On June 19, 2018, the Securities and Exchange Commission (“SEC”) filed a Complaint against various individuals and entities — including former financial advisor John Charles Piccarreto, Jr. (CRD# 6276418) of San Antonio, TX — in furtherance of the SEC’s efforts to “stop an ongoing fraudulent scheme in which the Defendants have raised more than $102 million from at least 637 investors across the United States since 2011.” As alleged by the SEC, Defendants Perry Santillo and Christopher Parris of Rochester, NY purportedly orchestrated a fraudulent Ponzi-like scheme predicated upon first buying or taking over books of business from retiring investment professionals from around the country.

According to the Complaint, after acquiring new investors and assets, Messrs. Santillo and Parris (each formerly registered with FINRA) would coordinate their sales efforts with Defendants, including John Piccarreto, Jr., in order to allegedly persuade victims into withdrawing savings from traditional investments, in order to transfer the capital into issuers controlled by Messrs. Santillo, Parris, or certain of their associates. The SEC has alleged that the Defendants would “falsely claim that their investors’ money [would] be used to operate businesses in fields such as financial services, insurance, real estate development, and medical laboratories.” In actuality, however, the SEC has alleged that Defendants would transfer funds received into “multiple accounts held in the names of different entities” controlled by Defendants. While some of the funds were purportedly used to repay investors in typical Ponzi-fashion, the SEC has alleged that the bulk of the monies were misappropriated by the Defendants.

With regard to Mr. Piccarreto, the SEC has alleged that, in one instance, he met with an elderly investor from Austin, TX in February 2015. As alleged, Mr. Piccarreto convinced the 80 year old investor, who suffered from dementia, into putting $250,000 into an entity controlled by Defendants: Percipience. Mr. Piccarreto later emailed the investor’s daughter, in response to her concerns with the Percipience investment, that “I know this is scary for you and you are just looking out for dad but I promise you I will not let anything happen to any of the money.” In total, the SEC has alleged that Mr. Piccarreto misappropriated approximately $1.3 million in investor money.

According to FINRA BrokerCheck, former financial advisor John Piccarreto, Jr. was previously affiliated with First American Securities, Inc. (CRD# 35841) from June 2014 – July 2015. In July 2017, he voluntarily consented to a two-year suspension from the securities industry, as well as a deferred fine of $15,000, pursuant to a Letter of Acceptance, Waiver & Consent (“AWC”) accepted by FINRA Enforcement on June 20, 2017. As determined by FINRA Enforcement, Mr. Piccarreto allegedly “participated in at least 20 private securities transactions, including some transactions by elderly customers, by way of unregistered, private” offerings without providing written notice to his employer, First American Securities.

Brokerage firms including First American Securities have an affirmative obligation to ensure that their registered representatives are adequately supervised. Brokerage firms must also take reasonable steps to ensure that their financial advisors follow all applicable securities rules and regulations, in addition to adhering 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.

Attorneys at Law Office of Christopher J. Gray, P.C. have successfully resolved a number of disputes on behalf of investors, including cases involving Ponzi schemes and related 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 May 30, 2018, the Securities and Exchange Commission (“SEC”) filed a civil complaint against Mr. Steven Pagartanis, alleging that the East Setauket, NY stockbroker purportedly “[d]efrauded at least nine retail investors of approximately $8 million by soliciting and selling them securities using false and misleading statements from 2013 to at least February 2018 (the ‘Relevant Period’).” During the Relevant Period, Mr. Pagartanis was affiliated with Cadaret, Grant & Co., Inc. (“Cadaret”) (CRD# 10641) from 2012 – 2017 and, thereafter, with Lombard Securities Incorporated (CRD# 27954) (“Lombard”).

