Articles Posted in Securities Fraud

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Money in WastebasketOn July 27, 2018, two affiliated small business lenders — 1 Global Capital (a/k/a 1st Global Capital, and 1 West Capital (collectively, “1GC”) — filed for Chapter 11 protection in Bankruptcy Court in the Southern District of Florida.  Based in Hallandale Beach, FL, the two affiliated lenders are under the same common ownership and are in the business of purportedly providing small business loans known as “direct merchant cash advances,” to various clientele.  In connection with the bankruptcy filing, 1GC’s two primary executives, Messrs. Carl Ruderman and Steven A. Schwartz, relinquished their control over the company and tendered their resignations.

As reported, 1GC had around 1,000 individual unsecured creditors prior to filing for bankruptcy.  These creditors had loaned 1GC money with the understanding that these funds would then be invested in direct merchant cash advances.  Creditors received monthly statements which demonstrated how their investments had supposedly been allocated, in addition to being provided with an online portal to track their investments.

In total, 1GC has reported more than $283 million in unsecured lender claims.  Of the 20 largest creditors, all of them are individuals or retirement accounts.  Prior to the bankruptcy filing, the SEC had opened an investigation into whether 1GC was engaging in “[p]ossible securities laws violations, including the alleged offer and sale of unregistered securities by unregistered brokers, and by the alleged commission of fraud in connection with the offer, purchase and sale of securities.”  At this stage, both the SEC and the U.S. Attorney’s Office for the Southern District of Florida, which recently commenced a parallel criminal investigation, are investigating allegations of possible wrongdoing or malfeasance at 1GC.

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Wastebasket Filled with Crumpled Dollar BillsAccording to publicly available records via FINRA BrokerCheck, former Securities America, Inc. (CRD# 10205, hereinafter “Securities America”) financial advisor Hector A. May (CRD# 323779, hereinafter “Hector May”) is currently under investigation by the U.S. Department of Justice (DOJ) and the Attorney for the Southern District of New York concerning allegations of investment fraud.  Specifically, certain former customers of Hector May have recently come forward, alleging that Mr. May solicited investments in purported “tax-free” corporate bonds.

A long-time resident of Rockland County, New York, Hector May maintained an office in New City, New York, from which he conducted business through his registered investment advisory (RIA) firm: Executive Compensation Planners, Inc. (CRD# 116375) (“ECPI”).  Upon information and belief, Hector May’s ECPI clientele included investors in the following states: New York, Connecticut, New Jersey, Pennsylvania, Maryland, Virginia, North Carolina, and Florida.  Publicly available information indicates that ECPI was formed as a New York corporation in December 1982.  SEC records reflect that Mr. May’s registration with the securities regulator was terminated on May 1, 2018.

Hector May was affiliated with the independent broker-dealer Securities America from 1994 until March 2018.  On or about March 9, 2018, Securities America reportedly discharged Mr. May due to allegations concerning “misappropriation of client assets.”  Subsequently, on June 6, 2018, the United States Attorney for the Southern District of New York implemented an asset freeze pursuant to a Restraining Order against Mr. May and his wife, Sonia May, with their consent.  Through the government’s restraining order, numerous assets have been frozen, including ECPI assets, as well as various bank and brokerage accounts, pension and social security benefits, as well as real assets including the May’s Orangeburg residence.

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Piggy Bank in a CageInvestors who suffered losses due to the alleged misconduct of Rockland County financial advisor Hector A. May (CRD# 323779) may be able to recover their losses in arbitration before FINRA.  A resident of Orangeburg, NY, Mr. May was most recently affiliated with the independent broker-dealer Securities America, Inc. (CRD# 10205) from 1998 until March 2018.  As recently reported, on June 6, 2018, the United States Attorney for the Southern District of New York implemented an asset freeze pursuant to a Restraining Order against Mr. May and his wife, Sonia May, with their consent.  According to publicly available information through FINRA, the Justice Department is “conducting an official criminal investigation of a suspected felony.”

Among the assets frozen under the terms of the government’s Restraining Order are those assets held by Executive Compensation Planners Inc. (“ECP Inc.”), the Registered Investment Advisory (“RIA”) firm owned and controlled by Hector May.  In addition to freezing ECP Inc. assets, the government is also restraining numerous bank and brokerage accounts owned by the Mays, as well as monthly proceeds payable to Hector May through an Equitable Life Pension payment and social security.  Finally, the government has frozen Mays’ real assets, including a house in Orangeburg, NY, a condominium in Vernon Township, NJ, as well as “all jewelry, fur products, antiques, and silver owned by Hector May or Sonia May.”

According to FINRA BrokerCheck, Mr. May was discharged from his employment with Securities America due to his alleged “misappropriation of client assets.”  Acting through his RIA, Mr. May’s business as a financial advisor was supposedly predicated on selling certain wrap fee advisory programs through Securities America.

