Securities Arbitration Lawyers Blog

GL Capital Partners Chief Executive Officer Charged with Securities Fraud

December 22, 2014 | Silver Law Group

Daniel Thibeault, chief executive of GL Capital Partners, a brokerage firm which specialized in alternative investments, was arrested on securities fraud charges after the FBI accused him of a fraudulent scheme to divert some $12.6 million from a fund he was overseeing.

Mr. Thibeault allegedly took out fictitious loans to gain access to money in an alternative mutual fund, known as the Beyond Income Fund. Mr. Thibeault co-managed the fund, which invested in consumer debt. Alternative investments are frequently investments which are not directly tied to a stock or bond index.

Over $35 million dollars of loans had been issued from the fund. Mr. Thibeault allegedly took over $12 million dollars through an intermediary. The money from the loans made through the intermediary, Taft Financial Services, did not go to individual borrowers, however, but to a GL-controlled bank account, according to the FBI.

FINRA Fines 10 Firms $43.5 Million for Conflicts of Interest by Research Analysts in Advance of an IPO

December 17, 2014 | Silver Law Group

The Financial Industry Regulatory Authority (FINRA) fined 10 brokerage firms a total of $43.5 million for allowing their analysts to solicit investment banking business and for offering favorable research coverage in connection with the 2010 IPO of Toys R Us.

Firms and fines:

Barclays Capital	$5 million
Citigroup Global Market	$5 million
Credit Suisse	$5 million
Goldman Sachs	$5 million
JP Morgan Sec	$5 million
Deutsche Bank	$4 million
Merrill Lynch	$4 million
Morgan Stanley	$4 million
Wells Fargo	$4 million
Needham & Co.	$2.5 million

For the complete FINRA Press Release, click here. These allegations are remarkably reminiscent of claims investors made against FINRA firms relating to the collapse of technology stocks in 2000 including allegations that FINRA firms used its research analysts as cheerleaders for its investment banking departments publishing biased research to help boost IPO’s. A decade later, it does not appear that much has changed on Wall Street.

Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

Former LPL Broker Travis Wetzel Pleads Guilty to Defrauding an Elderly Client

December 8, 2014 | Silver Law Group

Travis Wetzel of Frederick, Maryland has pleaded guilty to wire fraud relating to a fraudulent scheme to steal over 1.2 million dollars from an elderly client’s annuity account.

According to the government press release, Wetzel processed financial distribution documents for his investment advisory firm located in Rockville, Maryland. According to his plea agreement, from July 2010 to September 2012, Wetzel took a total of approximately $1,282,224 from an annuity account of an elderly client without the client’s knowledge, and used the money for his personal benefit. Wetzel knew that the client was elderly, whose age and physical condition would facilitate repeatedly taking money from the client’s account. Wetzel also laundered some of the money he took by transferring the money to other bank accounts he controlled.

We are currently involved in multiple cases against brokerage firms for mismanagement of elderly investors’ accounts and/or improper conflicts of interest between the financial advisor and the customer. We routinely work closely with estate planning attorneys to help resolve disputes between family members regarding the management of an elderly family member’s financial affairs and we are frequently consulted regarding the improper sale of securities or mismanagement of the portfolio by a fiduciary, trustee or other trusted advisor.

Two Florida Businessmen Plead Guilty to a $20 Million Dollar Ponzi Scheme

December 8, 2014 | Silver Law Group

Donald Ray Babb and Ralph Ruth each face a maximum 20 years in federal prison after pleading guilty to operating a $20 million dollar Ponzi scheme.

The scheme lasted from June 2006 through the end of 2013 primarily targeting older investors including several government workers costing many investors their life savings after suffering a total loss of their investments. The victims’ money was primarily used to pay earlier investors and to purchase real estate and luxury items for the Ponzi schemers.

According to news reports, between June 2006 and December 2013, Babb and Ruth orchestrated a scheme in Brevard County that defrauded approximately 180 investors out of almost 20 million dollars. Doing business as Southeast Mutual Insurance and Investment LLC, Capstar Industries LLC, and First Merchant Capital LLC, Babb and Ruth falsely represented their businesses as licensed financial institutions whose deposits were insured by the Federal Deposit Insurance Corp. Many investors thought they were buying bank products such as Certificates of Deposits and savings accounts. Ponzi schemes targeting elderly investors are on the rise. In the instant case, some investors were in their 80’s and were solely looking for preservation of capital. Many elderly investors are being defrauded in Ponzi schemes which are promoted by offering investment products which offer a high rate of return without taking any stock market risk.

Silver Law Group is Investigating NSM Securities, Inc.

