As recently reported, the Massachusetts Securities Division (the “Division”) has commenced an investigation into the sales practices of some 63 independent broker-dealers who offered private placements sponsored by alternative asset manager GPB Capital Holdings, LLC (“GPB”). Specifically, the Division has intimated that it began an investigation into GPB following a recent tip concerning the firm’s sales practices which allegedly occurred not long after GPB announced that it was temporarily halting any new capital raising efforts, as well as suspending any redemptions.

According to the Division’s head, Mr. William Galvin, the investigation is in its “very nascent stages.” At this time, Massachusetts securities regulators have requested information about GPB from more than 60 broker-dealers, including HighTower Securities, Advisor Group’s four independent broker-dealers, as well as Ladenburg Thalmann’s Triad Advisors.

In August 2018, GPB – the sponsor of certain limited partnership offerings including GPB Automotive Portfolio and GPB Holdings II – announced that it was not accepting any new capital. According to filings with the SEC, sales of the two aforementioned GPB private placements allegedly netted the broker-dealers marketing these investment products some $100 million in commissions, at a rate of about 8%, since 2013.

As recently reported in the Wall Street Journal (WSJ), investments in so-called private placements have experienced a substantial upswing in the wake of the 2008 financial crisis: “In 2017 alone, private placements using brokers totaled at least $710 billion … a nearly threefold increase rise from 2009.” Further, the article indicates that financial advisors recommending private placements are “six times as likely as the average broker to report at least one regulatory action against them…” and, moreover, that 1 in 8 brokers recommending private placement investments have “three or more red flags on their records, such as investor complaint, regulatory action, criminal charge or firing… .”

As a general rule, investing in a private placement carries with it considerable complexity and risk, including hefty commissions, lack of transparency, as well as the illiquid nature of the unregistered offering. Accordingly, such private placement investments are typically only available to accredited and/or sophisticated investors. An investor is considered “accredited” if he or she has an annual income of over $200,000 or has a net worth of more than $1 million of assets (excluding one’s primary residence). It is a financial advisor’s responsibility to ensure that an investor meets this test.

Financial advisors, and by extension their brokerage firm, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Regulation D, as promulgated by the SEC. Furthermore, financial advisors have a duty to disclose the risks associated with such an investment, as well as conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.

Investors who wish to discuss a possible claim concerning an investment in a GPB offering or another private placement may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

Investors in speculative microcap and nanocap securities may have arbitration claims to be pursued before FINRA, in the event that the recommendation to invest lacked a reasonable basis, or if the nature of the investment, including its risk components, was misrepresented to the investor. Both FINRA and the SEC have issued ample guidance with regard to the numerous risks associated with investing in speculative microcap (or “penny”) stocks, including the potential for fraudulent schemes and market manipulation due to the lack of public information concerning the companies’ underlying business and management, as well as verifiable financials.

In certain instances, broker-dealers who transact business in the penny stock arena may expose themselves to regulatory scrutiny and related liability. For example, Aegis Capital Corp. (“Aegis”) (CRD# 15007) has come under considerable regulatory scrutiny by both the SEC and FINRA with respect to its activities concerning low-priced securities transactions. Formed in 1984 and headquartered in New York, New York, Aegis is a mid-sized, full service retail and institutional broker-dealer. As of March 2017, Aegis employed approximately 415 brokers in its sixteen branches, with the bulk of its workforce centered in New York City and Melville, NY.

According to FINRA BrokerCheck, Aegis’ regulatory history includes a total of thirty (30) disclosure events, a number of which involve penny stocks. For instance, in August 2015, Aegis entered into a settlement with FINRA, pursuant to which the broker-dealer agreed to pay $950,000 in sanctions over allegations of improper sales of unregistered shares of penny stocks, as well as certain AML violations. In connection with that regulatory event, two of Aegis’ compliance officers were suspended for 30 and 60 days, and ordered to pay fines of $5,000 and $10,000, respectively. On March 28, 2018, the SEC imposed a cease-and-desist order (“Order”) against Aegis for its alleged supervisory failures concerning penny stocks. Further, the SEC penalized Aegis $750,000 after the brokerage firm admitted that it failed to file required suspicious activity reports (“SAR’s”) on numerous penny stock transactions from “at least late 2012 through early 2014.”

