Author Archives: Jeff Pederson

David Wells of Fifth Third

David Wells of Fifth Third in the Chicago area has surrendered his license after failing to comply with a regulatory investigation into his actions.  If you believe you have suffered losses due to the misdeeds of Wells please call 303-300-5022.  Initial consultation is free and confidential.  We believe his former employers may be responsible.

investingstockphoto 1In June of 2021, Wells resigned from First Third.  This was after admitting that he misappropriated funds from the accounts of three clients.  A brokerage is required to file a Form U5 upon a broker’s employment termination.  This form, filed with the regulators, identifies the circumstances surrounding the termination.  Upon the receipt of the Wells U5, the regulator FINRA began an investigation.  FINRA, the Financial Industry Regulatory Authority, acts under the oversight of the SEC.   This regulator is charged with the regulation of securities brokerages.  Brokers are required to cooperate with FINRA investigations.

Wells chose to not cooperate with the investigation and was barred from the securities industry as a result.  A regulatory settlement agreement identifies that Wells consented to this action.

Prior to his employ with Fifth Third Securities, Wells was a broker of Merrill Lynch.  Wells is relatively young with only four years of experience at the time of the action.  Brokerage firms generally are responsible for training and supervising such young attorneys to guard against negligence and misdeeds.

Ameritrade Option Failure

If you have suffered losses from Ameritrade’s failure to appropriately assign options within its system, please contact our offices at 303-300-5022.

Invest photo 2During the period between February 10 through February 19, 2021, we believe the system of Ameritrade malfunctioned and treated certain long trades and short trades and vice versa.  Investors suffered margin maintenance calls and lost value in their portfolios by the incorrect liquidation of their Ameritrade accounts at low points.

Securities broker-dealers have fiduciary duties to correctly execute trades.  Brokerages also have obligations under Regulation T, and their duty to act in good faith that prevents them from mismarking long trades as short trades.

As such, investors have many avenues to seek recovery when the circumstances occur.  Please call for a free and confidential initial consultation.

NEXT Financial Excessive Trading

On July 13, 2021, NEXT Financial entered into a regulatory settlement for excessive trading in which NEXT was censured, fined $750,000 and required to certify that it has implemented supervisory systems and procedures reasonably designed to address the issue.

The trading issues stem from unsuitable short-term trading of mutual funds and municipal bonds in customer accounts and over-concentration of customer accounts in Puerto Rican municipal bonds. Without admitting or denying the findings, the NEXT consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system, including written supervisory procedures, reasonably designed to detect and prevent unsuitable short-term trading of mutual funds and municipal bonds in customer accounts and over-concentration of customer accounts in Puerto Rican bonds.

Rules concerning suitability and excessive trading are designed to protect investors from excessive risk which an investor is not prepared or willing to take.  The motivation for such unsuitable investments is generally a heightened commission to the broker.  In the case of turnover of mutual funds, the costs and commissions incurred from sale and repurchase are much higher than the investor can reasonably re-earn if even the account is turned-over only a few times.

SPAC LOSS RECOVERY

If you have suffered loss in an SPAC investment, which would include Nikola, DraftKings, Pershing Square Tontine, Lordstown Motors and others, please call 303-300-5022.  Initial consultations are free and confidential.  Our firm specializes in the recovery of investor losses by the pursuit of securities and advisory firms selling investments that are not suitable or sufficiently vetted.

An SPAC is a publicly listed company whose only purpose is to merge with other, non-public companies to allow those companies to “go public” or sell stock shares on a national exchange.  This short-cut to going public allows a company to sell on national exchanges cheaper and more quickly but investors pay for such time and cost savings.  The regulatory steps that are skipped by bringing a company public with an SPAC include steps that protect the investing public.

SPACs have been a popular investment but interest has been slowing as the shortcomings of SPACs have been exposed to the investing public.  The lack of regulation has led to large accounting scandals and other harmful facts not coming to light until after the SPAC companies have become public,

DraftKings recently tumbled after short sellers alleged that the company had black market ties.  Once again, this is something that would have been identified had the company been brought public in the traditional manner.

Securities professionals have a duty to ascertain a certain level of facts concerning a company before the company can be recommended to any of their investors.  These professionals also cannot recommend an investment that is higher risk than their investor can tolerate.  When fundamentals such as these cannot be vetted, not only is the investment too high of a risk for most investors, but it cannot be sold to any investor.

