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Morgan Stanley Smith Barney Agrees to Pay a $5 Million Penalty and Create a Fund to Benefit Harmed Investors

On May 12, 2020 the SEC announced that Morgan Stanley Smith Barney (MSSB) has agreed to settled charges that it provided misleading information to clients in its retail wrap fee programs regarding trade execution services and transaction costs.  It also agreed to pay a $5 million penalty that will be distributed to harmed investors.

The SEC issued a Cease and Desist Order in reference to MSSB’s marketing and client communications associated with the services rendered and costs incurred in MSSB’ retail wrap fee programs, which to some clients were misleading.  Wrap fee programs offer accounts in which clients pay an asset-based “wrap fee” that covers investment advice and brokerage services, including trade execution.  According to the investigation, from at least October 2012 until June 2017,  MSSB marketed its wrap fee account as offering clients professional investment advice, trade execution, and other services within a “transparent” fee structure; giving the impression that wrap fee clients were not likely to incur additional trade execution costs.  However, the Order alleges that MSSB had knowledge that some of its managers routinely directed wrap fee clients’ trades to third party broker-dealers for execution, which in turn resulted in additional transaction fees, these costs were embedded into the price of the security and not separately disclosed to clients.   Consequently, MSSB clients were unaware that they regularly paid execution costs in addition to MSSB’s wrap fee and in some instances, they incurred in transaction-based charges.  As a result, certain MSSB clients lacked complete and accurate information needed to assess the value of the services received in exchange for the wrap fee paid to MSSB and the costs associated with their accounts.

Without admitting or denying the SEC findings, Morgan Stanley Smith Barney consented to the SEC’s Order, which finds that the firm violated provisions of the Investment Advisers Act of 1940, imposes a $5 million penalty, and includes a censure and a cease-and-desist order.  The order also creates a Fair Fund to distribute the penalty paid by MSSB to harmed investors.

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 Obtains Judgement Against Two Florida Men in Ponzi Scheme Action

On May 11, 2020 the US District Court for the Southern District of Florida entered final judgments against Neil Burkholz and Frank Bianco for knowingly operating a Ponzi scheme.  Neil Burkholz, age 82, is a resident of Boca Raton, Florida.  He is the founder and co-CEO of Palm Management, and co-Founder and Manager of Shore Management.  Frank Bianco, age 70, is a resident of Pembroke Pines, Florida.   He is co-CEO of Palm Management, and co-Founder and Manager of Shore Management.  Both Defendants opened bank and brokerage accounts for the entities and their investment funds.  They are the only signatories on the bank accounts, and they exercised exclusive trading authority over the brokerage accounts.

The alleged fraudulent investment scheme raised more than $6 million from at least 55 investors, many of whom are senior citizens.  According to the complaint, to solicit and retain investors, Defendants falsely represented that they were advisers and fiduciaries who would profitably manage investor assets, when in reality, through at least two investment management companies, Defendants knowingly misappropriated investor assets by diverting them to pay other investors and by transferring funds to themselves and their spouses.    The SEC’s complaint alleged that Burkholz, Bianco, and their companies: Palm Financial Management and Shore Management Systems, solicited investors by falsely representing that their proprietary options trading strategies were highly profitable.  In effect, per the complaint, the defendants invested less than half of investor funds and those investments resulted in near-total losses.  Additionally, they misappropriated the remaining funds by using them to repay other investors and by transferring approximately $880,000 of investor funds to Burkholz, Bianco, and their spouses for personal use.  To conceal their misappropriation and trading losses, Defendants delivered false reports to investors giving the false impression they were generating positive returns.  In sum, Defendants were managing and operating a Ponzi scheme.

Without admitting or denying the allegations in the SEC Complaint, Burkholz and Bianco consented to the entry of a final judgement permanently enjoining them from violating antifraud provisions of the Securities Exchange Act and ordered them to disgorge $873,577 combined, and $1,841,650 in civil penalties.  Further, Bianco’s wife Suzanne Bianco, who the SEC named as a relief defendant, consented to the entry of a final judgment ordering her to disgorge$49,751 on a joint and several basis with Bianco, representing the amount of investor funds Bianco paid her, plus prejudgment interest.  Additionally, the Court ordered over $1.2 million in disgorgement and prejudgment interest against Palm Management and Shore Management.   After the SEC receives approval from the Court, it plans to establish a fair fund to distribute money received from defendants to harmed investors.

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.

