Securities Fraud Blog | Find out if your broker is liable for your losses

TAG | unsuitable private placements

Jun/11

16

Christian Genitrini Fined and Suspended by FINRA

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Christian Genitrini (CRD #3277581, Registered Representative, New York, New York)

submitted a Letter of Acceptance, Waiver and Consent in which he was fined $15,000,

suspended from association with any FINRA member in any capacity for two years, and

required to requalify by exam for Series 7 and Series 63 before becoming re-associated

with a member firm after the expiration of the suspension term. The fine shall be paid in

installments beginning 90 days after Genitrini’s reassociation with a FINRA member firm

following his suspension, or prior to the filing of any application or request for relief from

any statutory disqualification, whichever is earlier. Without admitting or denying the

findings, Genitrini consented to the described sanctions and to the entry of findings that

he advertised guaranteed returns on investments of up to 20 percent per year on a website

belonging to a company he wholly owned; Genitrini claimed that his company was a fullservice

investment firm and would, among other claims, provide high-yield investment

opportunities. The findings stated that the website declared that the company invested

nationwide and all industries were considered, but did not disclose the nature of the

investment product or the risks of investment. The findings also stated that Genitrini’s ads

appeared on other websites guaranteeing returns, and his company’s contemplated private

placement documents provided no assurance that by following its current investment

strategy, it would be successful or profitable; the subscription agreement also stated that

the investments the company carried might be volatile and present operational risks.

The findings also included that Genitrini’s Internet ads constituted communications with

the public; were not based on principles of fair dealing and good faith; were not fair and

balanced; did not disclose risks associated with the investment; guaranteed promising

returns that were exaggerated, unwarranted or misleading; and the predictions of

performance were also exaggerated or unwarranted.

FINRA found that Genitrini’s private offering of securities, which involved promissory

notes his company issued according to the private placement memorandum, was not

made pursuant to an effective registration statement filed with the SEC; the offering

was intended to be made pursuant to the exemption from registration in Section 4(2)

of Rule 506 of Regulation D of the Securities Act of 1933, which prohibits offers or sales

of securities by any form of general solicitation or general advertising. FINRA also found

that Genitrini’s use of the Internet and his company’s website violated Section 5 of the

Securities Act of 1933, and guaranteeing returns in the offer of securities over the Internet

violated Section 17(a)(1) of the Securities Act of 1933. In addition, FINRA determined

that Genitrini falsely described his work with his company on his member firm’s outside

business activity disclosure form and also failed to disclose that he maintained a website

for the company; Genitrini told his firm, in writing, that his business and website were for

tax-planning services.

The suspension is in effect from April 4, 2011, through April 3, 2013.

 

(FINRA Case #2010022859701)

 This information was obtained on FINRA’s website under the May disciplanary actions.

 

If you feel you have been a victim of the alleged fraudulent schemes of Christian Genitrini, 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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May/11

26

Wells Fargo, BNY Mellon Corp., Sue Securities America, & other B-Ds over Medical Capital Holdings, Inc.

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In a May 26th., 2011, article from InvestmentNews.com, Bruce Kelly writes, that adding to the cascade of legal troubles for broker-dealers that sold private placements for Medical Capital Holdings Inc., two banks have now sued several independent B-Ds that hawked the failed offerings.

It was reported that the Bank of New York Mellon Corp. and Wells Fargo Bank NA, were trustees for Medical Capital. In fact, both were sued in a class action in 2009 in U.S. District Court for the Central District of California after the Securities and Exchange Commission charged Medical Capital with fraud. But Bank of New York Mellon and Wells Fargo want the broker-dealers to pay up money if they are found liable in those class actions.

On April 29, the two banks filed separate lawsuits against the broker-dealers, including struggling Securities America Inc., claiming that the broker-dealers “breached their obligation to MedCap investors” by selling the product to investors for whom it was not a suitable investment, and failing to make proper disclosure of the notes’ risks. Bank of New York Mellon has sued 13 broker-dealers, seven of which are no longer in business. Wells Fargo has sued six firms, as well as Ameriprise Financial Inc., which owns Securities America, the biggest seller of Medical Capital notes. Not all broker-dealers that sold the product were included in the suit. “We believe the banks’ actions are unwarranted and baseless,” said Janine Wertheim, a spokeswoman for Securities America. “The wrongdoing in this case lies with the principals of Medical Capital, who have been accused of fraud by the SEC.”

Kelly writes that the plaintiffs in the class action against the two banks claimed in a 2010 amended complaint that the two trustees signed off on a request by Medical Capital executives to take $325 million in fees — despite documents for the Medical Capital notes stating that fees were not supposed to come from investor funds. From 2003 to 2008, dozens of independent broker-dealers sold notes of Medical Capital, which raised $2.2. billion. Securities America sold about $700 million of the product and last month agreed to settle with investors who sued the firm in a class action. Investors have lost more than $1 billion in principal, and regulators and the Medical Capital bankruptcy trustees have said the operation was a Ponzi scheme.

The banks’ suits against the B-Ds is at least the third time in the past year that broker-dealers that sold failed private placements or real estate deals have been sued by outside parties such as a trustee or receiver. Last June, the trustee overseeing the receivership of another failed series of private placements, Provident Royalties LLC, sued almost 50 broker-dealers seeking to claw back $285 million, including commissions.

And in November, the bankruptcy trustee for DBSI Inc., which packaged real estate deals and went bust in 2008, sued almost 100 broker-dealers looking to get back about $49 million from the firms.

