Articles Posted in Private Placements

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Piggybank in a CageOn November 9, 2018, GPB Capital Holdings, LLC (“GPB”) notified certain broker-dealers who had been selling investments in its various funds that GPB’s auditor, Crowe LLP, elected to resign.  As reported, GPB’s CEO, David Gentile, stated that the resignation purportedly came about “[d]ue to perceived risks that Crowe determined fell outside of their internal risk tolerance parameters.”  GPB has since engaged EisnerAmper LLP to provide it with audit services moving forward.

As we recently discussed, GPB has come under considerable scrutiny of late.  In August 2018, the sponsor of various private placement investment offerings including GPB Automotive Portfolio and GPB Holdings II, announced that it was not accepting any new investor capital, and furthermore, was suspending any redemptions of investor funds.  This announcement followed GPB’s April 2018 failure to produce audited financial statements for its two largest aforementioned funds.  By September 2018, securities regulators in Massachusetts disclosed that they had commenced an investigation into the sales practices of some 63 independent broker-dealers who have reportedly offered private placement investments in various GPB funds.  To name a few, these broker-dealers include: HighTower Securities, Advisor Group’s four independent broker-dealers – FSC Securities, SagePoint Financial Services, Woodbury Financial Services, and Royal Alliance Associates, in addition to Ladenburg Thalmann’s Triad Advisors.

The various GPB private placement offerings include:

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Money in WastebasketAs recently reported, the Massachusetts Securities Division (the “Division”) has commenced an investigation into the sales practices of some 63 independent broker-dealers who offered private placements sponsored by alternative asset manager GPB Capital Holdings, LLC (“GPB”).  Specifically, the Division has intimated that it began an investigation into GPB following a recent tip concerning the firm’s sales practices which allegedly occurred not long after GPB announced that it was temporarily halting any new capital raising efforts, as well as suspending any redemptions.

According to the Division’s head, Mr. William Galvin, the investigation is in its “very nascent stages.”  At this time, Massachusetts securities regulators have requested information about GPB from more than 60 broker-dealers, including HighTower Securities, Advisor Group’s four independent broker-dealers, as well as Ladenburg Thalmann’s Triad Advisors.

In August 2018, GPB – the sponsor of certain limited partnership offerings including GPB Automotive Portfolio and GPB Holdings II – announced that it was not accepting any new capital.  According to filings with the SEC, sales of the two aforementioned GPB private placements allegedly netted the broker-dealers marketing these investment products some $100 million in commissions, at a rate of about 8%, since 2013.

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1st-Global-Capital-1As we have discussed in several recent blog posts, on July 27, 2018, 1 Global Capital (a/k/a 1st Global Capital) (hereinafter, “1GC”) filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Southern District of Florida.  Formed about 5 years ago, 1GC was purportedly in the business of making short term merchant cash advances to a range of small businesses.  In exchange for investor money, 1GC issued so-called “memorandums of indebtedness,” sometimes referred to as First Global Capital Notes (“Notes”), to numerous retail investors through a nationwide network of advisors and sales agents.  Investors were promised a high-return, low-risk investment in supposedly safe, short-term deals.

Prior to 1GC’s bankruptcy filing, the SEC had “opened an investigation into the company’s activities related to alleged possible securities laws violations, including the alleged offer and sale of unregistered securities, the alleged sale of securities by unregistered brokers, and by the alleged commission of fraud in connection with the offer, purchase and sale of securities.”  In the weeks following 1GC’s $283 million Chapter 11 filing, it has become apparent that numerous investors nationwide have been negatively impacted.  As alleged by the SEC, 1GC “used a network of barred brokers, registered and unregistered advisers, and other sales agents – to whom they paid millions in commissions – to offer and sell unregistered securities to investors in no fewer than 25 states.”

Publicly available information indicates that numerous investors in the greater Kansas City, KS area have sustained losses in connection with investing in 1GC Notes.  In particular, publicly available information suggests that Overland Park-based investment group Pinnacle Plus Wealth Management (a/k/a Pinnacle Financial) (“Pinnacle”), through its principal and Pinnacle employees / agents, may have recommended investments in 1GC Notes to retail investors.  In fact, court records indicate that approximately 160 1GC accounts involved Kansas City area addresses, and moreover, it appears many investors committed their retirement funds to 1GC investments through their retirement accounts.

