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Alvin Waino Gebhart Jr. (CRD #1005905, Registered Principal, Fallbrook, California) and Donna Traina Gebhart (CRD #2708528, Registered Principal, Fallbrook, California).
On the FINRA website, it was reported that Alvin Gebhart was barred from association with any FINRA member in any capacity. Donna Gebhart was fined $15,000, suspended from association with any FINRA member in any capacity for one year, and must requalify by exam in all capacities. The Supreme Court of the United States denied a petition following the United States Court of Appeals for the Ninth Circuit’s denial of petition for review. The SEC had previously sustained the NAC decision.
The sanctions were based on findings that Alvin and Donna Gebhart engaged in private securities transactions without prior written notification to, or prior approval from, their member firm. The findings stated that Alvin and Donna Gebhart sold unregistered securities that were not exempt from registration, and recklessly made material misrepresentations and omissions in connection with the sale of securities.
Donna Gebhart’s suspension is in effect from June 7, 2010, through June 6, 2011. (FINRA Case #C0220020057)
If you have become a victim of the alleged fraudulent schemes of Alvin Waino Gebhart, Jr., or Donna Taina Gebhart, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover you losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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On April 22, 2011 on the SEC’s website, it was announced that the Securities and Exchange Commission said, the Honorable Leonard D. Wexler of the United States District Court for the Eastern District of New York entered a final judgment on consent against Defendant Gregory L. Oldham, a former registered representative of Advanced Planning Securities, Inc., a former registered broker-dealer. The judgment (i) permanently enjoins Oldham from violating Section 5 of the Securities Act of 1933 and (ii) finds Oldham liable for disgorgement and prejudgment interest of $673,989, but waives payment of that amount and imposes no civil penalty based on Oldham’s sworn statement of financial condition and other documents. Oldham consented to the entry of the judgment without admitting or denying any of the allegations of the Commission’s complaint.
It was also announced in the SEC article that the Commission’s complaint, filed on October 22, 2009, alleged that from 2004 through 2006, Oldham violated the registration provisions of the securities laws by selling securities for which there was no registration statement in effect.
The complaint also alleges that Oldham sold securities to elderly, unsophisticated investors who could not have been expected to understand the risks associated with the investments.
The article adds that in addition to the relief described above, Oldham consented to the entry of an order in a separate Commission administrative proceeding barring him from association with any broker, dealer, or investment adviser with the right to reapply for association after eighteen months.
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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Washington, D.C. – In an article from the SEC’s website, it says that the Securities and Exchange Commission yesterday charged three firms and four individuals involved in a boiler room scheme operating out of Los Angeles that defrauded investors who they persuaded to buy purportedly profitable trading systems.
Representatives of Spyglass Equity Systems Inc., the SEC alleges, cold-called investors and made false and misleading statements to help raise more than $2.15 million from nearly 200 investors nationwide for two related investment companies – Flatiron Capital Partners LLC (FCP) and Flatiron Systems LLC (FS). However, only a little more than half of that money was actually used for the advertised trading purposes, and much of the trading that did occur failed to use the purported trading systems. FCP and FS wound up losing about $1 million in investor funds. The managing member of the two firms – David E. Howard II – misused almost $500,000 of investor money for unauthorized business expenses as well as personal expenses including travel, entertainment, and gifts for his girlfriend.
The SEC’s Website article goes on to say that along with Howard, FCP and FS, Spyglass and its owners – Richard L. Carter, Preston L. Sjoblom and Tyson D. Elliott – also are charged with fraud in connection with the unregistered securities offerings.
“This operation pressured elderly and unsophisticated investors to entrust their money to purportedly can’t-miss trading systems that were not only unsuccessful, but in many instances unused,” said Donald M. Hoerl, Director of the SEC’s Denver Regional Office. “They kept delivering false claim after false claim until the money dissipated.”
Howard conspired with Spyglass to sell the securities, according to the SEC’s complaint filed in federal court in the Central District of California, and Spyglass earned an estimated $1 million in the deal. The trading systems pitched to investors by Spyglass representatives could only be used if the investor also funded a brokerage account at FCP. However, FCP was not a broker-dealer and thus could not offer brokerage services to customers.
