Tag Archives: securities fraud

Losses in Inverse VIX ETNs and ETFs

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Investments connected to the VIX index were known to be highly speculative.

We are a firm that specializes in investor loss recovery.  Investors of Inverse VIX Exchange Traded Notes (ETNs) and Inverse VIX Exchange Traded Funds (ETFs), including VelocityShares Daily Inverse VIX Short-Terms ETN (XIV), the ProShares Short VIX Short-Term Futures ETF (SVXY), and the LJM Partners’ Preservation and Growth fund (LJMIX and LJMAX) may have grounds for the recovery of their losses.

If you were sold an Inverse VIX ETN please call 1-866-817-0201 for a free and confidential consultation with an attorney.

These investments were suitable for very few investors.   The sale of unsuitable investments is a form of negligence and possibly fraud.   These investments carry such a high level of risk and are so complicated that they were likely not suitable for any retail (non-institutional) investor.   “Unless you were a hedge fund manager you should not have been sold these funds.” If you were recommended such investments as part of a retirement savings portfolio you have grounds to recover your losses.  The makers of these funds have acknowledged that the fund was for hedge fund managers only, and not individual investors.

Starting on February 2 and continuing through February 6, investors saw portfolios implode due to investments in obscure products that tracked market volatility.  Such investments tracked the VIX index.  The VIX index is a complicated monitor of investment market volatility or “investor fear.”  An “inverse VIX” investment is an investment that benefits from stable markets but loses value quickly in times of volatility.  The losses in the inverse VIX investments mounted quickly until NASDAQ halted the trading of these investments on February 6, with some suffering losses of almost all value in just a few days.

For example, VelocityShares XIV plummeted 80 percent in extended trading on February 5, 2018.  This is a security issued by Credit Suisse this tracks the inverse of the VIX index tracking market volatility.  As the market rose and sank the value of XIV dropped sharply.  Such sudden drops have a cascading impact that can lead to margin calls and other losses.

Of particular concern, though any sale of such an investment to a retail investor is concerning, are investors who purchased such shares through the following brokerage firms:  Credit Suisse, Fidelity, Merrill Lynch, and Wells Fargo.

The dramatic losses was foreseeable to securities brokerages, often referred to as securities “broker-dealers.”  The regulator that oversees broker-dealers, FINRA, the Financial Industry Regulatory Authority, issued its latest warning in a string of warnings on October 2017 to broker-dealers about VIX and inverse VIX investments.  FINRA identified such investments speculative and warned the “major losses” could result from such investments from a failure to understand how such investments work.  For example, many are short-term trading vehicles that can degrade over time.

FINRA also warned all financial advisers that VIX ETNs may be unsuitable for non-institutional investors and any investor looking to hold investment as opposed to actively trading the investment.   While this warning occurred in October 2017, similar warnings were issued in 2012.  That same month, FINRA fined Wells Fargo for unsuitable recommendations of similar volatility investingstockphoto 1funds.

FINRA stated in 2012 in a Regulatory Notice, RN 12-03, that heightened supervision is required of any broker who sells such complex investments, and specifically identified the need for brokerage firms to oversee any recommendation of an investment based upon the VIX.

While all short VIX trading is suspect and potentially recoverable, the following investments are of particular concern:  XIV, SVXY, VMIN, EXIV, IVOP, LJMIX, LJMAX, XXV, and ZIV.

FINRA is conducting sweep investigations of all brokerages that sold any and all of these investments to retail investors.  ‘The sweep is part of Finra’s continuing focus on the suitability of sales of complex products, including leveraged and volatile products, to retail customers,’ stated FINRA.

In addition to suitability, there is also concern that due diligence by these brokerages should have revealed that the index was subject to manipulation.  This was recently reported by the Financial Times of London.  A scholarly report from researches at the University of Texas in 2017 identified the mechanism for manipulating the VIX.  FT reports that the Securities and Exchange Commission is currently investigating such allegations.

Investors suffering losses in such investments may have valid claims despite the warnings contained in the prospectus.  These investments should not have been offered to any retail investors.

PedersonLaw has represented investors in similar actions in most of the 50 states either directly or pro hac vice.

