Securities Lawyers Blog

Sunset Financial Services, Inc. Fined by FINRA Regarding Private Placement Sales

July 13, 2013 | by Staff Attorney

On July 12, 2013, Sunset Financial Services, Inc. (Sunset) reached a settlement with the Financial Industry Regulatory Authority (FINRA) concerning allegations that Sunset failed to supervise the sale of certain private placement securities. FINRA accused Sunset of failing to establish and maintain appropriate supervisory systems in compliance with FINRA rules regarding the sale of private placements.

The FINRA complaint alleges that the improper activity took place between January 2008 and March 2011. Sunset began private placement investment sales in 2001 and in 2004 the fund at issue was approved for sale to customers by Sunset. The private placement provided bridge loans for short-term mortgages for properties in California and Arizona. Sunset was paid 2% of sales plus trail concessions from the fund. In 2008, Sunset made $1.14 million form the total $57 million raised for the private placement.

According to FINRA, the first red flag indicating that the private placements were not as safe as the firm was advertising to customers occurred in 2008. At that time, a third party published a report on that highlighted that the mortgages the fund invested in had experienced a 20% increase in the rate of default. Sunset failed to follow up on the report such as re-evaluating the adequacy of keeping the fund on an approved sales list. The second red flag occurred from 2008-2009 when the private placement no longer allowed fund redemptions due to financial difficulties. It was also later discovered that the CEO of the private placement was also the son of a registered representative of Sunset.

Wells Fargo Fined $2.8 Million by FINRA Arbitration Panel

August 20, 2012 | by Staff Attorney

In 2010, College Health and Investment Ltd (College Health), a family limited partnership, filed a case against Wells Fargo & Co. (Wells Fargo) in Financial Industry Regulatory Authority (FINRA) arbitration. College Health accused Wells Fargo of failing to detect the theft and unauthorized transactions in College Health’s account. College Health sought $4.4 million in damages against Wells Fargo.

From 2005 until 2008, Esther Spero (Spero), a former legal secretary at a firm that represented College Health, allegedly misused the family’s financial information and embezzled around $6 million. Spero’s scheme worked by opening accounts in Wachovia (now Wells Fargo) under College Health’s name or similar names in order to appear related to College Health. By doing so, she was easily able to transfer money from one of College Health’s actual accounts into the fake account and then finally into her own account.

College Health also filed a civil suit against Spero in the Southern District Court of Florida where she was eventually found guilty of the charges. However, Spero was unable to pay College Health for the amount she had taken from the company leading College Health to bring action against Wells Fargo in FINRA arbitration.

Customer Complaints Brought Against Andrew Rosenberg, Stuart Horowitz, NFP Securities, and Securities America Concerning Improper Investments

April 6, 2012 | by Staff Attorney

Andrew Rosenberg and Stuart Horowitz have been accused of selling unsuitable illiquid real estate investments through Andrew Stuart Asset Management, while be associated with NFP Securities, Inc. and Securities America Inc. These real estate investments include the Hennessy Financial Monthly Income Club also known as Capital Solutions Monthly Income Fund (Capital Solutions), Capital Solutions preferred Stock, True North Finance Preferred Stock (Capital Solutions), Warsowe Acquisitions Corp. Series 2 Debentures, Inland America Real Estate Trust, and G REIT, Inc.

The brokers allegedly told their customers that Capital Solutions was a “low risk investment” and it guaranteed a steady return through “short term secured loans.” The brokers also represented that Capital Solutions fund offered investors 12% returns. In one complaint, the brokers allegedly made representations that they were offering low risk investments to a 63-year-old father of five. The brokers went on to say that they too had their investments in Capital Solutions, in order to lure the client to invest. The client ultimately invested $300,000 into Capital Solutions.

Despite the broker’s statements, the investments were high risk and illiquid. In fact, the Capital Solutions (a/k/a Hennessey Fund) was a unregistered hedge fund that was involved in risky real estate loans. In September 2010, the Securities and Exchange Commission (SEC) sued the Hennessey Fund for being a Ponzi Scheme, whereby old investors in the Hennessey Fund were being paid by new investors. The case is, SEC v. True North Finance Corporation, f/k/a CS Financing Corporation, et al., Case No. 10-3995-DWF/JJK, (D. Minn).