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Articles Tagged with LLC

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The United States Securities and Exchange Commission(“SEC”) has accused a Georgia investment adviser of operating a Ponzi scheme that the SEC alleges in its legal Complaint (accessible here SEC Complaint) filed in federal court has defrauded over 400 investors nationwide.   The SEC Complaint alleges that investment advisers at a company called Livingston Group Asset Management Company, which does business as Southport Capital, persuaded investors to lend money to a company known as Horizon Private Equity, III, LLC (“Horizon PE”).   The SEC alleges that investors in Horizon PE collectively are allegedly owed over $110 million in principal.

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“Investors trusted Woods and the Southport investment advisers working at his direction, and they stand to lose significant portions of their retirement savings when the Ponzi scheme inevitably collapses.  The longer the scheme continues, the larger the losses will be for those left holding the bag,” the SEC Complaint states.

According to the SEC Complaint, advisers soliciting investments in Horizon PE allegedly told clients that they would receive returns of 6% to 7% interest, guaranteed for two to three years, and that their money would be used for nonspecific investments such as government bonds, stocks, or small real estate projects.  According to the SEC Complaint, clients were not told that their money would be used to pay returns to earlier investors.  The SEC also alleges that investors were told they could receive their principal investment back without penalty subject to a 30-day or 90-day waiting period.  The SEC alleges that because Horizon did not follow any traditional record-keeping practices, millions of dollars’ worth of investor funds are currently unaccounted for.

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Customers of barred former stockbroker Jeffrey A. Broten (“Broten”), formerly associated with defunct brokerage firm First Standard Financial Co., LLC (“First Standard”) and several other brokerage firms, may have arbitration or other legal claims, notwithstanding First Standard being out of business since 2019 and having declared bankruptcy in 2021.

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In 2019, New Jersey securities regulators revoked the broker-dealer registration of First Standard and froze its assets over findings that the firm received revenues of approximately $28.7 million due to unauthorized, unsuitable and excessive trading.  According to New Jersey, the firm, headquartered in Red Bank, N.J., routinely hired agents with a history of customer complaints and regulatory problems.  According to New Jersey, certain First Standard agents engaged in unsuitable and frequently unauthorized in-and-out trading in bonds and other securities for which active trading is unsuitable in customer accounts.  New Jersey also found that, in some circumstances, the firm’s sales commissions were so high that accounts would have had to generate extraordinary returns simply to break even.

Broten was barred from associating with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity under the terms of a Letter of Acceptance, Waiver and Consent dated October 1, 2020, accessible here. BrotenAWC  The FINRA AWC letter also recites that Broten’s agent registration in the State of New Jersey was revoked under a Summary Denial, Revocation and Penalty Order dated February 6, 2020.  According to Broten’s FINRA BrokerCheck record, the New Jersey authorities alleged that Broten made untrue statements and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.  New Jersey also charged that Broten engaged in an act, practice or course of business that operated as a fraud, due to engaging in a pattern of excessive, unsuitable and unauthorized trading activity in customer accounts while employed by First Standard.  Broten’s FINRA BrokerCheck report is accessible here. BrotenBrokerCheck

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Stealing MoneyThe Securities and Exchange Commission (SEC) reportedly has settled charges against the operators of a real estate investment business that caused millions in loses to investors.  Up to 300 investors may have lost money on interests in a fund known as Alaska Financial Company III, LLC (“AFC III”), which two individuals named Tobias Preston and Charles Preston sold to investors via their company McKinley Mortgage Co. LLC (“McKinley”).

The SEC accused defendants of falsely portraying AFC III as a safe investment and reporting that it had profitable operations.  However, according to the SEC, in reality AFC III was insolvent and unable to make interest payments as they came due.  According to the SEC, although a portion of the raised funds were invested as promised to investors, Messrs. Preston and McKinley diverted millions of dollars in proceeds of outside investments to fund business and personal expenses as well as McKinley’s operations.

AFC III has made so-called Form D filings with the SEC since 2013 stating that AFC III qualifies for an exemption from registration of its securities offering under Rule 506(c), which allows for general solicitation of investors, such as through AFC III’s website and social media platforms, but limits sales to accredited investors.  As a general rule, offers of securities to the public (which includes offers made over the internet) must be registered with the SEC under the Securities Act of 1933.  However, under federal securities law, the SEC recognizes certain instances where companies seeking to raise capital are exempt from registering securities. Securities offerings exempt from registration are sometimes referred to as “private placements.”  AFC III sought to be treated as exempt from registration by the SEC and was marketed as a private placement.

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On August 8, 2017, the State of Michigan Corporations, Securities & Commercial Licensing Bureau (“Bureau”) entered a Cease and Desist Order (“Order”) against Woodbridge Mortgage Investment Fund 4, LLC (“Woodbridge 4” or “Respondent”).  Respondent Woodbridge 4 is a Delaware-organized limited liability company formed in or around 2015. Woodbridge 4 is one of several mortgage funds offered by the California-based Woodbridge Group of Companies, LLC (“Woodbridge”), the successor firm to Woodbridge Structured Funding, LLC.

