Tag Archives: FINRA Arbitration

Gerald Dewes Loss Recovery

If you were an investor of Gerald Dewes, call 1-866-817-0201 to discuss your legal rights as to loss recovery.  All initial consultations are with an attorney and are free and confidential.

Gerald Dewes’ employer, Cadaret,Grant & Co., terminated his employment in November 2019.  Termination was for selling investors shares of his own company, Elite Roasters.  In March 2020, FINRA, the Financial Industry Regulatory Authority, expelled Dewes from the securities industry.  Dewes had failed to cooperate with FINRA’s investigation of him and he failed to refute the charges against him.

The issue with selling Elite Roasters is that the investment was not approved by those supervising Dewes, his employing brokerage firm.  Approval is needed so that the requisite due diligence investigation can be given the investment to assure that representations are correct concerning the investments’ assets, financing and other important factors.  Brokers commonly sell unapproved investments so that the investment appears to have the backing of the brokerage firm but either is not a legitimate investment or would not withstand the scrutiny of a due diligence investigation by the brokerage.  Such action is termed “selling away” and is a form of fraud.

Many Ponzi schemes start as simple selling away violations.  A broker either wishes to promote  the broker’s own business or is paid a heightened commission to sell investments in a friend’s business.  These businesses do not have the due diligence review to assure that representations are accurate or that the venture is even solvent.  When the business cannot meet expectations payments are made if the funds of new investors.

As a result, FINRA instituted a number of rules, including Rule 3270.  This rule requires a broker to notify his employer of all outside business activity.  The employer, in turn, is required to audit the broker and verify that all outside business activity is disclosed.  The employer has a duty to supervise all investment sales even if the sales are of unapproved investments and outside the broker’s employment.

The employers of Dewes had other reasons to give heightened supervision.  Dewes has had a variety of investor suits of which he has been the subject, and he has also been the subject of multiple tax liens.  These past incidents of improper financial dealings should have served as a red flag.

We have handled a large number of selling away cases nationwide.  Please call for an evaluation.

 

SSL Loss Recovery

If you suffered losses in SSL, Sasol Spon ADR, and were not a speculative investor you may be entitled to loss recovery.  Please call the Law Offices of Jeffrey Pederson at 1-866-817-0201 for a free and confidential consultation.

From its high in April 2019 of over $34 per share, SSL has lost over 90% of its value as of March 11, 2020.  This is an investment that was not only highly speculative, but was known to be highly speculative.  As a speculative investment, advisors and brokers cannot recommend or purchase such an investment for conservative, moderate or growth investors since such a purchase would be unsuitable.

Investment professionals have a duty to purchase only suitable investments.  This obligations for brokers stems from FINRA, the Financial Industry Regulatory Authority, rules.  For advisors, the act of purchasing unsuitable investments runs contrary to the fiduciary obligations of care and prudent investing.

SSL is an emerging markets investment.  This, in and of itself, is a high-risk field.  SSL has even higher risk than other emerging market investments.  The investment holds some of the riskiest investments in the MSCI Emerging Markets Index.

While many firms may be looking to recover by means of a class action route, recovery from class actions may be small.  We believe greater liability leading to greater recovery exists with those brokerage and advisory firms that allowed this speculative investment be sold to retail investors.

 

Virgin Galactic (SPCE) Losses

Virgin Galactic (SPCE) has been recommended and sold to moderate and conservative investors in violation of FINRA and SEC regulations.  These regulations require that brokers and advisors only make investment recommendations consistent with the objectives and risk tolerance of an investor.  SPCE has always been an extremely risky investment.

SPCE saw its value pushed by analysts such as Morgan Stanley, who had given it an oversize price target.  The stock proceeded to gain 200%.  The stock crashed to Earth when Morgan Stanley reversed its analysis.

Recovering investment losses through FINRA is a specialty skill few attorneys possess.

Recovering investment losses through FINRA is a specialty skill few attorneys possess.