The SEC’s complaint alleges that Howard and FCP provided each investor with instructions on how to fund their “account” with FCP, but included in the instruction packet a copy of the FCP Operating Agreement that indicated the investor was actually purchasing a membership interest in FCP. Many of the investors recruited by Spyglass were elderly and unsophisticated investors who did not understand that they were purchasing a security interest in FCP.
The SEC alleges that Spyglass representatives falsely touted a successful performance history and level of automation of the trading systems, and misled investors to believe that FCP had a positive reputation and solid affiliations in the brokerage industry. To seal the deal, Spyglass offered investors a money-back guarantee if the system did not generate a profit within the first 180 days of trading. However it was only after an investor paid Spyglass a license fee of about $6,000 that Spyglass put the investor in contact with Flatiron, ostensibly to open a brokerage account.
According to the SEC’s complaint, FCP pooled investor funds so Howard and others could trade the funds using various trading techniques. When the trading was not successful and it became clear that Spyglass would have to pay refunds to its clients, Howard provided Spyglass with another trading system and organized FS to purportedly operate the new system. Using false and misleading claims of prior success of this new trading system and Spyglass’s relationship with FS and Howard, FCP investors were persuaded to transfer their investments from FCP to FS. Under the direction of Sjoblom and Carter, Spyglass then began selling the FS trading system to new investors using a sales pitch similar to the one it used to sell the FCP. Investors were again misled to believe they would be opening brokerage accounts, this time with FS. They were later provided with an FS Operating Agreement indicating they were actually purchasing a membership interest in FS. Howard used FS investor funds to trade in equities, futures and off-market securities.
It was noted that when FS ran out of funds in December 2008, the SEC alleges that Howard took steps to conceal the fraudulent scheme by telling members that he had ceased all trading in order to conduct an audit of the trading accounts. However, Flatiron never hired an auditor and no audit was ever performed.
The article states that the SEC’s complaint charges Spyglass, Sjoblom, Carter, Elliott, FS, FCP and Howard with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; FS, FCP and Howard with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933; Spyglass, Sjoblom, Carter and Elliott with violation of Section 15(a) of the Exchange Act; FS and FCP of violations of Section 7(a) of the Investment Company Act of 1940; Howard with violations of Section 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder; and Spyglass, Carter, Sjoblom and Elliott with aiding abetting Howard’s violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC seeks permanent injunctions, disgorgement plus prejudgment and post-judgment interest, and financial penalties.
The SEC acknowledges the assistance of the Commodity Futures Trading Commission (CFTC), which charged Carter and his company The Trade Tech Institute Inc. in a related enforcement action filed in federal court in the Central District of California.
If you feel you have been a victim of the alleged fraudulent schemes of Spyglass Equity Stystems, Inc., Flatiron Capital Partners, LLC, (FCP), Flatiron Systems, LLC, (FS), or any of the Broker-Dealers listed or anyone allegedly representing them, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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It is well known that the greatest-yielding investments usually carry the highest levels of risk. One high yielding interest-paying investment is the promissory note. The notes are means by which companies raise capital. Legitimate promissory notes are marketed to sophisticated or corporate investors that have the resources to research thoroughly the companies issuing the notes. They then determine whether the issuers have the capacity to pay the promised interest and principal.
Promissory notes can be a good investment for sophisticated or corporate investors. These notes provide a reasonable reward for those who are willing to accept the risk. However, promissory notes that are marketed to the general public often turn out to be scams. Even legitimate notes carry some risk that the issuers may not be able to meet their obligations.
There have been many instances of unscrupulous individuals pushing bogus promissory notes. They’re being sold as instruments that guarantee above-market, fixed interest rates, while safeguarding their principal. While fraudulent promissory notes appear to give investors the two things they desire most — higher returns and safety — they may not be worth the paper they’re printed on. Remember, if something sounds too good to be true, it probably is.
Fraud Can Cost Some Investors Their Life Savings
Here are two unfortunate examples of how investors lost their money:
Fraud. Investors in Georgia lost more than $2.5 million after purchasing promissory notes that, according to the salespersons promoting the product to earn high commissions, would pay for new ambulances for a start-up company. The investors were told that their investments were “risk free.” After the ambulances were purchased, they would be leased to pay back the money the company borrowed. The ambulances would also be used as collateral for each investor’s promissory note. But the company never purchased the ambulances with the money it received. Instead, it pledged the same fictitious ambulance as collateral.
