Securities Lawyers Blog

Gana LLP Investigates Richard Martin Formerly of G.F. Investment Services, LLC

November 26, 2014 | by Staff Attorney

Gana Weinstein LLP, a nationally renowned securities and investment arbitration firm, is investigating Richard Martin, and his from firm G.F. Investment Services, LLC for making unsuitable investments to their customers. According FINRA’s BrokerCheck, Mr. Martin has 8 customer complaints served against him and/or his former firms concerning his activities. According to FINRA, four of the eight complaints have been settled. The first settled complaint was filed in 2006. The customer sued Global Strategic Investment, LLC, Mr. Martin’s employing firm at the time. The case settled less than one mouth after filing. The customer alleged that Mr. Martin and Global Strategic Investments failed to disclose mark-ups on bond purchases.

In 2009, another of Mr. Martin’s customers brought a case against Global Strategic Investments for alleging claims of unsuitable investments, churning, and negligence. That case settled for $8,000. In 2011, another customer of Mr. Martin brought a claim against his firm, GF Investment Services. The complaint alleged that her account was unsuitable and the case settled for $40,000. Another claim was brought against G.F. Investment Services and Latam Investment. The claim again was for the sale of unsuitable investments. The case settled for $127,500 before arbitration was commenced.

Three additional claims were brought by customers and closed with no action. Currently, there is one claim pending against G.F. Investment Services by Mr. Martin’s customer. The claim is for $500,000 in damages. The customer alleged unsuitable investments in relation to short sales and risky ETFs.

Gana LLP Investigates JP Morgan in Connection with Allegations against Benjamin Maleche

November 25, 2014 | by Staff Attorney

Gana Weinstein LLP is investigating JPMorgan Securities (“JP Morgan”) in connection with the supervision of Benjamin Doyle Maleche and allegations of “selling away.”

“Selling away” occurs when a securities broker or broker-dealer buys, solicits, or sells securities that were not approved by the broker’s affiliated firm or recorded on the firm’s books and records. Selling away is prohibited under the rules of the Financial Industry Regulatory Authority (FINRA), particularly FINRA Rule 3040, as well as other securities laws.

On August 27, 2014, Maleche entered into a letter of Acceptance, Waiver and Consent (“AWC”) with FINRA, wherein he consented to a nine (9) month suspension from all securities related activity and agreed to pay a $5,000 fine to FINRA. According to the AWC, Benjamin Maleche entered the securities industry in July 2008 with a FlNRA member firm as a registered representative and investment adviser representative (“IAR”). In April 2010, Maleche became licensed as a general securities representative (“GSR”) with Chase Investment Services Corp. (BD No. 25574), which later merged with JP Morgan Securities, Inc.

Broker Eric Johnson Terminated for Allegedly Stealing Over $1,000,000 From Investors

November 24, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) in an acceptance, waiver, and consent action (AWC) barred broker Eric Johnson (Johnson) concerning allegations that Johnson misappropriated more than $1,000,000 from at least six firm customers’ brokerage accounts. FINRA also alleged that Johnson falsified the signatures of two firm employees and notarized seals on firm documents. Finally, Johnson failed to provide documents, information, and on-the-record testimony during FINRA’s investigation of this matter.

Johnson first became registered with FINRA in 1991. In March 1999, Johnson became registered with RedRidge Securities, Inc. (RedRidge). Johnson operates out of his DBA business called HD Brent & Company (HD Brent). RedRidge terminated Johnson’s registration on September 24, 2014, in connection with the firm’s investigation concerning the alleged theft of customer funds. RedRidge may have only become aware of the misappropriation of funds when the Federal Bureau of Investigation (FBI) contacted the firm concerning their investigation of Johnson.

FINRA alleged that from approximately December 2006, through September 2014, Johnson misappropriated more than $1,000,000 in customer funds. FINRA determined that Johnson made at least 60 wire transfers from at least six firm customers’ brokerage accounts to his own personal bank accounts. The wire transfers required the signature of a firm principal and the signature and seal of the firm’s notary public that FINRA alleged Johnson falsified in order to effectuate the transfers. Given that Johnson’s activities took place over the course of eight years it is astonishing that RedRidge did not supervise and detect Johnson’s activities sooner.

