Featured Investigations

Can a Clearing Firm be Liable for Losses in an Investment Account?

May 27, 2020 | Malecki Law Team

Investors often ask whether a clearing firm can be liable for losses sustained in their accounts. The answer is “yes.” Traditionally, clearing firms, also known as clearing houses, are financial institutions established to handle the confirmation, settlement, and delivery of transactions. To ensure its clients’ transactions are made in a prompt and efficient manner, the clearing firm acts as a middle-man and is essentially the buyer and seller in the transactions. To attract business and compete with other clearing firms, clearing firms offer an ever-expanding suite of services that go beyond mere routine clearing functions, which often brings them to be actively and directly involved in the actions of brokerage firms and their brokers. Courts have held that clearing firms that extend services beyond “mere ministerial or routine functions” can be liable to an investor for a broker-dealer or broker’s misdeeds.

On behalf of several investor clients, Malecki Law’s FINRA arbitration attorneys are currently investigating cases involving claims against Pershing, LLC, a clearing house, and its introducing brokerage firm client, Insight Securities, Inc. The claims involve an SEC-censured entity, Biscayne Capital. Our clients sustained losses in their accounts due, in part, to Pershing’s alleged negligent supervision of transactions through its shared platform with Insight.

In relationships like this, the introducing firm and clearing firm have a clearing agreement, usually giving the clearing firm discretion to terminate any account, the responsibility to notify the introducing broker of suspicious activity, and to provide training or trained employees to look out for misconduct. Usually the clearing firm has the responsibility to conduct regulatory monitoring of SEC Financial Responsibility Rules and to be directly involved in Anti-Money Laundering oversight. Thus, with these heightened responsibilities, a clearing firm can move beyond its ministerial and routine clearing functions.

Malecki Law Investigating Investor Losses in Oil and Energy Investments

March 18, 2020 | Malecki Law Team

In March 2020 Oil prices had their worst day since 1991, plunging to multi-year lows. Tensions between Russia and Saudi Arabia and OPEC’s failure to strike a deal were escalated by the global economic slowdown spurred by COVID-19 resulting in oil’s worst day since 1991. With oil’s and the energy markets substantial price plunge the investment fraud attorneys at Malecki Law announce the firm’s investigation into potential securities law claims against broker-dealers relating to the improper concentration or oil and gas in portfolios, as well as the sale of energy related structured notes, Exchange Traded Funds (ETFs), and Master Limited Partnerships (MLPs). Malecki Law has successfully prosecuted a number of these cases, including obtaining awards of attorneys’ fees and costs for investors.

Malecki Law is interested in hearing from investors who were recommended concentrated positions in oil and gas, as well as those recommended futures in Oil and Gas, MLPs or energy sector ETFs. Investors have lost millions in these products as the energy markets dropped. As prices have continued to slide, losses have compounded. The energy market plunge is terrible for those whose financial advisors recommended that investors stay in and “ride it out.”

Unfortunately, many energy sector investments are risky investments that can be inappropriate for typical “mom and pop” investors, as well as those heading to or in retirement. Unfortunately, there are some financial advisors and brokers that sell them to their clients anyway, without fully disclosing the potentially devastating risks.

Deloitte in Cross-hairs of Shareholder Dispute in India for Alleged Collusion

December 3, 2018 | Malecki Law Team

Malecki Law continues to follow a petition filed in the National Company Law Tribunal (NCLT) in Mumbai, India concerning the takeover of a US litigation data-management firm, Xcellence Inc. (operating under the brand Xact Data Discovery, XDD USA) by a private equity firm, JLL Partners Fund VII, L.P. For background on the case, read “A Cautionary Tale for both Private Equity Investors and Portfolio Companies”. The National Company Law Tribunal (NCLT) is a quasi-judicial forum in India, which adjudicates corporate stakeholder disputes and has all the powers of an Indian civil court.

The legal dispute involves Dominic Thomas Karipaparambil (Dominic Thomas), the 49% shareholder of Xact Data Discovery India Private Limited (XDD India), on one side and on the other side, XDD USA, XDD India, XDD USA’s India-based subsidiary, JLL Partners Fund VII, L.P. (JLL Partners), JLL XDD Holdings LLC. (JLL XDD), an entity owned by JLL, the directors of XDD India. The directors of XDD India include the president and CEO of XDD USA, Mr. Robert Polus and surprisingly the Indian arm of the global accounting firm Deloitte Touche Tohmatsu Limited (Deloitte).

