Merrill Fined over ADRs

The SEC on March 22, 2019 announced that Merrill Lynch, Pierce, Fenner & Smith Incorporated will be fined over $8 million to settle charges of improper handling of “pre-released” American Depositary Receipts, also known as ADRs.

ADRs, which are U.S. securities that represent foreign shares of a foreign company, require a corresponding number of foreign shares to be held in custody at a depository bank.  The practice of “pre-release” allows ADRs to be issued without the deposit of foreign shares, provided brokers receiving them have an agreement with a depository bank and the broker or its customer owns the number of foreign shares that corresponds to the number of shares the ADR represents.

NYSE pic 1The SEC’s order found that Merrill Lynch improperly borrowed pre-released ADRs from other brokers when Merrill Lynch should have known that those brokers – middlemen who obtained pre-released ADRs from depositaries – did not own the foreign shares needed to support those ADRs.  Such practices resulted in inflating the total number of a foreign issuer’s trade-able securities, which resulted in abusive practices like inappropriate short selling and dividend arbitrage that should not have been occurring.

The SEC’s order against Merrill Lynch found that its policies, procedures, and supervision failed to prevent and detect securities laws violations concerning borrowing pre-released ADRs from these middlemen.

This is the SEC’s ninth enforcement action against a bank or broker resulting from its ongoing investigation into abusive ADR pre-release practices, which has thus far resulted in monetary settlements exceeding $370 million.

“We are continuing to hold accountable financial institutions that engaged in abusive ADR practices,” said Sanjay Wadhwa of the SEC’s New York Regional Office.  “Our action conveys the message that an entity like Merrill may not avoid liability by using another broker to obtain fraudulently issued ADRs on its behalf.”

Without admitting or denying the SEC’s findings, Merrill Lynch agreed to pay more than $4.4 million in disgorgement of ill-gotten gains plus over $724,000 in prejudgment interest and a $2.89 million penalty for total monetary relief of over $8 million.

The SEC’s continuing investigation is being conducted by Andrew Dean, Elzbieta Wraga, Philip Fortino, Joseph P. Ceglio, Richard Hong, and Adam Grace of the New York Regional Office, and is being supervised by Mr. Wadhwa.

Floyd E. Powell Victims

On February 13, 2019, a regulatory settlement was issued in which Floyd E. Powell was permanently barred from association with any stockbrokerage firm in any and all capacities.  If you are a victim of Mr. Powell, purchasing Woodbridge notes through him, call 1-866-817-0201 for a free and confidential consultation.

Without admitting or denying the findings, Powell consented to the sanction by FINRA, the Financial Industry Regulatory Authority, and to the entry of findings that he engaged in private securitiestransactions without providing notice to or obtaining approval from his member firms prior to participating in them.

The findings stated that Mr. Powell solicited investors to purchase promissory notes relating to a purported real estate investment fund. Ultimately, Powell sold $3,491,707 in the notes to investors, many of whom were customers of the securities firms for which Mr. Powell worked. Powell received a total of $103,598 in commissions in connection with these transactions. Later, the fund filed a voluntary Chapter 11 bankruptcy petition.

Powell operated primarily in the Albertville and Birmingham, Alabama areas. He worked for MML Investors, MSI Financial Services, and Metropolitan Life Insurance.  He had been a licensed stockbroker since 1992.

The sale of unapproved securities, such as the notes sold by Mr. Powell, is a significant securities violation.  Not only is the review by a firm to ensure that the prospects of a company are what the company says they are, brokers often try to circumvent a firms review to allow the sale of a fraudulent investment.

Attention Motty Mizrahi Investors

The SEC has halted an ongoing fraud perpetrated by Motty Mizrahi and targeting members of the Los Angeles Jewish community.  If you are a victim, call 1-866-817-0201 to speak to a private attorney about your rights.

FBIThe SEC filed an emergency action in federal court against Mizrahi and MBIG Company, his sole proprietorship, alleging that, since June 2012, they defrauded at least 15 investment advisory clients out of more than $3 million.

According to the SEC’s complaint, Mizrahi falsely claimed that MBIG used sophisticated trading strategies to generate “guaranteed” investment returns of between 2-3% per month risk-free, clients would not lose their money, and could withdraw their funds at any time.

Unbeknownst to his investors, however, MBIG had no bank or brokerage account of its own – rather, clients unwittingly sent money to Mizrahi’s personal bank account. Mizrahi used the money to fund his personal brokerage account, in which he engaged in high-risk options trading producing losses of more than $2.2 million, and to pay personal expenses. The SEC alleges that Mizrahi covered up his fraud by issuing MBIG’s clients fabricated account statements, showing positive account balances and profits from trading. When clients demanded proof of MBIG’s securities holdings, Mizrahi showed them brokerage statements reflecting a multi-million dollar balance for a fictitious MBIG brokerage account.

On March 27, 2019, the Honorable Judge Percy Anderson of the U.S. District Court for the Central District of California granted emergency relief, including a temporary restraining order against the defendants and an order freezing their assets.