Recovery of Woodbridge Loss

Landmark

Woodbridge investors believed real estate ensured the safety of their investments.

Investors of Woodbridge may have the ability to recover the losses they sustained.  Please call 1-866-817-0201 or 303-300-5022 for a free consultation with a private attorney concerning potential loss recovery.

Regulators have charged the Woodbridge Group of Companies with operating a Ponzi scam.  This creates liability on the part of those advisors selling Woodbridge.

There were glaring issues in these Woodbridge investments for an extended period of time.    These issues should have been discovered during reasonable due diligence by the brokers and agents selling the Woodbridge investments.  These investments should have been recognized as not being suitable for any investor.

The U.S. Securities and Exchange Commission (SEC) had been investigating Woodbridge since 2016.  Woodbridge, the Sherman Oaks, California-based Woodbridge, which calls itself a leading developer of high-end real estate, had been under the microscope of state regulators even longer.   The focus of these regulators was the possible fraudulent sale of securities.

On December 21, 2017,  the SEC charged the Woodbridge Group of Companies with operating a $1.2 billion Ponzi scheme that targeted thousands of investors nationwide.  “The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money,” per Steven Peikin of the SEC.

Prior to the charge, in January 2017, the SEC served a subpoena on Woodbridge for relevant electronic communications.  Woodbridge failed to respond to this subpoena.  This left the SEC to seek court intervention to compel Woodbridge to produce potentially damaging documentation the SEC believes existed.  The SEC filed its allegation that Woodbridge is a Ponzi scheme within weeks of its access to Woodbridge’s documents.

Through court filings, the SEC states that Woodbridge “has raised more than $1 billion from several thousand investors nationwide” and it “may have been or may be, among other things, making false statements of material fact or failing to disclose material facts to investors and others, concerning, among other things, the use of investor funds, the safety of the investments, the profitability of the investments, the sales fees or other costs associated with the purchase of the investments.”

Shortly after the issuance of the order sought by the SEC Woodbridge declared bankruptcy.  This filing does not extinguish the rights of investors.  These investors have claims against the brokers and advisors selling the investments.

Woodbridge has additionally stated that it has also received inquiries from about 25 state securities regulators concerning the alleged offer and sale of unregistered securities by unregistered agents.

The Woodbridge Group of Companies missed payments on notes sold to investors the week of November 26, 2017, and December 5, 2017 filed chapter 11 bankruptcy.  The company blamed rising legal and compliance costs for its problems.

Woodbridge said it had settled three of the state inquiries and was in advanced talks with authorities in Arizona, Colorado, Idaho and Michigan when it filed for Chapter 11 protection.

The company’s CEO, Robert Shapiro, resigned on December 2  but will continue to be paid a monthly fee of $175,000 for work as a consultant to the firm.

Those at Woodbridge are not the only ones responsible for investor losses.  The Colorado Division of Securities is considering sanctions against investment advisor Ronald Caskey of Firestone, Colorado.  Caskey is the host of the Ron Caskey Radio Show.  James Campbell of Campbell Financial Group in Woodland Park, Colorado and Timothy McGuire of Highlands Ranch, Colorado are also the subject of regulatory investigations by the state regulator.  The Colorado Division of Securities has also begun investigating Jerry Kagarise of Security 1st Financial of Colorado Springs.  Another seller of Woodbridge in the Springs area is Carrier Financial.

These and other Colorado investment advisors have raised approximately $57 million from 450 Colorado investors.  Woodbridge continued to solicit investors through these advisors, in addition to radio and online ads, through October 2017, just prior to the bankruptcy filing.

While the regulatory actions will do little to compensate the damaged investors, these actions support private civil actions for recovery by investors.  We are investigating and in the process of bringing suit against Colorado investment advisors selling Woodbridge investments, and would like to share what we have learned with other investors in Colorado and nationwide.

Rueters is the source of some of the information contained herein.

Morgan Stanley $13 Mil. UIT Sanctions

The Financial Industry Regulatory Authority (FINRA) announced today, September 25, 2017, that it has sanctioned Morgan Stanley Smith Barney LLC approximately $13 million for UIT violations by its advisors and for failing to supervise its advisors’ short-term trades of unit investment trusts (UITs).