In early 2014, Aegis acted as the underwriter to an IPO for stock priced at $5.50 in Akers Biosciences, Inc. (“Akers”). Akers (Nasdaq: AKER), headquartered in Thorofare, NJ, “[d]evelops, manufactures, and supplies rapid screening and testing products designed to deliver healthcare information to healthcare providers and consumers in the United States, the People’s Republic of China, and internationally.” As recently reported, on May 21, 2018, Akers filed a 8-K with the SEC, disclosing that “the Company has been reviewing the characterization of certain revenue recognition items for the quarter ended March 31, 2018.”

Following Akers’ May 21 disclosure with the SEC, its share price fell over 8% to $0.59 per share on May 22, 2018. Shortly thereafter, on May 29, 2018, Akers issued a press release indicating that “Raymond F. Akers Jr., Ph.D has resigned as a director of the Company…” As a result of this news release, shares of Akers fell another 33% in value to close trading at $0.39 per share on May 29, 2018.

On June 5, 2018, Akers filed another 8-K with the SEC, in response to a letter received from Mr. Akers’ attorney. This June 8^th 8-K characterized the previous 8-K as “false” and “totally misleading” and further, disclosed that Mr. Akers was purportedly acting as a whistleblower and had apparently refused to approve the annual 10-K for 2017. Following this disclosure, class action litigation was initiated against Akers and certain of its officers, alleging that during the class period (May 15, 2017 through June 5, 2018, inclusive), acquirers of AKER shares were damaged due to alleged “false and materially misleading statements regarding the Company’s business, operational and compliance policies.”

Brokerage firms including Aegis have a duty to ensure that their business activities surrounding speculative low-priced securities are conducted in accordance with a reasonable compliance system which includes specific written supervisory procedures. Further, any recommendation by a financial advisor to invest in a speculative penny stock must conform to NASD Rule 2310 and FINRA Rule 2111 – the so-called suitability rule – which is premised on the brokerage firm and financial advisor obtaining information about the customer in order to ascertain that investor’s profile, including the investor’s age, other investments, financial situation and needs, tax status, investment experience and risk tolerance. In instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

Attorneys at Law Office of Christopher J. Gray, P.C. have significant experience resolving disputes on behalf of investors, including losses sustained due to instances of fraudulent conduct, market manipulation, and unsuitable investment recommendations. Investors may contact a securities attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

As 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.

When recommending an investment, a financial advisor is required to have a reasonable basis to believe that a recommended transaction, or investment strategy, involving a security or securities, is suitable for the customer. Accordingly, under FINRA Rule 2111, the suitability standard is premised on the brokerage firm and/or broker obtaining information about the customer in order to ascertain that customer’s investment profile. A customer’s “investment profile” is based upon numerous criteria, including but not limited to the investor’s age, other investments, financial situation and needs, tax status, investment experience and risk tolerance.

In addition, brokerage firms including Independent Financial Group and Sandlapper Securities have a duty to ensure that their registered representatives are adequately supervised. As such, brokerage firms must take reasonable steps to ensure that their brokers follow all applicable securities rules and regulations, as well as adhere to the firm’s internal policies and procedures. In those instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes involving broker misconduct and negligence. Investors who wish to discuss a possible case may contact a securities arbitration attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

Syosset, NY-based stockbroker Matthew Eckstein was recently charged with three counts of second-degree grand larceny, third degree grand larceny, and two counts of first-degree scheme to defraud by the Nassau County District Attorney. These charges stem from Mr. Eckstein’s business as a financial advisor in Garden City, NY, and more specifically, allegations that he “betrayed his clients’ trust when he stole their money in a multi-million dollar Ponzi scheme and even pilfered hundred of thousands from the estates of deceased clients” according to Madeline Singas, the Nassau County District Attorney.

