Articles Tagged with Newport Coast Securities

shutterstock_168478292The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Leonard Goldberg (Goldberg) (FINRA No. 2011026098504) alleging during the seven year period from August 2007 through August 2014, while he was registered with FINRA through J.P. Turner & Company, LLP (JP Turner) and Newport Coast Securities Inc. (Newport Coast) Goldberg caused over $123,600 in losses to five customers while making over $77,900 for himself by using discretion without authorization in connection with 300 mutual fund and Exchange Trading Fund (ETF) transactions to his benefit and the customers’ loss. FINRA also alleged that from August 2007 through February 2012, Goldberg used discretion to facilitate a scheme of effecting fraudulent and unsuitable short term switching of Class A mutual funds – a/k/a excessive trading activity or churning – in the accounts of the five customers. Finally, FINRA alleges that Goldberg also falsified firm documents in furtherance of his scheme.

Goldberg first became associated with a FINRA member in 1972. From July 2007, until October 2010, Goldberg was associated with JP Turner. Thereafter, from October 2010, until December 2014, Goldberg was associated with Newport Coast. According to BrokerCheck records Goldberg has had at least six customer complaints filed against him during his career.

According to FINRA, Goldberg’s fraudulent and unsuitable short term mutual fund switching scheme involved replacing one Class A mutual fund position with another one more than 90 times in a five year period. FINRA determined that the accounts held those mutual funds for an average of only five to six months before Goldberg switched the funds. FINRA also found that the customers generally trusted Goldberg to trade on their behalf in their accounts and he did not inform them in advance of the trades. In sum, FINRA determined that Goldberg’s mutual fund switching had no business purpose other than to generate commissions for himself through repeated fees and charges.

shutterstock_173509961According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Kenneth McDonald (McDonald) has been the subject of at least three customer complaints and one regulatory action. Customers have filed complaints against McDonald alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations and false statements in connection with recommendations to invest in private placements such as tenants-in-common (TICs) interests.

McDonald was a registered representative with Crown Capital Securities, L.P. from June 2003 through February 2013. Thereafter, McDonald has been registered with Newport Coast Securities, Inc.

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.

shutterstock_146470052This article follows up on a recent article reported in Reuters concerning Atlas Energy LP’s private placement partnerships in oil and gas. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal allows investors to participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of oil into viable prospects. In addition, Atlas promises to invest up to $145 million of its own capital alongside investors.

In the last article we explored how the house seems more likely to win on these deals over investors. But beyond the inherent risks with speculating on oil and gas and unknown oil deposits most investors don’t realize the deals are often unfair to investors. In a normal speculative investment as the investment risk goes up the investor demands greater rewards to compensate for the additional risk. However, with oil and gas private placements the risks are sky high and the rewards simply don’t match up.

In order to counter this criticism, issuers say that the tax benefits of their deals where the investor can write off more than 90 percent of their initial outlay the year they make it helps defray the risk and increase the value proposition. First, the same tax advantage claims are often nominal compared to the principal risk of loss of the investment as seen by Puerto Rican investors in the UBS Bond Funds who have now seen their investments decline by 50% or more in some cases. Second, often times brokers sell oil and gas investments indiscriminately to the young and old who have lower incomes and cannot take advantage of the tax benefits.

shutterstock_103610648As recently reported in Reuters, Atlas Energy LP has marketed itself to investors as a way to get into the U.S. energy boom. By contributing at least $25,000 in a private placement partnership that will drill for oil and gas in states such as Texas, Ohio, Oklahoma and Pennsylvania and share in revenues generated from the wells. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal sounds good when pitched: participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of fossil fuels into potentially viable prospects and to boot Atlas will invest up to $145 million of its own capital alongside investors. Through this method and similar deals, oil and gas projects have issued nearly 4,000 private placements since 2008 seeking to raise as much as $122 billion.

But before you take the plunge a review of the Atlas’s offering memorandum reveals some red flags and given Atlas’ past failure rate investors should think twice. First, up to $45 million of the money raised will be paid to Atlas affiliate Anthem Securities that will then be turned over to as commissions to broker-dealers who pitch the deal to investors. Up to $39 million more will be used to buy drilling leases from another affiliate. Think investors will get a fair price on the leases when Atlas controls both sides of the deal? More conflicts ahead as Atlas affiliated suppliers may also get up to $53 million for buying drilling and transport equipment. Next, an additional $8 million of Atlas’s investment is a 15 percent markup on estimated equipment costs. Finally, Atlas will pay itself nearly $52 million in various other fees and markups.