Business Risk. At least 100 investors nationwide invested more than $4 million in promissory notes that promised to pay an interest rate of 13 percent over nine months. The funds were for a company selling premium coffee at drive-through kiosks. Savvy, slick marketing materials hyped the company and its products. The promissory notes were sold by individuals who were neither registered or licensed to sell securities. The company collapsed, defaulting on its notes. Investors lost all of their principal, including $200,000 in life savings of an Oregon resident.
In both cases, the notes were sold by unregistered salespersons. The law requires that anyone selling securities must be registered or licensed. (Some states require licensing while others require registration.) That’s why you should verify the registration or license of the person who wants you to invest with them.
How Does a Promissory Note Work?
The legitimate promissory notes are a form of debt that is similar to a loan or even an IOU. Companies issue these notes to finance any aspect of their business, from launching new products to repaying more expensive debt. In return for the loan, companies agree to pay investors a fixed return over a set period of time.
Even legitimate promissory notes are not risk-free. These notes are only as sound as the companies or projects they’re financing. Promising, smart public companies can stumble because of competition, bad management decisions, or unfavorable market conditions. If a company’s financial health weakens suddenly, it may not be able to pay interest and principal to investors.
Who Can Sell Promissory Notes?
The salespeople who market promissory notes include securities brokers, insurance agents, financial planners, and investment advisers. Since promissory notes are usually securities, they must be sold by salespeople who have the appropriate securities license or registration.
Do Promissory Notes Need To Be Registered?
Most promissory notes must be registered as securities with the SEC and the states in which they’re being sold. But remember that some promissory notes, such as those that have nine-month or shorter terms, may be “exempt.” That means that they don’t have to be registered. Since these notes fly under the radar screen of securities regulatory review, they have been the major source of investor complaints and fraudulent activity.
Registration is important because the process generally involves what is known as “due diligence.” In short, that means that financial professionals, including lawyers and accountants, have looked into the notes and companies behind the notes. While due diligence does not guarantee that you will be repaid, it means that you are much more likely to be given accurate information that will help you make an informed decision.
How Promissory Note Scams Work
Promissory notes have become a vehicle for fraud primarily because there is a growing investor appetite for above-market interest rates with little risk. The sellers of bogus notes promise high, fixed-rate returns — ranging as high as 15 percent to 20 percent — coupled with “guaranteed safety.” They market these notes to individual investors, hoping to lure buyers who won’t ask how such a high-yield investment could carry such low risk.
In a far-reaching regulatory crackdown on the fraudulent sales of promissory notes in mid-2000, securities regulators nationwide brought 370 actions against firms that defrauded more than 4,500 investors out of $170 million. It’s important to remember that in many of these cases, investors won’t get their money back because the fraudsters have already spent it.
In one case, promoters of fraudulent promissory notes said the funds were earmarked for projects that ranged from the digging of sandpits to developing resorts in the Caribbean, but the investors’ dollars were used instead to finance the high-flying lifestyles of the individuals behind the issuers and to pay high commissions.
Some Telltale Signs of Promissory Note Fraud
What are the red flags you should look for when being offered a promissory note investment?
Here’s a list:
“Insured” or “guaranteed” returns. To create a false sense of safety, the sellers of these notes may say they “insure” the payment of interest and principal, using either nonexistent insurers or those that reside offshore and may not be legitimate or registered to offer insurance within the United States.
“Risk-free” notes. Your risk with promissory notes is that the issuing company will not be able to make principal and interest payments. Since risk and reward are intrinsically related, it pays to remember that there is no such thing as a low-risk, high-reward investment.
A start-up’s notes that are labeled “prime quality.” In the securities industry, prime quality investments require that a company have an established history of operations and earnings. So if the company issuing the so-called “prime” notes is a start-up or new company, steer clear.
Short-term notes. Notes with a nine-month term may be exempt from securities registration.
The promise of above-market returns. Returns that are higher than those of similar investments should raise questions.
Notes from a stranger. A call or visit from a stranger hawking promissory notes is usually a good sign that the investment is fraudulent. But, remember, too, that only an investment professional familiar with your financial situation is in a position to determine if this investment is appropriate for you.
Steer clear of nine-month promissory notes.These short-term notes, which are sometimes exempt from securities registration, have been the source of most – but not all – of the fraudulent activity unearthed by securities regulators in the promissory note area. Since these notes are sometimes exempt from registration, you might not be entitled to some of the redress that the securities laws or regulators provide.
