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Monthly Archives: May 2018

SEC Charges Long Island Investment Professional in $8 Million Scam Targeting Long-Standing Brokerage Customers

Posted byDavid Weintraub

On May 30, 2018, the Securities and Exchange Commission charged a former registered representative with defrauding long-standing brokerage customers in an $8 million investment scam.

According to the SEC’s complaint, Steven Pagartanis, who was affiliated with a registered broker-dealer, told some investors – including retirees who had been Pagartanis’s customers for many years – that he would invest their funds in either a publicly-traded or private land development company.  He promised that the funds would be safe and also promised guaranteed monthly interest payments on the investments.  At Pagartanis’s direction, his investors wrote checks payable to a similarly-named entity that was secretly controlled by Pagartanis.  In all, the customers invested approximately $8 million, which Pagartanis used to pay personal expenses and make the guaranteed “interest” payments to his customers.  To conceal the scam, which unraveled earlier this year when Pagartanis stopped making the so-called interest payments to customers, Pagartanis created fictitious account statements reflecting ownership interests in the land development companies.

The Suffolk County District Attorney’s Office filed criminal charges on May 30, 2018 against Pagartanis.

The SEC’s complaint, filed in federal district court in Brooklyn, charged Pagartanis with violating the antifraud provisions of the federal securities laws.  The SEC is seeking a judgment ordering Pagartanis to disgorge his allegedly ill-gotten gains plus prejudgment interest, and to pay financial penalties. If you believe that you have suffered losses as a result of Steven Pagartanis’ misconduct, you may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324.  By phone:  954.693.7577 or 800.718.1422.

93.7577 or 800.718.1422.

FINRA Sanctions Fifth Third Securities, Inc., $6 Million for Cost and Fee Disclosure Failures and Unsuitable Recommendations Related to Variable Annuity Exchanges

Posted byDavid Weintraub

On May 8, 2018, FINRA announced that it had fined Fifth Third Securities, Inc., $4 million and required the firm to pay approximately $2 million in restitution to customers for failing to appropriately consider and accurately describe the costs and benefits of variable annuity (VA) exchanges, and for recommending exchanges without a reasonable basis to believe the exchanges were suitable. This is the second significant FINRA enforcement action against Fifth Third involving the firm’s sale of variable annuities.

Variable annuities are complex investments commonly marketed and sold to retirees or people saving for retirement. Exchanging one VA with another involves a comparison of the complex features of each security. Accordingly, VA exchanges are subject to regulatory requirements to ensure that brokers have a reasonable basis to recommend them, and their supervisors have a reasonable basis to approve the sales.

FINRA found that Fifth Third failed to ensure that its registered representatives obtained and assessed accurate information concerning the recommended VA exchanges. It also found that the firm’s registered representatives and principals were not adequately trained on how to conduct a comparative analysis of the material features of the VAs. As a result, the firm misstated the costs and benefits of exchanges, making the exchange appear more beneficial to the customer. By reviewing a sample of VA exchanges that the firm approved from 2013 through 2015, FINRA found that Fifth Third misstated or omitted at least one material fact relating to the costs or benefits of the VA exchange in approximately 77 percent of the samples.  For example:

  • Fifth Third overstated the total fees of the existing VA or misstated fees associated with various additional optional benefits, known as riders.
  • Fifth Third failed to disclose that the existing VA had an accrued living benefit value, or understated the living benefit value, which the customer would forfeit upon executing the proposed exchange.
  • Fifth Third represented that a proposed VA had a living benefit rider even though the proposed VA did not, in fact, include a living benefit rider.

FINRA found that the firm’s principals ultimately approved approximately 92 percent of VA exchange applications submitted to them for review. However, in light of the firm’s supervisory deficiencies, the firm did not have a reasonable basis to recommend and approve many of these transactions.

In addition, FINRA found that Fifth Third failed to comply with the terms of its 2009 settlement with FINRA. In the 2009 action, FINRA found that, from 2004 to 2006, Fifth Third effected 250 unsuitable VA exchanges and transactions and had inadequate systems and procedures governing its VA exchange business. For more than four years following the settlement, the firm failed to fully implement an independent consultant’s recommendation that it develop certain surveillance procedures to monitor VA exchanges by individual registered representatives.

In settling this matter, Fifth Third neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. If you believe that you have suffered losses as a result of Fifth Third Securities Inc.’s misconduct, you may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324.  By phone:  954.693.7577 or 800.718.1422.

SEC Shuts Down $85 Million Ponzi Scheme and Obtains Asset Freeze

Posted byDavid Weintraub

On May 1, 2018, the Securities and Exchange Commission announced the unsealing of fraud charges against a Mississippi company and its principal who allegedly bilked at least 150 investors in an $85 million Ponzi scheme.  The defendants agreed to permanent injunctions, an asset freeze, and expedited discovery.

The SEC’s complaint alleges that Arthur Lamar Adams lied to investors by telling them that their money would be used by his company, Madison Timber Properties, LLC, to secure and harvest timber from various land owners located in Alabama, Florida, and Mississippi, and promised annual returns of 12-15%.  But Madison Timber never obtained any harvesting rights.  Instead, Adams allegedly forged deeds and cutting agreements as well as documents purportedly reflecting the value of the timber on the land.  Adams also allegedly paid early investors with later investors’ funds and convinced investors to roll over their investments.  According to the complaint, Adams used investors’ money for personal expenses and to develop an unrelated real estate project.

The SEC’s complaint, filed under seal in federal court in Jackson, Mississippi on April 20, 2018, charges Adams and Madison Timber Properties with violating the antifraud provisions of the federal securities laws.  The court granted the SEC’s request for an asset freeze and permanently enjoined Madison Timber and Adams from violating the antifraud provisions of the federal securities laws and ordered Adams to surrender his passport.  Adams and Madison Timber consented to the entry of the court order.