In sum, at least 40% of Atlas’s $145 million investment alongside mom and pop goes right back to the company. In addition, Atlas’ profits don’t stop there, when the venture starts generating revenue Atlas is entitled to 33% before accounting for those payments and markups. In the end, not much of a risk at all for Atlas.

shutterstock_145368937This post picks up our prior article concerning our investigation of claims concerning churning and failure to supervise after The Financial Industry Regulatory Authority (FINRA) made allegations stating that from September 2008, through May 2013, Newport Coast Securities, Inc. (Newport Coast) and five of its registered representatives excessively traded and churned 24 customers’ accounts. The five brokers named in the complaint are Douglas Leone (Leone), Andre LaBarbera (LaBarbera), David Levy (Levy), Antonio Costanzo (Costanzo), and Donald Bartelt (Bartelt). In addition, FINRA alleged that the representatives’ supervisors, including Marc Arena (Arena) and Roman Tyler Luckey (Luckey) and the firm’s Compliance Department managers knew took no meaningful steps to curtail the misconduct.

Newport Coast was formerly known as Grant Bettingen, Inc., and has been a FINRA member since 1986. Newport Coast is a wholly owned subsidiary of Rubicon Financial, Inc. (Rubicon), and until March 2013, was based in Irvine, California. The firm is currently based in New York and has approximately 45 branch offices and 122 registered representatives.

Douglas A. Leone entered the securities industry in 1993. He associated with a dozen different firms before joining Newport Coast in October 2008. From October 2008 through March 2013, Leone was associated with Newport Coast. Leone worked from his home office but was part of a Long Island, New York branch of Newport Coast. Leone is currently associated with Salomon Whitney LLC.

shutterstock_156764942The law offices of Gana Weinstein LLP are investigating claims of churning and failure to supervise in wake of the allegations made by The Financial Industry Regulatory Authority (FINRA) concerning allegations that from September 2008, through May 2013, Newport Coast Securities, Inc. (Newport Coast) and five of its registered representatives excessively traded and churned 24 customers’ accounts. In addition, FINRA alleged that the representatives’ direct supervisors, including Marc Arena (Arena) and Roman Tyler Luckey (Luckey) and the firm’s Compliance Department managers knew what was transpiring but took no meaningful steps to curtail the misconduct. To the contrary, FINRA found that managers, a supervisor, and the firm’s former President profited through overrides on these churned accounts.

The five brokers named in the complaint are Douglas Leone (Leone), Andre LaBarbera (LaBarbera), David Levy (Levy), Antonio Costanzo (Costanzo), and Donald Bartelt (Bartelt). FINRA alleged that the misconduct by the brokers was so extreme and egregious in nature that it should have quickly drawn scrutiny and been stopped. FINRA alleged that the brokers’ trading caused numerous “red flags” of misconduct including: (i) cost-to-equity ratios often over 100%; (ii) turnover rates often over 100; (iii) extraordinary amounts of in-and-out trading; (iv) customer accounts were highly margined and often concentrated in one security; (v) large numbers of transactions where the total commission/markup per trade exceeded 3% or 4%; (vi) there was a deceptive mix of riskless principal and agency trading in numerous accounts with higher cost trades generally exceeding $1,000 per trade were executed on a riskless principal basis whereas lower cost trades, typically involving sales of the same securities, were executed on an agency basis; (vii) inverse and/or leveraged Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs) remained in accounts for multiple trading sessions; (viii) solicited trades were inaccurately characterized as unsolicited; and (ix) nearly all of the customer accounts exhibited large losses.

FINRA also alleged that after FINRA Enforcement issued Wells Notices, Levy and Costanzo attempted to dissuade some of their customers from cooperating with FINRA’s investigation. In one instance, Costanzo offered to compensate a customer for his losses but conditioned his offer on the customer’s signing a letter stating that he would not testify at a hearing. In another instance, FINRA found that Levy traveled to Logan, Iowa, to tell a customer that he would not receive any restitution if the broker wound up barred but promised the customer that he would assist in the preparation of a claim against Newport Coast if the customer signed a letter informing FINRA that the customer would not participate in a disciplinary hearing.