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Author Archives: Valerie Escobar

The SEC Charged the CEO of Allied Energy Services, LLC with Fraud for Running a Ponzi Scheme

On July 30th, 2020, the Securities and Exchange Commission charged Clarence Dean Alford with defrauding at least 100 investors in a ponzi scheme, which he operated through Allied Energy Services, LLC (“Allied”), where he was CEO. Alford is also a former Georgia state legislator and former member of the Georgia Board of Regents. Alford sold at least $23 million worth of two types of promissory notes to at least 100 investors, claiming that the funds from one brand of note would be used to fund a waste-to-energy conversion plant in Augusta, GA, while funds from the other brand of note would be used to fund Allied’s solar program. The promissory notes were sold between January 2017 and September 2019.

Alford claimed that Allied was a robust and thriving energy company, when in reality it was struggling. In 2016, the company began providing retrofit lighting services, which became its primary source of revenue, not energy production.

Alford sent at least one investor a “Solar Business Plan”, which detailed the plan for Allied’s fake solar business. In it, Alford fraudulently claimed that Allied had partnered with major international solar companies in an effort to solicit investments.

Alford sent approximately $5.79 million of funds from the promissory notes to his personal bank accounts. He used the funds to buy a Tesla and a house in Utah, to pay off credit card bills, withdrew over $51,000 in cash, and made almost $14,000 in political contributions. He also used funds to finance his other business ventures. The scheme eventually collapsed. Allied has since ceased operations and voluntarily filed Chapter 7 bankruptcy in February 2020.

Whether one is a broker, CEO, former politician, or any other occupation, the potential for fraud is always there. If you wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

Alabama Securities Commission filed a Cease and Desist Order Against John Paul Maroney and two of his Florida companies

On June 25th, 2020, the Alabama Securities Commission filed a Cease and Desist Order against John Paul Maroney and his companies Harbor City Capital Corp. and Harbor City Digital Ventures, Inc. Based out of Melbourne, FL, Maroney advertises unrealistic returns on investments that, in fact, do not exist. The Securities Exchange Commission has no records of any of Maroney’s companies or the bonds he offers; the Alabama Securities Commission does not have any records either. Maroney is not registered as a broker or investment advisor in the State of Alabama. Maroney advertised an 18% annual return on investment, along with other fraudulent investments.

What is most surprising about this case is that despite the Cease and Desist Order, Harbor City Capital’s website is still live and soliciting investments. The website currently lists a bond titled HCCF-4.  HCCF-4 guarantees a 12% return on the one-year bond with no risk to the principal. Harbor City Capital Corp. is not listed in Sunbiz as a Florida entity.  The website states, “Pocket 12% Yield With ZERO Risk To Your Principal.”  So where are our regulators when we need them?

If you wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

 

Stockbroker Exploits Elderly WWII Veteran

On June 12, 2020, the SEC filed a Complaint alleging multiple instances of fraud against Frederick M. Stow, a Tennessee-based broker at Raymond James & Associates, Inc. The SEC alleges that Stow stole over $900,000 from one of his clients, a World War II. The elder exploitation victim was Stow’s client for nearly 40 years, electing to remain with Stow whenever Stow relocated to another firm. Between October 2015 and April 2019, Stow sold securities in his client’s IRA and subsequently forged wire transfer Letters of Authorization in order to transfer the sales proceeds into his own account. The client passed away in March 2019 at the age of 98. Following his passing, the executor of the estate repeatedly requested explanations for the suspicious wire transfers. Stow then confessed his theft to his supervisor and was terminated by Raymond James. The SEC also alleges that Stow stole $32,000 from a separate client in April 2019.

Elder exploitation of this nature is not uncommon in the financial services industry.  Numerous stockbrokers have been imprisoned as a result of their greed.  It is only because of an estate executor’s due diligence that this theft was discovered.  For ideas on how you can help your friends or relatives avoid being a victim of this type of crime, feel free to call me.

If you wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

COVID-19 PUMP AND DUMP

On June 9, 2020, the SEC filed a Complaint alleging that Jason C. Nielsen operated a “pump and dump” scheme, thereby defrauding other investors. Nielsen knowingly posted false statements on investment forums in regard to the stock of a biotechnology company, Arrayit Corporation. A “pump and dump” scheme is when an investor buys stock in a given company and subsequently lies about the company’s affairs in order to “pump” up the value of his investment, and then proceeds to “dump” his shares after their value has gone up. Nielsen allegedly made approximately $137,000 from this scheme.

