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Articles Posted in Ponzi Scheme

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broker misappropriating client moneySyosset, NY-based stockbroker Matthew Eckstein was recently charged with three counts of second-degree grand larceny, third degree grand larceny, and two counts of first-degree scheme to defraud by the Nassau County District Attorney.  These charges stem from Mr. Eckstein’s business as a financial advisor in Garden City, NY, and more specifically, allegations that he “betrayed his clients’ trust when he stole their money in a multi-million dollar Ponzi scheme and even pilfered hundred of thousands from the estates of deceased clients” according to Madeline Singas, the Nassau County District Attorney.

FINRA BrokerCheck indicates that Matthew Evan Eckstein’s (CRD# 2997245) career in the securities industry dates back to 1998, when he first began working as a registered representative for Gould, Ambroson & Associates Ltd. (“Gould”) (CRD# 17412) in Garden City, NY.  Since September 16, 2015, Mr. Eckstein has been registered at his own broker-dealer, Sisk Investment Services, Inc. (“Sisk”) (CRD# 19406), where he is chief executive and chief compliance officer.  On April 27, 2018, FINRA Enforcement filed a Complaint naming Mr. Eckstein as Respondent.  As alleged by FINRA, from December 2014 until December 2015, Mr. Eckstein purportedly sold over $1.3 million in supposedly safe private investments akin to CDs to numerous clients.

Publicly available information suggests Mr. Eckstein’s alleged victims are from Massapequa, Seaford, Smithtown, Melville, Staten Island, Brooklyn, Manhattan, Norwalk, CT, Jupiter, FL, and Redlands, CA.  In January 2015, Mr. Eckstein allegedly convinced one customer to invest approximately $385,000 into a company, Conmac Funding (“Conmac”), that was touted as a safe, no-risk investment.  Further, Mr. Eckstein purportedly assured the client that the investment principal would be returned in two years, with an additional four-percent interest, much like a certificate of deposit.  However, as recently reported, when the client requested his money back two years later, he only received $26,699.

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woodbridge mortgage fundsIf you invested in Woodbridge upon the recommendation of former financial advisor Frank Roland Dietrich (“Dietrich”), you may be able to recover your losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”).  According to FINRA BrokerCheck, a number of investors have already filed claims against Mr. Dietrich and his former employer, broker-dealer Quest Capital Strategies, Inc. (“Quest Capital”) (CRD# 16783).  Publicly available information suggests that Quest Capital has disavowed any prior knowledge of Mr. Dietrich’s alleged business activity conducted away form the firm in selling purportedly non-approved Woodbridge investments.  Nevertheless, Mr. Dietrich’s alleged “selling away” activity, to the extent it may have occurred while he was still affiliated with Quest Capital, may give rise to Quest Capital being held vicariously liable for the negligence and/or misconduct of its former employee.

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, and certain of its affiliated entities, filed for Chapter 11 bankruptcy protection on December 4, 2017 (U.S. Bankruptcy Court for the District of Delaware – Case No. 17-12560-KJC).  The SEC has alleged that Woodbridge, through its owner and former CEO, Mr. Robert Shapiro, purportedly utilized “more than 275 Limited Liability Companies to conduct a massive Ponzi scheme raising more than $1.22 billion from over 8,400 unsuspecting investors nationwide through fraudulent unregistered securities offerings.”

Beginning as early as 2012, Woodbridge and its affiliates offered securities nationwide to numerous retail investors through a network of in-house promoters, as well as various licensed and unlicensed financial advisors.  Woodbridge investments came in two primary forms: (1) “Units” that consisted of subscriptions agreements for the purchase of an equity interest in one of Woodbridge’s seven Delaware limited liability companies, and (2) “Notes” or what have commonly been referred to as “First Position Commercial Mortgages” or “FPCMs” consisting of lending agreements underlying purported hard money loans on real estate deals.

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broker misappropriating client moneyOn May 30, 2018, the Securities and Exchange Commission (“SEC”) filed a civil complaint against Mr. Steven Pagartanis, alleging that the East Setauket, NY stockbroker purportedly “[d]efrauded at least nine retail investors of approximately $8 million by soliciting and selling them securities using false and misleading statements from 2013 to at least February 2018 (the ‘Relevant Period’).”  During the Relevant Period, Mr. Pagartanis was affiliated with Cadaret, Grant & Co., Inc. (“Cadaret”) (CRD# 10641) from 2012 – 2017 and, thereafter, with Lombard Securities Incorporated (CRD# 27954) (“Lombard”).

