Problem Brokers

Four Brokers Barred from Securities Industry in Settlement with FINRA Over Misrepresented Mining Industry Private Placement Investments

July 10, 2015 | Malecki Law Team

On July 1, 2015, the Financial Industry Regulatory Authority (FINRA) accepted settlement offers from brokers Jonah Engler, Hector Perez, Jonathan Michael Sheklow and Joshua William Turney for their roles in selling fraudulent investments to 59 customers. According to FINRA’s Orders Accepting Offers of Settlement, these individuals sold $3 million worth of Senior Secured Zero Coupon Notes issued by a company called Metals, Milling and Mining LLC. Mr. Engler himself has settled 11 customer complaints over the years, according to the FINRA CRD system. The Orders state that each of the brokers has been barred from associating with any FINRA member in the future.

As reported in the Orders, the Notes were sold upon misrepresentations that they would return 100% within one year by extracting valuable minerals left over from mining operations. The Orders detailed that all investors, except for three, lost all of the money they invested, with those three investors being repaid with money from new investors, a classic sign of a Ponzi scheme.

The Order stated that the company that issued the notes was partially owned or controlled by a Managing Partner of the brokerage firm that the above brokers worked for. When a brokerage firm owns a company that issues securities, this may create a conflict of interest between the broker-dealer and the customer, because the securities may be recommended in order for the brokerage firm to make money, and not because it is suitable or in the best interest of the customer.

SEC Charges Malcolm Segal Of Running Ponzi Scheme From His Pennsylvania Office

July 1, 2015 | Malecki Law Team

The Securities and Exchange Commission (SEC) announced today that is has formally charged Malcolm Segal with running a Ponzi scheme and stealing investor money from his office in Pennsylvania. According to his BrokerCheck Report, Mr. Segal was formerly a registered stockbroker with Aegis Capital Corp. and Cumberland Advisors. Mr. Segal reportedly was a partner in J&M Financial and the president of National CD Sales.

According to the SEC, Mr. Segal allegedly sold what he called certificates of deposit (CDs) to his brokerage customers under the false pretense that he could get them a higher rate of interest than was then available through banks. Mr. Segal allegedly represented to his victims that his CDs were FDIC insured and risk-free. Mr. Segal reportedly defrauded at least fifty investors out of roughly $15.5 million.

As his scheme was unravelling, Mr. Segal allegedly began to steal from his customers’ brokerage accounts by falsifying fraudulent paperwork such as letters of authorization. This fake paperwork reportedly allowed Mr. Segal to withdraw funds from his customers’ accounts without them knowing. Ultimately, in July 2014, the scheme collapsed completely. Mr. Segal has since been barred from the securities industry by the Financial Industry Regulatory Authority.

Broker Keith M. Rogers Indicted on Securities Fraud Charges in Alabama

June 24, 2015 | Malecki Law Team

It was recently reported that Keith M. Rogers, formerly employed by GLS & Associates, Inc., a FINRA broker-dealer, has been indicted and held on $2 million bond on securities fraud charges, where it was reported that he took investors’ money to pay for personal expenses and repay other investors, a classic Ponzi scheme scenario. Previously, it was reported that Mr. Rogers was ordered by the Alabama Securities Commission to cease and desist from dealing in securities in the State of Alabama. In September 2014, Mr. Rogers apparently consented to a bar from the securities industry was barred from the securities industry by the Financial Industry Regulatory Authority (FINRA) for failing to cooperate in FINRA’s investigation into Mr. Roger’s alleged diversion of customer funds away from GLS brokerage accounts. According to the Administrative Order filed by the Alabama Securities Commission Mr. Rogers facilitated transactions in a company called R&P Development LLC from 2009 through 2013, when he was registered by GLS & Associates, Inc. and Warren Averett Asset Management.

FINRA specifies strict rules on a broker’s ability to solicit business to businesses that are not run by their employing broker-dealer. Malecki Law attorneys have seen instances where employing broker-dealers fail to properly supervise a broker’s activities. According to FINRA Rules, Broker-dealers like GLS & Associates Inc. have an important non-delegable duty to supervise the conduct of their financial advisors and employees. The firm may be held liable for customer losses if the firm failed to properly supervise their employees. If a broker violates FINRA Rules or securities laws, both the broker and the broker’s employing firm may be held liable for the customer’s losses.

Malecki Law has previously represented many investors successfully in FINRA arbitration proceedings involving outside business activities and firms’ failures to supervise their registered representatives and financial advisors. If you believe you have suffered losses as a result of questionable actions taken in your securities account, please contact us immediately for a confidential consultation.

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.

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.

FINRA Alleges Substantial Fraud Claims Against Avenir Financial Group

May 6, 2015 | Malecki Law Team

Senior-aged investors continue to dominate securities related news coming out of the Financial Industry Regulatory Authority (FINRA). Though Avenir Financial Group, a New York-based broker-dealer, has only been a FINRA member for three years, the regulator has alleged substantial fraud claims against the firm, the firm’s Chief Executive Officer and Chief Compliance Officer Michael Clemens and several registered representatives.

