Articles Tagged with First Allied

shutterstock_182054030-300x200The securities attorneys at Gana Weinstein LLP are investigating claims against First Allied Securities, Inc. (First Allied) broker Mark Chamberlain (Chamberlain).  According to BrokerCheck records, Chamberlain has been subject to seven customer complaints and one regulatory action.  The majority of the complaints concern alternative investments and annuities.

Most recently, in May 2015, a customer alleged that Chamberlain engaged in unsuitable investments requesting $29,700 in damages.

In May 2012, a customer alleged that from October 2009 to May 2011, Chamberlain engaged in breach of fiduciary duty, constructive fraud, and unauthorized transactions. This dispute settled for $13,000.

shutterstock_187697825On September 15, 2015 FINRA suspended former First Allied broker, Herbert Leonard Kaye, for four months and fined him $25,000 which includes the disgorgement of $11,000 in commissions. According to FINRA, Mr. Kaye entered over 2,000 discretionary trades in the account of a customer between June 2010 and April 2013 without the customer’s prior written authorization, in violation of FINRA Rule 2010 and 2510(b). FINRA Rule 2010 states that “A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.”

In June 2010, Mr. Kaye’s customer realized a significant loss on the unsolicited sale of equities that she had inherited from her deceased husband. Following that sale the customer requested that Kaye recommend investments and investment strategies that would limit her exposure to large market fluctuations. The customer, who’s information was not disclosed, gave Mr. Kaye verbal authority to use his discretion to enter trades in her account without contacting her.

According to FINRA, Mr. Kaye did not obtain written authority to trade in her account. Moreover, First Allied’s written policies and procedures prevented discretionary trading except in limited circumstances. Nonetheless, between June 2010 and April 2013, Mr. Kaye executed over 2,000 discretionary trades generating over $173,000 in commissions.

On July 15, 2014, FINRA suspended Frank N. Dettenrieder, a former financial adviser with First Allied, for twelve days and fined him $5,000 for effectuating discretionary transactions in the accounts of six customers without obtaining prior written authorization from the customers and without having the accounts accepted as discretionary accounts by First Allied in violation of FINRA Rule 2510(b).  FINRA Rule 2510(b) disallows registered representatives from exercising discretionary authority in customer accounts without prior written authority.

Under FINRA Rules, financial advisors can either have discretionary accounts – accounts in which the broker has discretion to make purchases without prior approval from the investor – and non-discretionary accounts – accounts in which the broker must obtain prior approval before purchasing securities. In any event, to create a discretionary account the broker must obtain the investors written consent.

FINRA also explained that Mr. Dettenrieder’s conduct violated FINRA Rule 2010. FINRA Rule 2010 requires that all registered representatives “observe high standards of commercial honor and just and equitable principles of trade.”

This post continues our investigation into the recent bar of broker William (Bill) Tatro by the Financial Industry Regulatory Authority (FINRA) and his relationship with Mary Helen Caprice Mallett (Mallett), Tatro’s wife, colleague, and business partner.

Mallett has also had a large number of customer complaints initiated against her.  Mallett’s BrokerCheck reveals that she was associated with First Allied at roughly the same time as Tatro.  Thereafter, from September 2010 until May 2011, Mallett was associated with Morgan Stanley Smith Barney (Morgan Stanley).  From 2011 until June 2013, Mallett was associated with Independent Financial Group, LLC.  Mallett is also associated or is involved in Biltmore Wealth Advisors, LLC, Capital Financial Management, Ltd, South Race Street, LLC, Red Rock, LLC, Mango Lizard LLC, and EZ Plan LLC.

In April 2011, Morgan Stanley filed a Form U5 taking the position that Mallett “engaged in outside business activities without prior written approval of [Morgan Stanley] and facilitated clients’ relationships with an outside investment manager”, believed to be Tatro, “who was not approved by or affiliated with [Morgan Stanley].”  According to a lawsuit Morgan Stanley filed against Mallett she told Morgan Stanley that she and Tatro had used the same investment strategy over the previous nine years, presumably while associated with First Allied, and that she had bought Tatro’s book of business.  However, Morgan Stanley charged that Mallett had falsely told them Tatro was no longer servicing his former clients.

The Financial Industry Regulatory Authority (FINRA) recently barred broker William (Bill) Tatro, formerly registered with First Allied Securities, Inc. (First Allied), concerning allegations that he failed to respond to two requests for information by FINRA staff in connection with an investigation into whether he violated federal securities laws or FINRA conduct rules.  According to FINRA, Tatro admitted that he received both information requests but did not provide any of the requested information and documents because he claimed that he believed the bankruptcy court had stayed all requests pending the bankruptcy’s resolution.  FINRA rejected Tatro’s bankruptcy defense and that Tatro violated FINRA Rules by failing to provide the information and documents FINRA staff requested and determined that Tatro should be permanently barred from associating with any FINRA member firm in any capacity.