A UIT is an investment vehicle similar to a mutual fund but with some key differences.  It is an investment company that offers units in a portfolio of securities; however, unlike a mutual fund, it terminates on a specific maturity date. UITs impose a variety of charges, including a deferred sales charge and a creation and development fee, that can total approximately 3.95 percent for a typical 24-month UIT. This can be a significant cost.  A registered representative, or advisor, who repeatedly recommends that a customer sell a UIT position before the maturity date and then “rolls over” those funds into a new UIT, an action that can also be described as “churning,” causes the customer to incur increased and unnecessary sale charges over time.

FINRA found such actions in thousands of customer accounts. FINRA further found that Morgan Stanley failed to adequately supervise advisor sales of UITs by providing insufficient guidance to supervisors regarding how they should review such transactions to detect improper short-term UIT trading, failing to implement an adequate system to detect and deter such abuse, and failing to provide for supervisory review of rollovers prior to execution. Morgan Stanley also failed to conduct training for advisors specific to these UIT issues.

Susan Schroeder of FINRA said, “Due to the long-term nature of UITs, their structure, and upfront costs, short-term trading of UITs may be improper and raises suitability concerns. Firms must adequately supervise representatives’ sales of UITs –including providing sufficient training –and have in place a system to detect potentially unsuitable short-term UIT rollovers.”

In assessing sanctions, FINRA has recognized Morgan Stanley’s cooperation in having initiated a firmwide investigation that included, among other things, interviewing more than 65 firm personnel and the retention of an outside consultant to conduct a statistical analysis of UIT rollovers at the firm; identified customers affected and establishing a plan to provide remediation to those customers; and provided substantial assistance to FINRA in its investigation.

Investors of Paul Vincent Blum

If you suffered losses with Paul Vincent Blum, most recently a financial advisor with RBC, please call 1-866-817-0201.

In 2017, FINRA was conducting an investigation of Blum in connection with customer complaints and arbitration claims alleging, among other things, unsuitable trading. To date, Blum has approximately 23 customer complaints.  Many of the complaints concern his recommendation of energy sector investments to investors not wishing to speculate or unwilling to high levels of risk known to exist in the energy sector.  Many of these complaints were settled by Blum’s employers, including RBC.  He has also been accused of making misrepresentations concerning bonds, including the taxable nature of certain bonds.

On July 21,2017, FINRA staff sent Blum’s counsel a written request for on-the-record testimony pursuant to FINRA Rule 8210. As stated in Blum’s counsel’s email to FINRA of July 25,2017, Blum aclmowledges that he received FINRA’s request and will not appear for on-the-record testimony in front of FINRA. FINRA requires that persons subject to FINRA’s jurisdiction provide information, documents and testimony as part of a FINRA investigation.

As a result of the failure to cooperate in the regulatory investigation of FINRA, Blum has been barred from association with any FINRA member, which would include any and all securities brokerages in the United States.

Annuity Losses with Roger Zullo

LPLIf you suffered investment losses or stuck in a variable annuity, or other investment losses, as a result of Roger Zullo, formerly of LPL Financial, please call 1-866-817-0201.

On April 4, 2017, Zullo entered a Consent Order, a settlement, with the Massachusetts Securities Division resolving charges made in an administrative complaint by the state against Zullo and LPL.

The complaint alleged that Zullo, under the oversight of LPL, defrauded their clients, falsified client financial suitability profiles, and sold his customers unsuitable variable annuities. Pursuant to the Consent Order, without admitting or denying any allegations of fact or violations o flaw, he consented to a permanent bar from the securities industry in Massachusetts, a $40,000 administrative fine, and disgorgement of $1,875,348. Payment for disgorgement was waived due to Zullo’s circumstances, however, this does not preclude investors from retaining private attorneys to seek this recovery from LPL.

The action stems largely from variable annuity sales.  Zullo, allegedly, recommended variable annuities to elderly individuals.  Investment professionals have a legal duty to only recommend suitable investments.  Variable annuities are inherently unsuitable for seniors.  Not only do they lock-up the funds at a time when people need access to their funds, the investments pay the broker a very high commission.  This commission is for the sale of many aspects of the variable annuity that senior investors do not need.  These include tax deferral and life insurance.  When a broker makes a heightened commission for the sale of things that are unneeded, the broker puts his interests ahead of the investors, and that constitutes a form of fraud known as the sale of “unsuitable investments.”

