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Securities Fraud Blog

Greco & Greco, P.C.

W. Scott Greco

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.

For a Free Attorney Consultation, call us at 877-821-5550 orĀ 

Brokerage Firms

SEC Fraud Charges Regarding The Nutmeg Group LLC

As set out in the SEC Complaint which can be found here, the SEC filed civil fraud claims in Illinois against The Nutmeg Group, LLC, Randall Goulding, and others.  The SEC alleges in its Complaint that Nutmeg was an investment adviser to 15 funds which invested fund assets in private investments in public equity (PIPE) transactions.  As a basis for its fraud claims, the SEC alleges in the Complaint that Nutmeg “improperly commingled investor and fund assets,” “misappropriated over $4 million in fund assets,” “failed to maintain the required books and records,” and “overstated the performances of its Funds to investors.”  (paragraphs 2 and 3 of SEC Complaint). 

All FINRA registered representatives are required to be registered with a FINRA firm (Broker-Dealer).  FINRA firms have legal responsibilities to supervise their registered representatives, and further may be found liable for the wrongful actions of their agents.  Examples of legal grounds for liability of Broker-Dealers in these situations include:

a) under tort and agency law, principals can be found liable for the acts of their agents even if they are entirely innocent and have received no benefit from the transaction;

b) a broker?s Broker-Dealer can also be found liable as a ?control person? of that broker under state and federal securities laws; and

c) claims can be pursued in arbitration based on violations of FINRA rules including Rules related to supervision, suitability, and outside business activities.

If you were sold investments in Nutmeg Group funds by a FINRA registered representative, and you would like to discuss legal options with an attorney, please contact Greco & Greco for a free consultation with one of our lawyers.

Posted by W. Scott Greco on 06/08/11.
ArbitrationBrokerage FirmsPonzi SchemePrivate PlacementsSECState RegulatorsColoradoFloridaSuitabilityUnregistered SecuritiesPermalink

Unsuitable ETF trading results in large losses for investors

Greco & Greco’s attorneys have represented a significant number of investors over the past several years who have suffered large amounts of losses in their securities accounts due to the improper and unsuitable trading of ETFs by their brokers.  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.

Posted by W. Scott Greco on 01/23/11.
ArbitrationBrokerage FirmsUBSETFFINRASuitabilityPermalink

FEBG / McLeod Receiver Files Initial Report

The Receiver appointed by the US District Court in Florida regarding the case against Kenneth Wayne McLeod and the Federal Employee Benefits Group Bond Fund (FEBG) has filed his initial report to the Court.  It can be found here.  Although the receiver is in the process of reviewing hundreds of boxes of documents, the initial findings regarding assets are not promising.  Reference is made to five pieces of real estate, but the amount of equity, if any, in the properties is unclear.  Furthermore, the bank and brokerage accounts found and frozen at this time only account for approximately $90,000.  The ponzi scheme allegedly involved over $34,000,000 invested by mostly government employees.

In his report, the Receiver encourages victims to contact their own attorneys to discuss potential claims against third parties.  As set out in our previous blog post, Mr. McLeod was a FINRA registered representative of Lincoln Financial Securities Corporation until May, 2010.  Prior to Lincoln, Mr. McLeod was FINRA registered with Capital Analysts, Incorporated and Washington Square Securities.  FINRA firms have legal responsibilities to supervise their registered representatives, and further may be found liable for the wrongful actions of their agents. If you are a victim of the FEBG bond fund ponzi scheme, and you would like to discuss legal options with an attorney, please contact Greco & Greco for a free consultation with one of our lawyers.