In a parallel action, the United States Attorney’s Office for the Central District of California announced on March 29, 2019 it filed wire fraud charges against Motty Mizrahi and another individual.

Investors of Judith Johnston, NY Life

Investors of Judith Johnston of Frisco, formerly employed by NY Life, may have recourse for investment products sold to them.  Ms. Johnston was recently barred from the securities industry for failing to comply with an investigation into her annuity and insurance sales.  Please call 1-866-817-0201 for a free consultation with an attorney.

Ms. Johnston came to the attention of the regulator, FINRA, the Financial Industry Regulatory Invest photo 2Authority, due to the high number of customer complaints.  Eight different investors have submitted written complaints and have either sued NY Life concerning Johnston’s sales activities or threatened to sue.

The complaints by investors included Johnston’s solicitation and sale of variable universal life and variable annuities.  These complaints asserted that Johnston mislead them concerning various aspects of the financial products, such as the fees, the costs and the feasibility of taking .  They also assert that the husband of Johnston engaged in deception during the sale of these products and that Johnston was complicit.

On November 6. 2018, FINRA Enforcement sent a request to her address, requesting that she appear to provide testimony on December 4, 2018. On November 20, 2018, Johnston hired an attorney and testimony was rescheduled for January 24, 2019.

On January 24. 2019. Johnston appeared to start her testimony.  At the conclusion of one day of testimony on January 24th, FINRA staff determined that it needed additional testimony from her and requested that she appear to continue her recorded hearing.

By email dated February 11, 2019. Counsel for Johnston stated that Johnston would not comply with FINRA’s request to provide any additional testimony, and no longer wished to cooperate with the investigation. As stated in the email to FINRA staff on February 11, 2019, and by this agreement. Johnston acknowledges that she received FINRA’s request to provide testimony. and will not comply with that request.

Attention Investors of Richard Niemann, UBS

Investors of Richard Niemann, a securities broker with UBS in Sugar Land, Texas, may have recourse for unauthorized transactions in their accounts.  Please call 1-866-817-0201 to speak to an attorney.

UBSFrom June 2010 through November 2017, while registered through UBS, the Financial Industry Regulatory Authority alleged that Niemann effected approximately 400 discretionary transactions, purchase or sale of stocks without the owner’s approval.  This was done in 13 accounts belonging to 11 customers without UBS having accepted the accounts as discretionary.

Although the customers had given Niemann express or implied authority to exercise discretion in their accounts, none of the customers had provided written authorization for Niemann to exercise discretion. Furthermore, Niemann did not obtain written authorization from UBS to make trades in the accounts on a discretionary basis; indeed, UBS’s written supervisory procedures prohibited representatives from doing so.

Mr. Niemann has been the subject of four prior customer disputes.  This includes a $575,000 settlement to a customer concerning the sale of auction rate securities – though Niemann asserts he was not at fault for this loss and was not name in the ultimate suit.  This level of complaint history likely means that UBS was required to give Niemann heightened supervision in his operations as a UBS broker.  UBS should have detected the unauthorized transactions.

Christopher Duke Bennett Fraud Victims

If you have suffered losses with Christopher Duke Bennett of J.J.B. Hilliard, please call 1-866-817-0201.   Victims may receive a free and confidential consultation with an attorney.  Bennett is accused of participating in systemic fraud of his investors.

Bennett engaged in unauthorized trading, or churning.  This is where a broker makes trades in an account to effectuate commissions for himself without regard for the investor.  Between January 2014 and December 2015, Bennett violated federal and state securities laws by exercising discretionary trading authority in the accounts of several customers without written authorization, in violation of NASD Rule 2510(b) and FINRA Rule 2010.  This was the grounds for a regulatory action filed against Bennett by the Financial Industry Regulatory Authority (FINRA).

Between January 2014 and December 2015, Bennett made unauthorized trades in the accounts of four customers, one of whom was a senior investor, by placing approximately 75 total trades in those accounts. A broker is required to speak to an investor contemporaneously to a trade, or have written authorization that the broker has authority to make a trade at the broker’s discretion.  Bennett did not obtain express authorization from those customers for those trades prior to placing them, did not have written authorization from the customers to exercise discretionary authority in those accounts, and neither sought nor obtained from Hilliard Lyons prior written acceptance of the accounts as discretionary.

To date, at least 10 of Bennett’s former clients have filed suit, via FINRA arbitration, seeking redress.

Dennis Allen Hayes Investors

Investors of Dennis Allen Hayes, recently with Newbridge Securities Corp., should call 1-866-817-0201 for a free and confidential consultation.

In January 2019, the Financial Industry Regulatory Authority (FINRA), the self-regulatory organization policing securities brokerages and brokers, filed suit against Hayes.  That complaint stated Hayes engaged in prolonged fraud in the handling of investor accounts.  In particular, he sold investments that were not approved by his employer and that were not legitimate investments.  Such an action is commonly referred to as “selling away.”

