Securities Lawyers Blog

Macquarie Capital Accused of Failing to Conduct Due Diligence in Failed Puda Coal Offering

April 17, 2015 | by Staff Attorney

The Securities and Exchange Commission (SEC) recently announced charges against Macquarie Capital (USA) Inc., (Macquarie) a wholly owned subsidiary of Macquarie Group Limited. The SEC alleged that the firm was responsible for underwriting a public in Puda Coal (Symbol: PUDA). However, during the firm’s due diligence, the SEC alleged that Macquarie obtained a report indicating that the China-based company’s offering materials contained false information.

Macquarie agreed to settle the SEC’s charges by paying $15 million and covering the costs of a fair fund to compensate investors who suffered losses after purchasing shares in the public offering. In its press release, the SEC recognized that underwriters are gatekeepers who are supposed to be relied upon by investors to ferret out the essential facts and address inaccuracies before marketing a stock to the public.

The SEC found that Macquarie was the lead underwriter on a secondary public stock offering in 2010 by Puda Coal. At that time Puda Coal purported to own a coal company in China and falsely told investors that it held a 90 percent ownership stake in the Chinese coal company. Macquarie then was accused of repeating those statements in its marketing materials for the offering despite obtaining a report showing that Puda Coal did not own any part of the coal company. The SEC found that Macquarie had access to filings in China during its due diligence review that showed that Puda Coal’s chairman had transferred ownership of the coal company to himself and then sold nearly half of his interest.

Izak Zirk de Maison and Stephen Wilshinsky Charged in Gepco Pump-and-Dump Fraud

April 16, 2015 | by Staff Attorney

The Securities and Exchange Commission (SEC) recently charged a ring of eight individuals, including Izak Zirk de Maison (Zirk de Maison) who orchestrated the fraud (was named Izak Zirk Engelbrecht before taking the surname of his wife Angelique de Maison) for their roles in an alleged pump-and-dump scheme involving a penny stock. In a related action, the Federal Bureau of Investigation (FBI) and the United States attorney for the Northern District of Ohio announce the federal arrests of Izak Sirk De Maison and Stephen J. Wilshinsky (Wilshinsky).

The SEC alleges that Engelbrecht with others he enlisted to buy, sell, or promote stock in the Gepco Ltd (Gepco) company. Gepco is a Nevada corporation under the ticker symbol “GEPC.” Gepco was originally incorporated in June 2008, as Kensington Leasing, Ltd., a company that purported to “specialize in leasing equipment to a select clientele.” Thereafter, Gepco entered into a reverse merger with Gem Vest Ltd., in December 2013.

As part of the scheme, the SEC alleged that Zirk de Maison installed associates of his as officers and directors of Gepco. Collectively, the defendants controlled large blocks of shares of Gepco common stock while the de Maisons manipulated the market to create the appearance of genuine investor demand which allowed him and his associates to sell the stock at inflated prices making hundreds of thousands of dollars in profit.

LPL Financial Advisor Raymond Schmidt Accused of Borrowing Millions for Hawaii Real Estate Investments

April 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Raymond Schmidt (Schmidt) due to Schmidt’s refusal to respond to requests made by the agency. FINRA found that from approximately May 2009, through November 2012, Schmidt borrowed approximately $2.25 million from seven customers of LPL Financial LLC (LPL) and also engaged in outside business activities without notifying the firm. FINRA also alleged that between 2009 and 2014, Schmidt submitted five false compliance questionnaires and three false disclosures of outside business activities and loans to the firm.

In July 2006, Schmidt became associated with LPL. In a termination notice dated September 24, 2014, the LPL reported that on August 25, 2014, Schmidt had resigned while under internal review by LPL.

FINRA found that in or around May 2009, Schmidt purchased a real estate investment in Hawaii that he developed into a vacation rental property. In May 2012 that property opened for business. FINRA found that Schmidt was the sole owner and operator of the property and the business but failed to notify LPL of this outside business activity. FINRA alleged that from approximately May 2009, through November 2012, Schmidt borrowed $2,254,818 from seven LPL customers for the purpose of purchasing the real estate in Hawaii and constructing a vacation rental property.