FINRA BrokerCheck indicates that Matthew Evan Eckstein’s (CRD# 2997245) career in the securities industry dates back to 1998, when he first began working as a registered representative for Gould, Ambroson & Associates Ltd. (“Gould”) (CRD# 17412) in Garden City, NY. Since September 16, 2015, Mr. Eckstein has been registered at his own broker-dealer, Sisk Investment Services, Inc. (“Sisk”) (CRD# 19406), where he is chief executive and chief compliance officer. On April 27, 2018, FINRA Enforcement filed a Complaint naming Mr. Eckstein as Respondent. As alleged by FINRA, from December 2014 until December 2015, Mr. Eckstein purportedly sold over $1.3 million in supposedly safe private investments akin to CDs to numerous clients.

Publicly available information suggests Mr. Eckstein’s alleged victims are from Massapequa, Seaford, Smithtown, Melville, Staten Island, Brooklyn, Manhattan, Norwalk, CT, Jupiter, FL, and Redlands, CA. In January 2015, Mr. Eckstein allegedly convinced one customer to invest approximately $385,000 into a company, Conmac Funding (“Conmac”), that was touted as a safe, no-risk investment. Further, Mr. Eckstein purportedly assured the client that the investment principal would be returned in two years, with an additional four-percent interest, much like a certificate of deposit. However, as recently reported, when the client requested his money back two years later, he only received $26,699.

According to FINRA Enforcement, Mr. Eckstein’s alleged misconduct involved an investment scheme run by “KB”, a close friend of Eckstein. FINRA’s Complaint alleges that Mr. Eckstein conducted no due diligence on the issuer of the supposedly safe investments, Conmac: “Eckstein never reviewed the Issuer’s books or financial statements and did not know the sources of the Issuer’s funds, the identity of its customers … the default rate on its loans, its overhead, or the number of its employees.” Further, FINRA Enforcement has alleged that Eckstein misrepresented the nature of these private investments in Conmac as “similar to a CD” and “fully guaranteed.”

Included among the claims brought by FINRA Enforcement are allegations that Mr. Eckstein engaged in “selling away” activity in violation of NASD Rule 3040 and FINRA Rule 2010. Specifically, FINRA has alleged that while registered with Gould, Mr. Eckstein “participated in five securities transactions wherein LM, JS, LS, and BV invested $1.28 million…” Brokerage firms like Gould have a duty to ensure that their registered representatives are adequately supervised, and moreover, must take reasonable steps to ensure that their brokers follow all applicable securities rules and regulations, as well as internal policies and procedures. In instances where a financial advisor engages in selling away activity, a member firm like Gould may be held liable for losses sustained by investors. Broker-dealers including Gould must ensure that their supervisory system is reasonable and that client accounts are adequately monitored, as brokerage firms may be found vicariously liable for the misconduct or negligence of a registered representative.

Attorneys at Law Office of Christopher J. Gray, P.C. have successfully resolved a number of disputes on behalf of investors, including cases involving high-risk, illiquid and opaque private placement investments and selling away cases. Investors may contact a securities arbitration attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors who suffered losses due to the alleged misconduct of Rockland County financial advisor Hector A. May (CRD# 323779) may be able to recover their losses in arbitration before FINRA. A resident of Orangeburg, NY, Mr. May was most recently affiliated with the independent broker-dealer Securities America, Inc. (CRD# 10205) from 1998 until March 2018. As recently reported, on June 6, 2018, the United States Attorney for the Southern District of New York implemented an asset freeze pursuant to a Restraining Order against Mr. May and his wife, Sonia May, with their consent. According to publicly available information through FINRA, the Justice Department is “conducting an official criminal investigation of a suspected felony.”

Among the assets frozen under the terms of the government’s Restraining Order are those assets held by Executive Compensation Planners Inc. (“ECP Inc.”), the Registered Investment Advisory (“RIA”) firm owned and controlled by Hector May. In addition to freezing ECP Inc. assets, the government is also restraining numerous bank and brokerage accounts owned by the Mays, as well as monthly proceeds payable to Hector May through an Equitable Life Pension payment and social security. Finally, the government has frozen Mays’ real assets, including a house in Orangeburg, NY, a condominium in Vernon Township, NJ, as well as “all jewelry, fur products, antiques, and silver owned by Hector May or Sonia May.”

According to FINRA BrokerCheck, Mr. May was discharged from his employment with Securities America due to his alleged “misappropriation of client assets.” Acting through his RIA, Mr. May’s business as a financial advisor was supposedly predicated on selling certain wrap fee advisory programs through Securities America.

