Fraud

Broker Investigation: Robert Horning’s Sale of Tenants-in-Common (TIC) Real Estate Investments

October 20, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Horning (Horning) has been the subject of at least 8 customer complaints. Customers have filed complaints against Horning alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations, fraud, breach of fiduciary duty, and false statements in connection with recommendations to invest in private placements such as tenants-in-common (TICs) interests, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), and equipment leasing programs.

Horning entered the securities industry in 1993. From November 2004, until July 2009, Horning was a registered representative with Direct Capital Securities, Inc. Thereafter, since July 2009, Horning has been associated with Centaurus Financial, Inc. (Centaurus) out of the firm’s Los Angeles, California office location.

TIC investments have come under fire by many investors. Indeed, due to the failure of the TIC investment strategy as a whole across the securities industry, TIC investments have virtually disappeared as offered investments. According to InvestmentNews “At the height of the TIC market in 2006, 71 sponsors raised $3.65 billion in equity from TICs and DSTs…TICs now are all but extinct because of the fallout from the credit crisis.” In fact, TICs recommendations have been a major contributor to bankrupting brokerage firms. For example, 43 of the 92 broker-dealers that sold TICs sponsored by DBSI Inc., a company whose executives were later charged with running a Ponzi scheme, a staggering 47% of firms that sold DBSI are no longer in business.

Customers File Dozens of Complaints Against Broker John Schooler

October 16, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker John Schooler (Schooler) has been hit with at least 26 customer complaints over his career. Customers have filed complaints against Schooler alleging securities law violations including that the broker made unsuitable investments, negligence, misrepresentations, breach of fiduciary duty, violation of blue sky statutes in several states, and fraud among other claims. The claims against Schooler involve various types of securities including private placements, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), equipment leasing programs, and tenants-in-common (TICs). The majority these products are high commission based products that often pay broker commission of between 7-10%. As the research now shows these products are arguably always unsuitable for investors because they do not compensate investors for their substantial risks. See Controversy Over Non-Traded REITs: Should These Products Be Sold to Investors? Part II

Schooler entered the securities industry in 1993. From 1994, until July 2011, Schooler was associated with WFP Securities. From June 2011, until July 2011, Schooler became associated with JRL Capital Corporation. Finally, Since July 2011, Schooler has been associated with First Financial Equity Corporation out of the firm’s Scottdale, Arizona office location.

As a background, a Non-Traded REIT is a security that invests in different types of real estate assets such as commercial, residential, or other specialty niche real estate markets such as strip malls, hotels, storage, and other industries. There are publicly traded REITs that are bought and sold on an exchange with similar liquidity to traditional assets like stocks and bonds. However, Non-traded REITs are sold only through broker-dealers, are illiquid, have no or limited secondary market and redemption options, and can only be liquidated on terms dictated by the issuer, which may be changed at any time and without prior warning.

Gana LLP Investigation: Broker Robert Marks

October 15, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Marks (Marks) has been the subject of at least 2 customer complaints. Customers have filed complaints against Marks alleging securities law violations that focus primarily on churning and excessive trading. In addition to the churning claims, customers have complained of unsuitable investments, negligence, fraud, and unauthorized trading among other claims. One customer complaint focuses on speculative trading in penny stocks.

Marks entered the securities industry in 2000. From August 2008, until October 2009, Marks was associated with GunnAllen Financial, Inc. Thereafter, Marks became associated with Synergy Investment Group, LLC from October 2009, until October 2011. Finally, since September 2011, Marks has been associated with Cape Securities Inc. where he remains registered out of the Coram, New York office location.

Churning is investment trading activity in the client’s account that serves no reasonable purpose for the investor and is transacted solely to profit the broker. 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. Certain commonly used measures and ratios used to determine churning help evaluate a churning claim. These ratios look at how frequently the account is turned over plus whether or not the expenses incurred in the account made it unreasonable that the investor could reasonably profit from the activity.

