Investors Topics

New York based Arjent, LLC Executive Robert DePalo Indicted by Manhattan District Attorney

May 22, 2015 | Malecki Law Team

Foreign investors continue to be targets of investment fraud. Bloomberg Business has reported that broker-dealer Arjent LLC Chief Executive Officer Robert DePalo has been indicted by a New York Grand Jury on charges related to misappropriation of $6.5 million from U.K. investors for personal expenses, including his mortgage and luxury cars. In addition to the action brought by the New York Manhattan District Attorney, the Securities and Exchange Commission has announced that it also brought its own parallel action in Manhattan federal court.

According to the article, Mr. DePalo is alleged to have misappropriated millions from foreign investors in a holding company called Pangaea Trading Partners LLC. Mr. DePalo is alleged to have engaged in high-pressure sales tactics and stating falsehoods about the company’s assets and how it would invest the money received. The Bloomberg article reported that according to the SEC, the Mr. DePalo transferred the money directly into bank accounts controlled by himself and his partner Joshua Gladtke. The SEC is reported to also have alleged that Mr. DePalo sought to cover up the fraud from regulators.

Lately, the attorneys at Malecki Law have noticed an uptick in schemes, including high-pressure sales tactics, targeting foreign investors. These tactics may include little-known securities investments, repeated calls and emails to the targeted investors and misrepresentations made concerning the viability of the company that issued the underlying securities.

Broker Dealer Financial Services Corp. Fined By FINRA Over Nontraditional ETF Sales and Improper Supervision

May 21, 2015 | Malecki Law Team

Broker Dealer Financial Services Corp. (BDFS) based out of West Des Moines, Iowa just learned the hard way that nontraditional Exchange Traded Funds (ETFs) are risky, speculative investments and are not appropriate for all investors.

The Financial Industry Regulatory Authority (FINRA) recently fined BDFS $75,000 for 1. failing to properly supervise the sale of leveraged ETFs to its customers, 2. not properly training its sales force about the appropriate use of leveraged ETFs in customer accounts, and 3. not adequately supervising nontraditional ETF activity in customer accounts.

According the Letter of Acceptance, Waiver, and Consent, from March of 2009 to April of 2012, BDFS “recommended nontraditional ETFs to more than 200 customers” without “a reasonable basis for believing that the nontraditional ETF transactions it recommended were suitable for any investor.” BDFS’s ETF related misconduct was said to have violated NASD Rules 2310 and 3010 along with FINRA Rules 2010 and 2111.

Former Investment Advisor who Taught at University of Washington Pleads Guilty In Connection with Ponzi Scheme

May 20, 2015 | Malecki Law Team

A former University of Washington faculty member pled guilty in connection with a Ponzi scheme that lasted at least six years. It has been reported by the Washington State Sky Valley Chronicle on May 20, 2015 that Satyen Chatterjee, who owned and operated a financial advisory business called Strategic Capital Management, Inc. for more than twenty years. The news article reported that the Washington State Department of Financial Operations ordered the business to cease operating illegally in 2013. The guilty plea was also announced by the Federal Bureau of Investigations in a press release dated May 18, 2015.

According to the article, Mr. Chatterjee used his faculty post at the University of Washington to promote his advisory business. The article went on the detail that Mr. Chatterjee convinced investors to transfer funds on the belief they were purchasing fixed rate securities, when in reality he transferred the money to personal bank accounts to fund his lifestyle or lost the money day trading. Also detailed in the article was another scheme whereby Mr. Chatterjee solicited investments in a nutrient supplement company, but used that money to pay off investors who thought they invested in the fixed rate securities.

According to the FBI press release, Mr. Chatterjee admitted to the scheme to defraud investors during a period of 2007 to 2013. The FBI press release estimates that at least six investors were defrauded out of more than $600,000.

Can I Sue My Financial Advisor, Investment Advisor or Stockbroker?

May 19, 2015 | Malecki Law Team

Victims of securities fraud and negligence are entitled to receive damages to compensate them for their losses, as well as other remedies that may be available depending on the specific case. Frequently investors who have lost money in their investment accounts do not realize that they may be the victims of securities fraud and/or negligence on the part of their financial advisor (i.e., investment advisor and/or stockbroker).

Therefore, today we are going to answer the question:

“Can I sue my financial advisor, investment advisor or stockbroker?“

SEC Charges Rhode Island Broker and Financial Advisor Patrick Churchville with Ponzi Scheme

May 15, 2015 | Malecki Law Team

Not far from the home of the original “Ponzi scheme” in Boston, the SEC filed a complaint in the United States District Court for the District of Rhode Island on May 7, 2015 alleging that financial advisor and former broker Patrick Churchville operated a Ponzi scheme that defrauded investors out of $11 million. The SEC complaint alleged that the fraud was run out of a company called Clearpath Wealth Management, LLC.

According to the SEC complaint, Mr. Churchville operated a Ponzi scheme by using investments from new investors to pay the distribution claims of old investors. The SEC also alleged that Mr. Churchville diverted approximately $2.5 million of investor funds to purchase his home overlooking Narragansett Bay. Local News Station WPRI reported on its website that the home is now up for sale for $3.5 million.

The SEC alleged that the fraud began in around December of 2010. According to his publicly available Financial Industry Regulatory Authority (FINRA) CRD report, Mr. Churchville was registered by Spire Securities, LLC from August 2009 through February 2011, during the time that the SEC alleged fraudulent conduct occurred. Broker-dealers generally have an obligation to supervise the offices where their registered employees such as Mr. Churchville work. It is unclear from the SEC’s complaint or FINRA CRD what, if any, disclosure was made to Mr. Churchville’s investors by the firm.

