News and Articles - Page 6 of 33

Jury Finds Investment Adviser and its Owner Liable for Fraud.

David Weintraub March 16, 2020

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.

SEC Charged Russian National for Defrauding Older Investors in Fake Certificates of Deposit Scam

David Weintraub March 13, 2020

The SEC announced today that Denis Georgiyevich Sotnikov, a Russian national, who resides in Hallandale Beach, Florida, is involved in an ongoing fraudulent scheme in which US investors, many of whom are older and using their retirement savings, are lured into buying fictitious Certificates of Deposit (CDs) at above market rates. The Complaint stated that Sotnikov targeted investors who were searching for CDs with high rates. These ads included links to phony and spoofed websites which falsely claimed that the firms offering the CDs were members of FINRA and the FDIC. The spoofed websites use domain names similar to the actual sites of legitimate financial institutions.

As a result of the intricate scheme, unsuspecting investors see advertising for the spoofed websites at the top of their search results when searching for CDs with attractive rates. After the potential investors visit the spoofed websites, they are directed to call a number to speak with an account executive impersonating a real registered representative, who instructs investors to wire funds to so-called clearing partners. In reality, these clearing partners are entities used by Sotnikov to launder and misappropriate investor funds.

According to the SEC, from November 2014 through March 2020, there were at least 24 websites spoofing actual financial firms and 8 fictitious financial firms that resulted in over $26 million in known investor losses. The investigation found that Sotnikov’s participation was essential to the fraudulent scheme. He organized and controlled all the entities involved as supposed clearing or offering firms which were created by Sotnikov to serve as conduits to receive wire transfers from duped investors in advancement of the fraudulent scheme.

The SEC’s complaint filed in federal court charged Sotnikov and the entities he controlled with violating the antifraud provisions of the federal securities laws and Sotnikov with aiding and abetting those violations. The SEC is looking for permanent injunctive relief and the return of allegedly ill-gotten gains with prejudgment interest and penalties. In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced related criminal charges and are pursuing asset seizures.

Florida Attorney General Ashley Moody Announced an Arrest of a Woman for Exploiting a Senior Citizen

Jeff Kostick March 12, 2020May 6, 2020

A Pinellas County woman was arrested for exploiting a Senior Citizen out of thousands of dollars. Anne Marie Barnes was arrested after an investigation by the Attorney General’s Medicaid Fraud Control Unit’s Patient Abuse, Neglect, and Exploitation Team, acting on information received from a Medicaid provider. The investigation revealed that Barnes, who is related to the elderly person, was responsible for handling the relative’s financial affairs and had access to the elderly relative’s financial accounts. Barnes misappropriated the elderly relative’s funds for purposes other than the relative’s benefit in excess of $8,500.

Barnes is charged with one count of exploitation of an elderly person, a third-degree felony, and faces up to five years in prison and more than $13,000 in fines and restitution. The State Attorney’s Office for the Sixth Judicial Circuit will prosecute this case. In reference to the case, Attorney General Ashley Moody said, “This woman, who was entrusted with her own relative’s care and finances, abused that power to pad her own pockets. I’m disgusted, and I’m proud of my Medicaid Fraud Control Unit for their hard work in bringing this criminal to justice.”

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.

Florida Attorney General Ashley Moody Announced More than $2 Million in Recoveries and Savings for Florida Seniors

Jeff Kostick March 3, 2020May 6, 2020

At the US Department of Justice Summit on Fighting for Elder Justice, Attorney General Moody pointed out that “Since taking office, we have recovered more than $2 million for older Floridians through the efforts of our Senior Protection Team and Seniors vs. Crime.” According to the 2019 Senior vs. Crime Report, the office volunteers worked more than 1,900 cases of reported fraud resulting in more than $1.7 million in recoveries and savings for Florida seniors. Additionally, the newly formed Senior Protection Team has recovered more than $287,000 for Florida seniors. Members of the Team and the Senior vs. Crime volunteers attended Senior Day at the Florida Capitol to help educate older Floridians about common scams and ways they can prevent fraud.

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.

FINRA Fines Robinhood Financial, LLC $1.25 Million for Best Execution Violations

David Weintraub December 19, 2019

FINRA announced today, that it has fined online broker, Robinhood Financial, LLC $1.25 million for violations relating to its best execution of customer equity orders and related supervisory failures. Robinhood Financial provides online trading for retail investors and offers customers commission-free trading when using the platform’s online mobile trading application or website to submit orders to trade in U.S. During the investigation period from October 1, 2016 through November 9, 2017, Robinhood allegedly, routed its customers’ non-directed equity orders to four broker-dealers for execution. Robinhood and the broker dealers engaged in an arrangement known as “payment for order flow.” This means that although Robinhood provided commission-free trading to its customers, it nonetheless received compensation for that trading through its payment for order flow model.