As alleged by the SEC in its Complaint filed in federal court in the Eastern District of New York (SEC v Pagartanis Complaint), Mr. Pagartanis purportedly solicited certain of his customers — many of them retirees who relied upon his advice and investment recommendations — to invest in what was touted as a safe and conservative investment “[w]ith a fixed percentage return, generally between 4.5 and 8 percent annually.” Specifically, the SEC alleged that Mr. Pagartanis informed at least five investors that they were investing in the common stock of Genesis Land Development Co. (“GDC”), a Canadian real estate firm listed on the Toronto Stock Exchange. According to the SEC’s Complaint, in actuality the investment capital raised by Mr. Pagartanis was allegedly funneled to an LLC sharing the name Genesis, for which Pagartanis was the sole member and owner of the LLC.

The SEC has alleged that Mr. Pagartanis conducted a fraudulent scheme, under which he purportedly “[t]ransferred the money raised to his personal bank account, to other entities he controlled, and used around $1.8 million to make monthly interest payments to his customers.” In typical Ponzi-like fashion, the scheme reportedly collapsed in early 2018 when Mr. Pagartanis failed to pay investors their monthly interest payments.

Mr. Pagartanis’ career in the securities industry began in 1989. Since that time, he has been affiliated with numerous broker-dealers as a registered representative. Most recently, Mr. Pagartanis was associated with Cadaret from 2012 – 2017, and thereafter, Lombard. According to publicly available information through FINRA BrokerCheck, Mr. Pagartanis was discharged from his employment with Lombard following an “internal investigation” pursuant to which he purportedly “failed to respond to customer complaint questions and requests for information.”

Brokerage firms Cadaret and Lombard 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 investments in so-called 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.

At Law Office of Christopher J. Gray, P.C., we 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.

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.

DISTINGUISHING A PRIVATE PLACEMENT FROM OTHER INVESTMENTS

When an investor decides to purchase shares in a publicly traded company, or for that matter purchase shares in a mutual fund or exchange traded fund (“ETF”), he or she will have the opportunity to first review a comprehensive and detailed prospectus required to be filed with the SEC. When it comes to a private placement, however, no such prospectus need be filed with the SEC – rather, these securities are typically offered through a Private Placement Memorandum (“PPM”).

The majority of private placements are offered under an exemption from registration requirements known as SEC Regulation D (“Reg D”). Among other things, Reg D provides certain safe-harbor exemptions to securities registration, and furthermore specifies the amount of money that can be raised in an offering, as well as the type of investor who may be solicited to invest in such a non-public offering. With certain exceptions, only retail investors who meet the “accredited investor” standard are permitted to invest in a private placement. Rule 501 defines an accredited investor as any person whose net worth exceeds $1,000,000 (excluding their residence), or alternatively who has income in excess of $200,000 per year ($300,000 jointly with a spouse) for the two most recent years.

Private placements might involve investing in a company’s stock in the form of shares, preferred stock, or even a debt instrument such as a bond, promissory note or debenture offering. When making an investment in a private placement, you should first receive and carefully review the PPM. The PPM is required to disclose all material facts about the investment. Any misrepresentation or any omission of a material fact necessary to make the statements in the PPM not misleading could give rise to liability where an investor suffers losses and the PPM is misleading or omits certain critical information.

SOME RISKS AND RED FLAGS ASSOCIATED WITH PRIVATE PLACEMENTS

An investor considering a private placement should be aware of their risks and be on the lookout for any potential red flags. In fact, the Financial Industry Regulatory Authority (“FINRA”) has previously issued an investor alert to inform the public about the risks and the potential for fraud and sales abuse concerning private placements.

To begin, FINRA has cautioned that by virtue of their limited offering documents (PPM versus more detailed prospectus), private placements will likely only provide prospective investors with limited information concerning a company and its financials. In addition, FINRA has warned investors about the illiquid nature of most private placement investments — before investing, an informed investor should first determine if he or she can allow their money to remain tied up for an extended period of time (usually several years) because private placement securities cannot be easily resold due to restrictions on their resale and the lack of a public market such as a stock exchange on which to sell them.

FINRA has also alerted investors to be very cautious of any private placements that you hear about through spam email or cold calling. Often, this is a red flag and a sign of fraud, and an investor should proceed with the utmost caution.

HAVE YOU INVESTED IN SECURITIES THROUGH A PRIVATE PLACEMENT?