 

John Henry Swon IV

If you were an investor with John Henry Swon IV and suspect irregularities in your portfolio please call 303-300-5022.   Consultations are free and confidential.

Swon was previously a broker with Royal Alliance and Focus Financial.  In July 2021 the Financial Industry Regulatory Authority (FINRA) the regulator, under the oversight of the SEC, banned Swon from the securities industry.  Swon consented to the underlying allegation that he misappropriated funds from the account of an investor.

The settlement was entered into after Swon refused to produce documents in defense of his actions.  The ban prevents Swon from ever working in the securities industry in the future.

In June 2021, the employers of Swon, Royal Alliance and Focus, each terminated Swon for inappropriate outside business activity.  Brokers are required to disclose all outside business activity to their brokerage firms.  This allows the brokerage firms to supervise those outside business activities.  The violation of this requirement is often referred to as “selling away.”

The “selling away” rule is very important.  The trappings of being affiliated with a brokerage firm gives legitimacy to the investments that the broker sells.  Often brokers will use this to their advantage and sell investments that are not approved by their brokerage.  The brokers will sell fake investments or unstable investments where they are paid high commissions but no brokerage firm has investigated the financials.  Many Ponzi-type scams start with a licensed securities broker “selling away” the investment to those believing the investment had been approved by a brokerage.

 

Independent Financial Group (IFG) Losses

If you are a senior investor of Independent Financial Group (IFG) and invested in or suffering losses in “alternative investments” call for a free and confidential consultation.

Regulators issued an AWC, a regulatory violation settlement, in which IFG was censured, fined $200,000 and required to implement supervisory systems reasonably designed to address all areas of conduct identified in the AWC and achieve compliance with suitability requirements for alternative investments.  The alternative investments IFG sold were non-traded REITS,  REITS that were not publicly traded, and structured notes.

Brokerages have duties to know their investors and only recommend investments that are “suitable,” investments consistent with the wants and needs of the investor.  This would include an investors tolerance for risk and needs for liquidity.  Failure of a brokerage to recommend only suitable investments is fraudulent for a number of reasons.  The most common is that investments with higher risk and lower liquidity commonly pay a much higher commission than suitable investments.

Without admitting or denying the findings, IFG consented to the sanctions and to the entry of findings that it failed to reasonably supervise its financial advisor’s recommendations of alternative investments to customers, including senior customers, and IFG’s failure to reasonably investigate things that should have put it on notice of the problem.

While the failure to have adequate supervisory systems is an indication that the failures could be systemic, the settlement focused on a single financial advisor.  The financial advisor in question recommended that many of the firm’s investors concentrate their retirement assets in non-traded REITs and structured notes. Many of the investors had little or no investment experience.

The IFG supervisors observed and reported certain irregularities and concerns relating to the financial advisor’s recommendations.  Despite these and many other issues, heightened supervision plan was never reasonably executed. One of the representative’s supervisors documented issues of the advisor’s misconduct in his notes, which the supervisor shared with others at the firm .

The supervisor’s notes highlighted concerns such as investor signatures that did not match, questionable changes to investor risk tolerances and potentially unsubstantiated increases in investor net worth. Notwithstanding the identification of these issues, the firm permitted the representative to continue to sell non-traded REITs and structured products to his customers.

 

Hospitality Investors Trust (HIT)

Hospitality Investors Trust (HIT) filed for bankruptcy in May 2021. This real estate investment trust was previously known American Realty Capital (ARC).

American Realty

HIT, formerly American Realty Capital, has been troubled for years.

HIT has been known to be a troubled investment for years. Securities brokers who have recommended HIT may have legal exposure. HIT paid excessively high commissions and, in turn, brokers turned a blind eye to the problems of HIT.

Securities brokers have a duty to only recommend suitable investments. This is mandated by FINRA Rule 2111. Part of this suitability requirement is to reasonably investigate all recommended investments. HIT should have only been sold to the most aggressive investors, assuming that it was suitable for any investors at all. Our experience is that HIT was inappropriately sold to many conservative to moderate investors and to investors relying on stable income from their investments to fund retirement.

The REIT, formerly headed by the famous, and somewhat infamous, Nicholas Schorsch, is no stranger to trouble.  This former ARC REIT was previously part of an accounting scandal.  In 2015, it was sued by many institutional investors under allegations that it misrepresented its business and artificially inflated prices.