Posted by W. Scott Greco on 08/27/10.
ArbitrationBrokerage FirmsCapital AnalystsLincoln Financial SecuritiesWashington Square SecuritiesFINRAPonzi SchemeSECUnregistered SecuritiesPermalink

McLeod Ponzi Scheme Preys on Government Employees

The SEC filed an Emergency Complaint on June 24, 2010 against the Estate of Kenneth Wayne McLeod, F&S Asset Management Group, and Federal Employee Benefits Group, alleging that Mr. McLeod engaged in a ponzi scheme.  The SEC release and Complaint can be found here.  The Complaint alleges that Mr. Mcleod solicited federal government workers across the country to invest in a purported bond fund (the FEBG Bond Fund) which offered “guaranteed, tax-free returns of eight to ten percent annually in the fund.”  In reality, the fund did not exist and Mr. McLeod used newly invested funds to pay off old investors, a classic ponzi scheme.  Mr. McLeod raised $34 million from current investors. 

According to this Florida Times Union article, Mr. McLeod killed himself days after confessing to investigators. 

Mr. McLeod was a FINRA registered representative of Lincoln Financial Securities Corporation until May, 2010.  Prior to Lincoln, Mr. McLeod was FINRA registered with Capital Analysts, Incorporated and Washington Square Securities.  FINRA firms have legal responsibilities to supervise their registered representatives, and further may be found liable for the wrongful actions of their agents.  Examples of legal grounds for liability of Broker-Dealers in these situations include: 

a)  under tort and agency law, principals can be found liable for the acts of their agents even if they are entirely innocent and have received no benefit from the transaction;

b) a broker’s Broker-Dealer can also be found liable as a ?control person? of that broker under state and federal securities laws; and

c) claims can be pursued in arbitration based on violations of FINRA rules including Rules related to supervision, suitability, and outside business activities.

If you are a victim of the FEBG bond fund ponzi scheme, and you would like to discuss legal options with an attorney, please contact Greco & Greco for a free consultation with one of our lawyers.

Posted by W. Scott Greco on 07/02/10.
ArbitrationBrokerage FirmsCapital AnalystsLincoln Financial SecuritiesWashington Square SecuritiesFINRAPonzi SchemeRetirementSECSuitabilityPermalink

Medical Capital Charged With Fraud by SEC

Medical Capital Holdings is another private placement investment that has been subject to claims of fraud by the SEC.  In the Amended Complaint found on the Receivership site the SEC alleges that despite promises in the offering memoranda from Medical Capital not to use investor funds to pay administrative fees, 24% of investor funds were paid out as administrative fees, and the companies engaged in sham intercompany transactions to pay back principal and interest to investors in prior offerings. 

Furthermore, as set out in this Orange County Register article, the head of Medical Capital (Sidney Field) had previously had his insurance license revoked by California, had been sued twice by state insurance regulators for racketeering and fraud, and had filed bankruptcy.

Investors who were sold these offerings by their stock brokers and have suffered losses may have claims that they can bring in FINRA arbitrations against their brokerage firms.  Firms selling such offerings have due diligence duties prior to approval of their sale, and representatives are required to only make suitable recommendations to their customers.  Additionally, representatives may not misrepresent the risk of securities they recommend, and they must disclose material facts related to risk.  Greco & Greco is pursuing claims in arbitration on behalf of customers who were sold these products.  If you think you may have a claim, please contact us for a free consultation with one of our attorneys.

Posted by W. Scott Greco on 03/19/10.
ArbitrationBrokerage FirmsCapWestGunn AllenFINRAPrivate PlacementsSECSuitabilityPermalink

QUEEN SHOALS INVESTMENT FRAUD

According to this Western District of North Carolina Department of Justice release, Sidney Hanson of Charlotte, North Carolina pleaded guilty in July, 2009 to securities fraud, mail fraud, and money laundering in relation to an investment scheme known as Queen Shoals.  The SEC has also filed a Complaint related to the investment scheme.

The SEC states in the above Complaint that the Hansons and their sales force sold almost $33 million in “private loan agreements” to investors around the country.  The investments were allegedly to be placed in a diversified portfolio? of precious metals, foreign currency and treasury notes, generating high returns while remaining safe in non-depletion accounts.  In reality according to the SEC, the investment funds were invested “in a number of very risky private investment opportunities” and funds from new investors were used to pay off old investors.

