Tag Archives: Securities

David Lerner Associates REIT Investigation

David Lerner Associates agreed to pay a $650,000 fine for the sale of unsuitable REITs to its investors and other violations.  Very little of the fine will compensate investors for their losses.  Instead, investors suffering losses contact a private attorney.  For a free, confidential consultation, investors can call Jeffrey Pederson at 1-866-817-0201.

LandmarkThe non-traded REITs at issue in the regulatory action were REITs now known as Apple Hospitality REIT investments.  The offerings included are Apple 7, Apple 8 and Apple 9.

Suitability violations are for the recommending of investments that are too risky, complicated or volatile for an investor considering the investors objectives, risk tolerance and investment sophistication.  Non-traded REITs such as Apple are generally only suitable for only a limited slice of the investing public.  Investors, including those looking for either stability, income, low risk, preservation of capital or liquidity from this investment, were likely inappropriately sold this investment.

The agreement to settle the charges was in the form of a consent order entered into with New Jersey regulators.  Of the fine, $100,000 went to pay for costs and $50,000 was to pay for investor education programs.

More information on the fine and the regulatory action can be found at the following link.

Attention investors of William McWilliams

Jeffrey Pederson PC is investigating and interested in speaking to investors of William H. McWilliams, formerly of Raymond James and currently of Stifel Nicolaus.  This is in wake of a regulatory AWC entered into by William McWilliams with FINRA that alleges unauthorized trading by McWilliams.  FINRA is the regulatory agency that oversees investment brokers.

FINRA alleged that from August 2014 through December 2014, McWilliams exercised discretionary trading authority without obtaining prior written authorization from the customers and the Firm at least 28 times in eight customer accounts. As a result of such conduct, McWilliams violated regulatory rules NASD Rule 2510(b) and FINRA Rule 2010.  These are rules that all securities brokers must follow.

NASD Rule 2510(b) mandates, “No member or registered representative shall exercise any discretionary power in a customer’s account unless such customer has given prior written authorization to a stated individual or individuals and the account has been accepted by the member, as evidenced in writing by the member or the partner, officer or manager, duly designated by the member, in accordance with Rule 3010.”

NASD Rule 2510(d)(I) states, that the written authorization requirement does not apply to “discretion as to the price at which or the time when an order given by a customer for the purchase or sale ofa definite amount ofa specified security shall be executed, except that the authority to exercise time and price discretion will be considered to be in effect only until the end ofthe business day on which the customer granted such discretion, absent a specific, written contrary indication signed and dated by the customer.”

FINRA Rule 2010 requires associated persons to observe high standards of commercial honor andjust and equitab!e principles oftrade.

During the Relevant Period, while employed at Raymond James, McWilliams exercised discretionary trading authority in response to customer liquidation requests at least six times in four Firm customer accounts without obtaining prior written authorization from the customers and without having the accounts accepted as discretionary accounts by Raymond James.

McWilliams also inappropriately exercised discretion at least 22 times in four other customer accounts. ln these instances, McWilliams failed to discuss the subject trades with the customers on the day ofthe transaction and the Firm prohibited the use ofdiscretion in these circumstances. By virtue ofexercising discretion in the accounts of eight customers without written authorization, McWilliams violated NASD Rule 2510(b) and FlNRA Rule 2010.

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.

Kris Etter of IMS Securities

If you have suffered investment losses with Kris Etter of IMS Securities, particularly if you suffered losses in UDF, please call 1-866-817-0201 for a free consultation with an attorney.  We have suit filed against IMS and are currently investigating whether other claims may exist.

It is believed that Etter had an undisclosed conflict of interest in his recommendations of UDF.  Upon information and belief, Mr. Kris Etter sold a substantial amount of UDF to his clients and is the son of Todd Etter.  Todd Etter is the Chairman of UDF IV, one of the top officers of the company.  Mr. Todd Etter also serves as Chairman of the general partner of UDF I and UDF II and Executive Vice President of the general partner of UDF III.  This creates a substantial conflict of interest in UDF recommendations by Kris Etter.

Kris Etter and IMS also failed to properly investigate UDF before recommending it, likely because of the Etter conflict and the heightened commission paid by UDF.  IMS is one of the top four leading sellers of UDF IV in the United States.