FINRA initiated the investigation against Tatro after it received customer complaints and a series of Uniform Termination Notices (Forms U5) filed by Tatro’s former broker-dealer, First Allied. According to FINRA, the amended termination notices disclosed numerous customer complaints alleging fraud and other sales practice violations of more than 80 individuals who might be victims of Tatro’s alleged misconduct.  Tatro total career related losses have been estimated to be anywhere from $10 million to $100 million and may potentially involve as many as 1,000 clients.  On July 30, 2012, Tatro filed a petition for bankruptcy with the United States Bankruptcy Court for the Western District of New York.

Tatro began his securities career in 1975 and worked at six different broker-dealers before becoming associated with First Allied in November 2003. After Tatro left First Allied he operated Biltmore Wealth Advisors, LLC, an investment advisory firm in Phoenix, Arizona.  Tatro also operated Eagle Steward Wealth Management, an investment advisory firm.  Tatro’s wife, colleague, and business partner, Mary Helen Caprice Mallett (Mallett) has also advised Tatro clients and has been accused of recommending the same or similar speculative investments that characterizes Tatro’s practice.

Broker David Charles Kauffman (Kauffman) was recently barred by The Financial Industry Regulatory Authority (FINRA) over his failure to respond to FINRA’s investigation over allegations that he engaged in personal private securities transactions, used unapproved email addresses, and introduced clients to individuals associated with non-approved investment opportunities.

Kauffman began his career in the securities industry in 1993 and has been registered with 13 FINRA member firms.  From March 2006 through September 2010, Kauffman was registered with FINRA as a General Securities Principal and a General Securities Representative at First Allied Securities, Inc. (First Allied).  First Allied terminated Kauffman for violating firm policies pertaining to his personal private securities transactions, used unapproved email addresses, and introduced clients to individuals associated with non-approved investment opportunities. Thereafter, Kauffman was registered with MCL Financial Group, Inc. through December 2011.  Kauffman’s BrokerCheck discloses that Kauffman was also employed by David Kauffman Insurance Services, One-Less Putt, MCS Golf, 928 LLC, and EDT Property Services.

In September 2010, First Allied made two filings with FINRA disclosing it had terminated Kauffman for conduct including engagement in private securities transactions in connection with several private placement offerings without providing written notice to the firm.  FINRA alleged that one of the offerings Kauffman was involved in was entity named Gulf Coast Oil & Rig, LLC (Gulf Coast).  Thereafter, FINRA staff sought information, documents, and testimony from Kauffman to determine, among other things, his role and compensation in connection with the private securities transactions, as well as the status of Gulf Coast’s business.  Initially, Kauffman cooperated with the examination by providing some information and documents.  However, FINRA alleged that Kauffman failed to respond properly to further requests.

This article continues my in depth look into how unsuspecting investors are sold speculative private placements.

While investors were told that Fisker Auto’s prospects were fantastic, nothing could have been further from the truth.  In February 2012, the DOE loan had been frozen after $192 million had been given to the company because it hadn’t hit certain milestones with its Karma car product.  The last payment Fisker had received from the DOE was in May 2011.  Yet, according to investors, Advanced Equities and First Allied continued to sell Fisker Auto shares without disclosing that the DOE was no longer backing the venture, presumptively because the auto makers chances of success had grown increasingly slim.

From December 2011 into 2012, Advanced Equities increasing began to run into fundraising problems.  As Fisker Auto fell into a increasing number of technical, delivery, and political problems with its cars the car maker’s ability to attract new capital plummeted.  Yet, the company still needed money.  So the brokerage firms turned to threatening investors by telling them that unless they agreed to invest more money into Fisker Auto their current shares will be diluted and their preferred stock will be converted to common stock.

In August, I wrote an article about how the brokerage firm Advanced Equities, Inc. (Advanced Equities) and First Allied Securities, Inc. (First Allied) sold nearly $1 billion in private placement offerings linked to clean technologies (clean-tech) to investors that have since become nearly worthless.   Some of those investors have now come forward alleging that the brokerage firms did not conduct proper due diligence for selling the private placements.  The private placements sold by the two brokerage firms include Advanced Equities GreenTech Investments, LLC, AEI 2007 Venture Investments, LLC, AEI 2010 Cleantech Venture, LLC, and AEI Fisker Investments, LLC.

One of the most prominent underlying investments in Advanced Equities private placement offerings portfolio was Fisker Automotive, Inc. (Fisker Auto).  How Fisker Auto was sold to investors offers an unflattering view into how some in the brokerage industry still peddle worthless and speculative securities to unsuspecting investors to enrich themselves at investor’s expense.

Fisker Auto spent over a billion dollars, much of it from investors and a government loan, to invest and develop its cars.  Ultimately Fisker Auto delivered only 2,000 cars and is on the verge of bankruptcy.  Recently, the U.S. Department of Energy (DOE) started an auction on its loan made to Fisker Auto back in 2010.  The DOE is still owed $168 million under the loan terms but put the loan on the auction block after “exhausting any realistic possibility” that Fisker Auto could repay the loan.  The question is how did Fisker Auto receive $1 billion in the first place?

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.”