Buy only from licensed or registered securities brokers. Insurance agents, financial planners, and investment advisers cannot sell securities – including promissory notes – without a securities license or registration. You should make sure the broker selling the note is registered or licensed by contacting your state securities regulator or the Public Disclosure Program of NASD Regulation. Call 800-289-9999 or log on to www.nasdr.com and click on “About Your Broker” to verify a broker’s license or registration and obtain a background report on the broker detailing any existing legal or regulatory problems.
Ask yourself: Does this investment make sense for me? Before making any investment, determine what you are looking for and whether it fits into your portfolio. Investigate before you invest. And don’t forget to consider the risk-reward ratio the investment is offering – a higher yield generally means higher risk. Then comparison-shop. Look for similar or nearly as high returns with less risk whenever possible.
Fully research each opportunity.Check with your state securities regulator or the SEC’s EDGAR database (www.sec.gov) to determine if a promissory note is properly registered – or whether it’s exempt from registration. To find your state regulator, check with the North American Securities Administrators Association (www.nasaa.org). If you suspect that your investment is a fraud, be sure to alert your state regulators or the SEC.
This information comes from the SEC’s website.
Call a Securities arbitration lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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The 1861 Capital Management Funds collapsed in February 2008, and resulted in devastating losses to it’s investors.
Municipal bond arbitrage is considered a very complicated, risky investing strategy that involves trades of municipal bonds, short-term notes, and interest-rate derivatives. In recent years, a growing number of hedge funds, including 1861 Capital Management, began to employ municipal arbitrage, buying long-term municipal bonds that had slightly higher yields and pocketing the difference. The funds then hedged against large fluctuations in interest rates by essentially reversing that trade, using taxable securities.
Municipal bond arbitrage also entails additional risks because in order to bolster returns, hedge funds must pile on the leverage.
So signs of trouble first appeared at the beginning of 2008, when municipal bond yields became hammered from the downturn in the markets. As a result, many hedge funds suddenly found themselves forced to liquidate their leveraged positions.
These two facts – risk and leverage – that have become a bone of contention for many investors in municipal arbitrage hedge funds. As reported in a January 2009 study from the Securities Litigation and Consulting Group (SLCG) on the recent failure of leveraged municipal bond hedge funds, some 36 hedge funds – 1861 Capital Management among them – were marketed and sold to investors as “high yield, low-risk alternatives” to traditional municipal bond funds.
Nothing could have been further from the truth. All of the hedge funds featured in SLCG’s study contained considerably more risk than investors ever realized. They also produced significantly lower-than-expected returns. In the end, investors suffered to the tune of billions of dollars in losses.
It is believed that UBS sold the following fixed income arbitrage funds: 1861 Capital Municipal Enterprise Domestic Fund, LP, 1861 Capital Municipal Enterprise Offshore Fund, Ltd., 1861 Capital Discovery Domestic Fund, LP, and 1861 Capital Discovery Offshore Fund, Ltd.
Other securities brokerage firms, including UBS, misrepresented the 1861 Capital Management Funds as safe and secure fixed income products that were particularly suitable for retirees and the elderly, and failed to adequately disclose the true speculative nature and substantial risks inherent in these investments.
Hedge funds like 1861 Capital Management and ASTA/MAT were marketed by many brokers to investors as high-yield, more conservative alternatives to money-market fund or traditional municipal bonds. In reality, this was far from the truth. Not only is leveraged municipal bond arbitrage at the opposite end of conservative, but it also can produce lower-than-expected returns for investors and bring considerably more risk.
If you are a victim of the alleged fraudulent schemes of your agent or broker, in particular USB, regarding the ASTA/MAT, 1861 Capital collapse, or any fraudulent sale of hedge funds through any of its agents, call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.