The bottom fell out for UDF when it was revealed in December 2015 to be a Ponzi scheme. The offices were raided by the FBI, received a Wells notice, unable to release quarterly reports and was ultimately delisted for a time. Reasonable investigation into the investment of other financial firms revealed that the illegitimacy of the investment. Had IMS done sufficient due diligence it would have likewise discovered that the investment was not suitable for any investor. Instead, IMS and Etter turned a blind eye to the problems of UDF and instead focused on the profits that it was receiving from this high commission product.

The individual ultimately in charge of all IMS offices is the CEO of IMS, Jackie Wadsworth.  Ms. Wadsworth has seven customer complaints naming her for insufficient supervision of representatives under her oversight. These complaints largely concern the inappropriate recommendation by her representatives of unsuitable variable annuity and REIT investments, just like the investments sold clients of Kris Etter and IMS.

As reported in Investmentnews.com in August 2016, the balance sheet of IMS is tilted heavily toward high-commission products like variable annuities and non-traded REITs. Approximately 86% of its revenue of IMS in 2015 came from commissions from such products.

Charles Lee Deremo

Cadaret, Grant & Co., Inc. of Syracuse, New York and Stockbroker Charles Lee Deremo of Apple Valley, Minnesota submitted a Letter of Acceptance, Waiver and Consent.

If you invested with either Cadaret or Deremo, please call 1-866-817-0201 for a free consultation with an attorney.

Cadaret was censured and fined $10,000 and Deremo was fined of $5,000,
suspended from association with any FINRA member, which is any stockbrokerage or financial advisory firm, in any capacity for 10 business days.

The firm and Deremo consented to the sanctions and to the entry of findings that the firm failed to enforce its own procedures and conduct an adequate suitability review of Deremo’s recommended investment strategy for a customer.  This is in violation of FINRA rules that require a brokerage firm to review recommendations of brokers to verify that the recommendations are suitable.

The findings, which were neither admitted nor denied, stated that the firm failed to identify that Deremo’s basis for the recommendation of a strategy for the customer may not have been suitable given the customer’s age, his investment objectives, his risk tolerance and the concentration of his investment. Moreover, the customer relied on monthly withdrawals from his variable annuity for living expenses.

The regulatory document giving more details of the underlying facts can be found with the following link.

If you believe you were also sold unsuitable securities, please call the number above for a free consultation on your legal rights and whether you have grounds for recovery.  Regulatory actions such as this can often expose the basis for additional private actions.

Losses with First Financial Equity (FFEC)

If you have suffered investment losses with First Financial Equity Corp. (“FFEC”) please call for a free consultation with an attorney at 1-866-817-0201.  Recent actions of FINRA, the financial industry regulator, indicate that investors may have been harmed by the actions of this firm.

FFEC and its chief compliance officer entered into a settlement with FINRA regulators  on March 8, 2017 concerning the lapses in supervision.  The alleged lapses allowed a variety of different fraudulent activity to occur throughout FFEC and in particular the Scottsdale, Arizona branch.  FINRA asserted that the chief supervisor of FFEC, the chief compliance officer, had not adequately supervised and that the firm did not have adequate supervisory procedures.

The most obvious result of the lack of supervision is the 26 customer complaints of broker John Schooler.  These complaints, many of which evolved into arbitration lawsuits, involved his inappropriate trades in oil & gas investments and TIC investments.

One issue alleged to be a result of the inadequate supervision is the sale of unsuitable ETFs.  Unsuitable securities are those which are not consistent with the wants and needs of an investor.  Usually, an investment is unsuitable if it puts at risk funds not earmarked for risk, or otherwise is inconsistent with who the client is as an investor.

In the case of FFEC, its brokers recommended and invested its customers in aggressive ETFs, including leveraged and inverse ETFs.  Such investments are known to be high risk, yet the brokers recommended the investments to individuals who did not express a desire for high risk investments.  Worse, many of these investments were purchased by the FFEC brokers for accounts where the brokers were given discretion and not given the required supervisory review.

To ensure suitability, FFEC brokers were required to obtain sufficient information about their investors to evaluate the investments that would be suitable.  The settlement states that this was not done.

