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Articles Tagged with broker fraud

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Strategic Realty Trust (“SRT,” formerly known as TNP Strategic Retail) is a San Mateo, CA based non-traded real estate investment trust (“REIT”) that invests in and manages a portfolio of income-producing real properties including various shopping centers located primarily in the Western United States.

Market Analyze.

Over the past several years, many retail investors were steered into investing in non-traded REITs such as SRT by their broker or money manager based on the investment’s income-producing potential.  Unfortunately, many investors were not informed of the complexities and risks associated with non-traded REITs, including the investment’s high fees and illiquid nature.  Currently, investors who wish to sell their shares of SRT may only do so through direct redemption with the issuer or by selling shares on an illiquid secondary market, such as Central Trade & Transfer.

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Investors in American Finance Trust and  Lightstone Value Plus REIT V may have viable arbitration claims before the Financial Industry Regulatory Authority (FINRA) if a stockbroker or investment advisor made an unsuitable recommendation to the investor to  purchase them, or made a misleading sales presentation in recommending them.
Publicly registered non-exchange traded REITs like American Finance Trust and Lightstone Value Plus REIT V are complex investment vehicles that carry substantial risk, including significant fees and lack of liquidity (often making redemption difficult for a shareholder seeking to exit an investment).  Many retail investors are steered into purchasing non-traded REITs upon the recommendation of their broker or financial advisor who will typically tout the investment’s income component to their clients seeking an income stream.  Unfortunately, many investors who purchase shares in non-traded REITs are not fully informed of the many complexities and risks associated with such an investment.

American Finance Trust (“AFT”) is a non-traded REIT that was formed in January 2013 and subsequently launched by American Financial Advisors, LLC.  More recently, in February 2017, AFT (with $2.1 billion in assets) and American Realty Capital-Retail Centers of America (with $1.25 billion in assets) announced shareholder approval for a merger of the two non-traded REITs.

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Dblaine Capital LLC and David B. Welliver, Dblaine Capital’s owner, have been charged by the Securities and Exchange Commission (SEC) with securities fraud. Welliver and his firm allegedly received loans that amounted to $4 million in a “quid pro quo” deal that was said to be undisclosed, in violation of their responsibilities and improper.

SEC Charges Dblaine Capital with Fraud

Allegedly, Dblaine Capital agreed to put these assets in “alternative investment” securities, and in doing so they caused the funds to be in violation of multiple investment restrictions and policies. According to the SEC, Dblaine Capital and Welliver defrauded the fund, provided an inaccurate valuation and put their financial interests above that of the fund. The fund’s shares were sold and redeemed at a net asset value that was inflated. According to the allegations against Dblaine Capital and Welliver, when this was discovered, the information was kept from shareholders and false and/or misleading statements were submitted to the SEC. In addition, according to the SEC, $500,000 of the loan money received was used by Welliver for personal expenses, such as college tuition, a vacation, a motor vehicle, home improvements and back taxes. According to the SEC, from December 2010 to July 2011, Welliver and his firm did not attempt to establish what fair value for the private placement was and instead valued it at acquisition cost, despite the fund’s policies.

The SEC has charged the firm and Welliver with violating the Securities Exchange Act of 1934, the Securities Act of 1933, the Investment Advisers Act of 1940 and the Investment Company Act of 1940. They are seeking permanent injunction, civil penalties, prejudgment interest and disgorgement of ill-gotten gains.

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Citigroup settled charges brought by the U.S. Securities and Exchange Commission, and has agreed to pay $285 million to do so. According to the SEC, Citigroup defrauded investors by betting a toxic housing-related debt would fail, but selling the CDO to investors anyway. According to an article by Reuters, “The SEC said the bank’s Citigroup Global Markets unit misled investors about a $1 billion collateralized debt obligation by failing to reveal it had a ‘significant influence’ over the selection of $500 million of underlying assets, and that it took a short position against those assets.”

Citigroup to Pay $285 Million for CDO Fraud

Citigroup is the third major bank to settle with the SEC for failing to disclose betting against a collateralized debt obligation, or CDO, and then marketing it to customers. JPMorgan settled for $153.6 million in June and Goldman Sachs settled for $550 million in July 2010.

In November 2007, the CDO defaulted and, while investors faced losses, Citigroup made $160 million. This contributed to the 2007-2009 financial crisis and is, therefore, a part of the mission to reduce broker fraud and hold Wall Street figures accountable for triggering the recession. According to the SEC, the Citigroup employee who was primarily responsible for structuring the transaction was Brian Stoker. In response to the files charged against him by the SEC, one of his lawyers said the allegations had “no basis.”

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The investment world can be a scary place, especially for inexperienced investors. Meanwhile, many savvy investors fall into the dangerous trap of believing they are safe. However, the fact is that with volatile markets comes an increased opportunity for criminals to take advantage of even the savviest of investors.


One couple — we’ll call them Lloyd and Debra — maintains a diverse portfolio, researches each investment and communicates weekly with their broker. Even so, they were taken for $80,000 in what is now the Shire International Real Estate Investment case. In this case, Shire allegedly moved investors’ money from project to project and pitched properties despite the fact that the company did not have the title to said properties.

