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Articles Tagged with Selling Away

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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 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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Investment fraud lawyers are currently investigating claims on behalf of individuals who invested with Lewis J. Hunter, a former broker in Michigan. A cease-and-desist and administrative proceedings order was recently instituted by the Securities and Exchange Commission against Hunter, who allegedly misappropriated money from his brokerage customers and, in turn, used the funds to pay personal expenses. The amount of money allegedly misappropriated is estimated to be around $300,000.

Victims of Lewis J. Hunter’s Fraud Could Recover Losses

The SEC’s Division of Enforcement’s allegations of misappropriation of funds state that Hunter promised guaranteed returns in both domestic and foreign bank investments while registered with HD Vest Investment Securities Inc. Further, the SEC’s claims allege that Hunter paid personal and business expenses with the funds and made false and misleading representations to conceal his actions from his clients. Reportedly, these misrepresentations included fabricating bank documents.

Based on the SEC’s allegations, securities arbitration lawyers believe that Hunter was a registered representative for HD Vest Investment Securities Inc. from November 15, 2006 through October 19, 2011. HD Vest Investment Securities is headquartered in Texas and is a registered broker-dealer. While registered there, Hunter reportedly became a partner in National Business Concepts LLC, purportedly in bookkeeping, accounting, business consulting, management and tax preparation.

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Securities fraud attorneys are currently investigating claims on behalf of investors who suffered significant losses as a result of their investment in an Inofin promissory note or Inofin offering. A recent announcement by the Securities and Exchange Commission (SEC) stated that on July 23 and 24, final judgments were entered in a civil injunctive action against Michael J. Cuomo and Kevin Mann Sr. This action was filed in the United States District Court of Massachusetts.

Unregistered Securities: Inofin Investors Could Recover Losses

Allegations included in the SEC complaint were that Inofin and Inofin executives illegally raised money from investors in 25 states and the District of Columbia totaling at least $110 million. These funds were raised through unregistered note sales. Furthermore, Inofin allegedly materially misrepresented the company’s financial performance as well as how it was using investors’ money. Thomas K. Keough and David Affeldt, two sales agents, were also charged by the SEC. Allegations against Affeldt and Keough stated that they offered and sold the aforementioned unregistered securities.

Stock fraud lawyers say Keough’s FINRA Broker Report stated that he was registered with FINRA during a significant portion of the time that he sold these unregistered securities. As a result, investors who, in accordance with Keough’s recommendation, purchased an Inofin investmentvcould be able to recover losses through securities arbitration.

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Bank of America’s Merrill Lynch brokerage unit agreed to pay $1 million for supervisory failures that allowed a former broker to use a Merrill Lynch account to run a Ponzi scheme, FINRA said on Tuesday.

The Financial Industry Regulatory Authority (“FINRA”), which oversees the U.S. brokerage industry, found that the brokerage failed to have an adequate supervisory system to monitor employee accounts for potential misconduct.

The wayward broker, Bruce Hammonds, has been sentenced to 57 months in federal prison for convincing 11 people to invest more than $1 million in a Ponzi scheme he ran as a Merrill branch representative in San Antonio, Texas.

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The FBI is reportedly investigating two former Edward Jones brokers based in South Dakota for their role in a “selling-away” case that involved raising money from clients who invested in an alleged Ponzi scheme.

A clientof Edward Jones, one of the largest brokerage firms in the country with more than 12,000 brokers, reportedly brought the matter of Gibraltar Partners Inc. to the firm’s attention in March. As a result of its investigation, during which the company learned that the Justice Department was in the middle of a criminal investigation of Gibraltar Partners, Edward Jones reportedly fired the brokers.

“Selling away” is one of the most common difficulties independent and franchisee broker-dealers face in their oversight of registered reps. Such reps typically operate in one- or two-man offices and have no branch manager looking over their shoulders on a day-to-day basis. Cases typically involve a broker selling a financial product that the broker-dealer did not approve or know about, with the investment vehicle blowing up and harming the client’s portfolio.

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