Selling Away

FINRA Suspends former Morgan Stanley Smith Barney Broker Travis Shannon for Failing to Divulge Information

October 2, 2014 | by Staff Attorney

On August 25, 2014, FINRA suspended Travis S. Shannon, of Santa Barbara, California, formerly of Morgan Stanley Smith Barney. According to FINRA, from July 2010 through June 2013, Mr. Shannon engaged in two outside business activities without first providing written notice to Morgan Stanley, in violation of FINRA Rule 2010, 3030, and 3270. 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.” All members are bound to maintain high standards and according to FINRA Mr. Shannon fell short of that standard.

FINRA Rule 3030 states that “No person associated…shall be employed by, or accept compensation from, any other person as a result of any business activity…outside the scope of his relationship with his employer firm, unless he has provided prompt written notice to the member.” This activity is known as selling away. Mr. Shannon was employed as a financial advisor with Morgan Stanley from September 2008 through July 2013 when he was allowed to voluntarily resign from the firm due to FINRA’s regulatory action. According to FINRA, Mr. Shannon participated in private sales of $1,885,000 worth of securities, including securities issued by his outside business activities. Mr. Shannon also failed to timely update his U4 registration form to timely report two bankruptcy filings.

In June 2010, Mr. Shannon first began to participate in the private sales of securities issued by TC, a company that bought and sold used computer network equipment. Mr. Shannon referred eight customers to this company including four Morgan Stanley customers. Those eight purchases totaled $775,000 in investments with commissions of $77,500 to Mr. Shannon. In July 2010, Mr. Shannon co-founded AAI or Aerobat Aviation, Inc., a start-up company that was to design and produce unmanned aerial vehicles. In 2012 and 2013 Mr. Shannon participated in the private sale of $500,000 worth of Aerobat Aviation Inc. stock.

FINRA Alleges that Former Waddell & Reed Employee, Jeffrey Meyer, Engaged in 37 Private Placement Transactions without Proper Notice

September 24, 2014 | by Staff Attorney

On August 21, 2014, Richard A. March, Senior Regional Counsel of FINRA’s Department of Enforcement filed a complaint against Jeffrey Meyer, a financial advisor in Lake in the Hills Illinois who was formerly associated with Waddell & Reed, Inc. The complaint alleges that while employed at Waddell & Reed and WRP Investments, Inc. Mr. Meyer acted outside the scope of his employment with those firms by participating in 37 private securities transactions totaling more than $1.5 million, without providing prior written notice to the firms of his proposed roles in the transactions. FINRA alleges that as a result of the foregoing, Mr. Meyer violated FINRA Rule 2010. 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.”

Mr. Meyer entered the securities industry in January 2000 as an investment company products and variable contracts representative with Franklin Financial Services, Corp. In February 2001 he became a general securities representative with Focused Investments, LCC. According to FINRA, United Private Capital, Inc. was a corporate entity that was established as an investment vehicle for FOREX currency trading. Between November 2008 and September 2009, United Capital sold corporate guarantees totaling $1 million to 20 investors and Mr. Meyer participated in each of the private securities transactions. Mr. Meyer, in some instances collected checks from customers and assisted them in preparing documents to effectuate the transactions. Furthermore, on at least one occasion, Mr. Meyer presented sales material to an individual who subsequently invested at United Private Capital.

In addition, according to FINRA, Mr. Meyer participated in private securities transactions related to commercial loans through Strategic Lending Solutions, LLC as well. Those promissory notes totaled approximately $300,000 with 13 investors. Mr. Meyer received a 2% payment based on the amount of the promissory note.

Brokerage Firm Safeguard Securities and Peter Mooney Sanctioned Over Numerous Supervisory Failures

August 22, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm Safeguard Securities, Inc. (Safeguard Securities) and broker Peter Mooney (Mooney) concerning allegations that during a FINRA examination of the firm Safeguard Securities provided certain outside business activity (OBA) forms to FINRA that had been backdated. FINRA found that Mooney, who signed the backdated forms, knew or should have known that the forms had been backdated. In addition, FINRA identified many supervisory and recordkeeping failures relating to: the review and retention of electronic communications; outside business activities; private securities transactions; the supervision of producing managers; and branch registration and fingerprinting of personnel.