Mark Dickey of the Alberta Securities Commission, says that brokers claiming large returns with no risk are the first red flag. According to Dickey, times of market volatility are especially dangerous because criminals “tailor their approach to whatever that fear is at that time. They offer stability, guaranteed returns, ‘it’s safe, come with us.’ In essence, they sell back your dreams to you.”

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Former Nebraska City brokers Rebecca Engle and Brian Schuster were sent to prison for bilking investors out of more than $20 million — an amount which is, according to the Nebraska Department of Banking and Finance investigation supervisor Thomas Sindelar, the biggest securities fraud case in history of the state. The broker misconduct of Engle and Schuster included more than 130 investors.

Engle and Schuster Sentenced in Nebrask's Biggest Securities Fraud Case in History

Engle and Schuster apparently sold high-risk securities to investors but failed to disclose the risks and warnings associated with the investments. Most of the victims of their broker fraud were retired or nearing retirement age. As such, high-risk investments were unsuitable for them. Engle and Schuster apparently had no private placement investment experience when beginning and could not keep track of where investors’ money was going. Two companies they invested in, LightStream and Sunshine — a utility company and broom making company, respectively — went bankrupt. Schuster and Engle then neglected to tell investors about the bankruptcies.

Reportedly, while Engle wanted to go to authorities about the situation in 2004, Schuster convinced her not to. The pair then went to investors for another $5 to $6 million to keep the investment company afloat.

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Shane Selewach, a former Ameriprise Financial Services Inc. broker, has been convicted of stealing nearly $335,000 from clients and sentenced to 8-12 years in prison for broker misconduct. Selewach’s misconduct includes six counts of larceny, six counts of securities fraud and conducting business as an unregistered broker dealer.


Selewach was employed with Ameriprise from September 1997 until he was fired in April 2006. In February of 2008, he was permanently barred from acting as a securities broker by the Financial Industry Regulatory Authority. His broker misconduct took place between July 2005 and November 2008, during which time he stole nearly $350,000 from six victims. For the last nine months of this time period, he was barred from being a broker but continued to operate as one regardless. Selewach led investors to believe that he was investing their money in hedge funds, commodities and real estate, but in reality he was using it for personal benefit including travel, mortgage payments and sporting event tickets.

During the trial, Selewach’s defense argued that the monies he received were loans rather than “high-interest-rate investments,” according to the Cape Cod Times. Selewach himself testified to this effect. However, victims of his crimes testified otherwise. One of his victims, Patricia Conti, lost more than $150,000 to Selewach. Conti testified that Selewach did not disclose that his departure from Ameriprise was a result of termination, that he continually pressured her and that he asked her to sign documents which she was unable to read fully because they were largely concealed from view.

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While stock broker fraud is always a despicable crime to the victims of the fraud, the case of Joshua Gould's broker misconduct seems infinitely worse for the close relationship between victim and perpetrator, as well as the vulnerable nature of other investors. Gould, a former independent broker for Woodbury Financial Services in University City, defrauded friends, family, and investors, including the elderly, widows, and religious organizations.

Hedging and “Failure to Hedge” Claims

Not even Gould's own mother was safe, and she lost around $500,000 to her son, the bulk of her inheritance. All in all, more than 25 people were swindled out of more than $5 million. Gould spent some of the money on charitable donations to boost his reputation while at the same time spending it on strippers and entertaining them at St. Louis hotel parties. In addition, he paid the rent of at least one stripper. Gould also paid off personal debt, renovated his home, started several businesses, and facilitated a ponzi scheme.

Once the theft was discovered, Gould confessed and, according to his lawyer, has cooperated and attempted to remedy the losses of his victims. During his trial, he expressed remorse for his actions and disdain for himself.

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$1 million is being distributed to victims of an investment scam by federal authorities. Bryan Keith Noel and Alexander Klosek of North Carolina were charged in 2009 with multiple crimes, including conspiracy to commit wire fraud and conspiracy to commit mail fraud. All crimes were connected to Noel’s fraudulent investment business. In March 2010, Noel was found guilty and ordered to pay $11 million in restitution plus serve 25 years in prison. Klosek entered a guilty plea and was ultimately sentenced to pay $10.5 million in restitution and to serve 87 months in prison.

Victims of Noel and Klosek Investment Fraud Finally Receiving Partial Restitution

Official court documents stated that Noel and Klosek’s fraud took place from about January 2003 to around July 2006 and involved over 100 clients, the majority of which were local NC retirees. In this atrocious broker fraud, clients were persuaded to invest large sums with Noel’s business, which were then diverted to another company belonging to Noel, significantly decreasing clients’ investment values. The diversion occurred without his clients’ knowledge or approval. The decrease in investment value was then hidden from clients with falsified quarterly statements and in July 2006, investors were told that their investment had actually grown. Victims of Noel and Klosek’s fraud now believed their assets to be around $16 million when, in fact, they had dwindled to only around $1 million.

According to the NC Securities Division Newsletter, Acting Special Agent in Charge of the Charlotte Division of the FBI, Joseph S. Campbell, said this of the case: “Retirees are often victims of fraud, and to steal their financial security is unconscionable. These men stole millions of dollars from people who don’t have the opportunity to restore the savings they’ve spent their lives building.” Though the $1 million that is now being distributed is only a small portion of the total restitution ordered by the court, it is a start.

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