Between March 2010 and June 2016 (the “Selling Away Period”), while he was associated with Newbridge Securities Corporation (BD No. 104065) (“Newbridge” or the “Firm”), Dennis Allen Hayes (“Hayes”) recommended that nine investors, eight of whom were Newbridge customers, invest a total of $2.7 million in five companies. Hayes did not provide any written or any other notification to Newbridge regarding his participation in these private securities transactions. The investors suffered losses of at least $2.3 million, after one of the companies filed for bankruptcy and the other companies ceased operations.

In addition, from June 2011 through June 2016, Hayes used two personal email accounts of his to communicate with four customers about their Firm accounts. Hayes also communicated via text message with one Firm customer about her Firm account between November 2015 and June 2016. The use of private email and text messaging is a common mechanism to perpetrate fraud because it is generally done with the intent of hiding the communications from an employer.

On September 16, 2016, Hayes was permitted to resign because, “first, the Firm has an open internal review regarding a customer complaint that evolved into a[n] arbitration for possible selling away and private securities transactions [and] second [Hayes] had little or no production [other than fraud] in the last 12 months”.

Upon Hayes’ recommendation and with Hayes’ assistance, nine investors purchased securities issued by five privately-held companies without Hayes’ employer’s knowledge. Eight of the investors were customers of Newbridge.

The securities Hayes sold were promissory notes issued by MSLLC and IRLLC, common stock and promissory notes of BTInc, common stock and promissory notes of KIInc (a successor of BTInc) and common stock of FXInc.

The owner of the five companies was a family friend of Hayes’.

These investments are currently lost, but investors have recourse.  The employer of Hayes, Newbridge, had a duty to oversee the transactions of Hayes and to supervise against the sale of investments that Newibridge had not researched or approved.

Adam Michael Lopez Loss Recovery

If you were an investor of Adam Michael Lopez, formerly of Country Capital Management, please call 1-866-817-0201 to discuss your options for loss recovery.

Invest photo 2Mr. Lopez has recently received a bar from the securities industry.  He refused to respond to allegations made against him by the Financial Industry Regulatory Authority (FINRA).  These allegations included claims that he stole funds  that clients had given to him for investment, namely funds for insurance policies.

FINRA is a self-regulatory organization that polices securities brokerages under the oversight of the SEC.  This entity is charged with policing securities brokers in their interactions with investors both with their firm and away from their investment firm.

The State of Illinois is also investigating since Mr. Lopez operated out of the Springfield area.  The allegations consist of theft of funds given to Lopez for the placement in certain insurance policies and securities.

Country Capital Management had a duty to oversee the activities of Lopez.  A securities broker-dealer has obligations to oversee outside business activities of its representatives.  Consequently, civil liability may exist on the part of Country Capital to compensate the clients of Lopez.

If you have suffered such losses, Jeffrey Pederson may be able to assist you.  Jeffrey Pederson handles FINRA arbitration cases across the country and is licensed with the United States District Court for the Central District of Illinois.

Pagartanis Fraud

If you were a victim of Steven Pagartanis please call 1-866-817-0201.  The Law Offices of Jeffrey Pederson, PC is a firm that specializes in suits concerning securities brokers.

Pagartanis, the former Lombard and Cadaret broker from Long Island, N.Y., pleaded guilty Monday, December 10, 2018, in federal court to conspiracy to commit mail and wire fraud for running a Ponzi scheme over 18 years

Investors have recourse when investment professionals turn bad.

Investors have recourse when investment professionals turn bad.

Steven Pagartanis victims invested over $13 million and saw actual losses of more than $9 million,  according to the U.S. Attorney’s office.

This former licensed securities broker solicited elderly victims to invest in real estate-related investments, including those affiliated with publicly traded companies and an international hotel conglomerate, according to the Department of Justice. Pagartanis promised his investors returns consistent with conservative investments-that their principal would be secure and earn a fixed return of 4.5% to 8% annually.

The victims wrote checks payable to an entity secretly controlled by Mr. Pagartanis at his direction, according to the government. He utilized a network of bank accounts to launder the stolen funds, which he used to pay personal expenses, buy luxury items and make the phony interest or dividend payments to other victims, according to the Department of Justice. He faces up to 20 years in prison.

Recovery of these losses will focus on the employers of Pagartanis.  These employers are required to have supervisory safeguards in place to prevent such actions.  FINRA, the Financial Industry Regulatory Authority, has rules that require licensed brokerages to take steps to monitor and detect private securities transactions away from the firm.  Consequently, liability exists even if such actions were not taking place right under the nose of the firms.  FINRA offers an arbitration forum to recover such losses.

The SEC also filed a civil suit concerning this matter in May 2018.

On June 26, 2019, a FINRA arbitration panel awarded an investor a judgment in the amount of $1.46 million against Pagartanis for his role iin the multi-million dollar Ponzi scheme.

Jeffrey Pederson is an attorney who helps investors recover losses from brokerage firms through the FINRA arbitration process.  This is just one of the 17 customer complaint disclosures on his record.