Wall Street Investment Fraud Lawyer Blog

According to the Atlanta Journal Constitution (AJC), Eldon A. Gresham, of The Gresham Company, a Peachtree City based company, has been charged with running a multimillion dollar Ponzi scheme. The U.S. Commodity Futures Trading Commission charges Gresham with soliciting more than $15 million from at least 75 investors to further his scheme. Particularly, it is alleged that he preyed on Christian individuals by telling him that he was successful as a result of the Lord's blessings and was going to offer his program to a limited number of Christians.

Gresham allegedly promised monthly returns of 5 to 10 percent with very little risk. He would then allegedly pay off certain individuals with money invested by new individuals. It is said by the Commission that Gresham would communicate the bogus returns of the scheme to investors through emails.

Gresham's longtime friend, Werner H. Beiersdoerfer, of Calera, Alabama, and his son, Kirk Gresham, have also been named as "relief defendants." A "relief defendant" is defined as "a person who is not accused of wrongdoing in a securities enforcement action where that person: (1) has received ill-gotten funds; and (2) does not have a legitimate claim to those funds." S.E.C. v. Cavanagh,155 F.3d 129, (C.A.2,1998).

Assets of all three individuals have been frozen by a federal judge. A hearing has been set for July 23.

For more information about investment fraud, please visit our website at www.dossfirm.com. If you would like a personal consultation with a lawyer regarding potential claims that you may have, please call our investment abuse hotline, 1-800-939-8879.

Due to the long overdue need for investor-friendly reform in the financial services industry, the Obama administration has proposed legislation that would require broker-dealers who provide investment advice to assume fidicuary duties to their clients. In case you do not know, a fiduciary is someone that is held in a position of trust. As a result of this trust relationship, the person acting as a fiduciary owes his or her client a higher duty of care. This makes common sense in the brokerage industry given that investors who hire financial advisors typically rely on their expertise to make sound investment decisions.

A recent Investment News article entitled, Insurance-affiliated brokers face major changes under Obama plan, highlighted a glaring problem in the financial services industry, particularly regarding brokers whose firms are affiliated with life insurance companies. The article stated that if the Obama plan is passed, "broker defections, a loss of market share and spin-offs could be on the horizon." According to the article, the reason for this anticipated consequence is that brokers who are affiliated with life insurance companies have an inherent conflict of interest with their clients because they are often incentivized to sell investments and life insurance products (eg. annuities) that are issued by the affiliated life insurance company.

In my opinion, this is reason enough to stay away from brokers who work for insurance companies. Based on my own experience representing aggrieved investors in lawsuits against brokerage firms, a disproportionate percentage of my clients who are customers of these brokers ultimately are sold variable annuities in their portfolios. These products are rarely appropriate for investors, particularly retirees who are withdrawing living expenses from the annuities. This article only confirms my distaste of mixing investments with insurance products.

For more information about common investor claims brought against brokerage firms, please visit our Investor Resource Center. In addition, for more information about our law firm, please click here.

It is alleged by the Securities and Exchange Commission (SEC) that Provident Royalties, LLC, a Dallas, Texas based company owned and controlled by Paul R. Melbye, Brendan Couglin, and Henry Harrison, has "made a series of fraudulent securities offerings involving oil and gas assets through 21 affiliated entities to more than 7,700 investors throughout the United States." The entities of Provident are alleged to primarily have solicited retail broker dealers to enter into placement agreements for each offering. Thereafter, the retail broker-dealers sold the stock to retail investors.

The SEC alleges that Provident fraudulently promised yearly returns of up to 18% and that Provident falsely represented to their investors "85 percent of the funds raised through the offerings would be used to purchase interests in oil and gas real estate, leases, mineral rights, and interests, exploration and development." In fact, it is alleged that less than 50% of the funds were actually used for Provident's indicated purpose.

It is said by the SEC that Provident was actually acting like a Ponzi scheme, where assets were being shifted from one entity to another and that the most recent investor's funds were being paid to other investors as returns.

The SEC has obtained an emergency asset freeze of $485 million and a receiver has been appointed to preserve and marshall the assets for the sake of the investors.

If you believe you have become a victim of investment fraud, our firm may be able to help. Please contact us to discuss your legal rights. Also, please visit our firm's website at www.dossfirm.com for more investor resources.