Nielsen, through his posts on investment forums, proclaimed that Arrayit had developed a COVID-19 blood test and that the test had gotten emergency approval from the FDA. Neither was true. Nielsen owned about 10% of Arrayit’s common stock. His false and/or misleading claims defrauded investors. On top of this, Nielsen also allegedly utilized a tactic known as “spoofing,” where an investor places orders for large amounts of a company’s stock and then cancels them, creating the appearance of an increase in demand.

The SEC charged Nielsen with violating the antifraud provisions of the federal securities laws, and seeks permanent injunctions, civil money penalties, a penny stock bar, and disgorgement with prejudgment interest.

If you wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

SEC Awards Record Payout of Nearly $50 Million to Whistleblower

On June 4, 2020 the SEC announced a nearly $50 million whistleblower award to an individual who alerted the agency of firsthand observations of misconduct by a company that resulted in a successful enforcement action that returned a significant amount of money to harmed investors.  This is the largest amount ever awarded to one individual under the SEC’s whistleblower program.

The Securities and Exchange Commission has awarded more than $500 million to whistleblowers since the inception of the agency’s whistleblower program in 2011.   This award is the largest individual whistleblower award since the inauguration of the program.   The whistleblower program was established by Congress to incentivize whistleblowers with specific, timely and credible information about federal securities laws violations to report to the SEC.  The Commission emphasizes, that no money has been taken or withheld from harmed investors to pay whistleblower awards.  The informant’s award is based on a percentage of the money collected in fees and sanctions paid by the violators they uncovered, and if they provided the SEC with original, timely, and credible information that leads to a successful enforcement action.  Whistleblower awards can range from 10% to 30% of the money collected when the monetary sanctions exceed $1 million.

As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not discloses information that could reveal a whistleblower’s identity.   Whistleblowers have proven to be a critical tool in the enforcement arsenal to combat fraud and protect investors.  If you believe you have information of a material nature that would be helpful to the SEC’s mission, David A. Weintraub, P.A. may be able to represent you in connection with your whistleblower claim.

 

Merrill Lynch Sanctioned By FINRA

On June 4, 2020, FINRA issued a press release detailing wrongdoing in the handling of mutual funds by Merrill Lynch, Pierce, Fenner & Smith Inc and the resulting settlement.  FINRA found that Merrill Lynch did not have an adequate system for ensuring that customers received mutual fund sales charge waivers and fee rebates.  Customers were entitled to these funds through rights of reinstatement offered by mutual fund companies. Mutual fund companies often offer customers waivers on up-front sales charges when they repurchase shares of either the same fund that they invested in before, or another fund in the same family. Merrill Lynch customers paid approximately $6 million in improper sales charges and fees between April 2011 and April 2017. The firm relied on a rudimentary alert system to determine whether or not a customer was owed waivers/rebates, but it was nowhere near adequate.

The up-front sales charges which Merrill Lynch customers were improperly charged for typically go to Merrill Lynch’s brokers, who have an incentive to charge customers as much as they can. In this instance, FINRA lauded Merrill Lynch for its openness in its investigation, but this does not always happen. As a result of its violations, Merrill Lynch agreed to a censure and approximately $7.25 million in restitution plus interest.

If you have not hired an attorney and wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

Stifel, Nicolaus & Co. to Pay Around $1.9 Million in Restitution to More than 1,700 Customers

On May 28, 2020 FINRA announced that it has ordered Stifel, Nicolaus & Co., to pay approximately $1.9 million in restitution, plus interest, to more than 1,700 customers in connection with early rollovers of Unit Investment Trusts (UITs).  FINRA also fined the firm $1.74 million for providing inaccurate information to customers related to rollover costs incurred, and for related supervisory violations.  The Letter of Acceptance states that Stifel failed to establish and maintain a supervisory system and enforce written supervisory systems that were reasonably designed to achieve compliance with FINRA’s suitability rule regarding early rollovers of UITs.

A Unit Investment Trust (UIT) is an SEC-registered investment company that offers investors shares or units in a fixed portfolio of securities in a one-time public offering.  A UIT’s maturity date is often 15 to 24 months at which point the underlying securities are sold and the resulting proceeds are paid to investors.  UITs impose a variety of upfront sales charges.  A registered representative who recommended the sale of a customer’s UIT before its maturity date and used the sale proceeds to purchase a new UIT would cause the customer to incur greater sales charges than if the customer had held the UIT until maturity.  Because of the long-term nature of UITs, their structure, and their costs, short term trading of UITs may be unsuitable.

