Investment Fraud

Winsome Investment Trust, U.S. Ventures LC, and their Individual Owners Assessed $44 Million Sanction for Commodity Pool Fraud and Misappropriation

July 2, 2014 | Silver Law Group

The U.S. Commodity Futures Trading Commission (CFTC) has obtained a federal court Order imposing $44 million in sanctions against Robert J. Andres of Houston, TX; his company, Winsome Investment Trust (“Winsome”); Robert L. Holloway of San Diego, CA; and his company, US Ventures LC (“US Ventures”); for fraud in operating a commodities futures pool. The sanction includes a civil monetary penalty of over $32 million as well as a restitution award of $12 million to be paid to defrauded investors. The Order also imposes upon the individuals and companies a permanent trading and registration ban.

According to the Order entered by the Honorable Bruce S. Jenkins of the U.S. District Court for the District of Utah, Andres and Winsome (from May 2005 through November 2008) fraudulently solicited and accepted over $50 million from investors who were told that they would be investing in a commodity futures pool operated by Holloway and US Ventures. To garner the investors’ funds, Andres and Winsome purportedly made false statements claiming that the investment program had a successful track record and that each investor would be guaranteed a return of his/her principal plus profits. The Court found those representations to be false, as Holloway and US Ventures’ futures trading actually suffered nearly $11 million in net losses.

The Court went on to conclude that the defendants misappropriated the majority of participant funds to pay investors false “profits” in a manner akin to a Ponzi scheme and that the defendants used investor funds for other improper purposes, such as providing money to Andres’ wife, funding Holloway’s and his wife’s lavish personal expenses (houses, cars, jewelry, etc.), and investing in various unrelated and undisclosed businesses including a business Holloway’s wife ran on eBay. The Court Order explained that Andres and Holloway attempted to conceal the fraud by directing employees to falsify participants’ account records and to falsely represent to investors that the pool funds were trading profitably with virtually no losses during the relevant period.

Silver Law Group Settles Investor Class Action for $13 Million

June 27, 2014 | Silver Law Group

Silver Law Group settles a Class Action Complaint on behalf of a group of investors which generally alleged Regions Bank assisted U.S. Pension Trust Corp (“USPT”) in the sale of unregistered securities and failed to properly disclose the high fees and costs of the program. Plaintiffs pursued a class action because many investors were located internationally and a class action was an appropriate vehicle to pursue damages. The SEC had previously charged USPT with violating the federal securities laws and entered judgment against USPT in September 2010. Plaintiffs alleged Defendants violated the Florida Securities and Investor Protection Act and aided and abetted the unregistered sale of securities, amongst other claims.

The victims were primarily from Latin America and over 5,000 investors were identified as potential class members. A United States District Court Judge in Miami appointed Silver Law Group and its co-counsel as attorneys to represent the Plaintiffs. The Plaintiffs further alleged Regions advised USPT on the design and content of marketing materials, had a role in drafting documents, participated in sales conventions and was paid as the trustee on USPT trust accounts. The class action ultimately settled for approximately $13 million. The case was reported by the Daily Business Review.

If you have questions about your legal rights, or have been the victim of investment fraud, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or Toll Free at (800) 975-4345.

Federal Appeals Court Upholds SEC Ban on Broker-Dealer Principal for Failing to Prevent Churning and Excessive Trading

June 19, 2014 | Silver Law Group

In July 2013, the U.S. Securities and Exchange Commission (“SEC”) issued a lifetime ban upon Carl Birkelbach, the founder and principal of Birkelbach Investment Securities (headquartered in Chicago, Illinois), which prevents him from participating in any working capacity in the securities industry. Mr. Birkelbach appealed the SEC’s ban, claiming in part that the SEC exceeded its authority in imposing such a severe penalty upon him. Earlier this month, the U.S. Court of Appeals for the Seventh Circuit in Chicago denied his appeal and upheld the SEC ban, stating that Mr. Birkelbach’s offenses were sufficiently egregious to warrant the sanction imposed by the SEC.

As the head of Birkelbach Investment Securities, Mr. Birkelbach was required to supervise the trading activities of the company’s registered representatives, including William Murphy. According to the SEC, Mr. Murphy engaged for years in unauthorized conduct, steering clients into unsuitable investments, and churning in client accounts — all of which Mr. Birkelbach was purportedly aware of. Despite Mr. Birkelbach’s alleged knowledge of the wrongdoing taking place at his company, he imposed no discipline upon Mr. Murphy, never disapproved of a single trade by Murphy, and never contacted the most egregiously harmed customer to discuss the high volume of trading in the customer’s account. During the years in question, the revenues from Mr. Murphy’s trading in that account, according to SEC calculations, represented nearly 20% of Birkelbach Investment Securities’ total revenue. Even when the Financial Industry Regulatory Authority (FINRA) requested that Mr. Birkelbach place Mr. Murphy on heightened supervision, Mr. Birkelbach failed to comply. As a result, FINRA imposed upon Mr. Birkelbach a punishment that ultimately became a lifetime ban from the securities industry in any capacity, which the SEC subsequently affirmed in its July 2013 ruling.

If you have questions about your legal rights, or have been the victim of investment fraud, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or Toll Free at (800) 975-4345.

FINRA Fines Merrill Lynch $8 Million and Orders it to Repay Over $89 Million to Retirement Accounts for Overcharging for Mutual Funds

June 18, 2014 | Silver Law Group

The Financial Industry Regulatory Authority (FINRA) announced a fine against Merrill Lynch, Pierce, Fenner & Smith, Inc. for $8 million for charging excessive mutual fund sales charges for retirement accounts. FINRA also ordered Merrill Lynch to pay $24.4 million in restitution to damaged customers on top of $64 million Merrill Lynch has already compensated damaged investors. According to the FINRA decision, mutual funds offer several classes of shares, each with different sales charges and fees and many mutual funds waive their initial charges for retirement accounts. However, Merrill Lynch failed to pass these savings on to the investors.

