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Articles Tagged with investment attorney

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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.”

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money whirlpoolAs recently reported, former financial advisor Hector Anthony May (CRD# 323779) was recently discharged from employment by Securities America, Inc. (“Securities America”) (CRD# 10205) on or about March 9, 2018.  Mr. May’s termination by Securities America, which is Ladenburg Thalman’s largest subsidiary and the tenth largest independent broker-dealer in the nation, occurred the day after the U.S. Department of Justice disclosed an investigation into a suspected felony concerning Mr. May’s business activities as a New City, New York financial advisor.  Specifically, allegations have been raised suggesting that Mr. May bilked his clients out of millions of dollars through the use of phony account statements and purported offers to invest in “tax-free corporate bonds.”

Hector May, 77 years of age, is a well-known figure in Rockland County, New York, having been politically active and engaged in the local business community for the past several decades.  Following the 2009 arrest of a Peral River hedge-fund operator charged with running a $150 million Ponzi scheme, Mr. May issued the following warning to investors: “I have a lot of empathy for the people who got hurt, but before you invest a million dollars, do your due diligence.  Otherwise, it’s like going to get a heart operation and you don’t even know if he’s a doctor.”

According to publicly available information through FINRA BrokerCheck, Mr. May was a long-time financial advisor, having first entered the securities industry in 1973.  Most recently, Mr. May worked as an independent advisor on behalf of Securities America, from 1994 until his March 2018 termination.  Mr. May’s financial planning business was conducted through his own Registered Investment Advisory (RIA) firm called Executive Compensation Planners, Inc. (“ECPI”).  Upon information and belief, Mr. May’s ECPI clientele included investors in the following states: New York, New Jersey, Connecticut, Pennsylvania, Maryland, Virginia, North Carolina, and Florida.  Mr. May’s firm, ECPI, was formed as a New York corporation on December 27, 1982.

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Money MazeAs recently reported, former broker Kyusun Kim (a/k/a Kyu Sun Kim, a/k/a Kenny Kim) (CRD# 2864085) has consented to a “sanction and to the entry of findings [by FINRA] that he made unsuitable recommendations to numerous senior customers, who were retiring or had retired that they concentrate their retirement assets and liquid net worth in speculative and illiquid securities.”  Pursuant to a Letter of Acceptance, Waiver & Consent (AWC) accepted by FINRA on June 26, 2018 — and under which Mr. Kim neither admitted nor denied FINRA’s findings — the former financial advisor voluntarily consented to a “bar from association with any FINRA member in any and all capacities.”

Publicly available information via FINRA BrokerCheck indicates that Mr. Kim first entered the securities industry in 1997, and most recently was affiliated with Independent Financial Group, LLC (CRD# 7717) from 2006 – 2016 and, thereafter, Sandlapper Securities, LLC (CRD# 137906) from March 2016 – April 2017.  Furthermore, BrokerCheck indicates that Mr. Kim has been the subject of or otherwise involved in 23 customer disputes.  With regard to these customer disputes, 13 of these complaints resulted in settlements, while 9 complaints remain pending (1 complaint was denied in October 2010).  As to the pending customer complaints, the allegations raised center on Mr. Kim’s purported “… breach of fiduciary duty, breach of oral and written contract, violation of state and federal securities laws, violation of FINRA rules of fair practice … [and] unsuitable investments.”

As encapsulated within the June 26, 2018 AWC, it has been alleged that Mr. Kim “falsely inflated the net worth figures of several customers on their new account forms and other documents so that they appeared eligible to purchase certain speculative investments, in violation of NASD Rules 3110 and 2110 and FINRA Rules 4511 and 2010.”  Moreover, as set forth in the AWC, Mr. Kim allegedly made unsuitable investment recommendations to senior customers in violation of NASD Rules 2310 and 2110, as well as FINRA Rules 2111 and 2010.

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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 fundsInvestors in Woodbridge Units or Notes, as further defined below, who purchased a Woodbridge investment based upon a recommendation by former financial advisor Alan Harold New (CRD# 2892508) may be able to recover losses through securities arbitration.  Publicly available information through FINRA BrokerCheck indicates that Alan New was formerly affiliated with broker-dealer NYLife Securities LLC (“NYLife”) (CRD# 5167) in their Fort Wayne, IN office, from June 2004 – August 2016.

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) and certain of its affiliated entities filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware (Case No. 17-12560-KJC) on December 4, 2017.  Beginning as early as 2012, Woodbridge and its affiliates offered securities nationwide to numerous retail investors through a network of in-house promoters, unlicensed advisors, as well as various licensed financial advisors, including Mr. New.  Woodbridge investments essentially came in two forms: (1) so-called “Units” that consisted of subscriptions agreements for the purchase of an equity interest in one of Woodbridge’s Delaware limited liability companies, and (2) “Notes” or what have commonly been referred to as “First Position Commercial Mortgages” or “FPCMs” that consisted of lending agreements underlying purported hard money loans on real estate deals.

As alleged by the SEC, Woodbridge and its owner and former CEO, Mr. Robert Shapiro, purportedly “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 Steven Peiken, Co-Director of the SEC’s Enforcement Division, the Woodbridge “[b]usiness model was a sham.  The only way that Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”

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financial charts and stockbrokerOn October 16, 2017, NYSE Regulation — the regulatory enforcement subsidiary of NYSE Arca, Inc. (“NYSE”) — filed a Complaint against Wedbush Securities Inc. (“Wedbush”) (CRD# 877), and its founder, Mr. Edward Wedbush.  The Complaint centers on Wedbush’s alleged systemic failure to supervise certain trading purportedly conducted by its owner and founder, Mr. Wedbush, who allegedly devoted “several hours each trading day actively managing and trading in more than 70 accounts.”