If you believe you were inappropriately sold HIT please call 303-300-5022 for a free and confidential consultation. Jeffrey Pederson has been representing investors nationwide for over 19 years.

Broker Steven Schisler Allegations

Steven Douglas Schisler, formerly a securities broker with IFS and Sterne Agee, is the subject of investment fraud allegations.  If you are a client of Steven Schisler please call 303-300-5022 for a free and confidential consultation with a private attorney.

FINRA, the regulator overseeing securities brokerages, alleges that from April 2009 to October 2020, Steven D. Schisler committed nine separate violations of FINRA and NASD rules as a result of his dealings with two sets of retired customers and his member firm.

Specifically, he is alleged to have committed the following:

(1) made an unsuitable recommendation to two elderly, married customers;

(2) participated, without the approval of his firm, in a private securities transaction with those customers;

(3) willfully failed to timely amend his Uniform Application for Securities Industry Registration or Transfer (Form U4) to disclose a civil complaint and arbitration filed by one of the elderly customers, as well as other reportable events;

(4) entered into a settlement agreement with the customer that contained a prohibited condition — namely, that she would support his request for expungement;

(5) lied under oath at the expungement hearing;

(6) lied during on-the-record testimony to FINRA’s Department of Enforcement;

(7) engaged in a long pattern of unethical business conduct towards another retired customer from whom Schisler solicited a personal loan that he failed to repay for over six and a half years after maturity;

(8) made a false statement on a firm compliance questionnaire; and (9) caused his fn-m to fail to preserve books and records by using outside, unmonitored email accounts to conduct securities business.

Zach Avery Fraud Recovery

You may be entitled to recovery if you were a fraud victim of Zach Avery, aka Zachary J. Horwitz.  Call 303-300-5022 for a free and confidential consultation.

Avery is a small-time actor and was arrested Tuesday April 6 in Los Angeles for running a massive Ponzi scheme.  This is a fraud that defrauded investors out of $227 million.  He did this by touting fictitious film licensing deals with HBO, Netflix and other platforms.

Investors may have recourse to recover Ponzi losses.

The actor sent investors bottles of Johnny Walker Blue Label whisky with the his company’s falsified financials highlighted a “library” of 52 films his company, 1inMM Capital, distributed in Africa, Australia, New Zealand and South America.

Avery ran the Ponzi through City National Bank.   We are currently investigating liability of this bank for its involvement in the laundering of the funds received by Horwitz.  Investors who themselves had accounts or other business relationships with City National Bank would have relatively stronger claims for recovery.

According to the Securities and Exchange Commission, SEC, Horwitz used money from his personal City National Bank account for lavish personal spending, including, but not limited to, extravagant trips to Las Vegas, flights on chartered jets, payments for high-end automobiles, a subscription service for luxury watches, and the previously described purchase of his multi-million-dollar home.

 

John Krohn of Principal

John Krohn of Principal Securities located in West Des Moines, Iowa is accused of illegally “selling away” investments.  If you have suffered losses with Mr. Krohn call 303-300-5022 for a free and confidential initial consultation.

Selling away is the process of selling investments to investors outside of a broker’s employment and beyond the supervision of the brokerage firm.  While this may sound harmless, there is little reason for a broker to recommend such a sale absent an intent to deceive or defraud the investor.

The review of an investment by a brokerage includes a due diligence investigation to ensure that the investment is legitimate or that its financials are not falsified.  Ponzi schemes often start by a broker selling “away.”  The review of the broker’s brokerage also ensures that the investment is suitable for the investor and that the broker is not charging an excessive commission.

Regulators take selling away accusations seriously because of this.  Regulations not only strictly forbid the practice, but they also require firms to conduct audits and investigate brokers routinely to prevent the practice from occurring.

investingstockphoto 1

Krohn is accused of “selling away” millions in investments.

Krohn was known as a top seller at Principal.  He also ran a purported investment capital firm called Spotlight Innovations and other investing companies on the side.  He generated a high volume of small investments through his firms into may small, unknown companies.  The victims are largely Iowa residents.

We are aware that Principal knew that Krohn had been selling away and failed to supervise appropriately.  Krohn was previously fined and suspended by regulators for engaging in selling away in 2018.

As of March 2021, there are currently three investor suits pending against Principal concerning Krohn.  These claims seek damages in excess of $39 million.  An SEC suit is also currently pending.