Articles Posted in Selling Away

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Customers of former LPL Financial LLC (“LPL”) broker Kerry Hoffman (“Hoffman”) of Chicago, Illinois may have arbitration claims if they purchased unregistered GT Media Inc. on behalf of their clients between July 2015 and July 2018.

Money Bags
Hoffman was a registered representative and an investment advisory representative associated with LPL.  GT Media hired Hoffman as an adviser in March 2015.  Hoffman then recommended that GT Media hire his friend Thomas Conwell (“Conwell”), who had been previously enjoined and criminally convicted for stealing money from investors, to sell its stock.

As alleged in a complaint filed by the Securities and Exchange Commission (“SEC”), from July 2015 through July 2018, Conwell offered and sold approximately $2.5 million of GT Media stock to approximately 41 investors.  The SEC further alleged that exchange for selling GT Media stock to investors, Conwell received $221,900 in commissions from the company.  The SEC complaint is accessible below.

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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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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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woodbridge mortgage fundsInvestors in Woodbridge upon the recommendation of former financial advisor Joel Vincent Flaningan (“Flaningan”) (CRD# 5664958) may be able to recover their losses in FINRA arbitration.  According to FINRA BrokerCheck, Mr. Flaningan was discharged from employment with NYLife Securities LLC (“NYLife”) (CRD# 5167) on or about May 10, 2018, in connection with “allegations he was involved in the solicitation of New York Life (“NYL”) clients to invest in an unregistered entity named Woodbridge Mortgage Investment Fund… Mr. Flaningan failed to disclose any involvement with Woodbridge to NYL.”  Furthermore, publicly available information via BrokerCheck indicates that Mr. Flaningan is currently the subject of one customer dispute concerning allegations that he purportedly failed to disclose the material risks “associated with an unregistered investment in Woodbridge… .”

According to BrokerCheck, NYLife has disavowed any prior knowledge of Mr. Flaningan’s business activity conducted away from the firm in selling purportedly non-approved Woodbridge investments.  However, sales of unregistered securities by a financial advisor who engages in such “selling away” activity while still affiliated with his or her brokerage firm may result in the broker-dealer (such as NYLife) being held vicariously liable for the negligence and/or misconduct of its registered representative.

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.”

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woodbridge mortgage fundsIf you invested in Woodbridge upon the recommendation of former financial advisor Frank Roland Dietrich (“Dietrich”), you may be able to recover your losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”).  According to FINRA BrokerCheck, a number of investors have already filed claims against Mr. Dietrich and his former employer, broker-dealer Quest Capital Strategies, Inc. (“Quest Capital”) (CRD# 16783).  Publicly available information suggests that Quest Capital has disavowed any prior knowledge of Mr. Dietrich’s alleged business activity conducted away form the firm in selling purportedly non-approved Woodbridge investments.  Nevertheless, Mr. Dietrich’s alleged “selling away” activity, to the extent it may have occurred while he was still affiliated with Quest Capital, may give rise to Quest Capital being held vicariously liable for the negligence and/or misconduct of its former employee.

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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woodbridge mortgage fundsIf you invested in Woodbridge Units or Notes, as further defined below — based upon a recommendation by financial advisor Frank Capuano — you may be able to recover your losses through securities arbitration before the Financial Industry Regulatory Authority (“FINRA”).  Publicly available information through FINRA BrokerCheck indicates that Frank Capuano was formerly affiliated with broker-dealer Royal Alliance Associates, Inc. (“Royal Alliance”) (CRD# 23131) in Mount Holyoke, MA, from 1989 – July 2015.

Pursuant to an Acceptance, Waiver & Consent (AWC) entered into by Mr. Capuano and FINRA on or about May 2, 2016, the former Royal Alliance stock broker, without admitting or denying any wrongdoing, consented to a one year industry suspension.  In connection with the AWC, FINRA alleged that Mr. Capuano:

“engaged in undisclosed and unapproved private securities transactions.  The findings stated that he offered and sold approximately $1.1 million in notes to nine of his firm’s customers … The findings also stated that he received over $34,000 in commissions in connection with these transactions.  The findings further stated that he did not seek or obtain approval from his firm before participating in these private securities transactions, nor did he disclose them to his firm.” (emphasis added)

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stock market chartAs recently disclosed by the Financial Industry Regulatory Authority (“FINRA”), former Morgan Stanley (CRD# 149777) financial advisor, Kevin Scott Woolf (CRD# 6145312), has voluntarily consented to an industry bar.  Pursuant to a Letter of Acceptance, Waiver and Consent (“AWC”), accepted by FINRA on or about January 26, 2018, Mr. Woolf has consented to sanctions stemming from FINRA Enforcement’s allegations that “[h]e failed to provide documents and information and to appear and provide… on-the-record testimony during the course of an investigation that he engaged in multiple undisclosed outside business activities, including the development of a hotel, and participated in an undisclosed private securities offering for that development project that was marketed to customers of his member firm.”