FINRA’s investigation found that from January 2012 through December 2016, Stifel executed approximately $10.9 billion in UIT transactions – $935.2 million of which were early rollovers.  It was also uncovered that the firm’s supervisory system and procedures were not reasonably designed to supervise the suitability of those early rollovers.  As a result, Stifel failed to identify that its representatives recommended potentially unsuitable early rollovers that, collectively, may have caused customers to incur approximately $1.9 million in sales charges that they would not have incurred had they held the UITs until their maturity date.  Additionally, Stifel sent approximately 600 letters to customers that contained inaccurate information or were missing information about the costs incurred by customers in connection with early UIT rollovers or switches.

In settling this matter, Stifel neither admitted or denied the charges, but consented to the entry of FINRA’s findings.

If you have not hired an attorney and wish to discuss any securities related question, please 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 Fraudulent Investment Adviser Targeting Senior Citizens

On May 22nd, 2020, the Securities and Exchange Commission issued a press release detailing a Ponzi scheme designed to target the elderly. The SEC filed an emergency action and subsequently obtained a temporary restraining order and asset freeze against Paul Horton Smith Sr. and his various companies, which he used to organize the scheme. Smith Sr., according to the SEC’s complaint, offered and sold securities through his company Northstar Communications LLC.

Smith Sr. allegedly used his other companies to sponsor events, such as financial workshops and free-meal seminars, at which he would promise investors, often elderly people, guaranteed annual interest payments of anywhere from three percent to ten and a half percent if they invested in so-called private annuity contracts.” However, Smith Sr. did not invest the funds he raised in any securities. Instead, he would use those funds to pay returns to previous investors. This is a classic Ponzi scheme.

Smith Sr. and his entities stand accused of raising over $5.6 million from at least thirty-five investors and then paying $5.2 million to those investors in the form of interest payments or principal reward. He and his companies have been charged with violating the antifraud provisions of the federal securities laws. The complaint seeks civil penalties, injunctions, and the return of ill-gotten gains plus interest.

If you have not hired an attorney and wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

 

 

COVID Investment Scams Strike Alabama – Alabama Reacts!

On May 21, 2020, the Alabama Securities Commission filed a cease and desist order against Johnnie Dancy, who pretended to be an investment advisor and who defrauded people through an e-mail phishing scam.  Dancy, through the rather amusing email address tiggerthorn3@gmail.com, solicited various investments, including penny stocks while promising a weekly profit of $5,000 per week.  He allegedly claimed that due to the COVID-19 crisis, penny stocks in the biotechnology and pharmaceutical industries had “HUGE SOMETIMES 1000 PERCENT RETURNS.”  Investment solicitations promising inordinately high profits and written in all-caps raised red flags, at least in Alabama.

Dancy advertised his investments by giving a few cherry-picked examples of stocks that gained value as a result of the crisis, such as Amazon.  He provided no evidence of his historical investment performance.  These scams target the vulnerable among us, notably the elderly. Dancy utilized a global pandemic to defraud the elderly and those who are struggling to make ends meet.

If it sounds too good to be true, it’s generally not true.  If you or someone you know come across investment solicitations that appear to be scams, stay away.  If you know someone who has already been victimized, they should contact an attorney.

If you have not hired an attorney and wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

 

SEC Charges Three Individuals for Offering and Selling Fraudulent Oil and Gas Investment

On May 18, 2020 the Securities and Exchange Commission sued three Texas residents who used deceptive offering materials and promotional videos to sell $2.7 million in fraudulent oil and gas investments.  Defendants Paul R. Montgomery, Jr., Michael D. Fisher, and James H. Willingham, Jr. were charged after the SEC found that approximately 15 investors lost about $2.7 million by investing in joint venture interests in two oil and gas projects.  Defendants lured investors with, among other things, promises of 32% investment returns, as well as representations about Montgomery’s expertise and qualification in the oil and gas exploration industry.

The complaint alleges Defendants never drilled or reworked a single well for the projects.  Defendants misrepresented and/or omitted numerous material facts to investors that were fundamental to the nature and risks of the investment offerings.  Defendants distributed written offering materials in which they promised to use investor funds only for specified purposes, instead they misappropriated investor funds, spending hundreds of thousands of dollars for a number of uses not permitted in the offering documents, such as undisclosed commissions, and payments to Montgomery and Willingham.   In the end, investors suffered a complete loss of their funds.

In the interest of protecting the public from any further fraudulent activity and harm, the SEC brought this action against Defendants.  The Commission charged Montgomery and Fisher with aiding and abetting Willingham’s violations of the charged anti-fraud provisions.  Additionally, the SEC is seeking disgorgement of ill-gotten gains plus interest, civil penalties, and injunctive relief.  Willingham has agreed to be enjoined against future violations of the charged provisions, and to pay disgorgement, prejudgment interest, and civil penalty, the amounts of which will be determined by the court upon a motion filed by the SEC.