Securities Fraud

Published on: December 20, 2012

Massachusetts Regulator Sues LPL Financial Alleging Violations in Sales of Non-traded REITs

On December 12, 2012, Massachusetts securities regulators announced that they are suing LPL Financial in connection with sales of risky investments known as non-traded REITs. LPL Financial has been charged with improper sales practices and inadequate supervision of registered representatives who sold non-traded REITs.

The Fight Against LPL Financial Nontraded REIT Fraud Continues

These charges are in connection with the sales of $28 million in non-traded REITs between 2006 and 2009, which were sold to nearly 600 clients in Massachusetts. According to the Massachusetts Securities Division, 569 of those transactions had regulatory violations, including violations of prospectus requirements, violations of Massachusetts concentration limits and violations of LPL’s compliance practices.

Inland American Real Estate Trust Inc. accounted for the largest amount of sales of all the REITs listed in the complaint. With real estate assets amounting to $11.2 billion, this REIT was the largest non-traded REIT in the industry.

Published on: December 13, 2012

Merrill Lynch Customers Could Recover Losses Over Hedge Funds, Fannie Mae Preferred Stock

by InvestorLawyers

Securities fraud attorneys are currently investigating claims on behalf of Merrill Lynch customers who suffered significant losses as a result of their hedge fund investments and/or Fannie Mae Preferred Shares investments with the firm.

Merrill Lynch Customers Could Recover Losses Over Hedge Funds or Fannie Mae Preferred Stock

In particular, these stock fraud lawyers are looking into the sales practices of Merrill Lynch and its brokers in regards to the Coast Access II LLC hedge fund. Coast Access II LLC is a “feeder fund,” investing substantially all of its assets in Coast Diversified Fund LLC, a multi-manager, multi-strategy “fund of funds” which invests through the market neutral or relative value trading of several securities and commodities trading advisors, according to Coast Access’ SEC Form D filing. Coast Access II LLC’s place of principal business operations and executive offices are listed as Merrill Lynch Alternative Investments and the investment was offered through Merrill Lynch. However, securities fraud attorneys now believe that the hedge fund was recommended to certain Merrill Lynch clients, despite its unsuitability for those clients.

A recent FINRA arbitration proceeding concluded with an order for Merrill Lynch to pay two of its investors $1.34 million in connection with their Fannie Mae preferred shares investments. Allegedly, Merrill Lynch misrepresented the risks involved in this investment, marketing them as “safe.” As a result, the investors, clients of broker Miles Pure, suffered significant losses. Their claim included allegations that the firm was negligent in its supervision of Pure and had committed civil fraud. Pure now works for Morgan Keegan.

Published on: November 30, 2012

More Arbitration Claims Against Brokers, Firms in Inland Western REIT and KBS REIT I

by InvestorLawyers

Stock fraud lawyers are currently investigating claims on behalf of investors who suffered significant REIT losses as a result of unsuitable recommendations of non-traded REITs. Recently, new arbitration claims have been filed on behalf of investors in Inland Western REIT, KBS REIT I and other risky investments.

More Arbitration Claims Against Brokers, Firms in Inland Western REIT and KBS REIT I

In one recent claim, securities arbitration lawyers say the claimants opened accounts with Multi-Financial and, despite the fact that the claimants indicated to the adviser they wanted to generate principal while protecting their income, the adviser proceeded to recommend a substantial investment in speculative and illiquid Real Estate Investment Trusts, or REITs and Limited Partnerships, or LPs. Based on the Multi-Financial adviser’s recommendation, the Claimants invested in Inland Western REIT, Wells REIT II, PDC 2005-B Oil & Gas, Reef Global Energy VII Oil & Gas, Cronos Containers Partners I, Hines REIT, Reef Global Energy VI Oil & Gas, Crowne Hattiesburg Bluffton Holdings, Mewbourne 2008-A, Oil & Gas, LEAF Commercial Finance Fund LLC, Atlas Resources 2008, Oil & Gas and Behringer Harvard Strategic Opportunity Fund II REIT.