Investors who were sold Queen Shoals investments by their stockbrokers, investment advisers, retirement specialists, or financial planners may have claims to be brought against related firms based on securities fraud, suitability, failure to do due diligence, misrepresentations and omissions, and other legal grounds.  Greco & Greco is currently investigating sales by FINRA registered parties in Virginia - please contact us for a free consultation if you believe you may have a claim.

Posted by W. Scott Greco on 11/25/09.
ArbitrationBrokerage FirmsFINRAPonzi SchemeRetirementSECState RegulatorsNorth CarolinaSuitabilityUnregistered SecuritiesPermalink

Provident Royalties / Shale Royalties charged with fraud by SEC

As set out in this SEC Release, Provident Royalties, LLC and many related entities (including Shale Royalties entities) have been charged with engaging in a $485 million offering fraud and orchestrating a ponzi scheme.  According to the SEC’s Complaint and release, “Provident falsely promised yearly returns of up to 18 percent,” and used investor funds from later offerings to pay “expenses related to earlier offerings and returns to investors in those offerings.”  Unaffiliated brokerage firms were solicited by Provident to sell the investments through placement agreements for each offering, thereby selling the investments to retail investors nationwide.

Investors who were sold these offerings by their stock brokers and have suffered losses may have claims that they can bring in FINRA arbitrations against their brokerage firms.  Firms selling such offerings have due diligence duties prior to approval of their sale, and representatives are required to only make suitable recommendations to their customers.  Additionally, representatives may not misrepresent the risk of securities they recommend, and they must disclose material facts related to risk.  Greco & Greco is pursuing claims in arbitration on behalf of customers who were sold these products.  If you think you may have a claim, please contact us for a free consultation with one of our attorneys.

Posted by W. Scott Greco on 11/13/09.
ArbitrationBrokerage FirmsCapWestGunn AllenFINRAPonzi SchemePrivate PlacementsSECSuitabilityPermalink

INVESTIGATION OF WORLD FINANCIAL GROUP CLAIMS

Greco & Greco, in conjunction with local Ohio counsel, is currently investigating alleged claims of individuals sold securities and real estate related investments out of the Ohio and Florida offices of World Financial Group and World Group Securities, specifically including sales made in relation to refinancing of mortgages.

The U.S. Securities and Exchange Commission (SEC) recently filed an enforcement action against five California World Group Securities’ representatives, including a branch manager, for selling unsuitable investments to customers, mostly variable universal life policies (VULs).  The SEC alleged that because many customers did not have the funds necessary to purchase the investments, the representatives urged them to refinance their homes from fixed rate mortgages into subprime adjustable rate negative amortization mortgages.  Read the SEC Release and Complaint here.

If you think you may have a claim and wish to speak to an attorney, please contact Greco & Greco toll free at 877-821-5550.

Posted by W. Scott Greco on 11/26/08.
Brokerage FirmsWorld Group SecuritiesSECSuitabilityUnregistered SecuritiesPermalink

Businesses left out of Auction Rate Securities Settlements?

As discussed in this Bloomberg article, the settlements reached by regulators regarding auction rate securities sales with many of the large brokerage firms fail to help medium to large businesses who were also sold ARS.  Although the required buyouts in the settlements with UBS, JPMorgan Chase, Morgan Stanley, and Wachovia Corp. reached $35 billion, this amount only approximates 18% of the $200 billion estimated to be still outstanding. 

Although the settlements call for the firms to use their best efforts to help institutional investors stuck with the frozen ARS, they fall short of requiring a buyback.  This situation may force mid-sized to large companies to seek redress on their own through the arbitration or court system.  Please contact Greco & Greco if your business is holding frozen ARS as a result of fraudulent sales practices of a brokerage firm.