Brokerage firms Securities America have a duty to ensure that their registered representatives and investment advisors are adequately supervised, a duty which includes monitoring their advisors to ensure that no misconduct or fraudulent activity is permitted. Unfortunately, in some instances, independent advisors who work remotely under the supervision of firms like Securities America are able to engage in a pattern and practice of misconduct. Nevertheless, firms like Securities America must take reasonable steps to ensure that their advisors follow all applicable securities rules and regulations, in addition to internal policies and procedures. In those instances where firms fail to adequately supervise their financial advisors, they may be held liable for losses sustained by investors.

Attorneys at Law Office of Christopher J. Gray, P.C. have successfully resolved a number of disputes on behalf of investors concerning misconduct by stockbrokers and financial advisors. Investors may contact a securities arbitration attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in Phillips Edison Grocery Center REIT II (“Phillips Edison II”) were recently solicited by third-party real estate investment management firm MacKenzie Realty Capital, Inc. (“MacKenzie”) in relation to a mini tender offer to purchase Phillips Edison II shares at $14.89 per share. Investors who purchased Phillips Edison II shares through the initial offering acquired their shares at $25 per share (and at $23.75 per share for shares subsequently acquired through the dividend reinvestment program). Accordingly, investors seeking immediate liquidity who elect to participate in the MacKenzie tender offer will incur substantial losses of approximately 40% on their initial investment (excluding commissions and fees, as well any dividend income received to date).

Phillips Edison II was incorporated in June 2013 and is a publicly registered, non-traded REIT. As set forth in its prospectus, Phillips Edison II was “formed to leverage the expertise of our sponsors… and capitalize on the market opportunity to acquire and manage grocery-anchored neighborhood and community shopping centers located in strong demographic markets throughout the United States.” As a publicly registered non-traded REIT, Phillips Edison II was permitted to sell securities to the investing public at large, and as such, the non-traded REIT was marketed nationwide to numerous unsophisticated retail investors. In certain instances, some investors were not fully informed by their financial advisor as to the complex nature and risks associated with non-traded REITs.

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. To begin, one significant risk associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%; in the case of Phillips Edison II, its prospectus indicates that investors were charged a “selling commission” of 7%. In addition to high commissions, non-traded REITs like Phillips Edison II generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%; as set forth in its prospectus, Phillips Edison II charged investors a 3% dealer manager fee of up to 3% of gross offering proceeds. Such high commission and fees act as an immediate “drag” on an investment.

Furthermore, non-traded REITs like Phillips Edison II are generally illiquid investments. Unlike traditional stocks and mutual funds, non-traded REITs cannot be readily sold and resold on deep and liquid national securities exchanges. Typically, investors in non-traded REITs can only exit their investment position through redemption directly with the sponsor, and even then on a limited basis, and often at a disadvantageous price. Or, investors may be able to sell shares through a limited and fragmented secondary market. Finally, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares at a disadvantageous price.

Investors in Phillips Edison II and other non-traded REITs may have viable FINRA arbitration claims if their stockbroker or financial advisor made an unsuitable recommendation to purchase the investments or solicited the investments via a misleading sales presentation. Investors may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in Griffin Capital Essential Asset REIT, Inc. (“Griffin Essential”), may have substantial losses based on a tender offer to purchase shares for $6.89 a share — or $3.11 a share less than the offering price of $10 a share. As recently reported, on December 1, 2017, third-party real estate investment firm MacKenzie Capital Management (“MacKenzie”) made an unsolicited tender offer for shares of Griffin Essential at $6.89 per share, in cash. The Board of Directors of Griffin Essential has recommended that its shareholders reject the offer. However, the Board also advised that, as of September 30, 2017, its share redemption program (“SRP”) for 2017 was fully subscribed, thus leaving investors seeking liquidity via redemption with little recourse.

Griffin Essential is a Maryland REIT incorporated in August 2008 for purposes of acquiring a portfolio of geographically diverse single tenant properties across a wide range of industries. From 2009 – 2014, Griffin Essential conducted a series of offerings in connection with its capital raise. In aggregate, the non-traded REIT issued 126,592,885 shares of common stock for gross proceeds of approximately $1.3 billion. As a publicly registered non-traded REIT, Griffin Essential 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.