December 3, 2014 | Silver Law Group

NSM Securities, Inc. (CRD #134357, West Palm Beach, Florida) and Niyukt Raghu Bhasin (CRD #2282048, Wellington, Florida) submitted an Offer of Settlement to FINRA in which NSM Securities (“NSM”) was expelled from FINRA membership. Bhasin was barred from association with any FINRA member in any capacity. NSM and Bhasin consented to the FINRA sanctions and that the firm, acting through and at the direction of its founder, owner, President and Chief Executive Officer (CEO) Bhasin, derived most of its revenue from actively and aggressively trading stocks in the commission-based accounts of its retail customers. This practice is frequently referred to as churning. Bhasin allegedly put his firm’s profits over the duties owed to its customers and chose not to enforce a supervisory system effective for the firm’s business. NSM, through Bhasin, failed to establish, maintain and enforce a system, including written supervisory procedures (WSPs), to supervise its core activity, an active and aggressive investment strategy. The firm, through Bhasin, failed to monitor for, detect and prevent churning, excessive trading, related violations of Regulation T, and unsuitable investment recommendations, and failed to adequately review e-mail, adequately handle customer complaints or place questionable brokers who were the subjects of multiple FINRA arbitrations or customer complaints and arbitrations on heightened supervision.

FINRA also stated that in implementing Bhasin’s active and aggressive trading strategy, and in order to generate commissions, the firm committed multiple margin violations and the related FINRA rules governing the extension of credit or margin. Specifically, the firm, acting through its brokers, made a practice of allowing customers to buy securities in cash accounts where the cost to buy the securities was met by the sale of the same securities, known as free-riding. All of these actions ultimately led to an environment which allowed brokers to churn customer accounts to make a profit for the firm. NSM specifically targeted Indian investors preying on sharing cultural similarities. This is frequently referred to as affinity fraud.

FINRA also found that the firm, through Bhasin, failed to institute adequate procedures for cold-calling prospective customers. As a result, the firm, through its brokers and other representatives, initiated telephone solicitations to persons whose numbers were on the firm’s do-not-call list and/or the national do-not-call list. (FINRA Case #2011027667402)

Silver Law Group Files Lawsuits Against Cryptocurrency Exchanges Bitcoin Savings & Trust and Cryptsy

October 23, 2014 | Silver Law Group

Boca Raton, Florida – October 23, 2014 (GLOBE NEWSWIRE)

Silver Law Group (www.silverlaw.com) is pursing claims against multiple Bitcoin exchanges for allegedly buying and selling cryptocurrencies using false and misleading claims of easy profits, high returns, and little risk. While The Wall Street Journal recently proclaimed that it was time “for some investors – those with stomachs for volatility – [to take] a closer look at cryptocurrencies,” other investors who have already taken a look have seen an entire life’s savings lost.

With the rapid rise and fall of Bitcoin prices (Bitcoin peaked at $1,150 last year and fell to $286 this month), Bitcoin and other cryptocurrencies are drawing increasing interest as potential alternative investments. According to CoinDesk, there will be eight million Bitcoin trading accounts and over 100,000 companies accepting Bitcoin by the end of 2014. Despite new regulatory challenges and the struggles of some Bitcoin-related sites, the New York Times has reported that more than $250 million has been invested in Bitcoin companies, most of that in the last twelve months.

Silver Law Group Warns Investors about Alternative Investments

October 23, 2014 | Silver Law Group

If you’re investing in an instrument other than traditional stocks, bonds, or cash, then you’re investing in an alternative. In the current low-interest rate environment, many retail investors are allocating a greater portion of their portfolio to alternatives in search of higher yield. It is also common for investors to believe that alternatives help contribute to a diversified portfolio and reduce volatility. Originally offered to institutional investors and sophisticated, high net worth individuals, alternatives come in many shapes and sizes. They include private placements, precious metals, managed futures, structured products, commodities, currency, and “alternative alternatives” – just to name a few.

Let’s start by differentiating these from more traditional investments. Because alternatives frequently claim to have a low correlation with market indices, performance frequently depends more on manager skill than on market returns. Fees are often opaque and layered, and leverage may be used to magnify returns. One should also note that these investments can be highly illiquid. Their complexity explains their popularity among sellers, as complex products are often designed in favor of the issuer by having multiple layers of fees. In 2010, for the top five U.S. brokerage firms, alternatives generated $18 billion in fee revenues (McKinsey & Company: The Mainstreaming of Alternative Investments).

According to Financial Industry Regulatory Authority (FINRA) rules, broker-dealers have an obligation to provide their clients with adequate disclosures and follow suitability rules. The disclosures include such details as liquidity, leverage, associated fees, and conflicts of interest. With regard to suitability, broker-dealers must consider the investor’s age, risk tolerance, liquidity needs, financial and tax status, and other relevant characteristics (FINRA Rule 2111). Unfortunately, many broker-dealers have allocated a large portion of conservative investors’ portfolios to alternatives. When broker-dealers, enticed by high commissions, take advantage of retirement savers and elderly clients, investors may be entitled to compensation for their losses.