If you have purchased unregistered securities through a private placement – and you have suffered considerable losses due to what you believe involved fraud, sales abuse or an unsuitable recommendation by a broker – 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 attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Brokers, and brokerage firms, have a fiduciary duty to their clients. They must research an investment prior to making a recommendation to an investor, to establish that the investment is suitable. It must be appropriate for each individual investor, taking into consideration the investor’s investment objectives, investment experience, net worth and age. The Financial Industry Regulatory Authority has a dispute resolution form where investors can settle disputes with their brokerage firms relating to unsuitability and other forms of stock broker fraud.

Brokers have been known to sell ETFs and ETNs as conservative ways to track a sector of the market, or the market as a whole. However, complicated trading strategies are necessary to accomplish this, and using these investments to track a sector of the market may or may not be a conservative trading strategy. This depends on the sector of the market and assets in the account relative to the investment’s concentration level.

Broker misconduct has occurred if the broker in charge of the account made an unsuitable recommendation or took an unnecessarily risky position in the ETN or ETF. If you suffered significant financial losses as a result of the unnecessary risks of your broker, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Luckily, investors who suffered significant losses may have a valid securities arbitration claim.

Brokers, and brokerage firms, have a fiduciary duty to their clients. They must research an investment prior to making a recommendation to an investor in order to establish that the investment is suitable. It must be appropriate for each individual investor, taking into consideration the investor’s investment objectives, investment experience, net worth and age. The Financial Industry Regulatory Authority has a dispute resolution form where investors can settle disputes with their brokerage firms relating to unsuitability and other forms of stock broker fraud.

Brokers have been known to sell ETFs and ETNs as conservative ways to track a sector of the market or the market as a whole. However, complicated trading strategies are necessary to accomplish this, and using these investments to track a sector of the market may or may not be a conservative trading strategy. This depends on the sector of the market and assets in the account relative to the investment’s concentration level.

Broker misconduct has occurred if the broker in charge of the account made an unsuitable recommendation or took an unnecessarily risky position in the ETN or ETF.

If you suffered significant financial losses as a result of the unnecessary risks of your broker, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

It comes as no surprise that some psychopathic traits are magnets for stock broker fraud. And the relatively high number of psychopaths on Wall Street may explain why securities fraud runs rampant.

DeCovny’s story points to the research of several psychologists. It’s important to note that the term “psychopath” is not synonymous with rampaging murderers and should not instantly conjure up images of Norman Bates, she says. Rather, according to DeConvy, clinical psychopaths are charming, gregarious and bright. But they have no trouble lying and do so often. Furthermore, they may not feel empathy for others. She states that psychopaths are also more likely to take risks because they either don’t understand or don’t care about the consequences.

Sound familiar?

The number of psychopaths in the general population is estimated to be around 1 percent, so why are there so many on Wall Street? One reason is that some psychopathic traits are also the qualities that amount to success in careers such as politician and stockbroker. In addition, the high-pressure, fast-paced Wall Street environment puts tremendous strain on the mental health of some employees. Research has shown that stockbrokers suffer from clinical depression three times more often than the general population and that trading stocks can, in stockbrokers with a compulsive gambling problem, trigger pathological responses.

So what does this mean for investors? Don’t be fooled into believing your investments are safe with smart, charismatic, successful stockbrokers. Despite previous success, the characteristics of a clinical psychopath can result in excessive risks that can result in unsuitable recommendations and losses, the temptation of “easy money” that can be gained through stock broker fraud and a lack of guilt that would prevent fraud in psychologically healthy brokers. Most investors will not be able to detect if their broker has committed fraud based on the broker’s actions so it is important to monitor investments and account statements to ensure that fraud hasn’t occurred.