In connection with the Bureau’s Order, State of Michigan securities regulators made the following findings of fact concerning their investigation into Woodbridge 4:

  • The Bureau determined that Woodbridge 4 offered and sold “First Position Commercial Mortgages” (“FPCMs” or “Notes”) to investors in Michigan that fell within the definition of a security;
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Stealing MoneyOn April 12, 2016, former LPL Financial LLC (“LPL”) broker Charles C. Fackrell (CRD# 5369665) appeared before U.S. Magistrate Judge David Cayer in order to plead guilty to one count of securities fraud for operating a $1.4 million Ponzi scheme.  Based on documents filed with the federal court for the Western District of North Carolina, beginning around May 2012, Mr. Fackrell perpetrated a Ponzi scheme by misappropriating investor funds solicited from at least 20 victims in Wilke County, NC, and elsewhere.  According to court documents, Mr. Fackrell abused his position of trust with his clients, steering them away from legitimate investments to purported investments with “Robin Hood, LLC,” “Robinhood LLC,” Robin Hood Holdings, LLC,” and “Robinhood Holdings, LLC,” as well as related entities (collectively, “Robin Hood”).  These entities allegedly were controlled by Mr. Fackrell and provided him with a conduit through which to cover his own personal expenses, including hotel expenses, groceries, purchases at various retail shops, and to make large cash withdrawals.

Court records indicate that Mr. Fackrell successfully solicited victimized investors by making false and fraudulent representations, including that the investors’ money would be invested in, or secured by, gold and other precious metals.  Further, Mr. Fackrell allegedly told investors that Robin Hood was a safe investment, paying annualized guaranteed returns of 5-7%.  In actuality, however, Mr. Fackrell allegedly spent only a fraction of the investor money on such assets.  Contrary to the representations made to investors, Mr. Fackrell allegedly used a great deal of the money to cover personal expenses, in addition to diverting approximately $700,000 of his victims’ money, back to other investors in classic Ponzi-style payments designed to continue the fraudulent scheme.

Mr. Fackrell entered the securities industry in 2007, when he was under the employ of Morgan Stanley.  From 2010-2014, Mr. Fackrell was employed by LPL in Yadkinville, NC.  Currently, FINRA BrokerCheck indicates that Mr. Fackrell has been the subject of several customer complaints, including the following four pending complaints:

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Building ExplodesThe Securities and Exchange Commission (SEC) recently sought documents form a group of companies known as Woodbridge that has previously been accused of selling unregistered securities by state securities regulators.  Woodbridge, based in California, has reportedly raised over $1 billion from investors- allegedly by offering the sale of unregistered securities through unregistered brokers.  Woodbridge and its agents have also been sanctioned by multiple state regulators for allegedly offering unregistered securities, including a 2015 cease-and-desist order by Massachusetts, a cease-and-desist order against Woodbridge Fund 3 and principal Robert Shapiro imposed by Texas in 2015, and a 2016 complaint filed by Arizona regulators.

Most recently, Colorado regulators reportedly have opened an investigation into Colorado-based alleged Woodbridge brokers including James Campbell of Campbell Financial Group in Woodland Park, and Timothy McGuire of Highlands Ranch.  Woodbridge has reportedly raised $57 million from 450 Colorado investors and continues to solicit investors through online and radio advertising.

Some FINRA-registered stockbrokers and financial advisors have also allegedly sold unregistered Woodbridge securities to clients, including Frank Capuano, who was registered with Royal Alliance Associates in Holyoke, MA.  Capuano was alleged to have sold over $1,000,000 of the private notes to Royal Alliance customers and received over $30,000 in commissions.

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Investors who have lost money in Woodbridge Wealth or in any of the Woodbridge Mortgage Funds may be able to pursue recovery of any losses through securities litigation or arbitration.

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Brokerage firms that sell private placements such as the Woodbridge funds must conduct due diligence on the investment before recommending it to their clients.  The due diligence rule stems from FINRA Rule 2310, the so-called suitability rule, which requires that a brokerage firm must have reasonable grounds to believe that a recommendation to purchase a security is suitable for the customer.   This principle is further explained in National Association of Securities Dealers Notice to Members 03-71, which elaborates that a brokerage firm must perform significant due diligence before recommending a private placement investment to any customer(s).  By recommending a security to customers, the brokerage firm effectively represents that a reasonable investigation of the merits of the investment has been made.

According to a lawsuit filed by the Securities and Exchange Commission (“SEC”), Woodbridge has raised over $1 billion from thousands of investors through various finds.  Some of the Woodbridge investments involve First Position Commercial Mortgages (“FPCMs”), which consists of a promissory note from a Woodbridge Fund, a loan agreement, and a non-exclusive assignment of the Woodbridge Fund’s security interest in the mortgage for the underlying hard-money loan.  These FPCMs are securities in the form of notes, investment contracts, and real property investment contracts.

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