If you or a family member have become a victim of the alleged fraudulent sale of private placements for Medical Capital Holdings, Inc. by your broker-dealer, call a Securities Arbitration Lawyer for a free consultation on how you could potentially 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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Apr/11

8

Two Firms and Seven Individuals Sanctioned by FINRA for Selling Private Placements Without Conducting a Reasonable Investigation

Comments off · Posted by admin in FINRA

WASHINGTON — It was announced today on FINRA’s website that the Financial Industry Regulatory Authority (FINRA)  has sanctioned two firms and seven individuals for selling interests in private placements without conducting a reasonable investigation. The companies whose securities were sold in these private placements were unrelated to the firms and individuals FINRA sanctioned. The companies ultimately failed, resulting in significant investor losses.

 In their article it was announced that FINRA imposed sanctions against the following firms and individuals for failing to conduct a reasonable investigation of the sale of private placements offered by Medical Capital Holdings, Inc. (MedCap) and/or Provident Royalties, LLC.

  • Workman Securities Corp., of MN, was ordered to pay $700,000 in restitution to affected customers. Robert Vollbrecht, Workman’s former President, was barred in any principal capacity, and fined $10,000.
  • Timothy Cullum, former Chief Executive Officer, and Steven Burks, former President, of Cullum & Burks Securities, Inc., of Dallas, TX, a now-defunct firm, were each suspended in any principal capacity for six months and fined $10,000.
  • Jeffrey Lindsey and Bradley Wells, two former executives with Capital Financial Services, Inc., of ND, were each suspended for six months in any principal capacity and fined $10,000.
  • Jay Lynn Thacker, former Chief Compliance Officer for Meadowbrook Securities, LLC (fka Investlinc Securities, LLC), of MS, was suspended for six months in any principal capacity and fined $10,000.
  • David William Dube, former Owner, President, Chief Compliance Officer and Anti-Money Laundering (AML) Compliance Officer of (now-defunct) Peak Securities Corporation, of FL, was barred for failing to conduct adequate due diligence, as well as a failure as AML Compliance Officer to detect, investigate and report numerous suspicious transactions in 10 customer accounts where “red flags” existed.

Additionally, FINRA fined Askar Corporation, of MN, $45,000 for its failure to conduct due diligence on a private placement from DBSI, Inc., another company that defaulted on its obligations. FINRA found that Askar only reviewed the offering documents and sales materials provided by DBSI before approving the product for sale, without independently verifying DBSI’s representations in the offering documents.

 It was reported that FINRA found that broker-dealers who sold the MedCap, Provident and DBSI private placement offerings did not have reasonable grounds to believe that the private placements were suitable for any of their customers. Also, they failed to engage in an adequate investigation of the private placements and failed to establish, maintain and enforce a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations. Without performing proper due diligence, the firms could not identify and understand the inherent risks of these offerings. The sanctioned principals did not have reasonable grounds to allow the firms’ registered representatives to continue selling the offerings despite the red flags that existed regarding the private placements.

 Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “Senior officials at these firms failed to fulfill their responsibilities to customers by not conducting reasonable investigations of these unrelated offerings, especially in light of multiple red flags suggesting liquidity concerns, missed interest payments and defaults. FINRA will continue to look closely at sales of both affiliated and unaffiliated private placements to determine whether the selling firms fulfilled their responsibility to customers.”

 In July 2009, the SEC filed a civil injunctive action in federal district court in which it sought, and was granted, a preliminary injunction to stop all MedCap sales. The SEC alleged that MedCap and its executives defrauded investors in MedCap VI by misappropriating approximately $18.5 million of investor funds. The SEC also alleged that MedCap misrepresented that it had never defaulted on or had been late in making interest or principal payments, when in fact, MedCap had defaulted on or was late in paying nearly $1 billion in principal and interest on the notes from its previous Regulation D offerings. The court appointed a receiver to gather and conduct an inventory of MedCap’s remaining assets. The SEC action is pending.

 From 2001 through 2009, MedCap, a medical receivables financing company based in Anaheim, CA, raised approximately $2.2 billion from over 20,000 investors through nine MedCap private placement offerings of promissory notes. MedCap made interest and principal payments on its promissory notes until July 2008, when it began experiencing liquidity problems and stopped making payments on notes sold in two of its earlier offerings. Nevertheless, MedCap proceeded with its last offering, MedCap VI, which it offered through an August 2008 private placement memorandum.

 On July 2, 2009, the SEC filed a civil injunctive action in the Northern District of Texas naming Provident and others, and the Court granted its request for a temporary restraining order and an emergency asset freeze and appointment of a receiver to take control of the entities, and marshal and preserve the assets for the benefit of the defrauded investors. All the named defendants subsequently agreed to the entry of a preliminary injunction, which remains in effect. In March 2010, FINRA expelled Provident Asset Management, LLC from membership for marketing a series of fraudulent private placements offered by its affiliate, Provident Royalties, LLC. (FINRA Case No. 2009017497201.)

From September 2006 through January 2009, Provident Asset Management, LLC marketed and sold preferred stock and limited partnership interests in a series of 23 private placements offered by an affiliated issuer, Provident Royalties. The Provident offerings were sold to customers through more than 50 retail broker-dealers nationwide and raised approximately $485 million from over 7,700 investors. Provident Royalties’ business plan included the acquisition of a combination of producing and non-producing sub-surface mineral interests, working interests and production payments in real property located within the United States. Although a portion of the proceeds of Provident Royalties’ offerings was used for the acquisition and development of oil and gas exploration and development activities, millions of dollars of investors’ funds were transferred from the later offerings’ bank accounts to the Provident operating account in the form of undisclosed and undocumented loans, and were used to pay dividends and returns of capital to investors in the earlier offerings, without informing investors of that fact.

It is noted that FINRA’s investigation of broker-dealers that sold the MedCap, Provident, DBSI and other troubled private placement offerings continues.

If you feel you have been a victim of these alleged fraudulent schemes, 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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