Investors who purchased shares of Griffin Essential through the offering acquired their shares for approximately $10 per share. Therefore, it would appear that investors who participated in the MacKenzie tender offer incurred substantial losses on their initial investment in excess of 30% (exclusive of commissions and distributions).

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. To begin, one significant risk associated with non-traded REITs has to do with their high up-front commissions and fees, as high as 15% in some instances. Furthermore, non-traded REITs are generally illiquid investments. Unlike stocks and mutual funds, non-traded REITs do not trade on a deep and liquid national securities exchange. Therefore, many investors in non-traded REITs come to find out too late that their ability to exit their investment position is severely limited. Typically, investors in non-traded REITs can only exit their investment position through redemption directly with the sponsor, and then on a limited basis, and often at a disadvantageous price. Or, investors may be able to sell shares through a limited and fragmented secondary market. Finally, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares.

Investors may be able to pursue claims through FINRA arbitration in the event that a non-traded REIT investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the broker. Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors who suffered losses due to misconduct by financial advisor Ralph Savoie (CRD# 411660) may be able to recover their losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”). On March 26, 2018, Mr. Savoie plead guilty in Louisiana federal court to stealing up to $1.5 million from clients, using their monies for personal expenses including jewelry, hotels, and credit card bills, as well as to pay off previous clients in Ponzi-fashion in connection with prior purported investment opportunities. Mr. Savoie allegedly guaranteed his clients high rates of returns on various investments in securities and insurance products, describing the investments as a “sure thing.” In actuality, however, Mr. Savoie allegedly engaged in misconduct by using these funds on personal expenses, to pay prior clients and to funnel money into a “risky real estate venture.”

According to public records, Mr. Savoie of Mandeville, LA, was formerly associated with Cambridge Investment Research Advisors, Inc. (CRD# 134139) (“Cambridge”) in their Metairie, LA, branch office, until on or about August 11, 2015, at which time Mr. Savoie was discharged from his employment with Cambridge as a registered representative. Mr. Savoie’s career in the securities industry is lengthy and dates back to the early 1970’s, including his most recent stint at Cambridge from 2013 until August 2015.

According to publicly available information through FINRA, Mr. Savoie was discharged from his employment with Cambridge due to his alleged failure to “[d]isclose and receive approval for an outside business activity.” Further, FINRA reports that Mr. Savoie has been subject to six customer disputes, including three that remain pending and three that have resulted in settlement. A number of these disputes center on allegations concerning Mr. Savoie’s purported sales of “unsuitable, illiquid, expensive, private placements.”

As our office has discussed in previous blog posts, private placements are, in general, a risky investment proposition. To begin, private placements carry considerable risk (investors should be prepared to lose their entire investment), often are complex in nature, and typically are opaque insofar as investors only have limited information off which to make an ultimate decision as to whether an investment is warranted (as unregistered securities, private placements do not provide the same scope and depth of information as with other investments, such as publicly traded, registered stocks or mutual funds). The majority of private placements are offered pursuant to Regulation D (“Reg D”), an SEC regulation that allows private companies to raise capital without conducting a public offering.

Brokerage firms like Cambridge have a duty to ensure that their registered representatives are adequately supervised, a duty which includes monitoring their brokers in connection with outside business activities and/or sales of private placements. Brokerage firms must also take reasonable steps to ensure that their financial advisors follow all applicable securities rules and regulations, in addition to internal policies and procedures. In instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

The attorneys at Law Office of Christopher J. Gray, P.C. have successfully resolved a number of disputes on behalf of investors, including losses sustained due to instances of fraudulent conduct such as Ponzi schemes, and related broker misconduct. Investors may contact a securities arbitration attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

On 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.