Massachusetts Fines LPL Financial Over Variable Annuity Sales Practices to Seniors

November 23, 2014 | by Staff Attorney

According to InvestmentNews, LPL Financial, LLC (LPL Financial) was recently fined by Massachusetts securities regulators fined for sales practices concerning variable annuities and agreed to reimburse senior citizens $541,000 for surrender charges they paid when they switched variable annuities. LPL Financial and its brokers have been on the defensive from securities regulators many times in recent years concerning a variety of alleged sales practice and supervisory short comings as shown below.

Do Increased Investor Risks Lurk Behind the SEC’s Revisiting of the Accredited Investor Definition Part II

November 21, 2014 | by Staff Attorney

This article continues to opine on an InvestmentNews article, describing the Securities and Exchange Commission’s (SEC) revisiting the accredited investor standard that determines who is eligible to invest in private placements. It is the opinion of this securities attorney who has represented hundreds of cases involving investors in private placement offerings that some of the IAC’s proposals are severely flawed and will only enrich the industry at investor’s expense. While proposals to increase standards through sophistication tests and limiting the amount of private placement investments to a certain percentage of net worth are constructive, it is clear that some will attempt to use the review to water down the current requirements. Below are some of the reasons why proposals to abandon the income and net worth approach and instead use a definition that takes into account an individual’s education, professional credentials, and investment experience will be a disaster for investors.

First, many private placements such as equipment leasing and non-traded real estate investment trusts (Non-Traded REITs) already skirt these rules and offer non-traded investments to those with income of $70,000 and net worth of $250,000. If you want to see what the world would be like without the $1,000,000 constraint on private placements, it’s already here and it’s not pretty.

Non-Traded REITs are a $20 billion a year industry that basically ballooned overnight. These non-traded investments act like private placements and charge anywhere from 7-15% of investor capital in the form of commissions and selling fees. In addition, there is little evidence to support that these investments will largely be profitable for investors. In fact, because non-traded REITs offer products with very limited income and net worth thresholds brokers have loaded up clients accounts to such an extent that the NASAA has proposed universal concentration limits to curb these abusive practices. But as bad as many of these products are, many other private placements that would be allowed to be sold to investors under some of the IAC proposals are far worse.

Accredited Investor Definition Revisited By SEC Part I

November 20, 2014 | by Staff Attorney

According to an InvestmentNews article, the Securities and Exchange Commission (SEC), for the first time in 32 years, is revisiting the idea of who should qualify as an accredited investor to be eligible to invest in private placements. The current accredited-investor standard limits private placement purchases to individuals who earn at least $200,000 annually or have a net worth of $1 million after excluding the primary residence. Recently, the SEC recommended considerable revisions on who should make to the definition of an accredited investor in order to broaden the potential pool and strengthen verification that they qualify.

Under the Dodd-Frank reform law, the SEC must review the accredited investor definition every four years. Under the current rules, about 8.5 million investors currently qualify. The Investor Advisory Committee (IAC) was also established by Dodd-Frank to represent retail investors to the SEC to propose rule recommendations.

The committee stated that relying on income and net worth oversimplifies the analysis of who has the wealth and liquidity to withstand the risks of private offerings. For instance, the thresholds fail to provide adequate protection for investors whose net worth is based on an accumulated retirement savings, illiquid holdings, or maybe a lump sum settlement from a lawsuit that is supposed to replace income.

SEC Rejects Bids by Funds to List Nontransparent ETFs

November 19, 2014 | by Staff Attorney

In a rare move of true consumer protection, the Securities and Exchange Commission (SEC) denied applications by fund managers BlackRock Inc. and Precidian Investments to offer nontransparent exchange-traded funds (ETFs) to investors by stating that such products were not in the public’s interest. The SEC stated that the proposals could inflict substantial costs on investors, disrupt orderly trading, and damage market confidence in trading of ETFs.

The fund managers have argued that opening up actively managed ETFs to full transparency would lead to front running, a strategy where other investors trade ahead to gain a benefit. As a result, the funds argue that their trading strategies are rendered obsolete by the market’s knowledge of them. Thus, the solution the industry devised was to deprive the investing public of disclosure of fund holdings.

However, the SEC said that daily transparency is necessary to keep the market prices of ETF shares at or close to the net asset value per share of the ETF. But as usual, the industry losses a battle but will eventually win the war. Others funds such as American Funds, T. Rowe Price Group Inc. and Eaton Vance Corp. all have applications pending for similar nontransparent ETFs where the SEC could rule on various alternative proposals. In addition, Precidian’s chief executive, Daniel J. McCabe, told InvestmentNews he believed the SEC’s objections can be worked though and that it will merely take longer to get approval because the funds are not standard.