As alleged by the SEC in its Complaint filed in federal court in the Eastern District of New York (SEC v Pagartanis Complaint), Mr. Pagartanis purportedly solicited certain of his customers — many of them retirees who relied upon his advice and investment recommendations — to invest in what was touted as a safe and conservative investment “[w]ith a fixed percentage return, generally between 4.5 and 8 percent annually.”  Specifically, the SEC alleged that Mr. Pagartanis informed at least five investors that they were investing in the common stock of Genesis Land Development Co. (“GDC”), a Canadian real estate firm listed on the Toronto Stock Exchange.  According to the SEC’s Complaint, in actuality the investment capital raised by Mr. Pagartanis was allegedly funneled to an LLC sharing the name Genesis, for which Pagartanis was the sole member and owner of the LLC.

The SEC has alleged that Mr. Pagartanis conducted a fraudulent scheme, under which he purportedly “[t]ransferred the money raised to his personal bank account, to other entities he controlled, and used around $1.8 million to make monthly interest payments to his customers.”  In typical Ponzi-like fashion, the scheme reportedly collapsed in early 2018 when Mr. Pagartanis failed to pay investors their monthly interest payments.

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money backing hard money real estate dealAs we have detailed in numerous blog posts, the Woodbridge Group of Companies, LLC (“Woodbridge”) and certain of its affiliated entities filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware (Case No. 17-12560-KJC) on December 4, 2017.  From the outset of this Chapter 11 proceeding, investors in Woodbridge Notes (“Noteholders”) have taken the position that they hold secured, perfected liens in various real estate deals.

By way of background, beginning as early as July 2012, Woodbridge and its affiliates offered securities nationwide to investors in at least two forms: (1) subscription agreements for the purchase of equity interests or units in one of Woodbridge’s seven Delaware limited liability companies (“Units”); and, (2) lending agreements, some of which were referred to as “First Position Commercial Mortgage Notes,” “mezzanine loans,” “construction loans,” and “Co-Lending Opportunities” (collectively, “FPCMs”).

On March 27, 2018, the Debtors, the Unsecured Creditors Committee and the Ad Hoc Noteholders Committee all agreed on a plan of reorganization that was encapsulated in a Term Sheet filed with the Bankruptcy Court.  However, the Term Sheet failed to address whether or not Woodbridge Noteholders who invested in FPCMs do, in fact, hold secured, perfected liens.  Accordingly, on March 27th a Woodbridge FPCM investor – retired 85 year old attorney Lisa La Rochelle – filed an adversary proceeding (the “Owlwood Complaint”) in an effort to resolve the looming question of whether some $800 million in FPCMs should be treated as secured debt for purposes of disposition of the Chapter 11 proceeding.

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Money MazeInvestors who suffered losses due to misconduct by financial advisor Ralph Savoie (CRD# 411660) may be able to recover their losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”).  On March 26, 2018, Mr. Savoie plead guilty in Louisiana federal court to stealing up to $1.5 million from clients, using their monies for personal expenses including jewelry, hotels, and credit card bills, as well as to pay off previous clients in Ponzi-fashion in connection with prior purported investment opportunities.  Mr. Savoie allegedly guaranteed his clients high rates of returns on various investments in securities and insurance products, describing the investments as a “sure thing.”  In actuality, however, Mr. Savoie allegedly engaged in misconduct by using these funds on personal expenses, to pay prior clients and to funnel money into a “risky real estate venture.”

According to public records, Mr. Savoie of Mandeville, LA, was formerly associated with Cambridge Investment Research Advisors, Inc. (CRD# 134139) (“Cambridge”) in their Metairie, LA, branch office, until on or about August 11, 2015, at which time Mr. Savoie was discharged from his employment with Cambridge as a registered representative.  Mr. Savoie’s career in the securities industry is lengthy and dates back to the early 1970’s, including his most recent stint at Cambridge from 2013 until August 2015.