XDD USA was originally formed in 1994 under a different name and operates 17 offices across the United States. XDD India was formed in 2007, by Robert Polus and Dominic Thomas and operates two locations in India. It appears that at some later date, Robert Polus transferred his stake in XDD India to XDD USA, making XDD India a subsidiary of XDD USA. This structure is not atypical from the trend of U.S. data management companies seeking to cut costs by looking overseas for cheaper labor. In this instance, it hypothetically permits a company like XDD USA to offer cut-rate corporate and legal services through its Indian subsidiary, which provides e-discovery and other document review services at a lower cost than what traditional law firms in the U.S. would charge. In early 2018, the private equity firm JLL Partners announced it had reached a deal to acquire XDD USA from its previous owner and manager, Clearview Capital.

Offshored and Offloaded: A cautionary tale for both Private Equity Investors and Portfolio Companies

November 8, 2018 | Malecki Law Team

Allegations of mismanagement, oppression, and accounting disputes are the common accusations when conflicts arise between private equity funds and shareholders of companies being added to private equity portfolios. These disputes are increasingly being complicated by private equity deals involving companies with offshored entities that have local shareholders in the offshored country. Companies outsourcing via the creation of new foreign entities is not a new phenomenon. However, the activities outsourced to developing countries has shifted from traditional manufacturing and assembly to include more companies in the information technology sectors and even legal processes. Increased offshoring via the creation of satellite entities and the proliferation of private equity deals has increasingly led to instances of local citizen shareholders and partners of the offshored entity being ousted and/or squeezed out of deals.

The global digitization trend has led to an explosion of offshored entities of US companies in India. Fittingly, India has found itself cluttered with western private equity firms in search of potential portfolio companies. Becoming the investee of a private equity deal is generally a positive event for a company and its shareholders. However, it appears that Indian shareholders of these offshored entities can find themselves left out and private equity firms having to engage in unproductive litigation in Indian courts.

Recently, a petition for oppression and mismanagement has been filed in India by Mr. Dominic Thomas Karipaparambil, against, Xcellence Inc. (“XDD USA”), operating under the brand Xact Data Discovery, a US-based provider of eDiscovery, data management and managed review services. The parties to the dispute also include XDD USA’s offshored entity Xact Data Discovery India Private Limited (“XDD India”); JLL Partners Fund VII, L.P. (“JLL Partners”), a US-based private equity firm; and others. Court records show Mr. Karipaparambil, to be the 49% Indian shareholder of XDD India. Additionally, from the records it appears that Mr. Karipaparambil, may have also been the Managing Director of XDD India. Mr. Karipaparambil’s name also appears as the original subscriber to the charter documents of XDD India with Mr. Robert Polus (President & CEO of XDD USA). It seems that Mr. Karipaparambil, Mr. Polus and XDD USA, may have set up XDD India as a joint venture arrangement in the ratio of 51 (Mr. Polus): 49 (Mr. Karipaparambil). At some stage, into the venture, XDD USA seems to have acquired 51% in XDD India from Mr. Polus. US press releases show that JLL Partners acquired ‘Xact Data Discovery’ (XDD USA), shares from Clearview Capital LLC (“Clearview”) in late December 2017 – early January 2018. Past press releases also show that Clearview, another private equity investor, had acquired XDD USA in January 2015.

Pension Plan Recipients Added to Victims of Alleged Hector May Ponzi Scheme in Malecki Law’s Recently Filed Amended FINRA Arbitration Complaint Against Securities America, Inc

August 6, 2018 | Malecki Law Team

Last week, Malecki Law filed an amended FINRA arbitration complaint against Securities America on behalf of victims claiming that the broker-dealer’s inadequate supervision over its registered representative, Hector May, permitted his alleged Ponzi Scheme to happen. Securities America failed to act as Hector May sold fictitious “tax-free” corporate bonds from his New City Securities America office with his Securities America approved Registered Investment Advisory business, Executive Compensation Planners. The amended complaint adds two pension plans as additional plaintiffs joining the original nine victims specified in the June 18^th filing. Our announcement of the filing to the press piqued the interest of the media including a reporter who interviewed attorney Jenice Malecki for an article in Lohud, as well as an article in Financial Planning magazine.

Hector May was formerly a Securities America registered representative, who reportedly managed more than $18 million in assets according to his Form ADV. Before the alleged Ponzi scheme surfaced, Hector May was an influential community member who donated to charities and political candidates. Claimants alleged that Hector May simply used his community status to issue, solicit and sell these non-existent securities products. Now, Hector May is being investigated by multiple government agencies for alleged fraud resulting in millions of dollars bilked from unsuspecting investors. Of course, Hector May refuses to provide answers regarding the whereabouts of the invested funds or any further details about the transaction activities in dispute.