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Piggy Bank in a Cage
On September 14, 2018, the SEC initiated a civil action (the “Complaint”) in federal court in the Southern District of Indiana against Ms. Tamara Rae Steele (CRD# 3227494) (“Steele”), as well as her eponymous investment advisory firm, Steele Financial, Inc. (“Steele Financial”), alleging that Ms. Steele had defrauded a number of her advisory clients through recommendations to invest in certain high-risk securities issued by Behavioral Recognition Systems, Inc. (“BRS”), in a scheme that purportedly generated $2.5 million in commissions for Ms. Steele’s benefit.  According to publicly available information through FINRA, Ms. Steele, a former middle school math teacher, first began working as a financial in or around 1999.  Most recently, she was affiliated with broker-dealer Comprehensive Asset Management and Servicing, Inc. (CRD# 43814) (“CAMAS”) from January 2009 – July 2017.  Ms. Steele’s CRD record showing her employment history and customer claims filed with FINRA is accessible below.

tamara rae steele

As alleged by the SEC in its Complaint, Ms. Steele was terminated by her former employer, CAMAS, when the “broker-dealer learned that [she] was selling BRS securities outside the scope of her employment with the firm and without the firm’s knowledge and approval, a practice called ‘selling away’ from the firm.”  Specifically, the SEC has alleged that Ms. Steele fraudulently recommended “over $13 million in extremely risky securities issued by a private company, Behavioral Recognition Systems, Inc. (‘BRS’).”  Further, the SEC has alleged that Ms. Steele violated her fiduciary duty to her clients — many of whom were unaccredited retail investors who were either current or former teachers and public-school employees — by purportedly failing to disclose that she was earning “[c]omissions ranging from 8% to 18% of the funds raised for BRS.”  The SEC Complaint is accessible below:

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Numerous advisors around the country, including reportedly advisors working at Goldstone Financial Group in Oakbrook Terrace, Illinois, may have sold retail investors interests in the now-bankrupt 1st Global group of companies.

1st-Global-Capital
As we discussed in recent blog posts, a $283 million Chapter 11 bankruptcy filing on July 27, 2018, by the Hallandale Beach, FL firm 1 Global Capital (a/k/a 1st Global Capital, or 1GC) has negatively impacted investors nationwide.  Unfortunately, many retail investors committed their hard-earned money, in many instances their retirement funds, into so-called 1GC “memorandums of indebtedness” which were also sometimes referred to as First Global Capital Notes (“Notes”).  Publicly available records indicate there are more than 4,000 1GC accounts across the country, sold by many advisors in various states.

Formed approximately 5 years ago, 1GC was purportedly in the business of financing small businesses by providing capital to a range of businesses including restaurants, construction companies, manufacturing operations, and healthcare companies.  1GC issued its Notes to retail investors, often referred to in the contract as “lenders” or in other instances as “creditors.”  In exchange, these lenders or creditors invested in supposedly safe, short-term deals that would pay out around 7% in interest at the end of the term (e.g., 9-month term).

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As we discussed in a recent blog post, a $283 million Chapter 11 bankruptcy filing on July 27, 2018, by the Hallandale Beach, FL firm 1 Global Capital (a/k/a 1st Global Capital, or 1GC) has negatively impacted investors nationwide.  Unfortunately, many retail investors committed their hard-earned money, in many instances their retirement funds, into so-called 1GC “memorandums of indebtedness” which were also sometimes referred to as First Global Capital Notes (“Notes”).  Publicly available records indicate there are more than 4,000 1GC accounts across the country, sold by many advisors in various states.

1st-Global-Capital
Formed approximately 5 years ago, 1GC was purportedly in the business of financing small business by providing capital to a range of businesses including restaurants, construction companies, manufacturing operations, and healthcare companies.  1GC issued its Notes to retail investors, often referred to in the contract as “lenders” or in other instances as “creditors.”  In exchange, these lenders or creditors invested in supposedly safe, short-term deals that would pay out around 7% in interest at the end of the term (e.g., 9-month term).

Upon information and belief, a number of 1GC investors were steered into these Notes by advisors.   Advisors who have recommended Notes reportedly may include Matthew Walker or others working for his Overland Park, Kansas-based group of Pinnacle Plus companies.

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An issuer of purported secured notes backed by real estate has been sued by the Securities and Exchange Commission alleging that amid losses, it “devolved into a Ponzi scheme.”  The group of companies, known as EquityBuild, solicited investors via Internet advertising, social media, and other methods, the SEC alleges.  According to the SEC suit, EquityBuild and its leaders  defrauded investors that invested in notes backed by South Side of Chicago real estate and other assets.   EquityBuild affiliates “sustained heavy losses and the properties they pitched to investors failed to earn anywhere near enough to pay the promised double-digit returns,” the SEC complaint says. “As a result, (the EquityBuild) investment program devolved into a Ponzi scheme: Defendants could only pay earlier investors by raising funds from unwitting new investors.”

Jerome and Shaun Cohen, father and son, run EquityBuild and a subsidiary, EquityBuild Finance.  EquityBuild allegedly  has raised at least $135 million from more than 900 investors since 2010, according to the SEC suit, filed in federal court in Chicago.  EquityBuild allegedly solicited investors to invest in debt used to finance properties.  EquityBuild allegedly touted outsize returns of 12 to 20 percent with minimal risk of loss of principal. and downplayed the risks, according to the SEC complaint.  The SEC alleges that EquityBuild, based in Marco Island, Florida,  skimmed 15 to 30 percent off each investment through fees that the company and the Cohens didn’t disclose.  EquityBuild also allegedly paid returns to older investors with the proceeds of newer investments, paying investors about $14.5 million in interest payments  between January 2015 through February 2017 although income and fees from EquityBuild properties totaled only $3.8 million, according to the SEC suit.