Brokerage firms like Morgan Stanley and NMS Capital have a duty to ensure that their registered representatives are adequately supervised. In this regard, brokerage firms must take reasonable steps to ensure that their brokers follow all applicable securities rules and regulations, as well as adhere to the firm’s internal policies and procedures. In those instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

Publicly available information through BrokerCheck indicates that Mr. Rideaux has been named in two pending customer complaints, both of which appear to involve allegations of selling away, as follows:

• 03/29/2016 – Claimant alleged that FA solicited “investment opportunities that were unauthorized by the firm…”;
• 06/08/2017 – Damages requested in the amount of $10,000,000 in connection with allegations of misrepresentation of a non-firm product.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes involving broker misconduct, including selling away, in addition to claims against brokerage firms for their failure to supervise. Investors may contact a securities arbitration attorney at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

On December 18, 2017, LPL Financial LLC (“LPL”) lost a FINRA arbitration concerning customer claims related to former LPL broker Charles Fackrell. The three-member FINRA panel issued a $462,000 aggregate award to six of Mr. Fackrell’s former clients, an amount which must be satisfied by LPL within 30 days. As we discussed in a previous blog post, Mr. Fackrell (CRD# 5369665) pled guilty last year to one count of securities fraud for operating a $1.4 million Ponzi scheme. According to prosecutors handling the investigation, beginning around May 2012, Mr. Fackrell first engaged in the fraudulent scheme by misappropriating investor funds solicited from at least 20 victims, many from Wilkes County, North Carolina.

In addition to asserting claims of negligence and violations of the North Carolina Securities Act, Mr. Fackrell’s former clients brought claims against LPL for breach of contract, failure to supervise, principal/agent liability, and negligent retention of an agent.

As detailed in publicly available 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 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 further 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. In addition, Mr. Fackrell allegedly falsely 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, instead diverting approximately $700,000 of his victims’ money back to other investors in classic Ponzi-style payments designed to further the fraudulent scheme.

In October 2017, the State of North Carolina fined LPL $25,000 and ordered the Boston-based brokerage firm to reimburse the state $270,000 in connection with costs incurred investigating Mr. Fackrell.

Mr. Fackrell was discharged by LPL in December 2014. Thereafter, in February 2015, without admitting or denying the findings, Mr. Fackrell consented to sanctions by FINRA, including his being barred from the securities industry based on “findings that… Fackrell converted customer’s funds and sold private securities offerings away from his member firm without the firm’s knowledge or approval.”

Broker-dealers such as LPL are charged with the responsibility to adequately supervise all representatives who are registered through their firm. This supervision includes monitoring the investments sold by their registered representatives. Further, broker-dealers must take steps in order to ensure that their financial advisors follow all applicable securities rules and regulations, as well as internal firm policies. When broker-dealers fail to adequately supervise their registered representatives, this may give rise to liability for investment losses sustained by customers.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors nationwide who have fallen victim to perpetrators of financial frauds, including Ponzi schemes. Investors may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

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.

In November 2008, SRT filed a Form S-11 with the Securities and Exchange Commission (“SEC”) in order to raise capital for its IPO. By August 2009, SRT initiated its IPO at $10 per share for up to $ 1 billion in investor capital. Unfortunately for SRT investors who purchased shares at $10, the secondary market now lists SRT shares at a deep discount. For example, Central Trade & Transfer has recently listed shares of SRT with a bid-ask spread of $4.60 – $4.50 per share.

The recent pricing in SRT suggests that investors in this non-traded REIT may well have suffered considerable investment losses of approximately 55% on their initial investment of $10.00 per share.

If you have invested in SRT, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

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.

AFT was initially priced at $25 per share when it commenced its public offering in 2013. Currently, investors seeking to redeem their shares may do so through a limited secondary market. For example, Central Trade and Transfer — a secondary market for private placements and certain alternative investments — has recently listed AFT shares for $15.50 per share. Thus, AFT investors wishing to sell some or all of their position will be forced to sustain a substantial loss in order to exit their illiquid investment in AFT.

The Lightstone Value Plus REIT V (“Lightstone”) is another non-traded REIT. In July 2017, Behringer Harvard Opportunity REIT II Inc. (“Behringer II”) rebranded and changed its name to Lightstone. Many retail investors bought into Behringer II, which commenced its offering to investors in January 2008 and closed its offering in March 2012, after raising approx. $265 million in capital from investors.

Behringer II (now Lightstone) shares were initially sold to investors at $10 per share. According to Central Trade and Transfer, Lightstone shares are now listed for only $5.75 per share.