In a New Release dated April 27, 2015, FINRA alleged that Avenir and registered representative Karim Ibrahim (a/k/a Chris Allen) defrauded a 92 year old customer of the firm by selling equity interests in the firm based on misleading and fraudulent terms. FINRA alleged that Mr. Ibrahim was aware that the firm was financially struggling, yet offered 5% of the company for $250,000, a valuation that was materially misleading because other investors had previously been offered lower prices and there was no basis for the change in the prices. FINRA alleged that Mr. Clemens aided and abetted the fraud by instructing Mr. Ibrahim regarding the proposed sale to the senior-aged customer.

In the related FINRA Complaint, FINRA detailed that Avenir “inexplicably” increased the equity share offerings. For example, the Complaint stated that a one percent share increased from an initial offer of $2,600 to a third offering costing $50,000. During this time, Avenir was allegedly suspended from operating a securities business when its net capital decreased below regulatory thresholds, and the firm faced an approximate $200,000 margin call that would have closed the firm had it not been for the investor who purchased the third offering.

Broker Stuart Conley Accepts Censure and Fine for Failing to Obtain Prior Written Authorization For His Discretionary Trading

May 1, 2015 | Malecki Law Team

Formality is substance in the business of investing; casual account management is not allowed. Either you discuss every trade with your broker, or your broker obtains written discretionary power, with no exceptions!

The Financial Industry Regulatory Authority (FINRA) accepted on April 27, 2015 a Letter of Acceptance, Waiver and Consent No. 2013037694701 (AWC) from Stuart Conley, a former broker of UBS Financial Services Inc. and Further Lane Securities, L.P. for placing discretionary trades in 21 separate accounts. It was address by the AWC that Mr. Conley allegedly failed to obtain prior written consent from the account owners to make discretionary trades.

Failing to obtain prior written consent violated FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) and Rule 2510 (Discretionary Accounts). Rule 2010 requires that all FINRA members shall observe high standards of commercial honor and just and equitable principles of trade. Rule 2510 prohibits brokers from exercising discretionary power in a customer’s account without first obtaining written authorization from that customer and the employing broker-dealer.

FINRA Files Complaint Against Lawrence LaBine

April 30, 2015 | Malecki Law Team

Unfortunately, the elderly and the inexperienced investors are oftentimes the ones who find themselves victimized by unscrupulous and predatory brokers. Foreign persons – from Europe, South America, and elsewhere – also appear to be increasingly victimized by such U.S.-based brokers as well.

On April 28, 2015 the Financial Industry Regulatory Authority Department of Enforcement filed a complaint against Mr. Lawrence LaBine. According to the Complaint, Mr. Labine is accused of having violated NASD Rules 2310 and 2110 and FINRA Rule 2010 in making unsuitable recommendations to customers, Section 17(a) of the Securities Act and FINRA Rule 2010 in making misrepresentations and omissions concerning Domin-8 and D8, and Section 10(b) of the Exchange Act, Rule 10b-5 thereunder and FINRA Rules 2020 and 2010 by making fraudulent misrepresentations and omissions concerning Domin-8 and D8.

The Complaint alleges that Mr. LaBine made the subject fraudulent misrepresentations and omissions to customers, as well as unsuitable investment recommendations to customers while registered with DeWaay Financial Network. Many of Mr. LaBine’s customers at DeWaay to whom he sold unsuitable investments were said to be elderly and/or inexperienced investors.

FINRA Bars Wells Fargo Broker Aaron Parthemer for Outside Business Activities and Loans to Clients

April 24, 2015 | Malecki Law Team

Was this a case of a broker who did “too much” for his clients, Aaron Parthemer’s attorney claimed in an InvestmentNews news article dated April 23, 2015? One thing is sure: the Financial Industry Regulatory Authority (FINRA) has barred Aaron Parthemer from associating with any FINRA member broker-dealer in any capacity for violating industry rules by participating in private securities transactions, outside business activities, and for making loans to his clients, according to FINRA Letter of Acceptance, Waiver and Consent No. 2011030405801 (AWC). Each of these items alone could be sufficient for termination of a broker from their employing broker-dealer. The conduct detailed in the AWC spanned a time when Mr. Parthemer was employed and licensed to recommend the purchase and sale of securities by Morgan Stanley Smith Barney LLC from June 2009 through October 2011, and from October 2011 through March 2013 with Wells Fargo Advisors, LLC.

According to the InvestmentNews article, Mr. Parthemer was a Miami “socialite” who was a financial advisor to a number of NFL and NBA players and had his picture taken with such celebrities as Chris Brown and Nicki Minaj. According to the AWC, Mr. Parthemer was barred for a number of securities industry violations, including involvement in outside business activities in violation of FINRA Rules 3270 and 2010 and NASD Rule 3030. The AWC detailed that Mr. Parthemer worked as a President and Chief Executive Officer of a Miami nightclub (identified by the InvestmentNews article as “Club Play”) and also marketed an international tequila brand. Brokers are permitted to operate outside business activities if they are disclosed and approved by their employing broker-dealer. Disclosure and approval is required in order to ensure that inappropriate securities transactions do not occur outside the supervision of the broker-dealer.

Mr. Parthemer was also barred for providing approximately $400,000 in loans to certain securities customers, in violation of FINRA Rule 3240. Rule 3240 makes it clear that loans to or from clients are only permitted in certain limited circumstances where disclosure is made to the employing broker-dealer and such loan is approved. Supervision by broker-dealers is necessary, again to ensure that there are no violations of securities laws or industry rules occurring. The AWC noted that the loans made by Mr. Parthemer were never disclosed to Wells Fargo.