Coronavirus & COVID-19 Losses

ATTENTION RISK AVERSE INVESTORS: David A. Weintraub has heard from investors who have suffered significant losses in the wake of the recent stock market crash. These losses may be recoverable if they were caused by unsuitable investments (or bad advice) by a financial advisor or broker. Have you suffered losses in excess of $100,000? We want to hear from you. Call us anytime at 800 718-1422.

Can I Sue my Financial Advisor or Stockbroker for Losses Linked to Recent Market Events?

The answer is yes. Stockbrokers and Financial Advisors have a duty to act in the best interests of their client. They may also have a duty to monitor your investments – to keep you informed and advise you whether to hold or sell your investments. Isn’t that what they advertise they will do? Isn’t that why you pay them for advice?
That is why you need an experienced attorney to review your portfolio and determine if the Financial Advisor acted negligently. Do not sit on the sidelines waiting to see if your investments will recover. Not only do you need sound financial advice from a qualified Financial Advisor, you may also need legal advice regarding the consequences of liquidating your portfolio versus holding your investments with your fingers crossed.

David Weintraub is available for a complimentary consultation at your convenience. Call him at 800-718-1422.

Son of Elderly, Disabled Couple was Arrested for Identity Theft and Exploitation of the Elderly  

On May 4, 2020, Attorney General Ashley Moody’s Medicaid Fraud Control Unit together with the Tarpon Springs Police Department arrested a Pasco County resident for exploiting both of his parents under the defendant’s care.  Ronald Rose, Jr., 48, withdrew thousands of dollars from his relatives’ bank accounts without approval to spend on personal expenses such as rent, vehicle payments and phone services.

Acting on information received from a Medicaid provider, the Attorney General’s MFCU Patient Abuse, Neglect and Exploitation Team began investigating the defendant for misuse of patient funds. The investigation revealed that Rose embezzled from the accounts of his late father, a 69-year-old man who suffered from dementia, and his 77-year-old mother, who is blind, according to an arrest warrant obtained by the Florida Attorney General’s Office. The son took a total of $71,642 from his parents’ accounts, the warrant said, and took out a $19,002 loan in his mother’s name without her knowledge.  Rose is being held in the Pinellas County jail without bail.

The defendant had power of attorney over his father and was supposed to be helping his mother with her finances, the warrant said, when the fraudulent transactions took place from 2016 to 2018.  Ronald Rose Jr. was arrested on two counts of exploitation of the elderly, a third-degree felony, one count of fraudulent use of personal identification information, a second-degree felony, and violating his probation in Hillsborough County.

Attorney General Ashley Moody said, “My office is committed to protecting seniors. Older Floridians should not have to worry about being taken advantage of by those entrusted with their care. Thank you, to my MFCU team, for stopping this unconscionable behavior and I look forward to my Office of Statewide Prosecution now holding the defendant responsible for these crimes.”

If you believe that you or one of your relatives has been a victim of elder exploitation, please call our law office for a complimentary consultation. We can be reached at (800) 718-1422.

SEC Awards $5 Million to Whistleblower

On April 20, 2020 the SEC announced a $5 million award to a whistleblower who provided significant information that led to a successful enforcement action. The whistleblower provided critical evidence of wrongdoing, which saved the SEC a significant amount of time and resources. Additionally, the SEC noted that the informant suffered a unique hardship as a result of raising concerns internally.

The SEC has awarded approximately $430 million to 80 individuals since issuing its first award in 2012. According to the CEO of the SEC’s Office of the Whistleblower, “The whistleblower award today is the seventh award the SEC has announced to individual whistleblowers in the last month.” “These awards demonstrate the valuable contributions whistleblowers make to the protection of markets and investors and we encourage people to move forward with information about possible securities law violations.”

All payments through this program are made from an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. 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. 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.

SEC Orders Merrill Lynch to Reimburse Investors for Violating Mutual Funds Share Class Selection Disclosures

Today the SEC announced settled charges against Merrill Lynch, Pierce, Fenner & Smith, Incorporated and two other self-reporting advisory firms and ordered more than $139 million to be returned to investors as part of the agreement.  According to the Order, against Merrill Lynch, the proceedings arise out of breaches of fiduciary duty and inadequate disclosures in connection with its mutual fund share class selection practices and the fees it received.  During the relevant period, Merrill Lynch purchased, recommended, or held for advisory clients’ mutual fund share classes that charged higher fees instead of lower-cost share classes of the same funds for which the clients were eligible. Mutual Funds typically offer investors different types of shares or shares classes.  Each class represents an interest in the same portfolio of securities with the same investment objective; making the fee structure their main difference.   For instance, Institutional shares, or Class I shares typically pay lower annual fund operating expenses over time, equaling to higher returns than other classes that charge 12b-1 fees.   The recurring 12b-1 fees are included in the total annual fund operating expenses and deducted automatically from the mutual funds’ assets.  These recurring fees are paid generally to the broker-dealer that distributed or sold the shares, Merrill Lynch, in this case.    Additionally, the SEC found that Merrill Lynch failed to disclose these conflicts of interest relating to its receipt of the fees and/or its choice of mutual fund class that would pay such fees.  