According to publicly available information through FINRA, Mr. Savoie was discharged from his employment with Cambridge due to his alleged failure to “[d]isclose and receive approval for an outside business activity.”  Further, FINRA reports that Mr. Savoie has been subject to six customer disputes, including three that remain pending and three that have resulted in settlement.  A number of these disputes center on allegations concerning Mr. Savoie’s purported sales of “unsuitable, illiquid, expensive, private placements.”

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woodbridge mortgage fundsAs highlighted in our most recent blog posts concerning the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA, Woodbridge filed for Chapter 11 bankruptcy on December 4, 2017, in Delaware Bankruptcy Court (Case No. 17-12560-KJC).  Thereafter, on December 21st, the SEC formally filed charges against Woodbridge and its owner and former CEO, Robert Shapiro, alleging that “[D]efendant… used his web of more than 275 Limited Liability Companies to conduct a massive Ponzi scheme raising more than $1.22 billion from over 8,400 unsuspecting investors nationwide through fraudulent unregistered securities offerings.”

By January 2, 2018, the SEC further alleged, among other things, that the timing of the Chapter 11 proceeding called into question whether Mr. Shapiro had preemptively sought bankruptcy protection, in the first instance, in order to shield himself from impending charges of misconduct.  Through its Motion to Direct the Appointment of a Chapter 11 Trustee, the SEC alleged that cause existed for the appointment of an independent trustee to help manage the bankruptcy process and protect the interests of numerous Woodbridge investors: “[i]nstead of allowing a District Court to appoint an independent fiduciary, Robert Shapiro decided that he would select the victims’ fiduciaries when he started hiring the team of managers and professionals who are representing the Debtors’ estates today.”

On January 19, 2018, turnaround specialist Mr. Lawrence Perkins of SierraConstellation Partners LLC, resigned as Chief Restructuring Officer of Woodbridge.  As recently reported, Mr. Perkins’ resignation will be effective once a replacement is hired, according to attorney Sam Beach of Young, Conaway, Stargatt & Taylor, counsel for Woodbridge.  Further, the Bankruptcy Court scheduled closing arguments related to the request for an independent trustee for Tuesday, January 23, 2018.

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woodbridge mortgage fundsAs we have discussed in previous blog posts, on December 21, 2017, the Securities and Exchange Commission (“SEC”) formally announced charges against the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA, as well as Woodbridge’s related unregistered investment funds and the firm’s owner and former CEO, Robert Shapiro.  Essentially, the SEC has alleged that “[D]efendant Robert H. Shapiro used his web of more than 275 Limited Liability Companies to conduct a massive Ponzi scheme raising more than $1.22 billion from over 8,400 unsuspecting investors nationwide through fraudulent unregistered securities offerings.”

The SEC’s recent charges come on the heels of Woodbridge filing for Chapter 11 bankruptcy protection on December 4, 2017 in Delaware Bankruptcy Court (Case No. 17-12560-KJC).  Through filings with the Bankruptcy Court, the SEC has alleged that Mr. Shapiro sought Chapter 11 protection in order to shield himself from charges of allegedly orchestrating a Ponzi scheme: “[h]e needed to create the appearance of a bankruptcy that resembled a bona fide Chapter 11, complete with legal and restructuring professionals of the type normally seen in a real organization.  So instead of allowing a District Court to appoint an independent fiduciary, Robert Shapiro decided that he would select the victims’ fiduciaries when he started hiring the team of managers and professionals who are representing the Debtors’ estates today.”

On January 2, 2018 — in light of these allegations and concerns related to ensuring adequate representation of the numerous Woodbridge investors nationwide — the SEC filed a Motion to Direct the Appointment of a Chapter 11 Trustee.  Pursuant to 11 U.S.C. §1104(a), the SEC has sought to appoint an independent Chapter 11 trustee for cause, in order to ensure Woodbridge investors are best protected.  In seeking the appointment of a Chapter 11 trustee, the SEC has argued that cause exists, given allegations that “[M]r. Shapiro engaged in widespread fraud, dishonesty, incompetence and gross mismanagement in operating the Debtors prior to bankruptcy.  This conduct is sufficient cause for a trustee under Section 1104(a)(1).  In re Vaughan, 429 B.R. 14 (Bankr. D. N.M. 2010) (conduct relating to operation of Ponzi scheme falls squarely within Section 1104(a)).”

