal accounts for securities including Tesla, Apple, Google, and Netflix. Oppenheim then lost nearly the entire amount of each deposit and his brokerage accounts currently show minimal cash balances.