Unfortunately, smaller investors who should have never been invested in SPCE are the ones paying the price.  Many investors will blame themselves for not timing the market better; however, investment suitability is not about time timing but whether the investor should have been in the investment at all.  Even if an investment had or did increase in value, risky investments are not suitable for moderate investors because such investments have the substantial potential for such volatility.

Recommending such an investment to a moderate or conservative investor creates liability on the part of the broker or advisor.  Such violation of industry regulations can be both negligence and fraud.

If you have lost principal in the SPCE or other speculative investments despite being a moderate to conservative investor please give us a call at 866-817-0201.  You need to retain an attorney that understands the FINRA arbitration process which is different than the litigation process.  Jeffrey Pederson is an attorney that has helped investors recover millions through FINRA.

 

Attention Dennis Mehringer Investors

If you were an investor with Dennis Mehringer call 1-866-817-0201 for a free and confidential consultation with a private attorney.

On October 18, 2019, the Financial Industry Regulatory Authority (FINRA) barred Mr. Mehringer from the securities industry when he failed to defend charges that he handled his investor accounts inappropriately.

Mehringer was previously named a defendant in a FINRA regulatory complaint, a legal action brought by the national regulatory body overseeing securities brokers, alleging that he made unsuitable recommendations that caused a customer to engage in excessively expensive short-term trading and intra-day switching of mutual fund Class A shares.   

“Unsuitable” recommendations are recommendations of securities transactions or purchase of strategies that are inconsistent with the risk tolerance or investment objectives of an investor.  They can also be when a broker makes trades with the objectives of increasing the broker’s commission.  That is what happens with short-trading of mutual funds.  The high commissions of mutual funds are repeatedly charged so that there is little to no chance for the investments to make a reasonable return.  This is sometimes referred to as churning.  

The FINRA complaint alleges that Mehringer repeatedly recommended, and caused the investor to engage in, short-term purchases and sales of 84 mutual fund Class A positions (involving the sale of shares within a year of purchasing them) in five of the customer’s accounts.

In 47 of the 84 purchase transactions, investors paid front-end sales loads ranging from four to five percent. All but 17 of these 84 mutual fund positions were held for less than six months, and approximately 35 of them were held for less than three months. Mehringer received $169,735 in commissions from the transactions. Mehringer recommended the short-term mutual fund trading and the intra-day mutual fund switching alleged above without reasonable grounds to believe that the recommendations were suitable for the investor.

Given the long-term nature of Class A mutual fund share investments, along with the costs and commissions incurred in connection with frequent trading and switching between the mutual funds and mutual fund families, Mehringer’s short-term trading was unsuitable for any customer. The complaint also alleges that Mehringer exercised discretion in the same customer’s accounts without obtaining the customer’s written authorization and his member firm’s approval to do so. 

The actions of Mehringer are currently the subject of eleven arbitration suits brought by his investors against either him or his former employers.

Attention James T. Booth Investors

If you were an investor of James T. Booth previously of LPL and Invest Financial, please call 1-866-817-0201.  Initial consultations are free and confidential.

The Department of Justice (DOJ) announced an Indictment charging Booth with securities fraud, wire fraud, and investment adviser fraud charges in connection with his years-long scheme to defraud customers of his financial services firm, Booth Financial Associates (“Booth Financial”) which is affiliated with LPL Financial and Invest Financial.  Throughout Booth’s scheme, he solicited money from clients of Booth Financial and falsely promised to invest their money in securities offered outside of their ordinary advisory and brokerage accounts.  Instead, he used nearly all of the money to pay personal and business expenses.  In total, Booth fraudulently obtained approximately $5 million from his investors.

Investors have recourse when investment professionals turn bad.

Investors have recourse when investment professionals turn bad.

“As alleged, James Booth convinced his clients that he would deliver solid and secure returns on their investments.  Instead, as alleged, Booth delivered only lies and deceit, and bilked some 40 clients of nearly $5 million.  Booth is now in federal custody and will have to answer for his alleged crimes,” stated the DOJ.

