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Fight Investment Fraud

Greco & Greco's lawyers represent investors to recover losses caused by securities fraud, churning, lack of suitability, negligence, sales of unregistered securities, unauthorized trading, and other misconduct by stock brokers, investment advisors, financial planners and their firms.

A review of recent FINRA Arbitration Awards show that TIC investors have had multiple victories in sales practice claims against the FINRA brokerage firms that sold them Tenant in Common (TIC) investments.  Claims have included securities fraud, breach of fiduciary duty, negligence, failure to supervise, elder abuse, and misrepresentations and omissions.  The following FINRA awards may be found at the FINRA web site:

1.  Hardt, et al. v. LPL Financial LLC.  No. 11-00347.  The arbitration panel in this San Diego, California arbitration awarded $1,367,000.00 in compensatory damages, interest, and costs.  Claims against two other Broker-Dealers were dismissed by Claimants.  The claims related to investments with Direct Invest LLC which included investments in Heron Cove. LLC and Braintree Park, LLC.

2.  Lightfoot, et al. v. Pacific West Securities, et al.  No. 11-00230.  A Seattle, Washington panel submitted another multi-million dollar award:  $1,862,960,65 plus $200,000 in attorneys fees for violations of the Securities Act of Washington.  The panel found a violation of the standard of care by Respondents for “the disavowal by Respondents of any obligation to conduct a suitability analysis for the sale of TICs in the circumstances of a Section 1031 - like kind assets exchange for tax deferral purposes.”  Multiple TICs were involved: TSG Midwest, Evergreen Springs, Argus TriWest, Passco River Park and Passco Promenade.

3.  Griswold v. Burch & Company, Inc., et al.  No. 10-02477.  In this Alaska case, the panel awarded almost all of the compensatory damages requested ($350,000), plus interest for a claim related to Beamer Place Apartments.

4.  Tommerup, et al. v. Waveland Capital Partners LLC, et al.  No. 10-04616.  This Helena Montana arbitration involved two DBSI TIC investments (Executive Park LLC, and DBSI Arrowhead, LLC 1965, 1705 & 1715
Indian Woods Circle), and a request for $410,000 in damages.  The panel awarded $301,875.00 which included interest, and $27,000 of discovery sanctions.

5.  Wiborg, et al. v. Pacific West Securities, Inc.  No. 10-02818.  In another arbitration involving Pacific West (this one in San Francisco), the Panel awarded $300,000 plus $50,000 in punitive damages.  In awarding the punitive damages, the panel described the basis for its finding that Respondent “failed to supervise” the broker involved.  The Claimant alleged damages from two TICs -  DBSI Offices at Brookhollow Tenant-in-Common securities and Garlock & Company Museum Park Garage Tenant-in-Common securities.

As set out in this recent FINRA Press Release, a FINRA hearing officer expelled a member firm (Pinnacle Partners Financial) and its President.  The decision stated that Pinnacle operated a “boiler room” that placed thousands of cold calls per week soliciting investments in oil and gas drilling joint ventures.  Furthermore, the decision found the investments to be “fraudulent,” and determined that the monies raised were misused to pay back previous offerings and to pay personal expenses.  In addition to the expulsion from FINRA, the firm was ordered to offer full rescission to its customers.

As noted in this press release from FINRA, Wells Fargo, Citigroup, Morgan Stanley, and UBS were fined for failing to supervise sales of leveraged and inverse ETFs.  FINRA also alleged failures of a reasonable basis to recommend the securities (i.e. suitability).

FINRA found that:  “from January 2008 through June 2009, the firms did not have adequate supervisory systems in place to monitor the sale of leveraged and inverse ETFs, and failed to conduct adequate due diligence regarding the risks and features of the ETFs. As a result, the firms did not have a reasonable basis to recommend the ETFs to their retail customers.”

Many inverse and leveraged exchange traded funds, including some by Proshares and Direxion, were designed to seek multiples of the exchange they were designed to track.  However, many of these ETFs were designed to reset daily, thereby creating drastic differences in their performance over time compared to the index they were designed to track.  We have seen many situations where many of the risks of these funds were not disclosed to customers.

The prospectus for the Proshares leveraged and inverse ETFs from September 2007 makes clear that these investments were an aggressive day-trading tool, not an investment appropriate or suitable for most retail investors.  Specifically, the prospectus stated:

p. 7:  ‘The Funds do not seek to achieve their stated investment objective over a period of time greater than one day because mathematical compounding prevents the Funds from achieving such results.’
p. 8:  ‘The Funds use investment techniques that may be considered aggressive, including the use of futures contracts, options on futures contracts, securities and indices, forward contracts, swap agreements and similar instruments.’
p. 9:  ‘Certain Funds are ‘leveraged’ funds in the sense that they have investment objectives to match a multiple of the performance of an index on a given day. These Funds are subject to all of the correlation risks described above. In addition, there is a special form of correlation risk that derives from these Funds’ use of leverage, which is that for periods greater than one day, the use of leverage tends to cause the performance of a Fund to be either greater than or less than the index performance times the stated multiple in the fund objective, before accounting for fees and fund expenses’

In June of 2009, FINRA issued a Regulatory Notice (09-31) regarding these Non-Traditional ETFs.  The Notice states:  ‘inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.’