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It is unclear from publicly available information whether EquityBuild investments were sold by FINRA or SEC-registered financial advisors.  Investors in EquityBuild may wish to consider claims against professionals such as stockbrokers, financial advisors, or insurance agents who sold them the investments, or any professional services firms (law firms, accounting firms, etc.) that may have materially participated in EquityBuild’s unregistered securities offering.  As the SEC has alleged that the EquityBuild investments were securities that were not registered or exempt from registration, investors may be able to pursue claims against various third-parties that materially participated in these transactions.

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Piggybank In A CageThe Securities and Exchange Commission (“SEC”) has filed a fraud lawsuit in federal court in Colorado against a group of companies known as “Financial Visions” and their principal, Daniel B. Rudden (“Rudden”), who allegedly bilked at least 150 investors in a $55 million alleged Ponzi scheme.

The SEC’s complaint charges that Rudden, operating under the name Financial Visions and through a group of companies, issued promissory notes to fund a line of business involving providing financing for funeral services and related expenses to consumers.  The SEC alleges that Rudden/Financial Vision defrauded as many as 150 investors after promising them annual returns of 12% or more.  Since 2010 or 2011, Rudden allegedly used new investor funds to pay interest and redemptions to existing investors and concealed the Financial Visions companies’ true financial performance and condition.

The SEC Complaint is accessible here.

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woodbridge mortgage fundsInvestors in unregistered Woodbridge First Position Commercial Mortgages (“FPCMs”) notes and/or units upon the recommendation of former financial advisor Jerry Davis Raines (CRD# 4578689, hereinafter “Raines”) may be able to recover losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”).  According to FINRA BrokerCheck, a number of investors have already filed claims against Mr. Raines in connection with allegations surrounding Mr. Raines’  alleged recommendation of unsuitable Woodbridge investments to customers.  Mr. Raines was most recently affiliated with HD Vest Investment Services (CRD# 13686, hereinafter “HD Vest”) from 2014 – May 2017.  Previous to that, Mr. Raines was affiliated with Signal Securities, Inc. (CRD#15916) and Woodmen Financial Services, Inc. (CRD# 117365).

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, and certain of its affiliated entities, filed for Chapter 11 bankruptcy protection on December 4, 2017 (U.S. Bankruptcy Court for the District of Delaware – Case No. 17-12560-KJC).  The SEC has alleged that Woodbridge, through its owner and former CEO, Mr. Robert Shapiro, purportedly utilized “more than 275 Limited Liability Companies to conduct a massive Ponzi scheme raising more than $1.22 billion from over 8,400 unsuspecting investors nationwide through fraudulent unregistered securities offerings.”

Beginning as early as 2012, Woodbridge and its affiliates offered securities nationwide to numerous retail investors through a network of in-house promoters, as well as various licensed and unlicensed financial advisors.  Woodbridge investments came in two primary forms: (1) “Units” that consisted of subscriptions agreements for the purchase of an equity interest in one of Woodbridge’s seven Delaware limited liability companies, and (2) “Notes” or what have commonly been referred to as “First Position Commercial Mortgages” or “FPCMs” consisting of lending agreements underlying purported hard money loans on real estate deals.

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Money in WastebasketOn July 18, 2018, the SEC filed a lawsuit in the District of Connecticut naming Temenos Advisory, Inc. (“Temenos”) and George L. Taylor (“Taylor”) as Defendants and essentially alleging that Defendants made improper recommendations of certain private placement investments to their investment advisory clients.  A copy of the SEC Complaint is accessible here: SEC v Temenos & Taylor 

Temenos, founded by Taylor, is a Connecticut corporation headquartered in Litchfield, CT, with additional offices located in St. Simons Island, GA and Scottsdale, AZ.  Temenos has been registered with the SEC as a registered investment advisor (RIA) since 1999, and is owned by Mr. Taylor and a trust that was purportedly established for purposes of benefiting Taylor’s former business partner.

As alleged by the SEC, prior to 2014, Temenos’ business was largely focused on the sale of traditional financial products to its clientele, including “[m]utual funds, exchange traded funds, variable annuities, and publicly traded stocks.”  Like many RIAs, Temenos charged an advisory fee to its customers based upon a percentage of assets under management.  However, as alleged in the Complaint, beginning in 2014 Temenos began recommending private placement investments to its clients: “Between 2014 and 2017, Defendants placed more than $19 million in investments by their clients and others in [the securities of] four private issuers … And they did so without ever sufficiently examining the marketing claims, financial statements, or business activities of those companies.”