With respect to both AFT and Lightstone, many retail investors may have bought into these non-traded REITs without first being fully informed of the risks associated with these complex and illiquid investments. As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile.

If you have invested in AFT or Lightstone, or another non-traded REIT, and you have suffered losses in connection with your investment, you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

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.

Unfortunately, the misconduct of Welliver and Dblaine Capital may have financial repercussions to shareholders, as is often the case with broker fraud, and the SEC’s investigation will continue. The civil injunctive action was filed on October 18, 2011 in the United States District Court for the District of Minnesota.

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.”

Credit Suisse Group AG, the collateral manager of the CDO, as well as Samir Bhatt, Credit Suisse’s portfolio manager who was primarily responsible, have settled separate charges with the SEC. Bhatt is suspended for associating with an investment advisor for six months and Suisse will pay $2.5 million. Citigroup represented Credit Sussie in marketing materials outlining the deal, according to the SEC.

Citigroup will forfeit $160 million in “alleged improper fees and profits,” $30 million in interest and will also pay a fine of $95 million. The settlement, according to Citigroup, “resolves all outstanding SEC inquiries into those activities.” Citigroup neither admitted nor denied wrongdoing.

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.”

This was the case for Odell Ramcharan, a realtor and investor who invested with Nicholas David Reeves in Disenco Energy, after doing research and checking with the British Columbia Securities Commissions. Even with Ramcharan’s research and precautions, he was the victim of fraud, losing an undisclosed amount of money, when Reeves kept his victim’s money for himself instead of investing it. Reeves had taken advantage of the 2009 plummet in oil prices to market an investment in Disenco Energy to a savvy investor.

Investors should also beware the “mob mentality” in which no one does the right thing because they think someone else will. Odell Ramcharan fell into just this kind of trap. Ramcharan said, “I got caught by not asking the right questions. There were about 28 people investing, and we all thought the other had done the due diligence.”

Sadly, many experienced investors who fall victim to broker fraud fail to report it out of shame. There is absolutely no shame in being victim to a crime and an investment attorney at the Law Office of Christopher J. Gray is here to help recover losses.

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.

Before passing sentence on Schuster, District Judge Paul Korslund, said, “This involved irreparable loss, massive loss for many hard-working people. I appreciate that you’re concerned about that, but I don’t think that was the case all along.”

Though Schuster was originally charged with eight felony counts of securities fraud, the charges were amended so that they were not based on intentional acts, but inadvertent omissions, as part of the plea bargain. Schuster pleaded guilty to four counts of securities fraud and will receive 80 months to 18 years in prison. Engle, 56, pleaded guilty to two counts of securities fraud and received 3 to 6 years in prison. Both sentences will begin immediately.

If you believe that you have been the victim of unsuitable investments or improper trading practices, contact the Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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.

Conti further testified that at one point, Selewach came to her home with a $30,000/30-day investment opportunity which he said would yield 19 percent interest. Though she told him no, he appeared at her residence, uninvited, multiple times to pressure her about the investment. She finally relented and upon asking for her returns after 30 days, Selewach replied that he said 30 days but actually meant 60 days. When Conti received a letter from the Massachusetts Securities Division asking her about a “loan,” she contacted Selewach, who then said “to go along with the testimony or your money would be in jeopardy.” Fearing financial ruin, Conti did as Selewach instructed.

Originally arrested in September 2009, Selewach now faces 8-12 years in prison followed by another 10 years of probation, during which he is barred from working as a financial custodian or fiduciary. In addition to his prison sentence and probation, Selewach is required to pay full restitution, totaling $335,000, to his victims.

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.

During proceedings, there was no shortage of touching victim testimony. One victim lost the last $7,000 of her husband’s death settlement while another widow wrote of the loss of her savings, some of which was the last money her husband earned while battling cancer.

Of the 97 to 121 months in prison Gould was facing, he received only the minimum sentence. According to Assistant U.S. Attorney Hal Goldsmith, Gould has currently only repaid between $40,000 and $50,000. However, he has now been ordered to pay $3.1 million on his own and another $1.2 million together with David Rubin of Chesterfield with whom he defrauded one man. Gould and Rubin both pleaded guilty on April 29. Rubin has not yet been sentenced.

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.