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It was reported by FINRA that Raymond James Financial Services, Inc. (CRD #6694, St. Petersburg, Florida) a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $150,000. Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to enforce its written supervisory procedures to achieve compliance with suitability requirements as they relate to the sale of Internal Revenue Code Section 529 college savings plans (529 Plans). The findings stated that the firm’s written supervisory procedures required its registered representatives, including producing branch managers, to submit, at the time of a client purchase of a 529 Plan, a Form #1529 (529 Plan Account Client Disclosure Form) as well as the 529 plan application to an appropriately licensed principal to ensure, among other things, that all 529 plans offered outside of a client’s state of residence were suitable in light of state tax laws, fund performance, commissions and plan fees; and the firm’s compliance department relied on the branch to forward the forms to it for tracking. The findings also stated that a FINRA investigation revealed a significant number of deficiencies with respect to the firm’s implementation of its written supervisory procedures pertaining to the accurate and timely completion of Forms #1529. The findings also included that some firm branch managers functioned as municipal securities principals, reviewing and approving 529 plan transactions, while failing to be registered and/or qualified in an appropriate municipal securities principal capacity.(FINRA Case #2007010730701)
This information was obtained from FINRA’s website.
If you feel you have become an alleged victim of Raymond James Financial Services, Inc., call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.
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Recently, in an article written by Jason Zweig for the Wall Street Journal, he asks us whether a financial adviser—which nowadays means anybody from a stockbroker or insurance agent to a financial planner or “wealth manager”—should be held to higher standards of conduct?
Insurance agents and brokers are obligated only to have reasonable grounds for believing that any investment they recommend is “suitable” for you. They need not inform you of conflicts of interest that might bias their judgment; you might never find out, that they sold you a particular fund primarily because it paid them a fatter commission than others would have.
Zweig goes on to say that other financial pros, however, bear a “fiduciary duty,” meaning that they must put their clients’ interests ahead of their own and disclose potential conflicts. After the rolling calamities of the past decade, wouldn’t this be an improvement over business as usual?
According to a recent investigation by The Wall Street Journal, Congress may not be in a very good position to tell the difference between suitable and unsuitable financial advice.
In the Senate’s earlier reform bill a measure would have imposed a fiduciary duty on all financial advisers. It has been superseded by one that would merely study whether the current standards are adequate. An amendment introduced last week would exempt many insurance agents, and brokers selling their firms’ own products, from being fiduciaries.
It was reported that some members of Congress permit brokers to trade their accounts hundreds of times a year; others trade too much themselves. The accounts of 38 members of Congress or their spouses showed at least 100 trades apiece in 2008, according to public records; 15 had more than 300 trades each.
This activity is just what long-term investors try to avoid. Regulations have long sought to protect small investors from “churning,” or excessive trading.
In a recent interview with the Journal’s Brody Mullins, Sen. Tom Coburn (R., Okla.)said that most of his money is managed by a professional adviser. The senator explained that his portfolio is heavy on oil and natural-gas stocks because energy is big business in his home state of Oklahoma.
Sen.Coburn added that he has his own account at TDAmeritrade, valued atabout $70,000. He said he trades actively based on tips he gleans from Jim Cramer’s “Mad Money” show on CNBC.
In 2008, Sen. Coburn traded Transocean four times in less than a month on Mr. Cramer’s advice. “I lost my shirt,” the senator said. He fared better with Tyson Foods,which he bought on Nov. 20, 2008, and sold less than three weeks later.”I bought it and got out because it went up,” Sen. Coburn said. He added that he regretted selling Tyson so quickly, because its price kept rising after he sold.
While it’s far from clear that Congress has the courage and knowledge needed for reform, it’s quite clear what shape the reform should take.
A professor at Rutgers School of Law-Camden and a former assistant general counsel at the Securities and Exchange Commission, Arthur Laby, points out that securities sales people are usually exempted from a fiduciary duty if their advice is “solely incidental” to their brokerage services and if they receive “no special compensation” for providing advice.
Mr. Laby says that exemption is “an antiquated concept embedded in an antiquated statute.” When the law was enacted, in 1940, many brokers acted as custodians for cash or securities, and trading was much more cumbersome than it is now. “Today, advice is the main dish,” points out Mr. Laby, “and it’s brokerage that’s become ‘solely incidental’ to advice.” Therefore, he says, anyone providing individualized investment advice should bear a fiduciary duty toward his clients—putting their interests first and disclosing any conflicts of interest.
Mr. Laby goes on to suggest that Congress could require investment banks to bear a fiduciary duty toward anyone who buys the stocks or bonds they underwrite. Instead of having a primary duty toward the issuers of the securities, Wall Street would first have to do right by the purchasers.