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woodbridge mortgage fundsAs we recently discussed in detail in a previous blog post, on December 21, 2017, the Securities and Exchange Commission (“SEC”) formally announced charges, as well as an asset freeze, against the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA, as well as Woodbridge’s related unregistered investment funds, and the firm’s owner and former CEO, Robert Shapiro.  Among other things, the SEC has alleged in its Complaint – filed in Florida federal court – that “[D]efendant Robert H. Shapiro used his web of more than 275 Limited Liability Companies to conduct a massive Ponzi scheme raising more than $1.22 billion from over 8,400 unsuspecting investors nationwide through fraudulent unregistered securities offerings.”

According to the SEC’s Complaint, Woodbridge utilized a large and coordinated sales force to sell its Woodbridge Notes, sometimes referred to as First Position Commercial Mortgages (“FPCMs”).  As further alleged by the SEC, “Woodbridge employed a sales team of approximately 30 in-house employees that operated within Woodbridge’s offices.”  Moreover, the SEC’s Complaint alleges that “Woodbridge also utilized a network of hundreds of external sales agents to solicit investments from the general public by way of television, radio, and newspaper advertisements, cold calling campaigns, social media, websites, seminars and in-person presentations.”

As detailed in the SEC’s Complaint, the Woodbridge business model relied upon borrowing money from investors in exchange for promissory notes, typically maturing in 12 – 18 months.  These notes carried an annual interest rate of 5 – 8%, payable monthly.  The investors’ money was supposed to be issued to lenders in the form of securitized mortgages.  However, according to the SEC, this rarely occurred.

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investing in real estate and hard money loansOn December 21, 2017, the Securities and Exchange Commission (“SEC”) formally announced charges, as well as an asset freeze, against the Woodbridge Group of Companies (“Woodbridge”) and its related unregistered investment funds, as well against Woodbridge’s owner and former CEO, Robert Shapiro.  Through initiating litigation (the “Complaint”) in Florida federal court, the SEC is alleging, in sum and substance, that “[D]efendant Robert H. Shapiro used his web of more than 275 Limited Liability Companies to conduct a massive Ponzi scheme raising more than $1.22 billion from over 8,400 unsuspecting investors nationwide through fraudulent unregistered securities offerings.”  As further alleged in the Complaint, “Despite receiving over one billion dollars in investor funds, Shapiro and his companies only generated approximately $13.7 million in interest income from truly unaffiliated third-party borrowers.  Without real revenue to pay the monies due to investors, Shapiro resorted to fraud, using new investor money to pay the returns owed to exiting investors.”

According to Mr. Steven Peikin, Co-Director of the SEC’s Enforcement Division, “Our complaint alleges that Woodbridge’s business model was a sham.  The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”

If you are have invested in Woodbridge Wealth or in any of the Woodbridge Mortgage Funds, you may have questions concerning your rights in light of Woodbridge’s recent bankruptcy filing and the SEC’s recent Complaint alleging that Woodbridge is, in fact, a Ponzi Scheme.

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broker misappropriating client moneyOn December 18, 2017, LPL Financial LLC (“LPL”) lost a FINRA arbitration concerning customer claims related to former LPL broker Charles Fackrell.  The three-member FINRA panel issued a $462,000 aggregate award to six of Mr. Fackrell’s former clients, an amount which must be satisfied by LPL within 30 days.  As we discussed in a previous blog post, Mr. Fackrell (CRD# 5369665) pled guilty last year to one count of securities fraud for operating a $1.4 million Ponzi scheme.  According to prosecutors handling the investigation, beginning around May 2012, Mr. Fackrell first engaged in the fraudulent scheme by misappropriating investor funds solicited from at least 20 victims, many from Wilkes County, North Carolina.

In addition to asserting claims of negligence and violations of the North Carolina Securities Act, Mr. Fackrell’s former clients brought claims against LPL for breach of contract, failure to supervise, principal/agent liability, and negligent retention of an agent.

As detailed in publicly available court documents, Mr. Fackrell abused his position of trust with his clients, steering them away from legitimate investments to purported investments with “Robin Hood, LLC,” “Robinhood LLC,” Robin Hood Holdings, LLC,” and “Robinhood Holdings, LLC,” as well as related entities (collectively, “Robin Hood”).  These entities were controlled by Mr. Fackrell and provided him with a conduit through which to cover his own personal expenses, including hotel expenses, groceries, purchases at various retail shops, and to make large cash withdrawals.

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