FINRA found that Mooney was the firm’s principal and supervisor responsible for establishing and implementing supervisory procedures. FINRA alleged that Safeguard Securities, through Mooney, failed to establish and/or implement adequate supervisory procedures in numerous respects. First, it was alleged that the firm failed to establish and implement an adequate supervisory system for the review and retention of electronic communications relating to the business of the firm. For example, between July 14, 2008, and November 4, 2012, it was alleged that Safeguard Securities failed to maintain any record to evidence its review of electronic communications. Further, FINRA alleged that the firm failed to take any steps to monitor registered representatives who used e-mail addresses at domains other than the firm’s e-mail system.

In another instance of supervisory failure, FINRA alleged that during 2012, Mooney knew that a broker by the initials “WM” was engaging in private securities transactions for compensation. Notwithstanding the fact that the firm prohibited such activity, FINRA found that Mooney failed to take any steps to stop the broker’s participation in those transactions. Under NASD Rule 3040, a duty is imposed on member firms to supervise the transaction as if the transaction were executed on behalf of the member.

Broker Kevin Nevin Sanctioned Over Alleged Sales of Private Securities Transactions

August 4, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned broker Kevin Nevin (Nevin) concerning allegations that Nevin participated in 11 private securities transactions totaling $690,000 over the course of two years without first disclosing his participation his member firm. Through this conduct, FINRA found that Nevin violated NASD Conduct Rules 3040 and 2110.

Nevin entered the securities industry in 1994 and is currently a representative of Capital Guardian, LLC. In March 2006, Nevin became associated with VSR Financial Services (VSR) until February 2011, when he was terminated. In addition, to the recent FINRA complaint, Nevin has also been subject to three customer complaints. Some of the customer complaints concern allegations of unsuitable sales practices and securities fraud concerning variable annuities. Another customer complaint concerns the recommendation of oil & gas and real estate related private placements.

FINRA alleged that during part of the time he was registered with VSR, Nevin operated out of an office with another VSR registered representative referred to by the initials “PL.” FINRA found that PL was involved with at least three private placement offerings involving real estate and/or appurtenant property rights entities in the state of Colorado: Breakwater Capital Group, LLC; Yokam Land Holdings, LLC; and South Platte Land & Water, LLC. FINRA found that PL assured Nevin that he had informed VSR of the involvement in the Colorado water rights and real estate activity and that the private placement offerings were conducted entirely under the operations of PL’s real-estate agency. According to FINRA, PL told Nevin that he could recommend investments in these offerings to his customers and earn commissions on any ensuing investments if he obtained a real-estate license.

James Bracey Barred Over Allegations of Taking Loans from Customers

July 29, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred from the financial industry broker James Bracey (Bracey) concerning allegations that in or about February 2008, Bracey, received a $175,000 loan from a customer without notifying Multi-Financial, now known as Cetera Advisor Network LLC. FINRA alleged that on multiple occasions between 2009 and 2011, Bracey renegotiated the interest payments on the customer’s loan. FINRA also found that in December 2009, while associated with Multi-Financial, Bracey falsified a customer’s written wire transfer instructions in order to execute an unauthorized fund transfer from a customer’s brokerage account to that customer’s personal bank account outside of Multi-Financial. FINRA determined that Bracey caused the creation and maintenance of inaccurate books and records through the falsifying the customer’s wire transfer.

FINRA also alleged that between October 31, 2001 and April 30, 2012, Bracey failed to timely notify Multi-Financial, and later LPL Financial LLC, of two separate outside business activities. FINRA also found that in October 2004, after soliciting 17 investors to purchase securities away from Multi-Financial, Bracey failed to provide written notice to or firm approval to engage in private securities transactions in violation of NASD Rules 3040 and 2110. FINRA’s allegations are consistent with a “selling away” violation in which a broker solicits investors to invest in unapproved investments. Finally, FINRA found that between 2004 and 2012, Bracey willfully failed to timely disclose material information to Multi-Financial and LPL Financial in order to update his Form U4 concerning two liens and two creditor compromises.