Broker Spotlight: Morgan Stanley Broker Hilary Zimmerman

October 14, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Hilary Zimmerman (Zimmerman) has been the subject of at least 6 customer complaints over the course of her career. Customers have filed complaints against Zimmerman alleging securities law violations including that the broker made unsuitable investments, negligence, unauthorized trading, misrepresentations, churning and excessive trading, fraud, and breach of fiduciary duty, among other claims.

Zimmerman entered the securities industry in 1991. From December 2007 until present Zimmerman has been associated with Morgan Stanley out of the firm’s Ridgeland, Mississippi office.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

Customers File Churning Complaints Against Legend Securities Broker Daren Dorval

October 14, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Daren Dorval (Dorval) has been the subject of at least 6 customer complaints, 1 regulatory matter, and one criminal matter over the course of his career. Customers have filed complaints against Dorval alleging securities law violations that focus primarily on churning and excessive trading. In addition to the churning claims, customers have complained of unsuitable investments, negligence, fraud, unauthorized trading, and misrepresentations, among other claims.

According to a 2010 FINRA finding, the regulator alleged that Dorval engaged in unauthorized discretionary trading in a customer account by entering trades based upon the orders of a person related to the customer without appropriate written trading authority.

Dorval entered the securities industry in 2001. From January 2002, until September 2009, Dorval was associated with vFinance Investments, Inc. Thereafter, Dorval became associated with Legend Securities, Inc where he remains registered.

FINRA Files Complaint Against Former Woodstock Financial Group Broker David Wolk

October 13, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker David Wolk (Wolk) has been the subject of an astonishing 13 customer complaints, 3 regulatory matters, one criminal matter, and 6 judgments and liens over the course of his career. Customers have filed complaints against Wolk alleging securities law violations that focus on churning and excessive trading. In addition to the churning claims, customers have complained of unsuitable investments, negligence, fraud, unauthorized trading, and misrepresentations, among other claims. In total the customer complaints allege several million dollars in damages.

The latest FINRA complaint (Disciplinary Proceeding No. 2012033981601) alleges that from November 2003, through January 2014, while Wolk was associated with Woodstock Financial Group, Inc. (Woodstock), Wolk was subject to six tax liens totaling over $810,000 and a state tax levy for $106,871.02. FINRA alleges that Respondent willfully failed to timely update his Form U4 to disclose these matters within FINRA’s 30-day reporting deadline. In addition, FINRA alleged that Respondent made a false attestation to Woodstock on an annual compliance questionnaire failing to disclose the liens. The latest FINRA complaint is only one of three total FINRA complaints. In October 2014, Wolk faied to pay fines associated with another FINRA matter. In August 2014, Wolk consented to FINRA’s findings that he attempted to settle a customer complaint without notifying his firm.

Wolk entered the securities industry in 1998. From February 2003 until September 2014, Wolk was associated with Woodstock out of the firm’s Garden City, New York office.

Former National Securities Corporation Broker Brian Folland Subject to Numerous Customers Complaints

October 8, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Brian Folland (Folland) has been hit with at least 30 customer complaints over his career and two tax liens. Customers have filed complaints against Folland alleging securities law violations including that the broker made unsuitable investments, negligence, misrepresentations, breach of fiduciary duty, violation of blue sky statutes in several states, and fraud among other claims. The claims against Folland involve various types of securities including private placements, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), equipment leasing programs. In addition, in July 2012, Folland disclosed a tax lien of $334,995 owed. Tax liens of that size provide an incentive and conflict of interest in the recommendation of high commission based products such as private placements and direct participation programs that often pay commission between 7-10%.

Folland entered the securities industry in 1995. From July 2007 until May 2013, Folland was associated with brokerage firm National Securities Corporation (National Securities) out of the firm’s Fresno, California office location.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

FINRA Sanctions Five Brokers Affiliated with HFP Capital Markets

September 3, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned five brokers formerly associated with now expelled brokerage firm HFP Capital Markets LLC (HFP Capital) (Case No. 2010024522103) including brokers Jonah Engler (Engler), Brett Friedberg (Friedberg), Jonathan Sheklow (Sheklow), Joshua Turney (Turney), and Hector Perez (a/k/a Bruce Johnson) (Perez) concerning allegations that between December 2009, and February 2011, the five brokers fraudulently sold a total of nearly $3 million worth of Senior Secured Zero Coupon Notes (MMM Notes) issued by Metals, Milling and Mining LLC in a private placement offering to 59 customers.