FINRA Hits Newport Coast Securities and Its Representatives with Churning Charges

August 14, 2014 | Silver Law Group

Last week, the Financial Industry Regulatory Authority (FINRA) filed charges against Newport Coast Securities, Inc. (“Newport Coast”) and some of its current and former registered representatives, accusing them of using margin and risky securities to artificially generate huge commissions for themselves while wiping out most of their customers’ investment capital.

Newport Coast, a New York-based broker-dealer, by and through brokers Douglas Leone, Andre LaBarbera, David Levy, Antontio Costanzo, and Donald Bartlet, allegedly churned the accounts of twenty four customers — many of whom are retirees — causing more than $1,000,000 in losses to the investor-clients. “Churning,” as it is known in the industry, is the act of a broker who excessively and needlessly engages in trading in a client’s account primarily to generate commissions for the broker on each trade without regard for the client’s financial well-being. Churning is an illegal and unethical practice that violates SEC rules and securities laws. The brokers are also purported to have created new account forms for their victimized clients that misstated the clients’ net worth, investment experience, and objectives; and two of the brokers (Levy and Costanzo) attempted to dissuade several customers from cooperating with FINRA’s investigation into the matter — all of which was done to cover up the illegality of the brokers’ excessive activity in the client accounts.

According to FINRA, former Newport Coast supervisors Marc Arena and Roman Luckey saw what was transpiring but took no meaningful steps to curtail the misconduct. To the contrary, the firm’s managers, supervisors, and the former President of the company allegedly profited through overrides on the churned accounts.

Scott Silver Presents “How to Win an Alternative Investment Case” at the 2014 American Association of Justice Annual Convention

August 1, 2014 | Silver Law Group

Scott Silver, Managing Partner of Silver Law Group, is the current co-chair of the Securities and Financial Fraud group of the American Association of Justice (“AAJ”). On July 28, 2014, during the 2014 AAJ Annual Convention in Baltimore, Maryland, Scott gave a well-received presentation titled “How to Win an Alternative Investment Case.” AAJ, also known as the Association of Trial Lawyers of America, is the world’s largest trial bar and promotes justice and fairness for injured persons and safeguards victims’ rights.

The theme of the presentation focused on the rise of Alternative Investment or Product cases over the last several years. Driven by its desire to replace commissions lost as investors realize stocks and bonds can be traded at discount firms for less than ten dollars a trade, Wall Street has introduced many new Alternatives to investors. However, many of the new, complex Alternatives can be riddled with fees, conflicts of interest, and are frequently more speculative than marketed by the firms. Several recent FINRA arbitration claims focus on products which lose substantially all of their value in a short time. FINRA has seen a rise in arbitration claims where multiple investors all seek damages relating to the same Alternative Investments or Product and where one or more of the asserted claims center around allegations regarding the widespread mismarketing or defective development of a specific investment.

Alternative Investments which have been the subject of recent FINRA claims include:

SEC Charges Palm Beach CEO, Cecil Franklin Speight, in $3 Million Fraud Scheme

July 29, 2014 | Silver Law Group

The U.S. Securities and Exchange Commission (“SEC”) has filed a civil lawsuit against a Palm Beach, Florida-based transfer agent and its owner for allegedly defrauding more than 70 investors out of more than $3 million by using “aggressive boiler room tactics” to sell worthless investment securities.

According to the SEC’s lawsuit, which was filed in federal court in New York, International Stock Transfer, Inc. (“IST”) and its sole owner, Cecil Franklin Speight, committed mail fraud and securities fraud by creating and issuing fake securities certificates to both domestic and foreign investors. While orchestrating a group of “cold callers” who promised investors high returns or discounted prices, Speight and IST actually provided the investors nothing more than counterfeit foreign bond certificates and stock certificates, including some for a publicly-traded microcap company with no connection to IST. Moreover, to cloak his scheme with an appearance of legitimacy, Speight and IST told investors to send their investment funds to two attorneys who would place the funds in their own bank accounts. From there, however, the funds did not go to any issuers; instead, the funds went to IST, where Speight used the money to pay personal expenses, including purchases at Mercedes-Benz, Nordstrom, and Groupon. In the course of this scheme, Speight allegedly stole more than $3.3 million, sporadically paying prior foreign bond fund investors with new investor money in classic Ponzi scheme fashion.

Speight and IST have agreed to settle the SEC’s charges, with Speight agreeing to be barred from serving as an officer or director of a public company, agreeing to be enjoined from participating in any penny stock offerings, and requiring Speight and IST to disgorge all of their ill-gotten gains. Monetary sanctions will be determined by the Court at a later date, though Speight reportedly faces at least $3.3 million in restitution and a fine equal to double the investors’ losses. Additionally, Speight has pleaded guilty to a criminal charge in a parallel action brought against him by the U.S. Attorney for the Eastern District of New York. He faces up to five years in prison.