The order states that they are censured, and that they cease and desist from future related violations and that they pay disgorgement and prejudgment interest totaling over $425,000 and that they comply with certain undertakings, including returning the money to investors.   It’s worth noting that, Merrill Lynch, self-reported to the SEC the aforementioned violation. 

SEC Awards Over $27 Million to Whistleblower

Today the SEC announced an award of more than $27 million to a whistleblower who alerted the agency to misconduct occurring, in part, overseas.  The record demonstrated that the informer voluntarily provided original information to the Commission that led to the successful enforcement of the action.  The whistleblower provided a substantial amount of ongoing assistance and cooperation by meeting with staff numerous times and providing relevant documents and critical investigative leads that advanced the investigation and saved the Commission a significant amount of time and resources.  Additionally, the SEC noted that the informant repeatedly and strenuously raised its concerns internally. 

The SEC has awarded approximately $430 million to 80 individuals since issuing its first award in 2012.  All payments through this program are made from an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators.  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.  If you believe you have information of a material information 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.

Florida Attorney General collaborates with Florida’s Senior Groups to Protect Older Floridians from COVID-19 Scams

Florida Attorney General Ashley Moody, together with leaders from the American Association of Retired Persons, Association of Mature American Citizens, American Seniors Association and the Florida Council on Aging, met virtually on April 9, 2020, to discuss emerging scams targeting older Floridians amid COVID-19 pandemic. According to Attorney General Moody, “Seniors are uniquely vulnerable to COVID-19 and to scams designed to exploit the fear surrounding the pandemic to rip off Floridians. That is why we are working with the top senior groups in Florida to make sure older Floridians have the resources necessary to avoid falling prey to these fraudsters.” During the virtual meeting, the panel discussed some of the most common COVID-19 scams victimizing elderly citizens, such as: cyber scams, telephone and text messaging scams, counterfeit product offers, bogus door to door testing offers, offers to sell fake virus cures and phony charity donation solicitations.

The report warns in reference to cyber scams that citizens should be wary of all emails claiming to be from the Centers for Disease Control and Prevention, the World Health Organization and other healthcare organizations, offering to share information about the virus. Also, be on the lookout for emails asking for the verification of personal data in exchange for receiving economic stimulus funds or other benefits from the government. Government agencies are not sending out emails asking for sensitive personal information in order to receive government funds or other official pandemic financial relief.

The panel also discussed the ongoing robocall problem. Now that many Floridians are working remotely and are home there has been an increasing volume of phone calls, making it hard to ignore unknown numbers. The panel advises that if anybody receives a robocall, just hang up! Do not press any numbers or characters on your phone. Scammers are calling with offers involving everything from COVID-19 treatments and cures to work from home schemes. Like email phishing scams, text messages from unknown sources may offer hyperlinks to what appears to be automated pandemic updates or interactive infection maps. Clicking on these links gives scammers a way of installing malware on mobile electronic devices, putting the recipient of the message at increased risk of identity theft and financial exploitation.

Other points of conversation were offers for COVID-19 vaccinations and home test kits. Currently, no vaccines, pills, lotions, medications or other prescription or over the counter products are available to treat or cure the novel coronavirus. Do not answer the door or allow inside any unknown individual or business representatives offering to sell consumer products, medical kits, vaccines, cures or in person COVID-19 testing. It is recommended that when buying consumer products that are in extreme demand, like sanitizers, personal hygiene products, and health and medical supplies that are offered online, the consumer be very cautious and confirm that the website is legitimate, additionally it is recommended that the consumer pays with a credit card rather than a debit card, and keep a record of the transaction. If you believe a company is capitalizing through prize gouging, bring your concerns to the attention of the Attorney General’s office by contacting the Price Gouging Hotline at 1.866.9NO-SCAM.