FINRA alleged that the brokers misrepresented material facts about the offering by promising to pay a return of 100 percent in one year by purportedly extracting precious metals from materials left over from mining operations. In reality, FINRA determined that the investors lost all of the money that they invested in the MMM Notes, with the exception of three investors who were repaid with funds from new investors in a Ponzi scheme like fashion. FINRA determined that the brokers also recklessly failed to conduct a reasonable investigation, or due diligence, of the viability and legitimacy of company in the face of numerous red flags that it was a fraud.

In addition, FINRA alleged that the brokers recklessly misrepresented to customers that: (a) the MMM Notes were collateralized by certain barrels of ore concentrate; and (b) the collateral ore concentrate was of sufficient value to secure the investment in the MMM Notes. In fact, FINRA found that there was no collateral for the MMM Notes because the company did not own any ore concentrate. FINRA determined that the broker’s representations concerning the MMM Notes were recklessly and misrepresented material facts regarding the MMM Notes in willful violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 (the anti-fraud provision) as well as several industry rules. In sum, the brokers failed to obtain even basic information about the company necessary to the due diligence process in order to understand an investment in the company and therefore lacked a reasonable basis to recommend the MMM Notes to investors.

Customers File Complaints Against National Securities Corporation Broker Michael Fasciglione

September 2, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Michael Fasciglione (Fasciglione) has been the subject of at least 11 customer complaints and two regulatory actions. The customer complaints against Fasciglione allege a number of securities law violations including that the broker made unsuitable investments, unauthorized trading, and churning (excessive trading), breach of contract, breach of fiduciary duty, negligence, fraud, misrepresentation, and failure to supervise among other claims. The customer complaints stem from 1995 through 2014 and total allegations of investor losses of multiple millions of dollars.

Fasciglione’s first regulatory action occurred in 2004, when the NYSE initiated an action for alleging that Fasciglione failed to supervise the activities of an employee related to the business of his employer; failing to supervise accounts serviced by a registered representative under his control; failing to ensure proper authorization of account designation changes, along with several other allegations. As a result, of the complaint Fasciglione was suspended for two months and required to re-take any qualifying exams before undertaking any securities supervisory positions.

Fasciglione’s latest regulatory complaint alleges that in or about March 2010, while the IRS filed a $354,752 tax lien against Fasciglione for the tax years 2007 and 2008. An amended Form U4 was filed on November 26, 2012, but FINRA found that this filing was untimely.

FINRA Bars Merrill Lynch Broker Kai Cheng Over Unauthorized Trading Investigation

September 2, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred (Case No. 201303930510) broker Kai Cheng (Cheng) concerning the broker’s failure to respond to requests for information concerning the regulators investigation into claims that Cheng engaged in conduct including entering into personal financial transactions with a customer, using a personal email address to communicate with a customer, and unauthorized trading in a customer account. In addition, to the FINRA bar Cheng has one employment separation and one customer dispute disclosed on his BrokerCheck record. The customer complaint contains allegations of unsuitable investments, failure to follow instructions, unauthorized trading, and omissions of material facts.

Cheng first entered the securities industry in 2005 as a broker with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) with the title of “First Vice President” and worked there until he was discharged in 2015. On March 2, 2015, Merrill Lynch filed a Uniform Termination Notice (Form U5) that reflected that Cheng was discharged on February 4, 2015. According to FINRA the Form U5 stated that Cheng was terminated for conduct including entering into personal financial transactions with a customer, using a personal email address to communicate with a customer and unauthorized trading in a customer account.

FINRA then sought to investigate these allegations and during the course of FINRA’s examination, the agency sent a letter to Cheng’s counsel pursuant to FINRA Rule 8210 requesting Respondent to provide on the record testimony. According to FINRA Cheng failed to provide testimony. Cheng’s failure to appear resulted in a bar from the industry.