Zullo first became registered with FINRA as an IR in September 1998. He maintained that registration through consecutive associations with two member firms between September 1988 and August 2004. From August 2004 through December 2016, he was registered as an Investment Representative with LPL.

In November 2004, Zullo also became registered as IP through his association with the Firm. Zullo maintained those registrations through his association with the Firm until December 2016. Zullo worked for the Firm as a broker-dealer agent and investment adviser representative in Wellesley, Massachusetts.

On January 10,2017, FINRA sent a request for information and documents pursuant to FINRA Rule 8210 to Zullo with a response date of January 24, 2017. Zullo, through his counsel, requested two extensions to the January 10 request. Pursuant to these requests, FINRA extended the response date to March 1,2017.

Zullo did not provide any documents or information to FINRA in response to the January 10 request. On March 2,2017, FINRA sent a second request for documents and information pursuant to FINRA Rule 8210 to Zullo with a response date of March 16, 2017. Zullo did not provide any documents or information to FINRA in response to the March 2 request.

The resulting FINRA punishment is a permanent bar from the securities industry.

Attention Investors of Kyle P. Harrington

Investors of Kyle Patrick Harrington may have recourse for their losses.  Please call 1-866-817-0201 for a free and confidential consultation.

Harrington has been alleged to have committed several forms of deceit in his dealings with investors and regulators in the last eight years.  This includes actions while employed at National Securities (NSC), Bannockburn Partners, Matrix Captial, First Allied, and Robert B. Ausdall.  He is currently a representative of Aurora Capital and also operates under the name of Harrington Capital Management.  Responsibility for the actions of Harrington fall not just on Harrington, but also on his employers.

The types of deceit alleged over the years include churning, creating of falsified documents, theft of investor funds, unsuitable investments, excessive trading, unauthorized purchases made in investor accounts, and other forms of misrepresentations and fraud.

Of all the allegations of deceit, the most recent is a civil suit filed by FINRA.   The FINRA suit involves a series of alleged deceptions by Kyle Harrington with the help of his assistant, Linda Milberger, to conceal Harrington’s alleged theft of customer funds and private securities transactions, securities transactions done outside of his firms’ fraud monitoring to put his investors in questionable investments.

Harrington is also alleged to have created false documents to submit to FINRA to conceal his misconduct not just from his employers, but also from regulators. For her part, Milberger falsified wire request forms which allowed Harrington’s conversion of customer funds, submitted those falsified wire request forms to her firm and another brokerage as if they were authentic records, and knowingly assisted Harrington in providing an altered bank statement to regulators.

In particular, in August 2012, Harrington convinced an investor to authorize a wire transfer to Harrington’s registered investment advisor firm for a purported investment. In fact, after the investor’s funds were wired to Harrington’s business checking account, Harrington took the investor’s funds without her knowledge or consent, and used it to pay his own business expenses.

When difficulties arose completing the $20,000 wire transfer from the investor’s account in August 2012, Harrington’s assistant, Milberger, altered the wire request form that the investor had signed without the investor’s knowledge or consent, on at least two occasions, in order to transfer all available cash out ofLD’s account to Harrington. Milberger submitted the altered wire request forms to her own firm and another broker dealer as iftheywere authentic, thereby causing those firms to maintain inaccurate books and records regarding the wire transfer.

In August 2012 and early 2013, Harrington also engaged in a series of private securities transactions with multiple individuals through which he sold over 300,000 shares of restricted stock he had purportedly received as compensation from a company named Islet Sciences, Inc. for approximately $276,000. Harrington failed to disclose these transactions, including his role as seller of the securities, to his employing firm or seek its prior approval of them.

Harrington not only failed to disclose his private securities transactions in Islet but he actively attempted to conceal them. Specifically, in July 2014, during a firm audit of his business, Harrington submitted falsified records to his firm mischaracterizing payments he had received for the sale of his Islet stock.