Another issue alleged to have been caused by the lack of supervision is churning/excessive trading.  This occurs any time trades are made which the costs and fees are of an amount that the trades benefit the adviser more than the investor.

Oil / Gas Investment and Tax Loss

Oil StockSome Energy, Oil and Gas investments can only legally be sold to a limited section of the investing public.  If you suffered losses we may be able to  help.  Contact us at 303-300-5022 or 1-866-817-0201 (toll-free) for a free consultation.

Oil and gas investors do not have to sit and watch their life savings diminish.  These investors have rights though many are unaware of the recourse they have for such losses.

Many investors have received high pressure sales of oil and gas investments.  Brokers and other investment professionals like to sell these types of investments because they usually pay a very high commission.  These commissions can be 10 to 20 times higher than the commission on your average stock sale.  The high commissions will often cause these individuals to ignore the rules in the sale of such investments. The two rules that are usually ignored are those concerning accreditation and suitability.

blog_gulf_mexico_oil_rigOil and gas limited partnerships can generally only be sold to “accredited” investors.  Such investors are individuals whose liquid net worth, their net worth excluding their home, is in excess of $1 million. The second rule that is commonly violated in the sale of such investments is the suitability rule.  Oil and gas investments are known by investment professionals to generally be very high risk investments.  Investments need to be consistent with the level of risk that an investor is willing or able to take.  For example, a person approaching or in retirement or who cannot otherwise afford to take high levels of risk with their investments could not legally be offered an oil and gas investment.

Likewise, an individual who expresses a desire for conservative or moderate investments would not be a suitable investor. There are many other rules that can potentially be violated in the sale of oil and gas investments.

Problems exist not just with the investment losses, but also with the tax consequence of investing in these companies.  This tax consequence is referred to as CODI.  A detailed description is found in the following Link to Forbes.   In short, these investments are partnerships.  When debt is defaulted upon by a partnership, and the lender “writes off” the debt, the write off means that the owners (the investors) are taxed as if they received the amount written off as income.  Considering some limited partnerships defaulted on billions in loans, the tax obligation of investors is substantial.

If you have any questions, please feel free to give us a call.  These rules apply no matter if you invest in individual oil or gas investments or invest through a mutual fund or master limited partnership (MLP).

Common oil and gas investments we see recoverable losses include Linn Energy (“LINE” or “LNCO”) and more information can be found at www.jpedersonlaw.com/blog/linn-energy-losses/, Williams Companies (“WMB”), Penn West Petroleum (“PWE”), BP Prudhoe Bay Royalty Trust (“BPT”), Breitburn Energy Partners, LP (“BBEP”), Hawthorne, SandRidge Energy, Williams Ridgewood Energy, Apco, Atlas Energy, Midstates Petroleum, Peabody Energy, Resolute Energy, XXI Energy, Nobel, Permian Basin, and Breitling Energy.  Some of these losses may be recoverable by class action while others may require individual FINRA arbitration suits.

More information on SandRidge can be found at this link.

Oil Stock IIJeffrey Pederson is an attorney who works with investors to recover losses in FINRA arbitration and has represented investors in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut , Florida, Hawaii, Illinois, Indiana, Massachusetts, Montana, New Jersey, New Mexico, New York, North Carolina, Maryland, Minnesota, Missouri, Montana, North Dakota, Rhode Island, Texas, Utah, and Wyoming, in FINRA arbitration actions against securities brokerage firms for unsuitable investments.  Please call for a confidential and free consultation.

Vincent Bee Payne

On February 2, 2017, Vincent Bee Payne entered into an AWC with FINRA, the Financial Industry Regulatory Authority.  FINRA is the regulator that oversees financial advisers.

The FINRA allegations, which Payne neither admits or denies, are that he falsified signatures without permission on certain insurance documents and subscription agreements.  The actions took place in July and August 2014.

The actions were motivated, as alleged in the AWC, by an attempt to secure commissions and to prevent his employer from reassigning the accounts.  The signatures were for three different customers and were done without the consent of his customers.

Payne entered the securities industry in May 2012 as an Investment Company Products/ Variable Contracts Representative at Farmers Financial Solutions, LLC (“Farmers Financial”), where he remained registered until his termination in March 2015.