Posted by W. Scott Greco on 08/22/08.
ArbitrationAuction Rate Securities (ARS)Brokerage FirmsCitigroupJ.P. MorganMerrill LynchMorgan KeeganUBSWachoviaState RegulatorsPermalink

Consequential Damages for Auction Rate Securities Unresolved

As set out in this Kansas City Star article Wachovia and JP Morgan Chase have joined UBS, Morgan Stanley, and Citigroup in settling charges related to their sale of Auction Rate Securities.  Although the settlement agreements with exact details are not completed, it appears that the firms will be buying back frozen auction rate securities sold to individuals and small businesses.
Left open is the recovery of consequential damages suffered by buyers of the allegedly liquid ARS who couldn’t access their cash.  The press releases and articles related to the settlements reference that customers will be able to seek recovery of their consequential damages through arbitration, with the firms admitting liability, but not conceding damages. 
If you or your business suffered monetary damages as a result of having your funds frozen in ARS, please contact Greco & Greco for a free consultation with one of our attorneys to discuss options for recovery of your damages.

Posted by W. Scott Greco on 08/21/08.
Auction Rate Securities (ARS)Brokerage FirmsCitigroupJ.P. MorganMorgan StanleyUBSWachoviaPermalink

Only 4% of Student Loan Auction Rate Securities Have Been Refinanced to Date

According to this Bloomberg article, only 3 billion of the 85 billion in outstanding student loan Auction Rate Securities have been refinanced to date.  Furthermore, due to these securities’ low interest rates, the prospects for an immediate solution are bleak.  The article further reported that approximately two-thirds of publicly traded companies that are holding student loan auction rate securities have marked down the value of the securities, sometimes as much as 35%.

If you were sold student loan auction rate securities by a brokerage firm who represented that they were safe and/or liquid, and you would like to discuss your legal options, please contact Greco & Greco for a free consultation with one of our attorneys.

Posted by W. Scott Greco on 07/11/08.
Auction Rate Securities (ARS)Brokerage FirmsPermalink

Criminal Probe Initiated Regarding Auction Rate Securities Sales

According to this Wall Street Journal article, federal prosecutors in New York are investigating sales of auction rate securities by two former Credit Suisse brokers.  According to the article, the investigation allegedly involves representations made that the auction rate securities were backed by student loans, when in fact they were actually backed by CDO’s (collateralized debt obligations).  This appears to be the first reported criminal investigation related to Auction Rate Securities Sales.

If you are an investor stuck with Auction Rate Securities, and you would like a free consultation to discuss your legal options with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 07/09/08.
Auction Rate Securities (ARS)Brokerage FirmsCredit SuisseCMOs / CDOsPermalink

UBS Charged With Fraud in Auction Rate Securities Sales

The State of Massachusetts filed a Complaint today against UBS claiming UBS engaged in fraud and dishonest and unethical conduct with regard to its sales of Auction Rate Securities (ARS).  Link to Complaint and Exhibits.  In a 101 page Complaint, Massachusetts references voluminous emails it obtained from UBS supporting its claims, and further charges UBS with books and records violations for failures to produce additional documents.

The Complaint describes UBS’s “all-out” effort to market ARS, and especially “troubled student loan-backed auction rate certificates,” to offset increasing inventory from corporate investors who were selling the ARS due to concerns about the market.  Despite awareness of serious problems with the market, UBS was initiating conference calls in August 2007 with its financial advisors to encourage the sale of ARS to retail clients and “unload this paper.”

The Complaint further describes the incredible conflicts of interest surrounding the market:  “by setting up a situation where it was actively controlling whether auctions would clear and what rate they would clear at, UBS had (unbeknownst to its customers) set up a situation which put it in a fundamentally conflicted role between its desire to keep its underwriting clients happy with the promise of low financing costs and its “moral obligation” to retail customers to keep the auctions it had set up afloat.”

If you are an investor stuck with Auction Rate Securities, and you would like a free consultation to discuss your legal options with an attorney, please contact Greco & Greco.

Posted by W. Scott Greco on 06/26/08.
Auction Rate Securities (ARS)Brokerage FirmsUBSState RegulatorsMassachusettsPermalink

Schwab YieldPlus Losses

In a decline that has been described as “one of the more spectacular meltdowns in mutual fund history” by this San Francisco Chronicle article, the Schwab YieldPlus fund has declined by over 25% this year. 