The amended complaint now alleges that Hector May also stole money from two New York company’s pension plans while running his Securities America branch office. The newly added pension plans’ beneficiaries were allegedly sold fictitious “tax-free” corporate bonds. Hector May allegedly told company beneficiaries not to worry since their invested money would be in “safe places” under his RIA with Securities America. Hector May’s reassuring comment could not be further from the truth, hidden by his falsely produced employee benefit plan and annual reports. Consequently, company employees have been defrauded out of millions of dollars that had been intended to be their income upon retirement.

Malecki Law Featured in Financial Planning Article for Insights on Alleged Hector May Ponzi Scheme, Eye Towards Educating Victims

June 29, 2018 | Malecki Law Team

Malecki Law was featured in the news for filing a FINRA arbitration claim on behalf of investors alleging that Securities America failed to perform proper supervisory duties as their formerly registered broker, Hector May allegedly operated a Ponzi Scheme. In the Financial Planning article, investor fraud attorney Jenice Malecki provides additional information and commentary on her representation of nine clients against Securities America. Financial Planning provides breaking and daily news coverage as well as analysis to help independent financial advisors better their business, practice and client services. Readership often includes independent broker-dealers, financial planners and other industry professionals seeking insights into the highly regulated securities industry. Malecki Law spoke with Financial Planning to spread the message so that other innocent victims who lost their hard-earned savings may seek justice.

Investor fraud attorney, Jenice Malecki released more details regarding the specific allegations relating to Hector May’s allegedly fraudulent practices against investing clients to Financial Planning in hopes of raising awareness. Allegedly, victims of the New City broker’s Ponzi scheme were under the impression that Hector May invested their money into “tax-free” bond products from firms like General Electric. The clients later learned alleged Ponzi Schemer’s “tax-free” bond products were non-existent and apparently just words on false account statements. When asked for a comment, Hector May’s attorney declined to provide a comment regarding a case started by a law firm placing ads in the newspaper for clients.

The clients are filing the claim only against Securities America since Hector May already had assets frozen and could not pay the award, Jenice Malecki commented. FINRA rules place broker-dealers at fault for investment losses resulting from their failure to properly supervise and detect a Ponzi Scheme committed by their registered representative. Securities America had an obligation to monitor Hector May’s activities, including the fraud that transpired. Clients are claiming that Securities America missed many “red flags” that would have clued off a Ponzi Scheme.

Malecki Law Announces the Filing of an Expedited Group FINRA Arbitration Against Securities America, Inc. for NINE Defrauded Investors Claiming Failure to Supervise Alleged Ponzi Schemer Hector May

June 15, 2018 | Malecki Law Team

Malecki Law filed an expedited FINRA arbitration complaint today on behalf of nine investors from Upstate New York, Northern Virginia and Long Island, New York alleging that Securities America, Inc. failed to supervise its registered representative Hector May and failed to audit his remote Securities America office, which it is alleged in essence allowed his alleged Ponzi-type fraud to persist for many years. Through these alleged supervisory shortcomings, it is alleged that Securities America’s Inc. aided and abetted fraudulent practices conducted by its registered representative as well as in his disclosed, approved SEC-registered investment advisor, Executive Compensation Planners, Inc. “At some point, a license to sell securities can become a license to steal when there is inadequate supervision of these remote brokerage firm offices,” offered well-known securities attorney Jenice Malecki.

Executive Compensation Planners was supposed to solicit wrap fee programs through Securities America, according to its Form ADV filed with the SEC. Instead, as alleged in the FINRA pleading, Hector May had wires sent and checks written directly to Executive Compensation Planners; created fictitious statements; and pocketed client funds. Hector May reported managing $18 million in his Form ADV. Mr. May’s FINRA BrokerCheck report indicates that Hector May, who had been with Securities America since 1998, was terminated for misappropriation of clients’ assets just after the Department of Justice initiated a criminal investigation into his suspected felony, along with investigations by the U.S. Postal Inspectors and the United States Securities and Exchange Commission.

Prior to his alleged conduct coming to light, Hector May was widely known with an excellent reputation within his New York Community, often sponsoring charities – “clients now want to know if he was using their money to be charitable,” said Jenice L. Malecki, Esq., a securities lawyer in New York. Mr. May’s wife, daughter and other family members are alleged to have worked with him.