In the Wall Street Journal article, Zweig feels that while that might not completely prevent underwriters from generating the kind of toxic waste that poisoned investors over the past decade, it might well cut back on the volume of sewage. It’s a reform well worth considering.
Call a FINRA Securities arbitration lawyer for a free consultation on how to recover stock losses and securities losses. Call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.
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Capitol Investments USA, Inc., and Nevin K. Shapiro,Prominent Miami Beach Businessman charged by SEC in $900 Million Ponzi Scheme
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Nevin K. Shapiro, the founder and president of Capitol Investments USA, Inc., allegedly sold investors securities that he claimed were risk-free with rates of return as high as 26 percent annually. Shapiro was allegedly conducting a Ponzi scheme and illegally using investor money to pay for other unrelated business ventures and fund his own lavish lifestyle. When investors questioned Capitol’s business, Shapiro showed them fabricated invoices and purchase orders for nonexistent sales according to the SEC.
According to the SEC’s complaint, Capitol was operating at a loss by late 2004 and had virtually no operations by 2005 when, in a classic Ponzi scheme manner, Shapiro began using funds from new investors to pay principal and interest to earlier investors.
According to the SEC’s website these are among the alleged misrepresentations that Shapiro made to investors:
- He falsely told investors their funds would be used as short-term financing to purchase and resell groceries for Capitol’s business.
- He falsely touted Capitol’s financial success as well as his own.
- He falsely assured investors that their principal was secure because Capitol would not broker the sale of the goods without first obtaining a purchase order from a buyer.
- He falsely told investors that Capitol would pay the principal and interest from the profits it received when it resold the goods.
The SEC’s complaint further alleges that Shapiro misappropriated at least $38 million of investor funds to enrich himself and finance outside business activities unrelated to the grocery business, including a sport representation business and real estate ventures. His lavish lifestyle includes a $5 million home in Miami Beach, a $1 million boat, luxury cars, expensive clothes, high-stakes gambling, and season tickets to premium sporting events. Shapiro additionally tapped approximately $13 million of investor funds to pay large undisclosed commissions to individuals who attracted other investors.
Many Ponzi schemes are typically aided by large financial institutions. If your brokerage or broker has worked with Capitol Investments USA and Nevin Shapiro, or other financial service providers that may have been involved with Mr. Shapiro’s alleged fraud directly or indirectly, please contact Soreide Law Group to help recover your losses. It is also possible that some victims’ retirement accounts have been invested in this ponzi scheme. They may be liable for your loss.
If you are a victim of the alleged fraud by Nevin K. Shapiro, or are an investor in Capitol Investments, USA, Inc., call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.
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Five Firms Fined $385,000 by FINRA for Sale of Unregistered Securities, Other Violations Relating to Penny Stocks
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Washington, DC — On April 27, 2010, the Financial Industry Regulatory Authority (FINRA) announced that it fined five broker-dealers a total of $385,000 for the illegal sale of more than 8 billion shares of penny stock on behalf of their customers. Most of those illegal sales involved one penny stock company, Universal Express Inc. Together, the five firms sold more than 7.5 billion shares of that company’s unregistered stock, for proceeds of approximately $8.4 million as reported in the FINRA news release.
Further, the firms failed to take appropriate steps to determine whether the securities could be sold without violating federal registration requirements – despite certain red flags indicating that illegal stock distributions might be taking place, including a major enforcement action by the Securities and Exchange Commission (SEC) involving Universal Express’s unregistered stock.
The FINRA article reported that the firms fined are Fagenson & Co., Inc., of New York, which reported earning $44,000 in commissions from the sale of unregistered Universal Express stock and was fined $165,000; RBC Capital Markets Corporation, of New York, which earned $68,000 in commissions and was fined $135,000; Alpine Securities Corporation, of Salt Lake City, which earned $47,000 in commissions and was fined $40,000; Equity Station, Inc., of Boca Raton, which earned $13,575 in commissions and was fined $25,000; and, Olympus Securities, LLC., of Montville, NJ, which earned $5,200 in commissions and was fined $20,000.
”Brokerage firms are the first line of defense when it comes to preventing the illegal distribution of unregistered securities into the public markets,” said James S. Shorris, FINRA Executive Vice President and Executive Director of Enforcement. “The failure to detect and prevent these sales creates serious risks to the unsuspecting customers who purchased these unregistered securities.”