Broker Investigation: Thomas Tedeschi’s Sales Practices

April 14, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Thomas Tedeschi (Tedeschi) has been the subject of at least 6 customer complaints, one judgment and lien over the course of his career. Customers have filed complaints against Tedeschi alleging a litany of securities law violations including that the broker made unsuitable investments, unauthorized trades, breach of fiduciary duty, misrepresentations and false statements, and churning, among other claims. The claims involve different investment recommendations including claims involving warrants, penny stocks, and Exchange Traded Notes, among other speculative securities.

An examination of Tedeschi’s employment history reveals that Tedeschi moves from troubled firm to troubled firm. The pattern of brokers moving in this way is sometimes called “cockroaching” within the industry. See More Than 5,000 Stockbrokers From Expelled Firms Still Selling Securities, The Wall Street Journal, (Oct. 4, 2013). In Tedeschi’s 20 year career he has worked at 17 different firms.

Since 2008 alone Tedeschi has been registered with Westrock Advisors, Inc., Obsidian Financial Group, LLC, John Thomas Financial, Prestige Financial Center, Inc., Blackbook Capital LLC, and Aegis Capital Corp.

Financial Advisor Barry Hartman Alleged to Have Sold Investments in Invizeon Corporation

April 12, 2015 | by Staff Attorney

According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) financial advisor Barry Hartman (Hartman) was terminated by the firm due to alleged violation of firm policies including the participation in undisclosed outside business activities and private securities transactions, known as “selling away” in the industry.

Hartman was registered with brokerage firm FSC Securities Corporation (FSC) from 2002 until March 2015, when the broker was terminated. During this time Hartman conducted his securities business through an entity called Rocky Mountain Financial, LLC. While the size and scope of Hartman’s activities is still under investigation, investors have come forward claiming that Hartman sold them promissory notes and warrants in a company called Invizeon Corporation.

Invizeon is a Montana based software business that develops software platforms and solutions for government and enterprise organizations. The software includes platforms to manage information from sensing and detection technologies. In recent years, Invizeon has acquired several businesses including Seafaring Security Services, Slipstream Resources, and Gaga Africa. Invizeon continues to raise capital through private placement regulation D offerings. Moreover, on those filings Hartman has been listed as an owner of Invizeon.

Former MetLife and Pruco Securities Advisor Bryan Anderson Charged With Ponzi Scheme

April 10, 2015 | by Staff Attorney

According to news sources Bryan Anderson (Anderson) has been charged with wire fraud, money laundering and securities fraud, according to the FBI and the Alabama Securities Commission Anderson agreed to plead guilty to the charges under a plea agreement. Under the plea agreement Anderson will pay restitution of about $3.1 million to the victims of his Ponzi scheme.

According to the allegations, between January 2009 and January 2014, Anderson’s false investment promises caused 18 individuals to deliver more than $8.4 million to Anderson, which he deposited into an account held at BancorpSouth. When the scheme collapsed in May 2014, about 12 investors lost about $3.1 million.

It is alleged that Anderson solicited investors to invest in stock options that he said employed various trading strategies. However, the stock options he described were not registered securities. Anderson also offered investments in a company he owned called 360 Properties. Beginning in or about 2009, Anderson falsely represented to investors in 360 Properties that their returns would come from leased property income, when in fact there were no leased properties.

Former IBN Financial Broker Brian Exford Barred Over Private Securities Sales

April 10, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Brian Exford (Exford) concerning allegations Exford refused to appear for on-the-record testimony requested by FINRA in connection with an investigation into possible private securities transactions (also referred to as “selling away”). According to FINRA BrokerCheck records Exford was disclosed outside business activities include Ives Hill Retirement. It is unclear whether FINRA’s investigation concerns this particular outside business activity. In addition, there is one customer complaint pending alleging unsuitable investments in a secondary market pension.

ln November 2002, Exford first became registered with FINRA as an Investment Company Products and Variable Contracts Representative (Series 6). From August 2009 through October 2012, Exford was registered with IBN Financial Services, Inc. (IBN Financial). Thereafter, from November 2012 to March 2015, Exford was registered through State Farm VP Management Corp.

According to FINRA, in January, 2014, the agency began investigating whether Exford had engaged in a private securities transaction. As part of its investigation, on January 13, 2015, FINRA sent a request to Exford’s attorney for on-the-record testimony. According to FINRA, Exford’s attorney stated on a call with FINRA staff on January 30, 2015, that he will not appear for on-the-record testimony at any time. Consequently, Exford was barred by FINRA.