Another recent filing was against one of the brokerage firms responsible for the supervision and actions of Paul Larsen, a former broker with VSR, ProEquities and six other firms before being permanently barred by FINRA in 2011. According to the allegations, Larsen made unsuitable recommendations of non-traded REITs, coal and natural gas speculation and other risky investments. A claim filed on November 21, 2012 alleges Larsen made improper recommendations of KBS REIT I, Atlas 14 and Atlas 15. Atlas 14 and 15 are both speculative natural gas and oil drilling ventures. For more information on KBS REIT I, see the pervious blog post, “KBS REIT I Investors Could Recover Losses.” Stock fraud lawyers say the brokerage firms could be held liable for REIT losses suffered by Larsen’s clients because they have a responsibility to adequately supervise their brokers.

Published on: November 29, 2012

Mark Hotton Allegedly Defrauded Clients; Investors Could Recover Losses

by InvestorLawyers

Investment fraud lawyers are currently investing claims on behalf of the clients of Mark Hotton. A recent complaint filed by the Financial Industry Regulatory Authority alleges that Hotton stole or rerouted money from his clients — funds that amounted to at least $8.5 million. Hotton, a stockbroker and businessman, was earlier accused of having allegedly defrauded the production team of “Rebecca: The Musical” by fabricating investors. Hotton was later sued by the producers of the musical. In an earlier statement, Preet Bharara, Manhattan U.S. Attorney, alleged that Hotton had “faked lives, faked companies and even staged a fake death, pretending that one imaginary investor had suddenly died of malaria.”

Mark Hotton Allegedly Defrauded Clients; Investors Could Recover Losses

FINRA’s latest charges against Hotton are separate from the charges that he defrauded the producers of the musical. These charges state that since 2006, Hotton allegedly stole at least $5.9 million from clients and caused funds amounting to at least $2.6 million to be rerouted from the Oppenheimer Inc. brokerage accounts of his clients. These rerouted funds were wired to Hotton’s outside business activities, other entities and individuals affiliated with Hotton. Furthermore, securities arbitration lawyers say Hotton reportedly lied when filling out third-party wire request forms, forged letters of authorization signatures and created investments that were completely fictitious.

In 2009, Hotton left Oppenheimer and he was last registered, until May 2012, with Obsidian Financial Group. Hotton faces serious charges in both cases, including 20 years in prison for each count of wire fraud related to the musical and monetary sanctions and/or a bar from the securities industry related to the most recent charges. Clients of Hotton are encouraged to contact an investment fraud lawyer as soon as possible to explore their options for recovering their losses through all possible avenues, including securities arbitration.

Published on: November 28, 2012

FINRA Now Arbitrating Claims Against Investment Advisers

by InvestorLawyers

A recent announcement from the Financial Industry Regulatory Authority stated that arbitration is open to disputes between investors and registered investment advisers, or RIAs. According to securities fraud attorneys, this is good news for investors who have been the victims of RIA fraud but can’t afford costly court proceedings. It has been unclear for quite some time whether the arbitration system was available to complaints against investment advisers, who are overseen by the Securities and Exchange Commission. But now, this November 1, 2012 guidance posted on FINRA’s website indicates the regulatory authority is, in fact, accepting those cases, though they are subject to certain conditions.

Investment fraud lawyers say that clients of investment advisers usually resolve disputes in court or alternate forms of arbitration, but these processes can be time-consuming and expensive. RIA arbitration disputes are typically heard by JAMS Inc. or the American Arbitration Association, which can cost tens of thousands of dollars more than FINRA arbitration. Furthermore, FINRA arbitration is more cost-effective and less time-consuming than court proceedings.

Securities fraud attorneys have been asking FINRA to make their arbitration proceedings available to clients of investment advisers and, it seems, the regulatory authority is listening despite the fact that many investment advisers oppose the idea. The change was mentioned by Linda Fienberg, head of FINRA’s dispute resolution unit, at a conference held by PIABA, the Public Investors Arbitration Bar Association, in Texas.