FINRA found that in each instance, the firms’ customers deposited large blocks of thinly traded securities in certificate form and then immediately liquidated those positions. The firm executed these sales despite the fact that the SEC had filed a complaint in early 2004 alleging that Universal Express had issued more than 500 million shares of unregistered stock for distribution to the public and charging Universal’s CEO and others with issuing a series of false press releases and other false and misleading statements to promote the sale of that unregistered stock. In early 2007, a federal court ruling enjoined Universal Express from further violations of the securities laws. Ultimately, Universal Express was ordered to disgorge nearly $12 million in ill gotten gains and interest, as well as nearly $10 million in fines.
The five firms nonetheless executed most of the illegal sales of Universal Express unregistered stock either after the SEC commenced its suit or after it had prevailed in its enforcement action.
In addition, FINRA found that four of the five firms – Fagenson & Co., RBC Capital Markets, Alpine Securities and Olympus Securities – failed to establish, maintain and enforce a reasonable supervisory system designed to prevent the sale of unregistered stock.
In settling these matters, the firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
Were you sold unregistered securities from Fagenson & Co., RBC Capital Markets Corp., Alpine Corp., Equity Station, Inc., or Olympus Securities, LLC? Or did your broker or brokerage get you involved with unregistered stock from Universal Express, Inc? Call a FINRA Securities arbitration lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.
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McGinn, Smith & Co. and its President Charged with Fraud in Sales of Unregistered Securities by FINRA
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Washington, D.C. — In a FINRA news release dated, April 19, 2010, the Financial Industry Regulatory Authority (FINRA) announced that it has filed a complaint against McGinn, Smith & Co., Inc., of Albany, NY, and its President and part owner, David L. Smith, charging them with securities fraud in the sale of tens of millions of dollars in unregistered securities. In addition to disciplinary sanctions, FINRA is seeking all ill-gotten profits and full restitution to affected investors.
FINRA charges the firm and Smith with misuse of investor funds, supervisory deficiencies and violation of securities registration rules. Smith was also charged with misrepresenting facts in letters he sent to investors. In addition, the firm, Smith and Timothy M. McGinn, co-owner of the firm and chairman of its board, were charged with providing FINRA staff with falsified documents.
The FINRA complaint alleges that from September 2003 through November 2006, the firm and Smith sold approximately $89 million in income notes to 515 investors in four fraudulent securities offerings by four limited liability companies (LLCs) managed and controlled by Smith. FINRA also charged that the income notes, which are securities, were neither registered nor eligible for an exemption from registration.
The firm falsely promised investors that their funds would be earmarked for a broad array of public and private investments. Instead, Smith misused the majority of the offering proceeds to benefit 26 business entities that he, McGinn and/or another firm owner controlled, or in which they maintained a financial interest (the “related companies”). The complaint alleges that most of the related companies were illiquid and had little or no revenues or were in poor financial condition at the time they received proceeds from the income note offerings. Smith allegedly misused approximately $51 million of investor funds, directing approximately $17 million to the related companies and approximately $34 million more to make loans to them. Approximately $22 million of those loans remain unpaid. Smith allegedly received personal loans of approximately $590,000 from the related companies that were funded by investments made in the four LLCs.
The complaint alleges that the firm and Smith failed to disclose several material facts in connection with the four offerings, including that the LLCs would be investing and making loans to the related companies, that the LLCs would be making long-term loans and that the majority of offering funds would be invested in illiquid, non-public companies. The firm and Smith also allegedly misrepresented to investors that the firm would only receive a 2 percent underwriting/commission fee. The complaint alleges that, in fact, the firm received recurring annual commissions from the inception of the offerings, totaling approximately $7.5 million – approximately 8.4 percent of the offering proceeds.
The complaint states that the vast majority of the LLC investments were illiquid and non-performing. In 2008, Smith, acting on behalf of the LLCs, stopped all redemptions and sent two letters to investors misrepresenting that the firm and two of the related companies would waive or forgo further fees and commissions due to the poor financial condition of the income note issuers. But contrary to those representations, the complaint alleges, the firm and the two related companies subsequently took in approximately $6.7 million in fees and commissions.
Call a FINRA Securities arbitration lawyer for a free consultation on how to recover stock losses and securities losses. Call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC. Representing investors nationwide before FINRA and the NFA.
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