Lastly, the panel warns about phony charities and donation requests that take advantage of the good will and generosity by creating fictitious charitable organizations and seeking donations that never go to the fake charity’s stated cause and take money away from those in need. Be sure to research where a charitable donation is going. Additionally, Attorney General Moody issued a Consumer Alert warning Floridians about scammers using the new coronavirus stimulus package to target Floridians. News of the historic stimulus is providing ammo for scammers already trying to exploit the COVID-19 pandemic to rip off Floridians.

Alabama Securities Commission Issues a Cease and Desist Order Against Ultra BTC Mining LLC

The Alabama Securities Commission issued a Cease and Desist Order against Ultra BTC Mining LLC aka Ultra Mining (Ultra) and its CEO and registered agent David Taylor, as well as Laura Branch, an agent for Ultra. Through the Order the Commission requested the parties to stop a purportedly fraudulent cryptocurrency cloud mining scheme. Ultra is also under investigation for its fraudulent misrepresentations related to Coronavirus 2019 (COVID-19) donations.

The Commission reviewed Ultra’s website representations and found that the firm claims to provide a modern, high efficiency platform for rental services for cryptocurrency cloud mining. The firm offers an investment opportunity, on their website, in the form of “mining plans” where investors invest in two-year plans for the purpose of mining cryptocurrencies. The mining activities are to be performed or leased by Ultra and the investment return is based on the hash rate purchased. Through its website Ultra offers an earnings-calculator to simulate investment returns of approximately 105% per annum. These projections are unrealistic based on any reasonable investment assumptions, unsustainable, and are per se fraudulent. According to the website, investors will benefit from the connection to mining pools. It also offers an “affiliate program” wherein investors earn a commission for referring business to the company. Furthermore, the Order states that Ultra placed an unsubstantiated claim on their website that they had donated $100,000 to UNICEF to fight COVID-19.

The Commission asserted that neither Ultra nor Ms. Branch had any registrations or licenses, in any capacity. Furthermore, Ultra violated Alabama’s securities laws by issuing and acting as agents in the sales of securities, in this case the mining plans. The Order does not prevent the Commission from seeking such other civil or criminal remedies that are available. If you believe you have been the victim or this or other investment scams, David A. Weintraub, P.A. would be interested in speaking with you.

Jury Finds Investment Adviser and its Owner Liable for Fraud.

On March 16, 2020 jurors in a Connecticut federal court returned a verdict in favor of the SEC and finding Westport Capital Markets, LLC and Christopher McClure guilty of fraud.  According to the complaint, Westport and McClure had a fiduciary duty to their investment advisory clients and were obligated to manage their clients’ portfolios in the clients’ best interests.  Instead, they violated their fiduciary duty and defrauded their clients.   The complaint stated that Westport and McClure received undisclosed mark-ups when Westport, acting as principal, sold securities from its proprietary brokerage account to client accounts but failed to disclose its financial conflict of interest to clients.  Westport Capital Markets, LLC is a Westport, Connecticut registered investment adviser and broker dealer.  It has been registered since 1996.  It provided services to a variety of clients, including retirees and elderly persons who relied on investments in their Westport advisory accounts for income.  Christopher McClure is Westport’s President, Chief Financial Officer and Chief Compliance Officer.  Since 2007, McClure controlled Westport and has been the sole or majority owner of the firm.  

Since 2011, Westport entered into a Selling Dealer arrangement with investment banks.  As a selling dealer, Westport purchased shares of offerings in its own brokerage account at a discount.  Then, it sold those securities to its advisory clients’ accounts at the full public offering prices, obtaining mark-ups.   Westport and McClure obtained standing authority, from entrusting clients, to make investments decisions that were consistent with their clients’ investment objectives and best interest, but they misused that authority when they repeatedly purchased risky securities in clients’ accounts that not only generated undisclosed mark-ups and other fees but these accounts already paid a significant advisory fee to Westport to manage their investments.  They were also required to disclose all conflicts of interest, however they failed to inform clients that Westport and McClure benefited financially from the investment decisions that were made in these discretionary accounts.

During the relevant period, Westport received a total of $650,000 in mark-ups from advisory client accounts and the firm received $1.7 million in advisory fees.  The complaint stated that for some clients, the amount of undisclosed mark-ups equaled 70 percent or more of the amount of advisory fees paid by that account.  At least two clients’ accounts generated more in mark-ups that in advisory fees.  Cumulatively, their advisory clients’ accounts have lost approximately $1.2 million to date as a result of these unsuitable investments, with approximately $890,000 in realized losses.