FINRA found that for more than a year, Robinhood failed to exercise reasonable diligence to ascertain whether these four broker-dealers provided the best market for the subject securities to ensure its customers received the best execution quality from these as compared to other execution venues. Additionally, Robinhood did not systematically review certain order types, and it failed to establish and maintain a supervisory system, including written supervisory procedures, reasonable designed to achieve compliance with its best execution obligations.

According to Jessica Hopper, Senior Vice President and Acting Head of FINRA’s Department of Enforcement, “Best execution of customer orders is a key investor protection requirement”, “FINRA member firms must exercise reasonable diligence in performing regular and rigorous reviews to achieve best execution for their customers.” Robinhood, which has been a FINRA member since Oct. 2013 and serves around 10 million people. In settling this matter, Robinhood neither admitted nor denied the charges, but consented to the entry of FINRA’s findings. The company agreed to pay the fine and hire an independent consultant to conduct a comprehensive review of its systems and procedures.

FINRA Bans Two Registered Representatives for Churning Accounts of Elderly Client with Alzheimer’s.

David Weintraub October 21, 2019

On October 21, 2019, FINRA announced that it had barred Ami Forte and Charles Lawrence of Florida for their roles in churning accounts belonging to a 79-year-old customer who suffered from severe Alzheimer’s and dementia. According to the Complaint, Forte and Lawrence engaged in unsuitable and excessive trading, specifically in the 10 months preceding his death, the Forte group effected more than 2,800 trades in the victim’s accounts generating around $9 million in commissions. Over half of these transactions involved short-term trading in long-maturity bonds, including municipal bonds, intended for customers with long-term investment horizons.

The investigation revealed that Forte first met the customer (referred to as RS) in the late 90s when they began a romantic relationship. Forte, who was the broker of record in the accounts, and maintained near daily contact with the customer, used her position of trust and confidence to exploit RS and generate excessive commissions from his accounts. During the relevant period, RS held approximately $192 million in six accounts in Morgan Stanley. In 2001, Forte established the Forte Group at Morgan Stanley, which she headed as Senior Vice President. Lawrence joined the Forte Group at its inception, and by 2009, he was mainly entering the Forte Group’s day to day trades in the RS accounts. It’s worth noting, that RS accounts generated approximately 94 percent of Forte’s commission revenues. On the other hand, Lawrence did not received commissions from the trading activity in the RS Accounts. He was paid an annual salary plus bonuses.

According to the settlement, Forte and Lawrence met and spoke frequently with RS and knew he suffered severe cognitive impairment. It states that multiple treating physicians, some as early as 2008, determined that RS suffered from dementia or Alzheimer’s or both. During the investigation period, at least four separate physicians on approximately five occasions diagnosed RS with severe cognitive impairment. Forte and Lawrence exploited RS’s vulnerable mental and physical condition to unsuitability and excessive trade his accounts, it continued until shortly before RS’s death. For instance, on June 20, 2012, RS entered the hospital for the final time before his passing in August 2012. Despite being hospitalized and not in contact with anyone from the Forte Group, between June 20 and June 29, 2012, RS’s accounts had over $14 million in transactions. Forte and Lawrence never reported RS’s condition to Morgan Stanley. Instead, they increased their level of trading in RS’s accounts in the months after RS’s diagnosis.

In settling this matter, Forte and Lawrence neither admitted nor denied the charges, but consented to the entry of FINRA’s finding.

FINRA Fined Accelerated Capital Group and Ordered it to Pay Restitution to Six Customers

David Weintraub March 15, 2019

FINRA censured and fined Accelerated Capital Group $400,000 for failing to establish and maintain a supervisory system and written procedures reasonably designed to achieve compliance with applicable laws, regulations and rules. The investigation found that the Firm’s failures allowed a registered representative to engage in excessive and unsuitable transactions. The firm’s supervisory failures resulted in harm to vulnerable customers, five of them over the age of 80, and at least seven living on fixed incomes. These transactions resulted in over $650,000 in commissions.

The firm’s supervisory system was not reasonably designed to identify unauthorized, excessive, or unsuitable trades effected by representatives in their customers’ accounts. The system failed to ensure that representatives made customers aware of all commissions, costs and breakpoints associated with mutual fund transactions, specifically ones relating to Class A mutual funds and front-loaded fees. Additionally, the investigation found that the firm failed to report customer complaints and an internal disciplinary action to FINRA.