If you suffered losses in your brokerage accounts resulting from your broker’s trading in ETFs, and you would like to discuss your potential claim with an attorney, please contact Greco & Greco.

As set out in this FINRA link, FINRA recently fined AXA Advisors, LLC for its failures to act in relation to the sale by its registered representative of a ponzi scheme.  The Letter of Acceptance, Waiver, and Consent documents failures to supervise by AXA including failures to follow up on red flags regarding the ponzi scheme.  One red flag was a suspicious excel spreadsheet found in an audit of the broker’s office.  The broker also had a checkered regulatory history which made him a “compliance risk.”

Greco & Greco regularly represents investors in “selling away” cases such as these where the broker engages in ponzi schemes or outright steals funds from customers.  Customers may attempt to recover their losses in FINRA arbitration by demonstrating firms’ failures to supervise, failure to follow up on red flags, and by arguing the firm is responsible for the acts of its agent under the legal theories of respondeat superior and vicarious liability.  Federal and state securities laws also mandate liability of control persons (such as brokerage firms) if certain requirements are met.  If you are the victim of a ponzi scheme or broker theft by a FINRA registered broker, please contact one of our attorneys for a free consultation.

As of July 9, 2012, FINRA’s new suitability Rule (Rule 2111) takes effect to replace the old NASD/FINRA Rule 2310.  The new Rule can be found here. 

The new suitability Rule, and its supplemental material, contains several clarifications which are important for investor protection.  First, the Rule clearly states that recommendations of investment strategies as well as transactions fall under the rule.  The supplemental material further states that “investment strategy” is to be interpreted broadly, including recommendations to hold securities. 

The new Rule also sets out more specifically investor financial information that a registered representative must consider when making recommendations.  Specific information includes:  “customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.”  The Rule also sets out a standard to be applied in regard to the representative’s efforts to discover customer suitability information:  “reasonable diligence” is required to discover the customer’s investment profile.

The supplemental material to the Rule further clarifies FINRA standards regarding three kinds of suitability:  reasonable-basis suitability, customer-specific suitability, and quantitative suitability.  Reasonable basis suitability is required due diligence on a security before it can be recommended to customers - this issue can arise in private placement or TIC situations where the security is not on a national exchange.  Customer specific suitability is, as described above, recommending a security only if it is suitable for a customer’s specific situation.  Quantitative suitability is in essence a ban on churning - representatives cannot recommend (or trade with discretion) if the number of trades is excessive in light of the customer’s financial situation and investment profile.  Turnover rates and cost-equity ratios are often used to demonstrate the lack of suitability of churned accounts.

Pursuant to the Dodd-Frank Act, the Securities and Exchange Commission (SEC) was required to conduct a study identify the financial literacy of retail investors in the U.S.  The study can be found here. 

Not surprisingly, the study showed that retail investors consistently lacked financial literacy of basic investment issues, and lacked critical knowledge about investment fraud.  The report states:  “... studies have found that investors do not understand the most elementary financial concepts, such as compound interest and inflation.  Studies have also found that many investors do not understand other key financial concepts, such as diversification or the differences between stocks and bonds, and are not fully aware of investment costs and their impact on investment returns.”

Despite most individuals’ lack of financial literacy, and the fact that most individuals rely on investment professionals due to their own lack of investment knowledge, a standard defense raised by brokerage firms in FINRA arbitrations is to blame the victim and claim that the investor understood the risks involved in following the broker’s advice.  This study refutes the common defense that almost every individual is a “sophisticated investor” capable of understanding the risks involved.  If you suffered losses due to the wrongful acts of a broker, advisor, or brokerage firm, please contact one of our attorneys for a free consultation.

Back in March of 2012 we listed five recent FINRA arbitration awards to customers who had suffered losses in TIC investments - the post can be found here.  FINRA arbitration panels have issued several additional awards to customers based on claims of securities fraud, negligence, lack of suitability, breach of fiduciary duty, etc. in relation to TIC (Tenant In Common) sales by brokerage firms and brokers:

1.

DRG Hendersonville TIC 13 LLC, et al. v. Behrends, Capstone Financial, CapWest Securities, et al.