FINRA Bars Former Wells Fargo Broker Nicholas Hansen Harper

May 15, 2015 | Malecki Law Team

The Financial Industry Regulatory Authority (FINRA) has permanently barred Nicholas Hansen Harper. Harper worked in Wells Fargo’s Topeka, Kansas branch office from 1997 through 2013 according to his BrokerCheck Report.

Per the Letter of Acceptance Waiver and Consent filed with FINRA, Harper resigned from Wells Fargo on August 7, 2013, shortly after the firm’s compliance department began to review trading in the accounts of certain of his customers. The timing of Harper’s resignation can only serve to raise suspicions.

Presumably suspicious of Harper, in March of 2015, FINRA requested Harper provide testimony to FINRA investigators pursuant to Rule 8210. More than one month after the request was issues, FINRA staff spoke to Harper’s attorney, who purportedly indicated that Harper would not be appearing before FINRA to provide testimony at any time.

FINRA Looks To Come Down Harder On Brokers And Firms Making Unsuitable Recommendations to Customers

May 13, 2015 | Malecki Law Team

What should happen to a financial advisor (FA) if they provide unsuitable and inappropriate investment advice to their clients?

First, if the unsuitable advice given to a customer caused losses to that customer’s account, the customer has the option to sue the FA in FINRA arbitration. Investors can recover some or all of their losses due to the bad advice – usually against the firm that the FA worked for in a failure to supervise case. Arbitration is common for aggrieved investors, and this law firm has successfully represented numerous investors who have been the victims of unsuitable investment advice from an FA.

But what about punishing the broker, so he or she doesn’t do it again to someone else? Can they go to jail? If not, what does happens?

Malecki Law Announces Investigation of Former PrimeSolution Securities, Inc. Brokers Jeffrey Gainer, Jerry Cicolani, Jr. and Kelly Hood

May 11, 2015 | Malecki Law Team

This oil and gas investment was a bust, but not because of the current market conditions. According to Securities and Exchange Commission (SEC) court filings, brokers Jeffrey Gainer, Jerry Cicolani, Jr. and Kelly Hood were terminated from their employer PrimeSolutions Securities, Inc., a Cleveland, Ohio broker-dealer, as a result of marketing and recommending investments in KGTA Petroleum, Ltd. In its complaint filed in the United States District Court for the Northern District of Ohio, the SEC described KGTA Petroleum, Ltd. as a scam and Ponzi scheme. As reported recently by Crain’s Cleveland Business, the FBI announced on April 15, 2015 that Mr. Cicolani had been charged criminally as a result of selling unregistered KGTA Petroleum, Ltd. securities.

Brokers Gainer and Cicolani allegedly engaged in three separate fraudulent acts by recommending the KGTA investments without properly registering the securities, engaging in “selling away” activities by selling the KGTA investments not through their employer, PrimeSolutions Securities, Inc., and failing to disclose to their public investor customers the very large fees they earned as a result of the recommendations and placements. According to the SEC complaint, Brokers Gainer and Cicolani earned approximately $6 million in fees, or around 29% of all funds raised in the fraudulent KGTA investments.

The SEC detailed in its complaint that the investments KGTA Petroleum, Ltd. held by customers were often in the form of “promissory notes” or “agreements,” but really represented a typical Ponzi scheme, with interest and other payments made to old investors from the funds of new investors. The SEC complaint alleged that the scheme affected at least 57 customers.

JP Morgan Investigated By SEC and Other Authorities Over Sale of Proprietary Products

May 8, 2015 | Malecki Law Team

Is it okay for a broker-dealer to use bonuses and other incentives to encourage its financial advisors to steer customers into “in house” and proprietary funds that may not be right for them just to generate more fees for the firm? Or does this practice improperly (and illegally) incentivize the financial advisor to betray his customer’s trust for his and his firm’s benefit – thereby compromising the integrity of the relationship?

The SEC is asking just those types of questions about the practices of JP Morgan, according to recent reports. Per InvestmentNews, the SEC and other regulators have subpoenaed and otherwise inquired of JP Morgan about the firm’s sales practices. Specifically, the reports indicate that the focus seems to be on conflicts of interest related to the sales of mutual funds and other proprietary products to customers. The SEC is reportedly looking into whether JP Morgan breached duties to its customers and/or applicable laws by unfairly and/or illegally marketing its in house investment products.

The sale of in-house proprietary products can be a very lucrative business for large “wire houses” as they are known in the industry. Wire houses include such familiar names as JP Morgan, Merrill Lynch, Citigroup, Wells Fargo, etc. By performing all of the structuring, issuing, lending and selling for their proprietary funds internally, a wire house is able to capture all of the associated fees, commissions and charges. Therefore, it is important that regulators review the sales of such in house products, to make sure they are being sold fairly and legally to customers.

Malecki Law Announces Investigation of Former LPL Financial Broker Charles Fackrell

May 8, 2015 | Malecki Law Team

On the heels of an announcement from the Financial Industry Regulatory Authority (FINRA) that LPL Financial LLC has been fined approximately $12 million as a result of lax supervision, FINRA barred former LPL broker Charles Fackrell as a result of him refusing to comply with FINRA’s request for information. Mr. Fackrell was employed by LPL Financial in North Carolina from 2010 through 2014, according to a review of publicly available records.

According to a Letter of Acceptance, Waiver and Consent No. 20140437052 (AWC), the results of a FINRA investigation into Mr. Fackrell’s activities while employed at LPL Financial allegedly uncovered securities rule violations for selling private securities offerings.

In the AWC, Mr. Fackrell consented to the finding that he violated FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade). Rule 2010 requires that all FINRA members shall observe high standards of commercial honor and just and equitable principles of trade.