Former PFS Investments Broker Michael Korson Barred Over My Coupon Genie Investment Sales

April 8, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Michael Korson (Korson) concerning allegations that from February 2011 through August 2012, Korson failed to disclose to PFS Investments, Inc. (PFS) his involvement with an outside business (also referred to as “selling away”) called My Coupon Genie, Inc. (My Coupon Genie). In addition, FINRA alleged that between September 2011 and May 2014, while registered with PFS and also HBW Securities LLC (HBW) Korson participated in private securities transactions involving My Coupon Genie without providing prior written notice to either firm. FINRA also found that Korson misused My Coupon Genie investor funds by charging personal expenses to the company’s credit card.

Korson first became registered with FINRA on in 1991 as an Investment Company Products/Variable Contracts Representative (Series 6) representative with PFS. Thereafter, on February 21, 2013, Korson’s registration with PFS was terminated and from January 27, 2014 through July 21, 2014, Korson was registered with HBW.

According to FINRA, Korson is the founder, chief executive officer, board member, and majority owner of My Coupon Genie, which purports to provides an on-line platform for retailers to share promotional offers on goods and services with consumers. PFS required its brokers to disclose and obtain preapproval for all outside business activities. FINRA found that PFS received notice of Korson’s involvement in My Coupon Genie on August 2, 2012, 18 months after Korson’s first involvement in the company.

Josh Abernathy Accused of Running Investment Scheme Through Omega Investment Group

April 7, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Josh Abernathy (Abernathy) due to Abernathy’s refusal to respond to requests made by the agency. In addition, the U.S. Attorney for the Eastern District of Virginia charged Abernathy with mail fraud and conducting unlawful monetary transactions. The complaint alleges that Abernathy stole $1.3 million from at least 14 victims located throughout Virginia and Texas. In order to carry out the alleged fraud scheme, Abernathy created an entity called Omega Investment Group (Omega).

ln 2000, Abernathy first became registered with a FINRA firm. From March 2007 until September 2012, Abernathy was associated with NEXT Financial Group, Inc (NEXT Financial). Thereafter, from February 2013 through August 2014, Abernathy was associated with The O.N. Equity Sales Company (ONESCO).

According to the complaint Abernathy told investors and clients that there the investments would generate guaranteed returns of between 10 to 20 percent. Abernathy’s victims included widows, single mothers, and church friends. In reality, instead of making legitimate investments, Abernathy used investor funds for his own personal trading account through E*Trade, where he lost the funds, or used for the money to fund personal expenses. Abernathy’s pitch allegedly was that investor money would be placed in certain options, puts, and calls through Omega. Abernathy also allegedly sent fake quarterly statements to the investors which he altered in order to show investment profits that did not actually exist.

Broker Investigation: Salvatore Gioe’s Sales Practices

April 6, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Salvatore Gioe (Gioe) has been the subject of at least 11 customer complaints, one judgment and lien of over $197,000, and one regulatory action over the course of his career. Customers have filed complaints against Gioe alleging a litany of securities law violations including that the broker made unsuitable investments, unauthorized trades, breach of fiduciary duty, misrepresentations and false statements, churning, margin fraud, among other claims. Many of the claims involve recommendations in penny stocks and other speculative securities.

Gioe was also suspended by the state of Arkansas for one year concerning allegation that in 2013, Gioe contacted an Arkansas resident through a cold call solicitation and recommended the purchase of Uni-Pixel, Inc. However, unfortunately for Gioe the cold caller turned out to be a securities examiner with the state of Arkansas. The examiner then sat and listed as Gioe allegedly told the examiner that he had information suggesting the price of Uni-Pixel would rise from its current price of $15.65 to about $25. The examiner asked Gioe if Uni-Pixel stock was a sure thing and Gioe allegedly responded saying that he did. However, according to Arkansas Uni-Pixel was a distressed company and this information was never disclosed to the examiner on the call.

An examination of Gioe’s employment history reveals that Gioe moves from troubled firm to troubled firm. The pattern of brokers moving in this way is sometimes called “cockroaching” within the industry. See More Than 5,000 Stockbrokers From Expelled Firms Still Selling Securities, The Wall Street Journal, (Oct. 4, 2013). In Gioe’s 14 year career he has worked at 13 different firms.