In addition to the slew of violations alleged by FINRA, Bracey has been the subject of at least three customer complaints and terminated by three brokerage firms. The customer complaints against Bracey concern private placements (direct participation programs), equipment leasing investments, unsuitable investments, non-traded real estate investment trusts (REITs), and misrepresentations in the sale of securities.

Wells Fargo Broker Michael Frew Accused of Running Fictitious “Real Estate” Scam

July 14, 2014 | by Staff Attorney

The attorneys at Gana Weinstein LLP are investigating claims that broker Michael Frew (Frew). Frew allegedly solicited millions of dollars from investors including his friends and family on claims that he said would use the money to invest in real estate to rehabilitate properties in areas hit by natural disasters. Frew has now accused been accused of orchestrating a Ponzi scheme and converting these funds. Recently, the Financial Industry Regulatory Authority (FINRA) has sanctioned and barred Frew concerning these allegations and for Frew’s failure to properly respond to the agencies investigation requests.

Our attorneys have significant experience recovering investor funds by holding brokerage firms and Ponzi schemer’s responsible. In a similar real estate related fraudulent investment scheme our attorneys obtained a $2.8 million award on behalf of a group of defrauded investors including $1.9 million in punitive damages. See Reuters, Arbitrator orders alleged Ponzi-schemer to pay $2.8 million (Aug. 8, 2013) and the Award here.

Frew entered the securities industry in 1975. From 1988 to 2003, Frew was associated with Prudential Securities Inc. In 2003, Frew became registered with Wells Fargo Advisors, LLC (Wells Fargo). According to FINRA, Wells Fargo permitted Frew to resign in January 2014 when Frew refused to provide the firm bank records the firm requested in their investigation into whether Frew had received funds from customers. In February 2014, FINRA began investigating whether Frew accepted loans from customers and potentially converted those funds. Thereafter, FINRA stated that between March and May 2014, Frew failed to fully respond to FINRA’s requests for documents and information and refused to appear for testimony. For failing to respond to FINRA’s requests, the agency imposed a permanent bar from the securities industry.

Claus Foerster Barred Over Allegations Concerning Fictitious “S.G. Investments”

July 8, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) has sanctioned and barred broker Claus Foerster (Foerster) concerning allegations that Foerster solicited firm customers to invest in a fictitious fund “S.G. Investments” and converted approximately $3 million in funds from 13 customers for his personal use. FINRA rules provide that no person associated with a member shall make improper use of a customer’s securities or funds.

Foerster entered the securities industry in 1988 when he associated with J.C. Bradford & Co. Between 1997 and 2008, Foerster was associated with Citigroup Global Markets, Inc. (Citigroup). From 2008 until February 2013, Foerster was associated with Morgan Keegan & Co. Inc. Thereafter, and until June 2014, Foerster was last associated with Raymond James & Associates, Inc., (Raymond James) when his registration was terminated based on the conduct described by FINRA in the AWC.

FINRA alleged that beginning in 2000, Foerster solicited securities customers to invest in an entity called S.G. Investments. S.G. Investments was marketed by Foerster to investors as an income-oriented investment. As part of Foerster’s scheme, FINRA alleged that he instructed customers to move funds from their brokerage accounts to their personal bank accounts via wire or electronic funds transfer. After that, FINRA found that Foerster would then instruct the customers to write checks from their personal bank accounts payable to “S.G. Investments.” FINRA determined that S.G. Investments was not an investment fund but instead a bank account owned and controlled by Foerster. According to FINRA, Foerster hid his scheme by providing customers with fictitious account statements. In addition, FINRA found that in at least two instances Foerster provided customers with purported dividend payments on a monthly basis in typical Ponzi Scheme fashion. Through these actions, FINRA found that Foerster converted approximately $3 million from 13 customers.