If you believe you have been a victim of stock broker fraud, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

1. Unauthorized Trading: Unauthorized trading occurs when a broker makes trades without permission. This is surprisingly common and brokers will often defend their actions by saying that the investor either agreed to the trade or ratified it by raising no objection when they received a confirmation.
2. Unsuitable Investments: Surprisingly, it is common for brokers to be unable to accurately measure risk. As a result, investors may have a portfolio that is far more risky than is appropriate. Brokers must, by law, take into account the risk tolerance and investment objectives of each client and make suitable recommendations based on those criteria. Unsuitable investments include investments that carry a risk that is not in keeping with the investor’s risk tolerance, as well as inadequate diversification and improper asset allocation. Churning, which generates excessive commissions through excessive trading, is also a form of unsuitable investments. Investors who suspect the trading on their account is excessive will most likely have to consult an investment attorney for an analysis of their portfolio.
3. Misrepresentations and Omissions: If a broker fails to disclose the inherent risk of an investment or trading strategy, he or she has made misrepresentations and/or omissions. If it can be proven that the investors would have made different investment choices if the misrepresentations and/or omissions hadn’t occurred, they become material and the investor may have a valid securities arbitration claim.
4. Other Claims: Other forms of broker misconduct that could mean a valid claim for investors include front running, forgery, selling away, order failure and failure to supervise.

If you believe you have been a victim of any of these types of stock broker fraud, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Individuals who have made investments based on a cold-call may have been the victim of fraud. Here are several indicators that a cold-call may have been a scam:

• The caller used high-pressure sales tactics. Cold-calling fraudsters often use scripts that contain a list of retorts for every possible objection and will continue to attempt a sale as long as the investor remains on the line.
• You can’t get a word in edgewise. Because these scam artists have a response to every objection, they will often try to talk over the investor in the process of convincing them that they should invest.
• The caller offers a “once-in-a-lifetime” opportunity. A “once-in-a-lifetime” opportunity that the caller claims to have received through “confidential” or “inside” information is a red flag that the investor is being scammed.
• The caller claims the investment is based on a company’s “breakthrough technologies.” These are especially dangerous because said technologies play off legitimate technologies. However, they often sound too good to be true.
• The caller refuses to send written information on the investment. Investors should always be able to receive written investment information and take their time to review it and make a decision. However, cold-call fraudsters want to push a quick decision so they will avoid sending any information. Bear in mind that fraudsters are crafty and will often agree to send information but then steer away from doing so.
• The caller is an unregistered broker. Many cold-calling fraudsters are not properly registered to sell securities, and frequently are not properly supervised. Be sure to look up the name of the broker using FINRA’s BrokerCheck to find out if they are registered.

If you have made investments based on a cold-call and suffered significant losses as a result, find out more about your legal rights and options by contacting an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

This is a concern that is shared by investment attorneys as they are faced with client after client that have suffered significant losses as a result of insufficient disclosure or lack of understanding.

Top products on FINRA’s watch list for suitability problems include non-traded real estate investment trusts (REITs), residential and commercial mortgage-backed securities, municipal securities, variable annuities, structured products, exchange-traded funds using synthetic derivatives and significant leverage, life settlements and private placements.

Another concern stated in FINRA’s letter is that of fees. FINRA states, “We remain concerned about firms’ charging retail investors hidden, mislabeled or excessive fees.” In fact, FINRA brought several cases related to excessive fees against broker-dealers in 2011.

Other priorities listed by the agency are oversight of the creation and redemption of exchange-traded funds and high-frequency trading.

In the letter, FINRA also stated that it is targeting high-risk firms with its enforcement efforts and undertaking a “broader data collection effort.” Red flags for FINRA monitoring are inadequate cash flow in investment and lack of liquidity.

Investors who believe they have been the victim of stock broker fraud can seek the recovery of their losses through FINRA securities arbitration. If you believe you have a valid claim, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

The case was filed in 2011, and Hayes’ allegations included consumer fraud and breach of contract, among other misdeeds. The collateralized debt obligations, or CDOs, were purchased in 2008 from former Bank of America Securities LLC, which is now part of Merrill Lynch. The Financial Industry Regulatory Authority’s (FINRA) ruling, dated for January 31, 2012, was in favor of the claimant.