Merrill Lynch’s retail platform frequently offered such discounts to retirement plan accounts and disclosed those waivers in their prospectuses. However, Merrill Lynch failed to frequently pass these savings on to the investors including retirement accounts. Accordingly, about 41,000 small business retirement plan accounts, and approximately 6,800 charities and 403(b) retirement accounts available to ministers and employees of public schools, either paid sales charges when purchasing Class A shares, or purchased other share classes that unnecessarily subjected them to higher ongoing fees and expenses. Incredibly, in 2006, Merrill Lynch learned its small business retirement plan customers were overpaying, but continued to sell them more costly shares and failed to report the issue to FINRA for more than five years.

If you believe your portfolio was improperly managed or was charged excessive fees or costs, Silver Law Group will analyze your portfolio at no charge. Additionally, if you have questions about your legal rights, or have been the victim of investment fraud, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or Toll Free at (800) 975-4345.

Connecticut Securities Regulator Seeks to Bar Meyers Associates from Selling Securities in Connecticut

April 16, 2014 | Silver Law Group

If the Connecticut Department of Banking (the “Department”) has its way, Meyers Associates and its owner, Bruce Meyers, will be barred from selling securities in Connecticut. A February 2014 Order to Cease and Desist issued by the Department, charges Meyers Associates and Bruce Meyers (“Respondents”) with numerous violations of Connecticut securities laws. The Order states the Department’s intent to fine Respondents and revoke their registration to sell securities in Connecticut.

The present charges against Respondents stem from a 2012 examination by the Department, out of which the Department claims to have discovered multiple violations of the Connecticut Uniform Securities Act and FINRA rules. Notably, the Department alleges that Respondents failed to properly supervise employees with known disciplinary histories, violated an order from the Vermont securities regulator, and failed to completely respond to both the Department’s and FINRA’s requests for information and documents.

In seeking fines and revocation of Respondents’ licenses, the Department cites to Meyers Associates’ history of run-ins with the Department over allegations that it employed unregistered agents, offered and sold unregistered securities, engaged in fraud in connection with the sale of securities, engaged in dishonest and unethical practices, violated FINRA conduct rules, and failed to enforce and maintain adequate supervisory procedures. FINRA’s BrokerCheck report for Meyers Associates shows 14 final regulatory events, two pending regulatory events, and nine final arbitrations.

FINRA Arbitration Panel Orders UBS to Pay $5.3 Million for Misleading a Financial Advisor and his Clients about a Proprietary Product Tied to Lehman Brothers

April 15, 2014 | Silver Law Group

A former UBS broker recently won a FINRA arbitration claim against UBS Financial Services for misleading him and his clients about the risks associated with structured notes tied to Lehman Brothers Holdings, which suffered significant losses in 2008. Silver Law Group primarily represents investors in claims against UBS and other brokerage firms. However, this award deserves attention because it highlights a fundamental flaw in Wall Street’s business model. UBS created a system to use its sales force to sell millions of dollars in Lehman Brothers debt. However, faced with undesirable evidence of Lehman’s financial problems, UBS knowingly chose to not inform its financial advisors or retail clients about the problems. Put differently, this was a “top down” problem because the misconduct was by UBS senior management. We are seeing the same set of facts in claims by investors against UBS in Puerto Rico, where UBS senior management served as the biggest supporters of proprietary UBS bond funds and UBS placed no restrictions on financial advisors or on the concentration levels in a customer’s portfolio.

The FINRA arbitration panel awarded $4 Million in compensatory damages, $1 Million in punitive damages and $335,000 in attorneys’ fees and costs, specifically finding UBS had “deliberately prevented the distribution of material information about Lehman Brothers sinking financial condition and continued to recommend the sale of Lehman Brothers [Notes] despite clear evidence of the company’s rapid decline.” The panel also ordered that the 39 complaints filed against this broker be erased from his record.

The backdrop leading to this award is eerily similar to what is happening today at UBS in Puerto Rico (“UBS-PR”). UBS-PR aggressively pushed the sale of closed-end bond funds (CEFs) involving Puerto Rican debt which were proprietary to UBS. UBS allegedly misled the majority of its brokers and clients concerning the risks associated with CEFs. UBS is also alleged to have withheld negative information about the CEFs from its brokers and its clients, thereby preventing a full understanding of Puerto Rico’s deteriorating economy and the effects that decline would have on the leveraged and illiquid CEFs. Could it be that the majority of UBS-PR brokers who now find themselves facing numerous customer complaints were simply following the instructions given by UBS and doing what they were trained to do—sell UBS recommended products?

Reuters’ Article Highlights the Risks of Variable Annuities to Investors

March 28, 2014 | Silver Law Group

Of all the guarantees, bells and whistles associated with variable annuities, perhaps the biggest guarantee is the steep up-front commission the financial advisor can earn for selling the product.

According to a recent Reuters’ article, variable annuity sales in the U.S. totaled $142.8 billion last year, and brokers can earn 7 percent or more in commissions on the insurance products. Based on simple arithmetic, the commissions earned on an annual basis exceeds a billion dollars.

However, investors may be damaged when these complex products are not properly explained, tax or liquidity factors are not considered, or the advisor engages in “twisting” of improper annuity switching. “Twisting” happens when a broker encourages a client to trade in an older annuity to buy a different one, often at significant cost to the client and benefit to the broker.