On March 15, 2019, an Office of Hearing Officers decision became final in which Accelerated Capital Group was censured and fined. It was also ordered to pay $422,029.53, plus interest, in restitution to six customers.

If you have not hired an attorney you may contact David A. Weintraub, P.A., 7805 SW 6^th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.

FINRA Fined Corinthian Partners, LLC its Chairman/President and its CCO

David Weintraub March 3, 2019

On March 18, 2019, FINRA censured and fined Corinthian Partners, LLC, together with the firm’s Chairman/President and CCO, for failure to establish, maintain, and enforce a reasonably designed supervisory system, related to the sale of Non-Traditional ETPs (NT-ETPs) to customers. According to FINRA’s Regulatory Notice 09-31, NT-ETPs “are typically not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.” Due to NT-ETPs’ inherent risks and the complexity of the products, it is required that firms oversee the transactions and monitor for unsuitability and risks particular to non-traditional ETPs such as the risk incurred by long-term holding of a product that resets daily.

The investigation revealed that a sole registered representative recommended that his customers invest almost exclusively in NT-EFTPs and hold them for extended periods of time. The registered representative solicited 1,910 purchases totaling $279 million and 1,663 transactions that amounted to $275 million in sales of NT-ETPs. These transactions generated approximately $890,000 in commissions, which represented a significant portion of the firm’s revenue. Despite this activity, the firm lacked a reasonably-designed supervisory system and WSPs to ensure suitability of recommendations, failed to ensure that new account documents were filled out completely and accurately. Additionally, the firm’s principals admitted that they had joint responsibility for establishing, maintaining and enforcing the firm’s supervisory system and its WSPs, they failed to identify and investigate red flags of unsuitable trading.

Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a reasonably designed supervisory system. Corinthian Partners, LLC was censured and fined $30,000, the firm’s principals were also fined and suspended from association with any FINRA member in any capacity for 30 business days.

If you have not hired an attorney you may contact David A. Weintraub, P.A., 7805 SW 6^th Court, Plantation, FL 33324. By phone: 954.693.7577 or 800.718.1422.

Kestra Investments Services Agrees to Pay 1.9M in Restitution to Eligible Mutual Fund Customers

David Weintraub February 13, 2019

During the investigation period, July 1, 2009 and February 22, 2018, Kestra deprived eligible retirement accounts and charitable organizations that qualified but did not receive, the applicable mutual fund sales charge waiver or appropriate share class. Customers were overcharged approximately $1.6 million. The investigation found that since July 2009, approximately 3,250 eligible customers accounts purchased mutual funds shares for which the Firm did not apply an available sales charge waiver. Kestra relied on its financial advisors to determine the applicability of sales charge waivers but failed to maintain reasonable designed written policies or procedures to assist in making this determination. The different sales charges, breakpoints, waivers and fees associated with different shares classes affect the return customers receive from mutual fund investments.

Without admitting or denying the findings, the firm agreed to pay customers $1.9 million. Kestra was also fined $325,000. The firm agreed to the entry of findings that it failed to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to ensure that its registered representatives’ recommendations complied with applicable securities laws and regulations and FINRA rules. Additionally, Kestra has provided FINRA with a detailed plan to remediate eligible customers.

FINRA Fines CFD Investments, Inc. for Supervisory Deficiencies

David Weintraub January 10, 2019

On January 10, 2019, FINRA fined CFD Investments $125,000 for failure to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to ensure that its registered representatives’ recommendations of variable annuities complied with applicable securities laws, regulations and FINRA rules.

CFD failed to provide sufficient training to its registered representatives and reviewing principals to ensure that they understood the material features of variable annuities, specifically the additional scrutiny of the suitability issues raised by the sale of an L-share contract combined with a long-term rider, or to a customer with a long term investment objective. The findings also stated that the firm failed to implement reasonable procedures to supervise rates of variable annuity exchanges by associated persons. The procedures did not provide any guidance regarding what constituted excessive switching, and how to supervise for excessive switching. Moreover, the firm had no surveillance procedures or processes to review the rates of exchanges of its associated persons. The lack of supervisory systems and procedures relating to rates of exchanges was particularly unreasonable given that nearly 25 percent of the firm’s variable annuity transactions were exchanges

Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system and written supervisory procedures (WSPs) reasonably designed to ensure that its registered representatives’ recommendations of variable annuities complied with applicable securities laws and regulations and FINRA rules.