  FINRA arbitration #11-01909, Los Angeles, California.  This claim related to two TIC investments:  Marriott
Renaissance Meadowlands Hotel and the Arbors on Main Apartments.  The Panel issued an award to Claimants for $338,000 plus interest against Capwest and two individuals.  Unfortunately, Capwest is no longer licensed with FINRA so the collectibility of the award is questionable.

2.

Castro v. Capwest Securities, et al.

, FINRA Arbitration # 10-02633, Los Angeles, California.  This is another LA FINRA arbitration against CapWest and invididuals.  The TICs involved were Water Song Apartments (CWC Water Song S&H LP), and Cabot Turfway Ridge Acquisition, LLC.  The panel awarded $156,250 plus interest to the Claimants against Capwest and the individual Respondents.

3.

McLean v. Great Northern Financial Securities, Inc.

, FINRA Arbitration #11-03787, Seattle Washington.  Once again, another customer award but against a defunct Brokerage Firm.  This case involved a DBSI TIC as well as other private placement investments.  The panel awarded $424,553 which included damages, interest, treble damages, and attorneys fees.

Greco & Greco is currently pursuing multiple TIC claims against Broker-Dealers and registered representatives in FINRA Arbitration.  To read more about the duties of brokers selling TIC’s, please click here through to our website.  If you wish to speak to one of our attorneys about a possible claim, please contact usfor a free consultation.

Greco & Greco is currently pursuing claims on behalf of investors relating to wrongful conduct in life insurance sales, life settlement sales, and variable annuity withdrawals by Neil Winterrowd.  Mr. Winterrowd was formerly a FINRA registered representative of Crown Capital Securities LP and J.P. Turner & Company LLC.  According to FINRA’s Brokercheck, J.P. Turner discharged Mr. Winterrowd for “Improper handling of customer funds” related to variable annuities.  If you believe that you may have been a victim of the above conduct, please contact one of our attorneys for a free consultation.

As shown by this FINRA Order, FINRA sanctioned David Lerner and Associates for sales of Apple REIT Ten and markups related to municipal bonds and CMO’s.  Of the $14 million in fines and restitution, approximately $12 million is to be paid to affected customers.

The wrongful conduct alleged by FINRA includes the following:  1) failure to do proper due diligence on Apple REIT Ten prior to approving its sale to customers, many of whom were elderly and unsophisticated, 2) misrepresentations of the REITs performance, value, and returns, 3) false statements in sales seminars and letters describing the REITs, 4) improper markups, and 5) supervisory violations.

David Lerner Associates has had a great incentive for the sale of the Apple REITs - it earns 10% on every sale and has sold $7 billion of the REITs since 1996.  These revenues account for 60-70% of DLA’s business according to FINRA.  As stated by FINRA:  “Many of DLAs customers are senior and/or unsophisticated, and DLA solicits customers by general means such as the internet, radio, cold callings, mailings, and open-invitation seminars at senior centers, restaurants, and country clubs.”

Details of the restitution program may be found here.  As stated, the remediation plan does not prevent investors from pursuing additional losses through arbitration.  If you suffered losses in REITs and you would like to discuss your case for free with one of our attorneys, please contact Greco & Greco.

The Securities Commissioner of Maryland entered a Consent Order against former FINRA registered representative Joseph A. Giordano in May, 2013.  The Order can be found here. 

According to the Consent Order, Giordano violated the Maryland Securities Act by “misrepresenting or omitting to disclose material facts to investors, and making unsuitable recommendations.”  The investments at issue were Empire bonds and debentures.

Giordano was a FINRA registered securities salesperson with Capital Investment Group, Inc. from October, 1992 to June, 2012.  Mr. Giordano’s FINRA Brokercheck report states that he was terminated for cause by Capital Investment Group for “selling away and making false and misleading statements to the firm.”  The Consent Order states that Capital Investment Group raised issues of concern regarding Empire Corporation debentures in 2006.

Greco & Greco regularly represents investors in “selling away” cases such as this where the broker sells unauthorized securities away from his firm.  Customers may attempt to recover their losses in FINRA arbitration by demonstrating firms’ failures to supervise, failure to follow up on red flags, and by arguing the firm is responsible for the acts of its agent under the legal theories of respondeat superior and vicarious liability.  Federal and state securities laws also mandate liability of control persons (such as brokerage firms) if certain requirements are met.  If you are the victim of a fraudulent sale of securities by a FINRA registered broker, please contact one of our attorneys for a free consultation.

NASAA (the North American Securities Adminstrators Association) has released its 2013 list of top financial product and practice threats to investors here.

The top threat is one that we at Greco & Greco see often - Private Offerings.  As stated by NASAA:  “These offerings commonly are referred to as Reg D/Rule 506 offerings, named for the exemption in federal securities laws that allows private placements to be sold to investors without registration). By definition these are limited investment offerings that are highly illiquid, generally lack transparency and have little regulatory oversight. While Reg D/Rule 506 offerings are used by many legitimate companies to raise capital, they carry high risk and may not be suitable for many individual investors.”