Additionally, Harrington has been the subject of nine actual or threatened investor lawsuits, multiple other regulatory investigations and employment terminations.  This information is contained in the CRD of Harrington.

Attention Investors of Jeffrey Dragon

FINRA alleges that over a two-year period, Jeffrey Dragon, a registered representative of Berthel Fisher & Co. Financial Services. Inc., generated more than $421,000 in concessions for himself and his firm. at the expense of his customers, by recommending and effecting a pattern of unsuitable short-term trading of unit investment trusts ( UITs ).

Invest photo 2Specifically, between January 1, 2013 and December 31, 2014 (the ‘UIT Period’ ) Dragon recommended to 12 customers – many of whom were seniors, unsophisticated investors, or both – that they liquidate UIT positions that they had held for only a few months, and which they had purchased on Dragon s recommendations, and then use the proceeds to purchase other UITs. Because each UIT purchased carried a new sales load, and because UITs are designed not to be actively traded, Dragon s recommendations were excessive and unsuitable.

Dragon’s recommendations to these customers were further unsuitable. in that he designed his recommendations to prevent his customers’ UIT purchases from qualifying for sales-charge discounts. Despite regularly recommending that customers purchase UITs in amounts that exceeded volume-discount “breakpoints” of $50,000 and $100.000. Dragon routinely structured their investments – by spreading the amounts over smaller purchases and multiple days – in order to avoid reaching those thresholds. By doing so. Dragon sought to increase his concessions at his customers’ expense.

Berthel allowed this activity to occur – and. in fact, profited from it – as a direct result of its inadequate system for supervising UIT trading. Throughout the UlT Period. Berthei’s only regular supervisory review of UIT recommendations and customer activity consisted of manual reviews of daily trade blotters that did not indicate either how long UIT positions had been held before liquidation or the source of funds used to purchase new UITs. Thus, Berthel’s supervisory system was not reasonably designed to prevent short-tenn and potentially excessive UIT trading.

Berthel’s supervisory system was also inadequate because it was not reasonably designed to prevent short-term and potentially excessive trading in mutual funds. As with UlTs. the firm’s supervisory system lacked any methods, reports, or other tools to identify mutual-fund switching or trading patterns indicative of other misconduct between January 1. 2013 and December 31, 2015 (the ‘ Mutual Fund Period’ ).

Likewise, Berthel’s supervisory system was not reasonably designed to censure that the firm’s UIT and mutual-fund customers received all sales-charge discounts to which they were entitled during the UIT Period and Mutual Fund Period, respectively. Instead. Berthel relied 2 on its registered representatives and its clearing firm to determine whether UIT and mutual-fund purchases should receive sales-charge discounts, and conducted no review or supension to determine i f those discounts were applied correctly.

This not only allowed Dragon s breakpoint-manipulation scheme to go unchecked, it also resulted in further injury to Berthel s customers: from 2010 through 2014, Berthel failed to detect that more than 2,700 of its customers’ UIT purchases did not receive applicable sales-charge discounts. As a result, Berthel customers paid excessive sales charges of approximately $667.000, nearly all of which was paid to Berthel and its registered representatives as dealer concessions.

Mark Holt Loss Recovery

Mark Holt is a former stock broker currently serving a prison sentence for stealing the funds of his investors and sending false account documents.  The scheme victimized investors in Minnesota and likely elsewhere.  Due to the incarceration, investors seeking recovery will likely need to pursue Holt’s former employers by means of FINRA arbitration for loss recovery.

From August 2005 to February 2007, Holt was a registered representative of Geneos Wealth Management, Inc., which is both a securities brokerage and investment adviser. From February 2007 to November 2013, Holt was a registered representative of Harbour Investments, Inc., which is also a dually registered entity. Holt, 47 years old, is currently incarcerated at the Federal Correctional Institution in Oxford, Wisconsin.

guy in handcuffsDetails of the SEC action can be found in its release.

On August 14, 2014, Holt was sentenced to a prison term of 120 months followed by three years of supervised release and ordered to make restitution in the amount of $2,940,982.75.  The chances of these payments being made is not great considering Holt could be incarcerated for much of the next ten years.