The DOJ further stated, “In an elaborate scheme of false promises and deception, it is alleged that Booth attained almost $5 million by luring investors to move their assets with the guarantee of safer investments and higher returns.  Instead, Booth allegedly pocketed the money. ”

Booth provided investors fabricated account balances and statements to prevent investors from seeking a return of their money, and to induce additional investments.  He further concealed the truth from investors by using money obtained from new investors to make redemption payments to previous investors, in a Ponzi-like fashion.

When Stockbroker Emails are Hacked

Stockbrokers and brokerage firms have responsibilities to safeguard client information and their funds.  So when information is hacked, information in the possession of the broker or elsewhere, or an identity stolen, there are responsibilities they have to compensate their injured investors.  If you have suffered damages as the result of a hacking please call 1-866-817-0201.

An example of this is the regulatory action against securities broker Lori Thompson.  On December 14, 2018, Thompson received an email from an imposter purporting to be a customer “ML”.   This email was in response to an earlier email chain between Thompson and ML, requesting that UBS, Thompson’s employer, send $68,740.55 from ML’s brokerage account to a third party (“Third Party A”).

That same day, Thompson completed a client contact attestation form that falsely attested that she spoken with ML to confirm the disbursement request, when, in fact, she had not spoken with ML. Thompson received two additional emails from an impostor purporting to be ML on December 28, 2018 and January 10, 2019, requesting that two checks be sent to Third Party A and two checks be sent to another third party (Third Party B”) for a total of $298,646.92.

On each occasion, Thompson issued the checks and completed client contact attestation forms, falsely attesting that she had spoken to ML to confirm the disbursement requests when she had not.

The third parties did not have authorization to make the withdrawals and these funds were lost.  Had appropriate procedures been followed these losses would have never occurred.

Brokers have safeguards that they must take.  There are verifications that must be made, in addition to the attestation described above, and systems that must be put in place to protect against cyber criminals.  Failure to do so is negligence.  If your identity was stolen or your information hacked and lost funds as a result, please call to speak to a licensed attorney.

 

Attention Investors of Daniel Maughan

If you were an investor of Danial Maughan call 1-866-817-0201 for a free and confidential consultation with an attorney concerning your rights and avenues of recovery.

Daniel G. Maughan, while associated with Financial West Group churned and excessively traded a customer’s trust account. From October 2010 through January 2015 , Maughan executed approximately 1,648 trades, with a principal value of all purchases and sales in excess of $70 million, in the accounts of his investors.

FINRA brought suit concerning these actions in August 2019.  The regulatory settlement reached in October 2019 was an agreed sanction to bar Maughan from association with any securities firm in any capacity.  This leaves the victims of Maughan to their independent rights of recovery and investors should contact an attorney about recovery options.

The account owners were unsophisticated.  Both had a high school degree with a small amount of junior college.  The husband had been unemployed as a plumber for approximately two years.  The wife had only part-time employment as a bookkeeper.  When they inherited the funds they advised Maughan to invest conservatively.

The annualized cost-to-equity ratio—the percentage the account had to appreciate to break even—was 21.06. Maughan’s churning and excessive trading was quantitatively unsuitable and generated commissions and costs totaling approximately $841,000 while causing the account to incur realized and unrealized losses of approximately $812,000.

During the Relevant Period, Maughan also recommended overly aggressive and unsuitable trades in the IFT Account involving: (a) options and (b) non-traditional Exchange-Traded Funds (“ETFs”) and an Exchange Traded Note (“ETN”).

By churning the IFT Account, Maughan willfully violated the Securities Exchange Act of 1934, and a multitude of FINRA Rules.

This is not the first time Maughan has been accused of fraud.  In 2015, his employer paid $550,000 to settle a suit alleging that he fraudulently sold his investors options and penny stocks.

In 2009, Wedbush Morgan was sued, via arbitration, for Maughan’s recommendation of overly aggressive ETFs and aggressive stocks to an investor.  This matter settled for the payment of $10,000.