According to BrokerCheck, Mr. Woolf was affiliated with Morgan Stanley as a registered representative from 2013 – 2016, during which time he worked out of the wirehouse’s Winter Haven, FL branch office.  According to the allegations set forth in the AWC, it would appear that Mr. Woolf was permitted to voluntarily resign from Morgan Stanley on or about June 2016, based upon the brokerage firm’s internal review of Mr. Woolf’s “potential outside business activity related to a securities offering for a real estate investment.”

Based upon applicable securities laws and industry rules and regulations, a stockbroker or financial advisor is prohibited from engaging in conduct that amounts to “selling away,” or selling securities to his or her customers without prior notice to or approval from the broker’s firm.  A registered representative who engages in such activity does so in violation of NASD Rule 3040, in addition to FINRA Rule 3280.  As stated by the SEC, NASD Rule 3040 is designed to protect “investors from the hazards of unmonitored sales and protects the firm from loss and litigation.”

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financial charts and stockbrokerOn February 16, 2018, the Financial Industry Regulatory Authority (“FINRA”) signed off on a Letter of Acceptance, Waiver, and Consent (“AWC”), pursuant to which financial advisor Darrell Walter Rideaux (CRD# 5211032), without admitting or denying any wrongdoing, voluntarily consented to a bar from working in the securities industry in any capacity.  Based on publicly available information, Mr. Rideaux first became associated with a FINRA member firm in 2007 as a registered representative.  Most recently, Mr. Rideaux was affiliated with Morgan Stanley (CRD# 149777) from 2013-2015, and thereafter, NMS Capital Advisors, LLC (“NMS Capital”) (CRD# 140356) from 2016-2017.

According to FINRA’s findings of fact as enumerated in the AWC, “On February 25, 2015, Rideaux voluntarily terminated his employment with Morgan Stanley…”  Thereafter, in August 2016, Mr. Rideaux became registered as a general securities representative with NMS Capital.  Based on information set forth in the AWC, as well as Mr. Rideaux’s BrokerCheck report, his departure from Morgan Stanley is allegedly due to his “potential participation in securities activity away from Morgan Stanley….”

In light of Mr. Rideaux’s voluntary departure from Morgan Stanley, and FINRA Enforcement’s follow-up investigation in February 2018 concerning alleged activity away from his then employer, it appears that Mr. Rideaux may have engaged in an impermissible activity known as “selling away.”  Selling away occurs when a broker or financial advisor sells an investment to a client that is not included in the client’s account or among the investment products offered by the firm.  Selling away is often associated with a broker’s other (“outside”) business activities.  Such private securities typically include investments in private placements, closely-held private companies, limited partnerships, certain real estate investments, as well as promissory notes.  If the broker fails to notify the firm, in the first instance, or proceeds with an unauthorized transaction in derogation of the firm’s order, then selling away has occurred, in direct violation of FINRA Rule 3280 and NASD Rule 3040.

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House in HandsAs highlighted in our previous 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 Securities and Exchange Commission (“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, and sought appointment of an independent trustee.

On January 23, the SEC announced a resolution under which the Bankruptcy Court for the District of Delaware approved a settlement Term Sheet, calling for the appointment of a new Board of Managers consisting of representatives recommended by the parties which will take necessary actions for managing Woodbridge, with the first course of action to be selecting a CEO or Chief Restructuring Officer for the Debtors. The Term Sheet also calls for the formation and appointment of Unitholders and Noteholders committees to represent the interests of investors who purchased Woodbridge notes and unit investments.

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stock market chartOn December 13, 2017, the Financial Industry Regulatory Authority (“FINRA”) disclosed that registered representative Brian Michael Travers has been barred from the securities industry.  Specifically, pursuant to a Letter of Acceptance, Waiver, and Consent (“AWC”), pursuant to which Brian Travers neither admitted or denied FINRA’s findings, Mr. Travers acknowledged that on November 1, 2017, he received a written request from FINRA seeking his on-the-record testimony.

FINRA’s request concerned: “[a]n investigation into, among other things, potential undisclosed outside business activities and private securities transactions…”  As set forth in the AWC, “By refusing to appear for on-the-record testimony as requested pursuant to FINRA Rule 8210, Travers violates FINRA Rules 8210 and 2010.”

Publicly available information through FINRA indicates that Brian Travers (CRD# 4767891) first entered the securities industry in 2004, and was most recently a registered representative of MML Investors Services, LLC (“MML”) (CRD# 10409) until his former employer terminated his registration in April 2017.  Previous to working for MML (2013 – 2017), Mr. Travers was a financial advisor affiliated with Lincoln Financial Advisors Corporation (“Lincoln Financial”) (CRD# 3978).  According to FINRA BrokerCheck, Mr. Travers was discharged from his employment with MML on April 4, 2017, in connection with an “[u]ndisclosed outside activity.”