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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 

FINRA testifies regarding fiduciary standard and oversight of investment advisors

Rick Ketchum, the Chairman & CEO of FINRA testified before Congress recently regarding the Dodd-Frank Act, fiduciary standards for brokers and investment advisors, and oversight and regulation of investment advisors.  His testimony can be found here

In its testimony, FINRA agrees with many customer advocates that feel that Broker-Dealers (and their representatives) should be bound by the same fiduciary standard as registered investment advisors when giving personalized investment advice to the public.  The testimony further restates the obvious:  most customers cannot differentiate between services offered by Broker-Dealers versus Investment Advisors, and further are not aware of any differing standards of care or obligations.

The testimony further addresses the insufficient nature of current examinations of investment advisors by the SEC, and offers an allegedly better alternative:  examinations by FINRA.  FINRA maintains that investment advisor examinations and oversight by SRO’s (Self Regulatory Organizations) such as itself would help protect investors due to the fact that FINRA is currently overseen by the SEC, and currently examines many Broker-Dealers who also have investment advisory businesses. 

Setting aside the adequacy of FINRA oversight, the fact remains that many customers who lose money due to the wrongful conduct of their broker or advisor cannot count on FINRA or the SEC to recover their funds.  If you face such a situation, it is advisable to speak to an attorney to discuss your options.  Our lawyers at Greco & Greco can be contacted here for a free consultation.

Posted by W. Scott Greco on 09/16/11.
ArbitrationFINRASECSecurities FraudPermalink

FINRA Fines Northern Trust for CMO Sales

FINRA recently fined Northern Trust Securities Inc. $600,000 for supervisory failures related to sales of Collateralized Mortgage Obligations (CMOs) to customers.  As set out in this FINRA release:  “from October 2006 through October 2009, Northern Trust failed to monitor customer accounts for potentially unsuitable levels of concentration in CMOs, in large part because it used an exception reporting system that failed to capture or analyze substantial portions of the firm?s business, including all CMO transactions, certain trades of 10,000 equity shares or more, and certain trades of 250 or more of fixed-income bonds.”

The Letter of Acceptance, Waiver, and Consent which can be found on the FINRA website discusses the risks of CMO’s and states that the flaw in the system was first raised in an arbitration filed by an investor who had almost 50% of her total liquid net worth invested in a Countrywide CMO that had lost significant value.

If you have incurred losses from CMOs which were unsuitable for you or were overconcentrated, or if you are the victim of other broker misconduct 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 09/09/11.
ArbitrationBondsBrokerage FirmsNorthern Trust SecuritiesCMOs / CDOsFINRAPermalink

New SEC Office of the Whistleblower website

The SEC recently launched its webpage for the Office of the Whistleblower, an office created by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  (Click here for the site.)  In the words of the SEC Whistleblower Chief Sean McKessy, the goal of the program is to “incentivize you to report possible violations of the US securities laws of which you become aware.”  The site contains a FAQ section, links to the SEC Rules regarding whistleblowers, and Form TCR (Tip, Complaint, or Referral) to be used to submit a tip.

If you are a witness to information regarding a possible securities fraud, contact one of Greco & Greco’s attorneys here for a free consultation to discuss your options.

Posted by W. Scott Greco on 08/19/11.
FINRASECSecurities FraudWhistleblowerPermalink

SEC Adopts Securities Fraud Whistleblower Rules

The SEC recently approved final rules to govern its whistleblower program established pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The program has been established to encourage individuals to alert the SEC to evidence that helps the SEC in bringing securities fraud cases.  The Rules were designed under the Act to increase the SEC’s authority to compensate whistleblowers regarding violations of the federal securities laws.  The Rules may be found here.

There are several requirements for a whistleblower to be considered for an award of compensation.  The whistleblower must voluntarily provide the SEC with original information regarding violations of the federal securities laws, rules, or regulations that leads to the enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than one million dollars.  The program also covers “related actions” which includes judicial or administrative actions by the U.S. Attorney General, regulatory authorities, self-regulatory organizations, or criminal prosecution by a state attorney general. 

In regard to the “original information” requirement, the Rules contain complex requirements, limitations, and exceptions to information acquired through attorney-client privileged situations, and information obtained as an officer, director, trustee, partner, or compliance/audit employee.  In certain circumstances, the Rules require disclosure of the information to the relevant entity within a specified time frame for the whistleblower to be entitled to payment under the Rules.

The amount of the award to the whistleblower will be decided by the SEC, however if the Rules’ requirements are met, the award will be between 10 and 30 percent of the monetary sanction that the SEC and other authorities are able to collect.  The SEC will exercise its discretion in determining the exact percentage based on criteria set out in the Rules.  Some of the positive and negative criteria to be applied by the SEC in the decision making process include significance of the information, assistance provided by the whistleblower, law enforcement interest, participation in internal compliance systems, culpability, unreasonable reporting delay, and interference with internal compliance systems.

This amount may also be divided by the SEC among multiple whistleblowers.  Should the SEC deny payment, the Rules provide for an appeals process as well as an ultimate appeal to the U.S. Court of Appeals for the District of Columbia, or the circuit where the aggrieved person resides.

The SEC has provided specific forms for submission of information and a claim for an award.  A whistleblower may remain anonymous when providing the information to the SEC, however to do so the whistleblower must be represented by an attorney with respect to the submission of information and claim for an award. 

The Act and Rules also provide protections for the whistleblower from retaliation by the whistleblower’s employer, providing certain requirements are met. 

If you wish to discuss a potential SEC whistleblower claim with a lawyer, please contact Greco & Greco here for a free consultation with one of our attorneys.

Posted by W. Scott Greco on 07/08/11.
SECSecurities FraudWhistleblowerPermalink

FINRA Implements All Public Arbitration Panels

Earlier this year, FINRA (the Financial Industry Regulatory Authority) implemented a change to its arbitration system which has been sought by the Claimants’ bar for years.  As set out in this notice, customer Claimants in FINRA arbitrations now have the choice to have their disputes with their stock brokers and brokerage firms heard by three public arbitrators for cases over $100,000.00. 

Under the previous FINRA Rule, three arbitrator panels were required to include one “non-public” or “industry” arbitrator, i.e. someone currently employed in the securities industry or with present or former ties to the industry.  The securities industry requires that customers arbitrate their disputes with their brokerage firms through FINRA, and virtually all new account forms from U.S. brokerage firms contain a mandatory arbitration clause.  Greco & Greco regularly represents customers in FINRA arbitrations - if you would like to discuss a potential claim with one of our attorneys, please Contact Us.

Posted by W. Scott Greco on 06/24/11.
ArbitrationBrokerage FirmsFINRAPermalink

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

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