Merrill Lynch, a previous employer, was sued in 2002 over allegations that Maughan churned the portfolio of an investor, along with making other investments in overly aggressive investments without authorization.  Merrill Lynch settled this matter for $46,000.

In 2001, an arbitration suit was filed against Merrill Lynch.  The suit alleged that Maughan made unauthorized purchases in the account of a mentally incompetent adult, and that the client could not comprehend any conversation concerning the investments in question.  This matter settled for $51,321.

Merrill Lynch terminated Maughan in 2001 for this sale.  Maughan has stated that he made “several errors” in the sale of the investment.

Michael Lee Origin Fund Fraud

If you invested with the Origin Fund through Michael Lee or others you may be a victim of fraud.  Please call 1-866-817-0201 for a free and confidential consultation with a lawyer concerning your rights.

Invest photo 2Michael Lee is a former Kestra Investment Services broker.  From December 2015 through December 2016 (the “Relevant Period”), Lee engaged in the sale of the “Origin Fund.”  Lee was an employee of Kestra during this time.  His office was located in Darien, CT.

The Origin Fund is a prospective ETF fund. Lee solicited potential investors and distributing written materials prepared by Lee’s business partner.  The written materials distributed by Lee falsely represented that the Origin Fund was an investment advisory with $20 million in assets under management, and that Kestra’s was sponsoring and providing certain administrative services to the Origin Fund.

FINRA, the Financial Industry Regulatory Authority, suspended Lee for one year and fined him $12,500 for his actions associated with the Origin Fun.  At the time of suspension, Lee was still in the industry as a representative of Altium Wealth Management.

The inappropriate investments were done under Kestra’s watch.  Kestra, like all brokerages, had a duty to conduct audits and take other reasonable steps to prevent the “selling away” of its brokers.

Selling away is a common form of fraud where a broker uses his status as a broker to persuade investors into purchasing investments that have not been approved by the brokerage.  These investments often pay the broker an excessive commission but the investment itself often lacks substance and is often a fraud.

Securities Fraud of Kerry Lee Hoffman

The SEC charged Kerry Lee Hoffman, former LPL advisor from Chicago, with securities fraud.  If you invested with Hoffman call 1-866-817-0201 to discuss your rights and potential for recovery.  The fraud concerned sales of GT Media in which he partnered with childhood friend and convicted thief Thomas Conwell.

Between July 2015 and July 2018, Conwell and Hoffman raised over $3.3 million from approximately 46 investors through the sale of unregistered GT Media, Inc. securities.

According to the SEC Complaint, Conwell, who was previously enjoined by the SEC and criminally convicted for stealing money from investors, made numerous false representations to investors, including that two Fortune 500 companies were seeking to acquire GT Media and that GT Media would soon conduct an initial public offering.

The prior conviction of Conwell was from January 2006, when Conwell pleaded guilty to charges of wire fraud, bank fraud and obstructing an SEC investigation and he was sentenced to 48 months in prison.  He was barred from the securities industry by the SEC in 2000.

 

The complaint filed by the SEC also alleges that Conwell, in the present matter concerning GT Media, misappropriated $161,500 from investors, which he used to pay his personal expenses. According to the complaint, Hoffman, a registered representative and investment advisory representative at LPL, solicited certain of his advisory clients to invest in GT Media securities without disclosing his financial conflicts of interest, including his compensation from GT Media and his short-term loans to GT Media that were repaid using investor funds.

The failure to disclose such conflicts is fraud, but a greater fraud is the failure to disclose the lack of due diligence investigation, along with other material financial information that Hoffman would have possessed.

The SEC action is currently pending in federal district court in Chicago.

Hoffman’s record indicates that he was a broker with LPL until September 2018.  At that time he was allowed to voluntarily resign after allegations were made against him concerning a failure to disclose certain outside business activity.  He had been a broker with LPL since February 2010.

Hoffman had previously been fired by UBS when a co-worker accused him of making securities trades without the authorization of the investor.  This fraud was public record when he was hired by LPL.