Investment Fraud Update: Patricia Miller Charged in Ponzi Scheme

June 14, 2014 | by Staff Attorney

Our law firm is currently investigating an alleged Ponzi scheme run by financial advisor Patricia S. Miller (Miller) of McMurray, Pennsylvania. According to the United States Attorney Office, on June 6, 2014, Miller was arrested on charges that she orchestrated a massive Ponzi scheme and committed wire fraud.

Our attorneys encourage investors to contact our office if they have been an unfortunate victim of Miller’s. Our attorneys have significant experience recovering investor funds by holding brokerage firms and Ponzi schemer’s responsible. In a similar fraudulent investment scheme our attorneys obtained a $2.8 million award on behalf of a group of defrauded investors including $1.9 million in punitive damages. See Reuters, Arbitrator orders alleged Ponzi-schemer to pay $2.8 million (Aug. 8, 2013) and the Award here.

In Miller’s case, the United States has alleged that Miller used and abused her position of trust and her association with a Massachusetts broker dealer in order to obtain money from clients. While Miller represented to clients that their funds would be invested prudently, it is becoming clear that Miller never made such investments. According to the United States Attorney’s Office, Miller promised high returns in “investment clubs” called KS Investments and Buckharbor, among others. Miller represented, that the investment clubs would be placed in fixed-income notes and other investments. Instead, Miller has been accused of misappropriating the client’s funds for her own personal use. If convicted, Miller could face a maximum sentence of 20 years in prison and a $250,000 fine.

SEC Charges Brokers Jerry Cicolani and Jeffrey Gainer in KGTA Petroleum Securities Scam

June 7, 2014 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating client claims regarding the Securities and Exchange Commission (SEC) complaint against Thomas Abdallah (a/k/a Tom Abraham), Kenneth Grant and their company KGTA Petroleum, Ltd. (“KGTA”) concerning a fraudulent investment scheme. Also named in the complaint are two registered representatives, Jerry Cicolani and Jeffrey Gainer who were associated with Primesolutions Securities, Inc., (Primesolutions) a brokerage firm.

According to the SEC, Grant and Abdallah marketed KGTA to investors as a petroleum company that earns profits by buying and reselling crude oil and other fuel products. Investors were purportedly told that they had relationships with bona fide third party purchasers and that they would use investor funds to buy fuel at a discount that would then be sold at a substantial profit. The KGTA investment was pitched to investors as an opportunity that offered astronomical returns – typically between 2% to 4% per month or 24-48% annualized – with no market risk.

According to the SEC, Grant and Abdallah convinced investors to buy KGTA promissory notes (KGTA Notes) by promising that the investment funds and the returns would flow through an escrow account monitored by attorney Mark George who would act as the escrow agent. Grant, Abdallah, and George promised that investor funds would be held in George’s IOLTA account until KGTA received a firm purchase order from a bona fide third party purchaser.

FINRA Sanctions Larry Steven Werbel for Selling Away and Other FINRA Violations

June 4, 2014 | by Staff Attorney

On March 10, 2014, Larry Steven Werbel submitted a Letter of Acceptance, agreeing to accept the sanctions handed down by the Financial Industry Regulatory Authority (FINRA) for alleged violations relating to the sale of penny stocks during his tenure at LPL Financial, LLC.

Larry Werbel entered the securities industry in 1976 as a Series 1, Registered Representative at Cigna Financial Advisors, Inc., where he was employed for twenty years. Thereafter, in February 2009, after a thirteen-year stint at FSC Securities Corporation, Werbel began working for LPL Financial, until his termination in February 2011.

During a three-week period, spanning from on or about October 26, 2010 through on or about November 17, 2010, while registered with LPL Financial, Werbel allegedly solicited eight customers to invest in QLotus Holdings Inc. (“QLTS”), a low-priced security that Werbel himself had previously purchased. According to FINRA, Werbel’s firm, LPL Financial, prohibited the solicitation of low-priced securities, such as QLTS, and so Werbel coded the QLTS sales as unsolicited despite the fact that they were all solicited. Werbel’s improper coding caused LPL’s books and records to be inaccurate in violation of NASD Rule 3110(a).