CDOs are securities that are backed by underlying pools of loans or bonds. While these investments are inherently risky, they are relatively common among qualified investors.” However, Hayes was unaware of the fact that at the time of purchase, the securities were already under water. The loans backing the securities were purchased by Merrill between November 2006 and June 2007. According to Hayes’ allegations, while in the company’s inventory, the securities lost a significant amount of their value. Regardless, Merrill sold the loans to investors like Hayes for the purchase price rather than what they were worth.

The FINRA panel awarded Hayes rescessionary damages; this allows for the return of the securities in exchange for the investor’s money per state securities laws. The rescessionary damages totaled $883,122. Hayes also received interest totaling $251,668, legal feels totaling $218,344 and costs totaling $23,500.

William Haldin, a Merrill Lynch spokesman, denied the securities’ worthlessness at the time of sale and stated that “Following the purchase of this investment, the market experienced extreme volatility.” Merrill Lynch disagrees with the FINRA panel’s decision.

If you believe you have been the victim of stock broker fraud connected with collateralized debt obligations, find out more about your legal rights and options by contacting an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Ephren Taylor, who credited himself as the youngest black chief executive of a publicly-traded company in American history, appeared on CNN and NPR, and was a Democratic National Convention speaker, was endorsed at one of his “Wealth Tour Live” seminars by Eddie Long, pastor of the New Birth Missionary Baptist Church with the words, “[God] wants you to be a mover and a shaker… to finance you well to do His will.” Taylor then offered “low risk investment with high performances” to the Pastor’s flock. Taylor now stands (whereabouts unknown) accused of fraud. The full extent of investor losses as a result of Taylor’s fraud is yet to be determined because of the complicated web of companies, both legitimate and shell.

While many individuals that are targeted for stock broker fraud are elderly and/or uninformed, these are not the only victims of affinity fraud. One man who was taken in by Ephren Taylor had an MBA and was an electrical engineer. A Utah man in another affinity fraud case, who was taken for $50,000, had worked on white-collar fraud cases as a federal agent before his retirement.

Currently, 1,000 cases of investment fraud are being probed by the FBI. This is more than double the number of investment fraud cases that were outstanding in 2008. Sadly, the difficult economic times that will have investors believing almost anything that promises financial security also brings more and more fraudsters out of the woodwork. If you believe you have been the victim of affinity fraud, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Ralph Edward Thomas Jr., Vice President of Harbor Financial from August 2000 through February 2004 and a financial advisor for Wells Fargo Advisors LLC from February 2004 through July 2010, is allegedly the perpetrator of a particularly heinous fraud. Thomas controlled a trust of $3 million that had been granted as a result of birth injuries that resulted in cerebral palsy for a child. According to allegations against Thomas, he stole more than $756,900 from the trust through cashier’s checks and unauthorized withdrawals and used the money to pay personal expenses and personal credit card accounts. How did he do it? The settlement funds were used to purchase an annuity which would pay the child at least $3,990 per month. In reality, the monthly payment actually averaged around $6,287 per month. However, when Thomas should have dispersed this monthly sum to the mother for care of the child, he only dispersed $1,000 to $1,500 a month. In addition, Thomas allegedly used forgery to initiate three mortgages in the name of the fund’s trustee. Proceeds from the mortgages were deposited into the account and then withdrawn by Thomas for personal use. In this way, Thomas obtained an additional $205,000.

Stock broker fraud lawyers strongly urge investors to keep a close eye on their monthly statements and any other documentation received from entities controlling their investments. Investors that have not, up to this point, been diligent in monitoring their statements should go back and review statements immediately. If any discrepancies, irregularities or unauthorized transactions are found that may indicate stock broker fraud has occurred, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

“Citigroup failed to make required conflict of interest disclosures which prevented investors from being aware of potential biases in its research recommendations,” says FINRA Executive Vice President and Chief of Enforcement Brad Bennett. “Firms need to provide investors with full and accurate information so they will be able to take it into consideration before making an investment decision.”

Conflicts of interest not included in research reports and analysts’ public appearances included the fact that Citigroup and/or Citigroup affiliates co-managed or managed public securities offerings, would make a market in the related securities, received revenue and/or investment banking from the related securities and/or had ownership in covered companies that amounted to 1 percent or more.