These private offerings are often high risk investments.  Be wary should your stockbroker or investment advisor recommend them to you as safe or low risk.

Other potential threats listed by NASAA include real estate investment schemes, high yield investment and ponzi schemes, affinity fraud, self directed IRAs, Oil and Gas Drilling Programs, and digital currency.

If your stockbroker or investment advisor has sold you a product without disclosing the risks involved, or if you think you are a victim of a fraudulent investment scheme, please contact Greco & Greco for a free consultation.

The securities industry self-regulatory body, FINRA, recently required JP Turner & Company to pay $700,000 in restitution to customers who lost money in unsuitable leveraged and inverse exchange traded funds (ETFs).Press Release here.

According to FINRA:

“FINRA found that J.P. Turner failed to establish and maintain a reasonable supervisory system and instead, supervised leveraged and inverse ETFs in the same manner that it supervised traditional ETFs. The firm also failed to provide adequate training regarding these ETFs. In addition, J.P. Turner allowed its registered representatives to recommend these complex ETFs without performing reasonable diligence to understand the risks and features associated with the products. As a result, many J.P. Turner customers held leveraged and inverse ETFs for several months. J.P. Turner also failed to determine whether the ETFs were suitable for at least 27 customers, including retirees and conservative customers, who sustained collective net losses of more than $200,000.”

In June of 2009, FINRA issued a Regulatory Notice (09-31) regarding these Non-Traditional ETFs.  The Notice states:  ‘inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.’

If you suffered losses in your brokerage accounts resulting from your broker’s trading in ETFs, and you would like to discuss your potential claim with an attorney, please contact Greco & Greco.

As shown by this press release, FINRA barred two JP Morgan Chase Securities brokers for taking $300,000 in annuity proceeds from an elderly widow. 

Although the firm paid the monies back to the customer, in many instances securities brokerage firms claim they are not responsible for the theft or wrongful acts of their brokers.  However, multiple legal theories mandate liability for a firm for the wrongful acts of its brokers/agents even if the firm claims it did not know of the activity.  If you are a victim of a similar scheme and wish to discuss your rights with an attorney, please contact Greco & Greco for a free consultation with one of our attorneys.

A Settlement Order was recently issued by the State of Virginia (Bureau of Insurance and Division of Securities) against two insurance salespersons and their firm. The Order may be found here.

In the Order, the Virginia Regulators alleged as follows:

a.  “The Defendants, on multiple ocassions, sold over $2 million in unregistered securities in the form of qualified charitable gift annuities (“CGAs”) issued by 54 Freedom Foundation, Inc. (54 Freedom”) and promissory notes…”

b.  The brokers involved mischaracterized the investment risks involved with the investments and failed to conduct adequate due diligence.

c.  “Ultimately, principals of 54 Freedom misappropriated funds obtained through the sale of both 54 Freedom CGAs and Notes… As a result, all of the Defendants’ clients who purchased 54 Freedom CGAs or Notes appear to have lost their principal investments totaling over $2 million.”

Pursuant to the Order the salespersons surrendered their licenses to sell insurance and were required to pay monetary penalties.

If you were sold these investment products and wish to discuss your claims with an attorney, please contact Greco & Greco for a free consultation.

Ismail Elmas plead guilty on October 21, 2014 to a Count of Wire Fraud in the U.S. District Court for the Eastern District of Virginia.  According to the U.S. Attorney’s Office press release (which can be found here), Mr. Elmas worked at Apple Financial Services, an affiliate of Apple Federal Credit Union during the time of the offense.

FINRA’s Brokercheck Report for Mr. Elmas states that Mr. Elmas was previously registered as a securities registered representative with CUNA Brokerage Services and CUSO Financial Services, both FINRA Broker-Dealers.  The Brokercheck Report states that he was terminated by CUSO because he “allegedly converted funds for personal use…”

The above press release references that Elmas admitted to misappropriating client funds given to him for legitimate investments, and that he defrauded more than 10 of his clients, many of whom were seniors and widows. 

Greco & Greco is currently investigating and pursuing claims against the parties involved in the Elmas case.  Greco & Greco regularly represents investors in “selling away” cases such as this where the broker sells unauthorized securities or converts funds away from his firm.  Customers may attempt to recover their losses in FINRA arbitration and/or court by demonstrating firms’ failures to supervise, failure to follow up on red flags, and by arguing the firm is responsible for the acts of its agent under the legal theories of respondeat superior and vicarious liability.  Federal and state securities laws also mandate liability of control persons (such as brokerage firms) if certain requirements are met.  If you are a victim of Mr. Elmas, please contact one of our attorneys for a free consultation.