As alleged by NYSE Regulation, “Despite Mr. Wedbush’s active trading in dozens of customer, personal, and proprietary accounts, Respondents failed to implement any process to monitor or supervise Mr. Wedbush’s order entry, trade executions, or trade allocations…” in certain accounts controlled by Edward Wedbush (“Controlled Accounts”).  Further, NYSE Regulation has alleged that Mr. Wedbush utilized a separate trading platform only accessible to him and, moreover, “regularly instructed a Firm employee to enter orders under a general account, waiting until the end of the trading day to allocate executed trades…” among the various Controlled Accounts.  In this manner, as has been alleged by NYSE Regulation, Respondents’ practice of allocated trades in the Controlled Accounts at the conclusion of the trading day violated Wedbush’s own written supervisory procedures (“WSPs”).

By purportedly failing to properly designate the Controlled Accounts for which orders were being entered (and “[i]nstead allocating trades to accounts after the fact based on Mr. Wedbush’s discretion”), NYSE Regulation has asserted that such activity exposed numerous customers to a host of conflicts of interest, as well as “opportunities for fraud, manipulation and customer harm” in contravention of NYSE Arca Rule 9.14-E (Account Designation).  Additionally, NYSE Regulation has alleged violations of various NYSE Arca and Exchange Act Rules, including NYSE Arca Rule 2.28 (Books and Records), as well as Exchange Act Rules 17a-3 and 17a-4.  Among other things, these rules are designed to prevent against practices such as “cherry picking,” whereby traders choose to allocate the best performing and most profitable trades to certain accounts, to the detriment of non-favored accounts.

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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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Money MazeBased upon recent secondary market pricing, investors in certain publicly registered, non-traded business development companies (“BDCs”), may have suffered losses on their illiquid investments.  In the wake of the 2008 financial crisis, many retail investors have been steered into so-called non-conventional investments (“NCIs”), including non-traded REITs and BDCs, often premised upon a sales pitch or marketing presentation from a financial advisor touting the investment’s lack of correlation to stock market volatility and enhanced income via hefty distributions.  Unfortunately, in some instances, investors were solicited to invest in such NCIs without first being fully informed of the risk components embedded in these products.

In January 2017, FINRA issued the following guidance with respect to investments in non-traded NCIs:

“While these products can be appropriate for some customers, certain non-traded REITs and unlisted BDCs, for example, may have high commissions and fees, be illiquid, have distributions that may include return of principal, have limited operating history, or present material credit risk arising from unrated or below investment grade products. Given these concerns, firms should make sure that they perform and supervise customer specific suitability determinations. More generally, firms should carefully evaluate their supervisory programs in light of the products they offer, the specific features of those products and the investors they serve.”

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money backing hard money real estate dealAs we have detailed in numerous blog posts, the Woodbridge Group of Companies, LLC (“Woodbridge”) and certain of its affiliated entities filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware (Case No. 17-12560-KJC) on December 4, 2017.  From the outset of this Chapter 11 proceeding, investors in Woodbridge Notes (“Noteholders”) have taken the position that they hold secured, perfected liens in various real estate deals.

By way of background, beginning as early as July 2012, Woodbridge and its affiliates offered securities nationwide to investors in at least two forms: (1) subscription agreements for the purchase of equity interests or units in one of Woodbridge’s seven Delaware limited liability companies (“Units”); and, (2) lending agreements, some of which were referred to as “First Position Commercial Mortgage Notes,” “mezzanine loans,” “construction loans,” and “Co-Lending Opportunities” (collectively, “FPCMs”).

On March 27, 2018, the Debtors, the Unsecured Creditors Committee and the Ad Hoc Noteholders Committee all agreed on a plan of reorganization that was encapsulated in a Term Sheet filed with the Bankruptcy Court.  However, the Term Sheet failed to address whether or not Woodbridge Noteholders who invested in FPCMs do, in fact, hold secured, perfected liens.  Accordingly, on March 27th a Woodbridge FPCM investor – retired 85 year old attorney Lisa La Rochelle – filed an adversary proceeding (the “Owlwood Complaint”) in an effort to resolve the looming question of whether some $800 million in FPCMs should be treated as secured debt for purposes of disposition of the Chapter 11 proceeding.

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Money in WastebasketInvestors in Cole Credit Property Trust IV, Inc. (“Cole Credit IV”) appear to have incurred substantial principal losses, based on the pricing of a recent tender offer.  Recently, third party real estate investment firm MacKenzie Realty Capital, LP (“MacKenzie”) initiated a tender offer to purchase shares of Cole Credit IV at a price of $6.01/share.  Therefore, investors who invested in Cole Credit IV through the offering at $10/share will incur substantial losses on their initial investment of approximately 40% (exclusive of commissions paid and distributions received to date).

Cole Credit IV’s real estate portfolio is geographically diverse, and is focused on investments in “income-producing, necessity single-tenant retail properties and anchored shopping centers subject to long-term net lease,” as stated on the company’s website.  As a publicly registered non-traded REIT, Cole Credit IV was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the IPO upon the recommendation of a broker or money manager.  Cole Credit terminated its offering on April 4, 2014.

Non-traded REITs pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors and stockbrokers who recommend these complex investments.  One significant risk associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%.  In addition to high commissions, non-traded REITs like Cole Credit IV generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.

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