Published on: November 26, 2012

Clients of Jeffrey A. Cashmore, LPL Financial Could Recover Losses

by InvestorLawyers

Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses as a result of their financial investments with Jeffrey A. Cashmore and LPL Financial. According to the Financial Industry Regulatory Authority allegations against him, Cashmore prepared and distributed sales literature to prospective and current customers that was misleading. Furthermore, he allegedly failed to retain copies of the misleading sales literature, a violation of NASD Conduct Rules. The alleged misconduct reportedly occurred between November 1994 and October 2012, while Cashmore was registered with LPL.

Clients of Jeffrey A. Cashmore and LPL Financial Could Recover Losses

According to FINRA’s findings, Cashmore distributed “Power Optimizer” packages during the relevant period, which is at least from January 2006 through December 2010. These packages consisted of documents that contained investment information and portfolio recommendations and typically included a Cash Flow Report, a Power Optimizer Report, a Portfolio Recommendations/Asset Allocation page, a Fee and Asset Summary Report and Morningstar Reports for each recommended mutual fund. These packages were distributed to at least 100 clients and potential clients. However, according to stock fraud lawyers and FINRA, these packages contained misleading information. Specifically, FINRA says the documents provided incomplete and oversimplified information which did not provide a sound basis for investors to be able to evaluate facts about the information provided by the package.

Reportedly, the Cash Flow Report’s cash flow summary was based on only one projected rated of return, rather than including alternate cash flow scenarios, and did not include any possible cash flows that would illustrate a negative rate of return. Furthermore, the Morningstar Reports allegedly included in the package all addressed Class A investments while Cashmore recommended and sold Class C investments almost exclusively. Securities fraud attorneys say that Class A and C investments have differing rates of return, surrender charges and fees, despite being similar investments when in the same mutual fund.

Published on: November 23, 2012

Clients of WR Rice, Joel Wilson Could Recover Losses

by InvestorLawyers

Following a Financial Industry Regulatory Authority news release issued on November 5, 2012, securities arbitration lawyers are investigating potential claims on behalf of the customers of WR Rice Financial Services and Joel Wilson. According to the release, a Temporary Cease-and-Desist Order has been filed against WR Rice Financial Services, a Michigan-based firm, and its owner Joel Wilson in order to prevent conversion of investors’ assets or funds and further fraudulent sales activities.

Clients of WR Rice and Joel Wilson Could Recover Losses

A complaint against Wilson and WR Rice was also issued by FINRA that charges Wilson and his firm with fraud related to the sales of limited partnership interests. These interests are affiliated with the American Realty Funds Corporation and Diversified Group, both of which are companies that Wilson controls and in which he has ownership interest. The Temporary Cease-and-Desist Order is based on the belief that ongoing depletion of customer assets and customer harm is likely to continue before the completion of a formal disciplinary proceeding.

According to the allegations in FINRA’s complaint, “WR Rice, Wilson and other registered representatives at the firm sold more than $4.5 million in limited partnership interests to approximately 100 investors from predominantly low- to moderate-income households, while misrepresenting or omitting material facts.”

Published on: November 22, 2012

FINRA Bars CEO; Victims of Unauthorized Trading Could Recover Losses

by InvestorLawyers

On November 8, 2012, the Financial Industry Regulatory Authority issued a news release stating that it has barred Mark Gillis, Chief Executive Officer for Hudson Valley Capital Management, and expelled the firm itself for defrauding its customers. The fraud occurred when funds and securities were used to cover losses incurred by manipulative day trading executed by Gillis. Securities fraud attorneys are following this and other unauthorized trading cases for potential arbitration claims to recover losses for investors.

FINRA Bars CEO: Victims of Unauthorized Trading Could Recover Losses

According to FINRA’s findings, in 2012, Hudson Valley, through Gillis, improperly day traded stock worth millions using the firm’s Average Price Account. Following the improper trades, Gillis manipulated the stocks’ share prices and withdrew his day trading proceeds using accounts under his control. Following significant losses caused by this fraudulent trading, Gillis made unauthorized trades in customer accounts in order to cover the losses. Thousands of shares in securities were purchased by Gillis and then allocated to customers at excessive markups from 177 percent to 280 percent. In addition, he paid for an unauthorized purchase of stock by converting customer funds. One customer suffered losses of around $400,000 because of Gillis’ fraudulent activity.

