Tag Archives: investigation

Kenneth J. Daley of Merrill Lynch Improper Conduct

Kenneth James Daley with Merrill Lynch in Glenwood Landing, NY entered into a settlement agreement with FINRA in August 2016.  Pursuant to the terms of this agreement, he was barred from association with any FINRA member, which is any brokerage firm, in any capacity. Without
admitting or denying the findings, Daley consented to the sanction and to the entry of
findings that he concealed his improper receipt of funds from a customer.  The funds were paid
in connection with purported profits in an account of his member firm. The findings stated
that the customer contacted Daley about providing him with money to allow him to benefit
by sharing in the profits in her account with Daley’s firm. The customer wrote Daley a check
for $2,500 drawn from her cash management account with the firm. Daley immediately
contacted the customer because he was concerned that his firm would learn of the deposit,
which he knew to be prohibited. In order to avoid detection by the firm, Daley instead
provided the customer with his personal banking account details for an account he held at another financial institution and informed her that she could directly deposit funds related
to purported profits in her account with the firm to his personal checking account. As a
result, the customer deposited to Daley’s personal bank account eight additional checks,
each of which was drawn off of her non-firm bank account. In total, the customer gave
Daley $29,000 in connection with purported profits in her account, all of which Daley used
for personal expenses. Throughout this time period, Daley knew he was prohibited from
accepting such payments.

The findings also stated that Daley used his personal cell phone to text message customers.
Daley was prohibited from text messaging with customers unless done through an
approved firm platform. The findings also included that Daley submitted an annual firm
attestation falsely attesting that in the prior 12 months he had not used text messaging
with any customer. As a result, Daley prevented the firm from discharging its supervisory
responsibilities with respect to the review of his electronic communications and caused the
firm to fail to maintain such communications as required under FINRA and Securities and
Exchange Commission (SEC) rules.

FINRA found that Daley recommended that the customer purchase units of a non-traditional, leveraged crude oil exchange-traded fund (ETF) without having a reasonable basis to do so. On Daley’s recommendation, the customer purchased 5,000 units for a principal amount of $41,850. Daley did not liquidate the position until after the customer had experienced losses.

The AWC can be found at the following link.

Churchville Ponzi Scheme, Investment Fraud

If you were a victim of the Ponzi scheme or other investment fraud of Rhode Island investment adviser Patrick Churchville please call 1-866-817-0201.

Churchville has agreed to plead guilty to criminal charges for orchestrating a $21 million Ponzi scheme, according to a statement from the U.S. Attorney’s Office.

Stock handcuffsAside from that scheme, Churchville, 47, also committed investment fraud when he used $2.5 million of investor funds to help purchase his home and failed to pay more than $820,000 in personal federal income taxes, according to the statement.

Churchville, the owner and president of ClearPath Wealth Management, will plead guilty to five counts of wire fraud and one count of tax fraud.

Churchville is also a party in a civil case brought by the Securities and Exchange Commission (“SEC”) in May 2015.

Between 2008 and 2011, Mr. Churchville invested approximately $18 million of client money in JER Receivables, although by June 2010 he had become aware that ClearPath had been defrauded by that company, according to the statement.

Instead of notifying his clients of the losses, Churchville,  paid them with money obtained from new investors, misappropriating around $21 million of investor funds in the process, the statement alleges. To help carry out his scheme, he told investors JER Receivables was producing high rates of return, according to the statement.

Caldwell International Securities

If you suffered losses at Caldwell International Securities, please call 1-866-817-0201 and request to speak to an attorney concerning this investigation.

Caldwell International Securities and a variety of its representatives were named respondents in a FINRA complaint alleging that the firm, by and through one or more of its registered representatives and principals, put profits before customers, growth before compliance and subterfuge before transparency. The complaint alleges that the firm’s culture of non-compliance led to serious sales practice, supervisory and reporting violations at its home office and multiple branches.