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Money MazeInvestors who suffered losses due to misconduct by financial advisor Ralph Savoie (CRD# 411660) may be able to recover their losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”).  On March 26, 2018, Mr. Savoie plead guilty in Louisiana federal court to stealing up to $1.5 million from clients, using their monies for personal expenses including jewelry, hotels, and credit card bills, as well as to pay off previous clients in Ponzi-fashion in connection with prior purported investment opportunities.  Mr. Savoie allegedly guaranteed his clients high rates of returns on various investments in securities and insurance products, describing the investments as a “sure thing.”  In actuality, however, Mr. Savoie allegedly engaged in misconduct by using these funds on personal expenses, to pay prior clients and to funnel money into a “risky real estate venture.”

According to public records, Mr. Savoie of Mandeville, LA, was formerly associated with Cambridge Investment Research Advisors, Inc. (CRD# 134139) (“Cambridge”) in their Metairie, LA, branch office, until on or about August 11, 2015, at which time Mr. Savoie was discharged from his employment with Cambridge as a registered representative.  Mr. Savoie’s career in the securities industry is lengthy and dates back to the early 1970’s, including his most recent stint at Cambridge from 2013 until August 2015.

According to publicly available information through FINRA, Mr. Savoie was discharged from his employment with Cambridge due to his alleged failure to “[d]isclose and receive approval for an outside business activity.”  Further, FINRA reports that Mr. Savoie has been subject to six customer disputes, including three that remain pending and three that have resulted in settlement.  A number of these disputes center on allegations concerning Mr. Savoie’s purported sales of “unsuitable, illiquid, expensive, private placements.”

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woodbridge mortgage fundsAs highlighted in our most recent blog posts concerning the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA, Woodbridge filed for Chapter 11 bankruptcy on December 4, 2017, in Delaware Bankruptcy Court (Case No. 17-12560-KJC).  Thereafter, on December 21st, the SEC formally filed charges against Woodbridge and its owner and former CEO, Robert Shapiro, alleging that “[D]efendant… used his web of 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.”

By January 2, 2018, the SEC further alleged, among other things, that the timing of the Chapter 11 proceeding called into question whether Mr. Shapiro had preemptively sought bankruptcy protection, in the first instance, in order to shield himself from impending charges of misconduct.  Through its Motion to Direct the Appointment of a Chapter 11 Trustee, the SEC alleged that cause existed for the appointment of an independent trustee to help manage the bankruptcy process and protect the interests of numerous Woodbridge investors: “[i]nstead of allowing a District Court to appoint an independent fiduciary, Robert Shapiro decided that he would select the victims’ fiduciaries when he started hiring the team of managers and professionals who are representing the Debtors’ estates today.”

On January 19, 2018, turnaround specialist Mr. Lawrence Perkins of SierraConstellation Partners LLC, resigned as Chief Restructuring Officer of Woodbridge.  As recently reported, Mr. Perkins’ resignation will be effective once a replacement is hired, according to attorney Sam Beach of Young, Conaway, Stargatt & Taylor, counsel for Woodbridge.  Further, the Bankruptcy Court scheduled closing arguments related to the request for an independent trustee for Tuesday, January 23, 2018.

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woodbridge mortgage fundsAs we have discussed in previous blog posts, on December 21, 2017, the Securities and Exchange Commission (“SEC”) formally announced charges against the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA, as well as Woodbridge’s related unregistered investment funds and the firm’s owner and former CEO, Robert Shapiro.  Essentially, the SEC has alleged that “[D]efendant Robert H. Shapiro used his web of 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.”

The SEC’s recent charges come on the heels of Woodbridge filing for Chapter 11 bankruptcy protection on December 4, 2017 in Delaware Bankruptcy Court (Case No. 17-12560-KJC).  Through filings with the Bankruptcy Court, the SEC has alleged that Mr. Shapiro sought Chapter 11 protection in order to shield himself from charges of allegedly orchestrating a Ponzi scheme: “[h]e needed to create the appearance of a bankruptcy that resembled a bona fide Chapter 11, complete with legal and restructuring professionals of the type normally seen in a real organization.  So instead of allowing a District Court to appoint an independent fiduciary, Robert Shapiro decided that he would select the victims’ fiduciaries when he started hiring the team of managers and professionals who are representing the Debtors’ estates today.”

On January 2, 2018 — in light of these allegations and concerns related to ensuring adequate representation of the numerous Woodbridge investors nationwide — the SEC filed a Motion to Direct the Appointment of a Chapter 11 Trustee.  Pursuant to 11 U.S.C. §1104(a), the SEC has sought to appoint an independent Chapter 11 trustee for cause, in order to ensure Woodbridge investors are best protected.  In seeking the appointment of a Chapter 11 trustee, the SEC has argued that cause exists, given allegations that “[M]r. Shapiro engaged in widespread fraud, dishonesty, incompetence and gross mismanagement in operating the Debtors prior to bankruptcy.  This conduct is sufficient cause for a trustee under Section 1104(a)(1).  In re Vaughan, 429 B.R. 14 (Bankr. D. N.M. 2010) (conduct relating to operation of Ponzi scheme falls squarely within Section 1104(a)).”