When two customers became aware of unauthorized trading in their accounts, they confronted Gillis, who attempted to hide his misconduct by lying to them. He later lied during sworn testimony to FINRA staff. Investment fraud lawyers stress to investors the importance of diligently monitoring their accounts and statements for fraudulent activity. If investors suspect unauthorized trading or any other type of securities fraud has occurred in their accounts, they should contact a securities fraud attorney immediately.

Published on: November 21, 2012

Berton Hochfeld Charged with Securities Fraud, Allegedly Stole $1 Million from Investors

by InvestorLawyers

Securities fraud attorneys are currently investigating claims on behalf of customers of Berton Hochfeld, following the announcement that Hochfeld has been charged with securities fraud and wire fraud. Hochfeld, the 66-year-old manager of Hochfeld Capital Management LLC, allegedly stole over $1 million from investors. According to an article in Bloomberg, Hochfield was arrested the morning of November 9, 2012 at his home in Stamford, Connecticut.

Berton Hochfeld Charged with Securities Fraud, Allegedly Stole $1 Million from Investors

Hochfeld Capital Management LLC had an office at Park Avenue in New York that reportedly functioned as a Heppelwhite Fund general partner. According to the allegations against Hochfeld, he stole investor funds for his own use during the period of April 2011 to October 2012. The complaint also states that a private placement memorandum for the Heppelwhite Fund stated it would not purchase debt obligations issued by, or make loans to, Hochfeld Capital Management and/or principals of the LLC. Furthermore, according to the sworn complaint by U.S. Federal Bureau of Investigation Special Agent Michael Howard, in monthly statements provided by Hochfeld, the value of the fund was falsely inflated, concealing his withdrawals from investors. Private placement fraud like this is routinely investigated by stock fraud lawyers in order to recover stolen funds from investors.

Customers of Berton Hochfeld and/or Hochfeld Capital Management LLC who were customers of the firm during the time period stated above are encouraged to contact a securities fraud attorney as soon as possible. If convicted of both charges, Hochfield could face as many as 40 years in prison.

Published on: November 19, 2012

Many Investors Victim to Lost, Stolen Securities Fraud

by InvestorLawyers

In a recent Investor Bulletin, the Securities and Exchange Commission warned investors about lost and stolen securities fraud. According to the bulletin, upon retirement of a security certificate, the transfer agent cancels the certificate. This cancellation usually involves an alteration of the certificate and an accounting entry on the transfer agent’s books. Following the cancellation, Exchange Act rules state that the certificate or record of it be retained for at least six years. Investment fraud lawyers and the SEC say that many corporate bond issues have, in recent years, been cancelled long before their maturities. Unfortunately, there have been many instances in which these canceled certificates have been stolen and reentered the marketplace, resulting in fraud. Victims of this fraud include public investors, broker-dealers, transfer agents, public companies and creditors.

Many Investors Victim to Lost, Stolen Securities Fraud

In one case, many canceled bond certificates disappeared in 1992 after they were taken from a transfer agent’s warehouse and delivered to a certificate destruction vendor. These certificates had a face value of around $111 billion. Later, these certificates began to resurface all around the world. Many individuals, brokers and banks were defrauded when the certificates were used as loan collateral or sold for cash.

Securities fraud attorneys say the SEC’s 2011 Lost and Stolen Securities Programs’s report — which received reports and inquiries on missing, lost, stolen or counterfeit certificates — is staggering. During that year, 10,990,507 certificates inquires were made, 512,807 certificates reports were made and “hits” that resulted from certificates inquiries numbered 348,791. The certificates related to these hits, which warned that the certificates in question had been reported as stolen, lost, counterfeit, or missing and ineligible for transfer, were valued at around $8,789,674,628.