The cause of the failure, according to FINRA’s findings, was “because the database it used to identify and create the disclosures was inaccurate and/or incomplete due primarily to technical deficiencies.” In addition to the insufficient database, adequate supervisory procedures for monitoring the research reports were not in place. Adequate supervisory procedures would have ensured that the required disclosures were provided in research reports.

While Citigroup did not confirm or deny the charges, the firm has consented to FINRA’s findings. The firm will have to pay a fine of $725,000 for the misconduct. Investment attorneys continue to watch FINRA arbitration for incidents that could lead to potential investor claims.

On January 4, 2012, the SEC charged an Anthony Fields with offering to sell fictitious securities. The Illinois-based investment adviser “offered more than $500 billion in fictitious securities through various social media websites,” according to an SEC press release. Fields’ two sole proprietorships are Anthony Fields & Associates (AFA) and Platinum Securities Brokers. “Fields provided false and misleading information concerning AFA’s assets under managements, clients, and operational history to the public through its website and in SEC filings.”

Furthermore, Fields claimed to be a broker-dealer but was not registered with the SEC, did not maintain proper books and records and did not have adequate compliance policies and procedures in place.

Because legitimate stock brokers and investment advisers are increasingly using social media sites, it can be difficult for investors to identify legitimate offers among instances of stock broker fraud. According to the SEC’s “Investor Alert: Social Media and Investing — Avoiding Fraud,” investors should be wary of unsolicited offers — that is, an offer that you didn’t ask for from a sender you don’t know. In addition, red flags to look out for are offers that sound too good to be true, promises that the investment offers “guaranteed” returns and high-pressure sales tactics.

If you accepted an unsolicited offer that promised “guaranteed” returns, sounded too good to be true and/or used high-pressure sales tactics, you may have been the victim of social media securities fraud. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

The most common IRA custodians are broker-dealers and banks. In traditional IRAs, holdings are limited to mutual funds, CDs, firm-approved stocks and bonds. However, custodians for self-directed IRAs may invest in promissory notes, tax lien certificates, real estate and private placement securities. Investments that tie up retirement funds for a time period that is too long, fail to diversify in order to reduce possible loss or contain a risk for loss that is too high are in breach of advisers’ fiduciary duty and brokers’ suitability standard. In addition, early withdrawals come with a penalty that encourages money remains tied up in them longer.

Another significant danger of self-directed IRAs, and a reason they become a target for fraud promoters, is that they often do not require the custodian or trustee of the IRA to perform audits or keep accurate records.

If you hold a self-directed IRA and have accepted unsolicited investment offers, accepted an investment that “guaranteed returns” or if you do not have access to retirement funds because of your investment’s lengthy time horizon, you may have already been a victim of stock broker fraud. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

For more on how to avoid becoming a victim of self-directed IRA fraud, see the earlier blog entry “The Risks of Self-Directed IRAs.”

Two ways investors can be victims of fraud through mutual funds are churning and break point fraud:

1. Churning: As market condition change, a stockbroker may suggest switching to a different mutual fund. If the new fund is within the same company as the old one, the investor usually doesn’t have to pay a commission. However, if the new fund comes from a different company, the investor must pay commissions and fees on the transaction. If the stockbroker encourages switching to a different company despite suitable options within the same company or attempts to generate commissions by encouraging the investor to switch multiple times to different companies, they may be “churning.”
2. Break Point Fraud: When investing in a mutual fund, the commission percentage drops as you invest more money in a company. The term “break point” refers to the financial intervals at which the commission percentage drops. An investor can purchase separate funds within the same company and combine the total money invested to reach a lower break point and, thus, pay less in commission. If a stock broker does not make them aware of this concept and/or recommends small purchases with multiple companies — rather than one or a few companies — without good reason, then they have committed break point fraud.