From January 2011 through March 2015, Payne also was appointed as an insurance agent with Farmers Insurance Group of Companies (“Farmers Insurance”), a Farmers Financial affiliate. Payne obtained his Series 6 (Investment Company and Variable Contracts Products Representative) and Series 63 (Uniform Securities Agent State Law) licenses on June 25,2012 and July 9,2012, respectively.

FINRA Rule 2010 requires that an advisor, such as Payne, in the conduct of his business, “shall observe high standards of commercial honor and just and equitable principles of trade.” Signing a customer’s name to a document without proper authority constitutes forgery, and forgery is inconsistent with this Rule

The FINRA AWC can be found at the following link.

William P. Carlson of Elhert

On February 21, 2017, he Securities and Exchange Commission charged William P. Carlson, Jr., a Deerfield, IL investment advisor with misappropriating more than $900,000 from a client’s account through more than 40 unauthorized transactions.  Deerfield is in the Chicago-area.

The SEC alleges that Carlson, an investment advisor representative associated with the Ehlert Group in Lincolnshire, forged a client’s signature on checks and journal requests and caused checks to be issued from the client’s account to a third party who gave the proceeds to Carlson.

Carlson had discretionary authority to place trades in the victim’s accounts. Such trades, involving the purchase and sale of mutual fund shares, were supposed to be made pursuant to a model asset allocation portfolio selected by the client based on advice from Carlson. When requested by the client, Carlson could direct disbursement of funds held in the accounts to the client. In order to disburse funds held in the accounts for the benefit of a third party, the Broker-Dealer holding the funds required a written request signed by the client.

On at least sixteen different occasions from November 2012 to April 2014, Carlson directed that a check made payable to the client be issued from the client’s account, purportedly based on instructions Carlson had received from the client. The check amounts ranged from $6,500 to as much as $97,000, and collectively totaled $437,000.

In approximately June 2014, Carlson changed his method of making unauthorized withdrawals from the client’s account. Carlson began forging the vicitm’s signature on “Check and Journal Request” forms that directed the Broker-Dealer to make disbursements of funds held in the client’s account to a third party who was a friend of Carlson’s.

In March 2015, Carlson forged the vicitm’s signature on a letter of authorization and a notarized signature sample letter permitting the firm holding the funds to issue checks from the victim’s account to Carlson’s same friend, without the need for further check and journal requests that required additional client signatures.

Between approximately June 2014 and December 2016, through the use of these forged authorizations, Carlson caused at least 25 checks—ranging in amount from $10,000 to $35,000 and collectively totaling $474,000—to be issued from the client’s account to Carlson’s friend, who in turn gave the proceeds to Carlson.

The Complaint of the SEC can be found at the following link.

Kelly Clayton Althar

Kelly Clayton Althar has been barred from the securities industry for excessive trades and recommending and purchasing investments that were too high of a risk for the broker’s investors.

The allegations to which Althar consented, without admitting or denying fault, are that between April 2011 and March 2014 the broker made unsuitable recommendations and engaged in excessive trading in two accounts held by an elderly customer.  Althar engaged in high volume trading to generate commissions and over concentrated a client’s accounts in risky securities, despite the fact that the client was close to retirement and wanted only low risk investments. Althar’s trading decimated the client’s accounts, which constituted the bulk of her net worth and retirement savings.

During the Relevant Period, Althar often purchased, sold, and subsequently repurchased the same security in CN’s accounts within a short period oftime. For example, on December 26, 2012, Althar purchased 696 shares of American Capital Agency Corp. (“AGNC”), a REIT, for $21,559.09 and sold those shares, at a loss, two months later on February 28,2013, for $21,298.50. He then re-purchased 782 shares of AGNC two months later after the price had risen, for $26,756.36. and then sold those shares, at a significant loss, six weeks later for $18,619.03. On those four trades, on which CN lost over $8,000 in a matter ofmonths, Althar generated over $3,000 in commissions.

A link to the AWC can be found at the following link.

Althar had previous pled no contest to a charge for felony grand theft and was sentenced to a 30-day work program and 36 months probation.