Illinois Files Churning Complaint Against James Markoski

November 18, 2014 | by Staff Attorney

James Markoski (Markoski) recently had a complaint filed against him from the State of Illinois, Securities Department. According to the complaint Markoski has a history of churning accounts, or engaging in excessive trading that is designed to generate huge commissions at the expense of the customer.

Markoski’ entered the financial industry in the early 1970’s and until 1991, Markoski worked for Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill). Thereafter, from September 1991, through June 2010, Markoski was a registered representative of David A Noyes & Company. From June 2010, through April 2012, Markoski worked for Birkelbach Investment Securities, Inc. Finally, Markoski currently is associated with Forest Securities, Inc. Markoski has been subject to 9 customer arbitrations throughout his career. Virtually all of the customer complaints involve claims of churning and excessive trading activity in the customer’s account. It is rare for a broker to have a complaint filed against them. It is even more rare for a broker to have more than 2 complaints filed against them.

The Illinois Secretary of State alleged that Markoski alleged that Markoski has a penchant for targeting widows and senior women to engage in his fraudulent churning conduct. In one of the alleged churning instances, Markoski inherited a client’s account from one of his colleagues. The complaint alleges that upon inheriting the client’s account, Markoski began selling off the client’s bond holdings that the client was relying upon the income from. The selling of the bonds before maturity allegedly resulted in $175,000 in losses.

LPL Financial Fires Texas Broker James “Jeb” Bashaw

November 16, 2014 | by Staff Attorney

Gana Weinstein LLP is investigating LPL Financial after its stunning termination of James “Jeb” Bashaw, a former broker with LPL Financial. According to FINRA’s BrokerCheck Report, LPL Financial terminated Mr. Bashaw for “participating in private securities transactions without providing written disclosure to and obtaining written approval from the firm.”

In addition, LPL explained that it terminated Mr. Bashaw for borrowing money from a client and engaging in a business transaction that created a “potential conflict of interest without providing written disclosure to and obtaining written approval from the firm.” Finally, LPL Financial stated that Mr. Bashaw failed to follow firm policies and industry regulations. Mr. Bashaw was discharged on September 24, 2014. In response, Mr. Bashaw stated that he was home supervised and had 13 perfect audits. Furthermore, he stated that he was still unclear as to the specifics of the discharge.

Mr. Bashaw started his career with Merrill Lynch, Pierce Fenner & Smith, Inc. and worked there for about two years and four months. Over his thirty year career, he also worked at Kidder, Peabody & Co., Thomas F. White & Co., First America Equities Corp., Augusta Securities Corp., Suntrust Equitable Securities, J.C. Bradford & Co., UBS Painewebber, Inc. and was most recently working at Wunderlich Securities, Inc.

Gemini Real Estate Advisors Risk Investor Funds in Private Legal Dispute

November 15, 2014 | by Staff Attorney

As reported in InvestmentNews, three members of a real estate partnership that sells private placements in the real estate space are in the middle of a legal dispute that could potentially endanger millions of dollars in loans and investor capital as a result. The dispute is among the owners of Gemini Real Estate Advisors and began earlier this year when William Obeid, one of the partners, asked the other two partners, Christopher La Mack and Dante Massaro, to restructure the company to reflect certain areas of expertise. Those talks soon broke down and have now ended up in court.

Gemini Real Estate Advisors oversees a real estate portfolio of more than $1 billion and was founded in 2003. The complaint alleges that Mr. Obeid abused his position for personal gain through concealed unauthorized transfers of company funds and hiring of family members at inflated salaries. Thereafter, Mr. Obeid filed his own complaint in New York against Mr. La Mack and Mr. Massaro. alleging that the two other Gemini partners had proposed a business divorce and have acted in an effort to freeze him out in order to strengthen their negotiation position in discussions concerning a buyout of Mr. Obeid’s interest.

According to Mr. Obeid’s lawsuit, his partners’ strategy would harm Gemini and investors, by paralyzing Gemini’s operations, causing existing development projects to become distressed, and risk default on more than $97 million in loans and $15 million of investors’ equity.