The Schwab Yield Plus fund was supposed to be an ultra short term bond fund which was a “smart alternative for your cash,” but investors who expected the safety of a money market fund have suffered significant damages.  As shown by this Morningstar report, the fund invested almost 50% of its assets in mortgage related securities.

Investors who invested in the Schwab YieldPlus fund expecting a cash or money market alternative and subsequently lost a portion of their savings should contact an attorney to discuss their legal options.  Greco & Greco is a law firm experienced in filing arbitration claims against brokerage firms based on misrepresentations, omissions, securities fraud, and other wrongful conduct.

Posted by W. Scott Greco on 05/26/08.
Brokerage FirmsCharles SchwabMutual FundsPermalink

Auction Rate Securities Failures

Auction Rate Securities and Auction Rate Preferred Securities (ARS) are securities made up of long term bonds or preferred stock with variable interest rates and yields.  The yields are periodically reset through Dutch auctions.  ARS are often marketed and sold by a single dealer with the only resale market being through a successful auction.  Problems have arisen in recent months as a result of the failures of the auctions, leaving investors in the lurch and unable to redeem the security.  As set out in this SmartMoney article, ARS have been marketed as a safe, liquid alternative to money market funds.  Investors believing they had their money in a safe liquid investment are understandably concerned by the failures in the marketplace for these securities, and our firm has been monitoring the situation closely and discussing the matter with concerned individuals and businesses.  Misrepresentations and omissions in the sale of a security can form the basis for a claim for securities fraud as well as other legal claims for recovery of damages.

As recently as 2006, the SEC censured 15 of the largest brokerage firms for sales and auctions of Auction Rate Securities. As stated by the SEC in its press release, “since the firms were under no obligation to guarantee against a failed auction, investors may not have been aware of the liquidity and credit risks associated with certain securities.”  The SEC further stated that “the firms violated Section 17(a)(2) of the Securities Act of 1933, which prohibits material misstatements and omissions in any offer or sale of securities.”  The fifteen firms which were censured were Bear, Stearns & Co., Inc., Citigroup Global Markets, Inc., Goldman Sachs & Co., J.P. Morgan Securities, Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated/ Morgan Stanley DW Inc., RBC Dain Rauscher Inc., A.G. Edwards & Sons, Inc., Morgan Keegan & Company, Inc., Piper Jaffray & Co., SunTrust Capital Markets Inc., Wachovia Capital Markets, LLC, and Banc of America Securities LLC.  Read the SEC Order here.

UBS appears to be the first firm to actually begin lowering the values of auction rate securities on its customers’ statements, as reported by many news sources on March 29 including this Reuters article.  Citing a Wall Street Journal article, Reuters reported that the markdowns could exceed 20 percent for some customers.  Additional concessions from other firms may be forthcoming as the first quarter of 2008 ends.

State Regulators, including Massachusetts, have also begun investigations of the auction rate securities market with Massachusetts reportedly issuing subpoenas to UBS, Merrill Lynch, and Bank of America. 

The Financial Industry Regulatory Authority (FINRA) released an Investor Alert on March 31, 2008 regarding auction rate securities which purports to set out various options for investors stuck with these products.  FINRA, which claims to be a “trusted advocate for investors,” notably fails to mention contacting an attorney or filing an arbitration claim as options.  If you are an investor who was sold Auction Rate Securities, and you would like to discuss your legal options with an attorney, please Contact Greco & Greco.

Link to Securities-Lawyers.net Auction Rate Securities page.

Posted by W. Scott Greco on 03/03/08.
Auction Rate Securities (ARS)BondsBrokerage FirmsA.G. EdwardsBanc of AmericaBear StearnsCitigroupDeutsche BankFerris Baker WattsLehman BrothersMerrill LynchMorgan KeeganMorgan StanleyPiper JaffrayRBC Dain RauscherSuntrustUBSWachoviaFINRAState RegulatorsMassachusettsSuitabilityPermalink

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