The representatives alleged to be involved are Greg Allen Caldwell (CRD #2816295, Austin, Texas), Alex Evan Etter (CRD #2981742, Old Tappan, New Jersey), Alain J. Florestan (CRD #2818942, Queens Village, New York), Lennie Simmons Freiman (CRD #1007506, Fischer, Texas), Paul Joseph Jacobs (CRD #4658235, Austin, Texas), Richard Andrew Lee (CRD #2768039, West Nyack, New York), Lucas Dylan Lichtman (CRD #5542092, Fort Lee, New Jersey) and Richard Lim (CRD #4949289, Clark, New Jersey).

Etter, Florestan, Lee, Lichtman, and Lim made unsuitable recommendations of an active trading investment strategy to their customers despite the fact these representatives failed to understand the risks of the investment strategy being recommended, or the impact the staggering commissions and fees generated by this active trading investment strategy would have on their customers’ accounts. These representatives had no reasonable basis to recommend such a strategy to their customers. As a result of the recommendation of an unsuitable active investment trading strategy, customer accounts suffered more than $1.1 million in realized trading losses while paying over $1 million in commissions and fees.

The firm is liable for the unsuitable recommendations of an active trading investment strategy made by Etter, Florestan, Lee, Lichtman and Lim under the doctrine of respondeat superior because each representative was an agent of the firm acting within the scope of his duties when he engaged in this misconduct. The firm, acting by and through its formerly registered representatives, made unsuitable recommendations involving inverse and/or leveraged ETFs without a reasonable basis for believing these investments were suitable for their customers.

The complaint also alleges that the firm, Caldwell, Freiman and Jacobs failed to establish and maintain a system to supervise the activities alleged that was reasonably designed to achieve compliance with applicable securities laws and regulations and NASD/ FINRA rules. The firm, Caldwell, Freiman and Jacobs failed to monitor for, detect and, when detected, investigate multiple instances of potential misconduct by the firm’s brokers involving unsuitable active trading investment strategies, unsuitable ETFs, discretionary trading without written authorization and excessive trading/churning in multiple customer accounts across multiple branches of the firm. In addition, the firm, Caldwell, Freiman and Jacobs failed to implement a reasonable supervisory system to adequately review trades for unsuitable recommendations, such as ETFs, and to adequately monitor whether the firm’s representatives understood the risks and benefits of the active trading investment strategy they were recommending, nor did the firm monitor whether the representatives had done any due diligence on the recommended active trading investment strategy.

This grossly inadequate supervisory system resulted in many firm customers suffering significant losses and paying staggering commissions and fees. The firm, Caldwell, and Freiman failed to establish and maintain a system to supervise the firm’s activities that was reasonably designed to achieve compliance with applicable securities laws and regulations and NASD/FINRA rules and/or the firm’s WSPs in multiple other ways. The firm, Caldwell, and Freiman failed to place representatives on heightened supervision, review all electronic correspondence to and from customers, identify and report customer complaints received, and apply right of reinvestment/right of reinstatement fee waivers, resulting in overcharges of $107,367.08 to customers’ accounts. The complaint further alleges that the firm, Caldwell, Freiman and Jacobs failed to establish, maintain and enforce WSPs to supervise its business that were reasonably designed to achieve compliance with applicable securities laws and regulations and NASD/FINRA rules. The firm did not establish, maintain and enforce written procedures to supervise its representatives’ recommendations of active and aggressive trading investment strategies to many of its customers in multiple branches. The firm failed to establish, maintain and enforce written procedures to ensure that reduced sales charges were applied for mutual funds where applicable in accordance with the fund’s right of reinvestment/right of reinstatement provisions. In addition, the complaint alleges that the firm, Freiman, Jacobs, and Etter failed to identify customer complaints and none of these complaints were reported to FINRA. The firm failed to report to FINRA statistical and summary information regarding written customer complaints from three branches as required. Moreover, the complaint alleges that the firm willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-10 by charging customers misleading and/or discriminatory miscellaneous fees in several transactions.  Furthermore, the complaint alleges that the firm, acting by and through Freiman, failed to log into the FinCEN system and conduct any of the required searches of its accounts and systems to determine whether it maintained any accounts for persons appearing on FinCEN’s 314(a) request list. The complaint also alleges that Florestan and Lim willfully failed to timely update their Forms U4 to disclose judgments against them. The complaint further alleges that Florestan failed to timely respond to requests from FINRA for documents and information during the course of its investigation of the firm’s branch activities.