The allegations are that from about September 2005 through Jan. 12, 2014, Holt “knowingly caused an email communication to be transmitted in interstate commerce via servers in Texas to a client in Minnesota that would give the client access to false account statements.”

The SEC and the criminal documents state that Holt “misappropriated [investor] funds by depositing client checks into a bank account he controlled and using these funds to pay for personal and business expenses. In furtherance of his scheme, Holt lulled his clients into believing that he had purchased various investments for them by sending fraudulent Morningstar client summaries and [...] a web-based portal, that displayed fraudulent account balances.”

“Holt made monthly payments to his clients that were intended to appear as interest or annuity payments,” in a classic Ponzi-type scheme.

Anne Marie Comcowich Loss Recovery

Anne Marie Comcowich, a Scranton, Pennsylvania area securities broker, has agreed to a sanction to resolve a FINRA investigation.  The underlying investigation concerned the unauthorized withdraw of funds, theft, from investor accounts.  Ms. Comcowich was previously with Prudential.

In 2017, while being investigated in connection with unauthorized withdrawals, Comcowich, through her lawyer, informed FINRA staff that she would not produce information and documents requested pursuant to FINRA Rule 8210. Comcowich thereby violated FINRA Rules 8210 and 2010.

By failing to participate in the regulatory action, Comcowhich received a bar from FINRA which Bull pictureprohibits her from working with any other securities brokerage.

Details of the FINRA action can be found in its AWC.  In the AWC, Comcowich neither admits nor denies the allegations.

Comcowich was suspected of processing 13 unauthorized withdrawals from customer accounts. In an email and follow up telephone call with FINRA staff on April 3, 2017, and by this agreement, Comcowich acknowledges that she received FINRA’s requests and will not produce the information and documents requested.  The actions of Comcowich are in violation FINRA Rule 2010 provides that “[a] member in the conduct of its business shall observe high standards of commercial honor and just and equitable principles of trade.” A violation of FINRA Rule 8210 is also a violation of FINRA Rule 2010.

Jeffrey Pederson is an attorney who has represented investors similarly victimized.  A limited number of attorneys have such experience in front of FINRA, where such cases would need to be brought.  Please call for a free and confidential consultation.

 

Invement losses with John Blakezuniga

John Blakezuniga, formerly of Vanguard Capital, recently entered into a settlement agreement with FINRA regulators, where he agreed to a fine but did not admit or deny fault, concerning alleged fraudulent activity in the portfolios of his investors.  Blakezuniga sometimes goes by the name of John Blake, sometimes by the name John Zuniga, and sometimes by John Blake-Zuniga.

Jeffrey Pederson, PC helps investors recover such losses.  For a free and confidential consultation with a lawyer, please call 1-866-817-0201.

As identified in the FINRA regulatory settlement, referred to as an AWC, between 2007 and 2013, Blakezuniga borrowed $775,000 (which he has not fully repaid) from two firm customers Invest photo 2in violation of the firm’s policy. As a result, Blakezuniga violated NASD Rules 2370 and 21 10 and FINRA Rules 3240 and 2010.

Blakezuniga separately violated FINRA Rule 2010 by falsely answering “no” to a question on the firm’s 2013 annual compliance questionnaire that asked if he had ever borrowed money from a customer.

In addition, from 2010 to 2014, Blakezuniga recommended approximately 1,280 transactions in inverse and inverse leveragedExchange Traded Funds (“nontraditional ETFs”) in 85 customer accounts without a reasonable basis for the recommendations. By doing so, Blakezuniga violated NASD Rule 2310 and FINRA Rules 2111 and 2010.

Borrowing funds from an investor/customer is fraudulent because of the discrepancy in the bargaining power between broker and investor.  The prohibition is codified in NASD and FINRA rules.  NASD Rule 2370 and FINRA Rule 3240′ generally prohibit registered representatives from borrowing money from any customer subject to limited exceptions and in accordance with firm procedures.

Likewise, lacking a reasonable basis for the recommendation of an investment is violative. NASD Rule 2310 and FINRA Rule 21113 require registered representatives to have reasonable grounds for believing that a recommendation is suitable for a customer based upon the customer’s disclosed security holdings and financial situation and needs. A violation ofthese rules also constitutes a violation of FINRA Rule 2010.