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woodbridge mortgage fundsAs we recently discussed in detail in a previous blog post, on December 21, 2017, the Securities and Exchange Commission (“SEC”) formally announced charges, as well as an asset freeze, against the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA, as well as Woodbridge’s related unregistered investment funds, and the firm’s owner and former CEO, Robert Shapiro.  Among other things, the SEC has alleged in its Complaint – filed in Florida federal court – that “[D]efendant Robert H. Shapiro used his web of 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.”

According to the SEC’s Complaint, Woodbridge utilized a large and coordinated sales force to sell its Woodbridge Notes, sometimes referred to as First Position Commercial Mortgages (“FPCMs”).  As further alleged by the SEC, “Woodbridge employed a sales team of approximately 30 in-house employees that operated within Woodbridge’s offices.”  Moreover, the SEC’s Complaint alleges that “Woodbridge also utilized a network of hundreds of external sales agents to solicit investments from the general public by way of television, radio, and newspaper advertisements, cold calling campaigns, social media, websites, seminars and in-person presentations.”

As detailed in the SEC’s Complaint, the Woodbridge business model relied upon borrowing money from investors in exchange for promissory notes, typically maturing in 12 – 18 months.  These notes carried an annual interest rate of 5 – 8%, payable monthly.  The investors’ money was supposed to be issued to lenders in the form of securitized mortgages.  However, according to the SEC, this rarely occurred.

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https://i2.wp.com/www.investorlawyers.net/blog/wp-content/uploads/2017/10/15.2.17-piggybank-in-a-cage.jpg?resize=290%2C300&ssl=1On June 30, 2017, the former CFO of American Capital Properties Inc. (“ARCP”), Brian Block, was found guilty of securities fraud and related crimes in connection with reporting false numbers in quarterly filings with the Securities and Exchange Commission (“SEC”).  The verdict was handed down following a nearly three-week trial held in the U.S. District Court for the Southern District of New York.  A jury returned the verdict less than a day after closing arguments.  Mr. Block was convicted of one count of securities fraud, two counts of filing false reports with the SEC, two counts of filing false certifications, and one count of conspiracy.

In 2014, ARCP was set to file its financial statement for the second quarter, when an employee informed Block and Chief Accounting Officer Lisa McAlister that there was a methodological error in some of the firm’s calculations and that its average funds from operations (or AFFO, a key financial metric for real estate investment trusts) was overstated by roughly $0.03 per share.  Despite this guidance, no corrective action was taken to address the issue of overstated AFFO.  On October 29, 2014, ARCP shares plunged as much as 37% — effectively wiping out roughly $4 billion in market value — after the company publicly stated that certain of its employees had concealed accounting errors.

Following the $23 million accounting scandal, ARCP, a non-traded REIT sponsor, changed its name to VEREIT (from the Latin word “veritas” for truth).

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The State of Colorado has reportedly indicted former LPL financial advisor Sonya D. Camarco on six counts of securities fraud and seven counts of theft for allegedly diverting more than $850,000 in customer money for her personal use between January 2013 and May.  Ms. Camarco reportedly was terminated by LPL Financial in August 2017for “depositing third-party checks from client accounts into a bank account she controlled and accessing client funds for personal use.”

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In a news release, the Colorado Securities Division stated that an LPL Securities internal investigation concluded that Ms. Camaro had caused checks to be drawn on customer accounts and deposited in an account she controlled, and that she was using the funds for personal expenditures.

In August 23, 2017, the Securities and Exchange Commission (“SEC”) filed a civil complaint (the “Complaint”) against Ms. Camarco (“Camarco”) in federal court in Colorado.  As alleged in the Complaint, Ms. Camarco’s   fraudulent scheme involving misappropriation of client funds dates back to approximately 2004 and continued through at least August 2017.

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Investors in VGTel, Inc. (“VGTel”) (OTC PINK: VGTL) may be able to recover their losses through initiating a securities arbitration proceeding with the Financial Industry Regulatory Authority (“FINRA”) if they were sold VGTel shares via misrepresentations or if a stockbroker or financial advisor made an unsuitable recommendation to purchase VGTel shares.

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VGTel has been the subject of a recent SEC Complaint in the Southern District of New York (as of January 2016).  Specifically, the SEC has alleged that, from 2012-2014, Mr. Edward Durante defrauded at least fifty unsophisticated investors in New England, Ohio and California of at least $11 million through the sale of VGTel securities.  The Complaint alleges that Durante essentially controlled VGTel (which was little more than a shell company), and in furtherance of a fraudulent scheme, sold approximately six million shares of VGTel stock using several false names, including ‘Efran Eisenberg’ and ‘Ted Wise.’  Further, the SEC Complaint alleges that Mr. Durante bribed certain financial advisors in order to encourage these brokers to steer their clients into purchasing VGTel stock.

FINRA rules mandate that member firms implement and act upon reasonable safeguards and compliance programs designed to ensure proper supervision of a broker’s activities during the time a broker is associated with that particular brokerage firm.  Accordingly, a brokerage firm that fails to properly supervise its registered representatives may well be liable for investment losses sustained due to the malfeasance or misconduct of certain brokers.