Hector May’s Alleged Ponzi Scheme: Malecki Law Investigating, Lohud Interested

May 17, 2018 | Malecki Law Team

Hector May, a former highly regarded member of the community in Rockland and Orange counties, is under investigation by several governmental entities. Reportedly, allegations include that Hector May misappropriated investor funds. In a Lohud/The Journal News article, Jenice Malecki, Esq. discusses how her clients and other investors have lost millions from Hector May in what she believes to exemplify a Ponzi scheme. Given her significant experience representing Ponzi scheme victims, Ms. Malecki finds many parallels with Hector May’s actions.

A Ponzi scheme is a type of investment fraud that relies on a constant money flow of new deposits to produce false “returns” to existing investors. New deposits are never actually invested and instead directly allocated to the schemer’s personal funds. Our clients, along with other investors, lost their retirement assets when Hector May sold unsophisticated investors what appears to be fictitious “tax-free” corporate bonds, an impossible investment. Hector May continuously increased his personal wealth at the cost of clueless investors losing their hard-earned life-savings. Eventually, Ponzi victims stop receiving promised returns, collapsing the scheme. It is very likely that Hector May was exposed from not being able to return money to a large investor. Ponzi schemes typically endure for as long as new victims continue to “invest” into the produced returns; withdrawals collapse them.

Malecki Law Investigating Possible Ponzi Scheme and/or Misappropriation of Funds by Financial Adviser Hector May

March 30, 2018 | Malecki Law Team

Malecki Law is currently investigating allegations against Securities America, Inc. and its terminated financial adviser, Hector Anthony May. Mr. May was employed almost twenty years with Securities America at its New City, New York office, and was terminated in March of 2018 in relation to an ongoing criminal investigation by the U.S. Department of Justice. The investigation relates to an alleged Ponzi scheme and/or misappropriation of funds involving many investors and potentially many millions of dollars in losses. If you have suffered investment losses with Securities America and/or had your retirement savings invested with Hector May through his own financial planning firm, Executive Compensation Planners, Malecki Law is interested in hearing from you.

In a Ponzi scheme involving Robert Van Zandt, Malecki Law successfully recovered over $7.4 million in investment losses through the firm’s representation of 120 victims from the Bronx, New York, who fell victim to Mr. Van Zandt’s $35 million Ponzi scheme. Malecki Law’s successful representation was featured in the media, including CBS New York’s Eye Witness News. Malecki Law has experienced attorneys who specialize in recovering investment losses for victims of financial fraud.

BROKER REPORT: Financial Advisor Solomon David Krispeal

February 2, 2017 | Malecki Law Team

The securities fraud attorneys at Malecki Law are interested in hearing from investors who have complaints against stockbroker Solomon David Krispeal. Since January 2016, Mr. Krispeal has been employed and registered with PHX Financial, Inc., a Hauppauge, New York broker-dealer, according to his publicly available BrokerCheck, as maintained by the Financial Industry Regulatory Authority (FINRA). He was previously registered with Legend Securities, Inc. from March 2013 to February 2016, Aegis Capital Corp. from April 2012 to March 2013 and with John Thomas Financial from January 2008 to April 2012, according to BrokerCheck records.

In 2017, Mr. Krispeal was fined and suspended from association with any FINRA member broker-dealer for 30 days by FINRA, after submitting a Letter of Acceptance, Waiver and Consent No. 2014042764601. According to the AWC, Mr. Krispeal violated FINRA Rule 1122 (Filing of Misleading Information as to Membership or Registration) and Rule 2010 (Standards of Commercial Honor and Principles of Trade) because he did not disclose an arbitration he was named as a respondent in, and when he did make the disclosure, he “inaccurately disclosed that the matter was ‘withdrawn,’ rather than ‘settled.’” FINRA Rule 1122 require that brokers and brokerage firms accurately disclose information regarding membership and registration to FINRA and correct any filings when required.

In addition to this regulatory matter, Mr. Krispeal has been made the subject of seven customer complaints, including two matter that have resulted in a settlement or an award, according to BrokerCheck records. In one case (FINRA Case No. 13-00830) where which Mr. Krispeal was listed as a respondent and the customer made allegations of unauthorized trading, unsuitability and churning, the customer was awarded $75,000 (nearly all of the stated damages of $95,000), according to FINRA Dispute Resolution records. Mr. Krispeal’s BrokerCheck Report also disclosed that the second case resulting in settlement concerned a customer’s allegations of unauthorized trading and alleged forgery.