If you believe you’ve been a victim of mutual fund fraud, either through churning or break point fraud, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Other reported statistics include:

• 7,000 total investigations, 3,475 of which led to enforcement actions
• Nearly 1,000 actions that involved fraud and abuse of senior citizens
• $170 million in state-levied fines or penalties
• $14 billion in restitution paid to investors
• $31.2 million in state costs or expenses
• 2,595 stockbroker licenses withdrawn
• 647 stockbroker licenses denied, suspended, revoked or made conditional
• 1,134 years of incarceration dealt out

Fraud and abuse of senior citizen cases involved promissory notes, investment contacts, private offerings, affinity fraud, variable annuities and “free lunch” investment seminar scams. Despite the rise in enforcement actions, the number of investigations fell slightly from 7,086 in 2009 to 7,063 in 2010. The amount of money collected in fines and penalties also fell from 2009 to 2010, but there was an increase in restitution paid to investors.

This report can only measure cases of securities fraud that were actually reported. However, the number of incidences is believed to be much higher, as many cases go unreported. According to the report, 2010’s most problematic products, in order of frequency, were Rule 506 offerings, real estate investments or interests, oil and gas interest, structured products, hedge funds or private equity funds, variable annuities, viaticals or life settlements, precious metal commodities, non-precious metal commodities and equity-indexed annuities.

The NASAA, organized in 1919, is a voluntary association, and of all the organizations devoted to investor protection, it is the oldest. All 50 states, Canada, Mexico, the U.S. Virgin Islands, the District of Columbia and Puerto Rico are represented in the NASAA’s securities administrators membership.

If you believe you have become a victim of stockbroker fraud in 2011, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

What makes promissory note scams so tricky is that investors assume the contract is legally binding. In addition, the fact that the promissory notes promise a return of your investment within nine months, plus interest, promotes the investment as safe. According to Huddleston, “It’s usually a one-page, simple contract that says, ‘I promise to pay the investor this amount of money with these amount of gains at this interest rate by this date.’”

To make the scam seem more reputable, the scammers frequently quote part of the Securities Act which appears to say that the note doesn’t have to be registered with the Securities and Exchange Commission provided its duration is nine months or less. While this is an actual section of the Securities Act, what most investors don’t know is that the exception only applies to the kinds of things that major corporations exchange, like high-grade commercial paper. This section of the act does not apply to the types of notes the average investor can invest in.

According to Huddleston, the best way to avoid a promissory note scam is to be sure everyone and everything you invest with is registered with the SEC.

“If you’re buying a promissory note and it’s not registered, you need to call the SEC or call your state securities commissioner right away, because the chances that it’s a scam are way up there,” he notes.

The main goal of investor education is to help investors avoid being victims of potentially devastating stock broker fraud. But if you believe you’ve already been victim to a promissory note scam, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

“Joining Forces is a comprehensive national initiative to mobilize all sectors of society to give our service members and their families the opportunities and support they have earned,” the release notes. “Joining Forces provides ways for all Americans to step up and show their gratitude to our service members and their families.”

The FINRA Investor Education Foundation will expand the Foundation’s Military Financial Education Project, giving 50,000 service members and spouses FICO scores, free of charge. This will double the number of persons currently receiving these scores, which are a vital credit tool. FICO helps drive smarter decisions by delivering superior predictive analytics solutions by predicting consumer behavior through the use of mathematics. A FICO score is the United States’ standard measure of consumer credit risk. In addition to the increased cost-free FICO scores, the foundation will be developing educational videos that will aid the National Guard in helping its service members avoid investment and stockbroker fraud and managing their finances. The videos even train military spouses so that they may act as financial counselors.

The Military Financial Education Project was launched in 2006 and is the largest investor education foundation in the United States. The project’s aim is to provide free and unbiased information and tools for money management to military service members and their families. The project includes a comprehensive online resource and educational forums on military bases as well as services the website www.SaveAndInvest.org.

In FINRA’s news release, the president of the FINRA Investor Education Foundation, Gerri Wash, said, “The FINRA Investor Education Foundation is honored to support Joining Forces with new commitments in our work to help military service members and families manage their credit, avoid fraud and plan for a secure financial future. We believe providing the right tools for military families can enhance their financial readiness and relieve some of the stress families feel when it comes to managing household finances.”