According to the most recent Atlanta Business Chronicle article entitled Atlanta companies lose billions in retirement funds, some of the largest Atlanta/Georgia-based companies have lost billions of dollars in their retirement and savings plans. The losses approximate $2.7 billion in 2008. The companies are listed below along with their respective 2008 decline in employee investable assets:

Southern Company - $489 million
Coca Cola - $456 million
Coca Cola Enterprises - $449 million
The Home Depot - $384 million
Mohawk Industries - $137 million
UPS - $118 million
Invesco- $104 million
Equifax - $88 million
AGL Resources - $59 million
Zep, Inc. - $59 million
Aflac - $53 million
Georgia Gulf - $48 million
Acuity Brands - $47 million
Beazer Homes - $36 million
Sprectrum Brands - $35 million
Interface - $25 million
Gray Television - $19 million
S1 Corp. - $15 million
Premiere Global Services - $12 million
Rollins - $32 million
United Community Banks - $9.6 million
Post Properties - $9 million
Aaron's Inc. - $4.1 million
Lodgian - $3.9 million
Fidelity Southern - $3.8 million
Habersham Bancorp - $2.3 million
Heritage Financial - $431,000

According to the Atlanta Business Chronicle article, the vast majority of these losses occurred in employee contribution plans, like 401(k) plans. In these types of accounts, employees decide where to invest the funds. However, the employer typically provides the investment options to the employees. For example, an employer could offer company stock to employees in a 401(k) plan. It is not clear from the article whether any of the companies above do in fact offer company stock as an option.

If a company does, however, offer company stock as an option, it may be opening itself up to lawsuits by participants in the 401(k) plan. Courts have held that companies can be held liable under federal law (ERISA) for what amounts to a breach of fiduciary duty for unlawfully encouraging employees to invest their retirement funds in corporate stock. "Encouragment" is loosely defined. Some argue that even offering company stock inside 401(k) plans constitutes encouragement and as a result a breach of fiduciary duty because employees commonly feel obligated to invest in that option out of loyalty to the company.

For more information about common claims brought by investors, visit our Investor Resource Center. For more information about our law firm, please click here.

As investment values dropped due to the recent market downturn, investor lawsuits against financial advisers and their firms have been on the rise. According to today's Wall Street Journal article entitled New and Improved Arbitration?, investor claims are up 110% this year through May compared to the same period in 2008.

The main complaint is that "firms sold funds with more risk in them then they were told." This trend started in 2008 when the subprime crisis began and it has continued into 2009. According to the article, some of the more common claims brought by investors involve losses in bond funds issued by Regions Bank (RMK funds), Oppenheimer Funds (Oppenheimer's Champion Income Fund) and Charles Schwab (Yield Plus funds). These types of claims are generally referred to as suitability claims.

Many investors do not know that when they open an account with brokerage firms, they sign an agreement that contains a pre-dispute arbitration clause. These clauses force investors to resolve their disputes in arbitration, which is outside of the court system. For years, investor advocates have claimed that the securities arbitration system is fundamentally biased against the investor. For example, statistics provided by FINRA, the organization that facilitates the arbitration forum for securities claim, show that from January to May of 2008, investors prevailed only 42% of the time. In addition, of those investors who prevailed, they typically only receive a portion of their requested damages.

These poor results caught the attention of the Obama adminstration, which recently proposed legislation that would give the SEC the authority to examine whether mandatory arbitration harms investors.

According to today's Wall Street Journal article, FINRA recently implemented a rule and pilot program that allow more investors to have their case heard by arbitrators who are not affiliated with the securities industry. It may be pure coincidence but investor claims that prevail are up from 42% to 47% through May of this year.

For more information about typical claims brought in securities arbitration, visit our Investor Resource Center. For more information about our firm, please click here.

The Financial Industry Regulatory Authority (FINRA) offers some sound advice when it comes to Promissory Notes. Promissory notes often appear as an attractive alternative to stocks and bonds during this tough economic climate. However, investors need to beware of several problems prior to investing.

A promissory note is a type of debt that a company uses to raise capital. The company, by issuance of the note, promises to return the principal and pay fixed interest payments to the investor for the "loan." These notes have set terms, which may range from a few months to many years. It is imperative that an investor understand that promissory notes do have risks. Companies issuing the notes could run into problems, such as severe market conditions, bad management, competition, and other issues which may hinder the companies' ability to pay on the notes. There are legitimate promissory note programs. However, these are "almost exclusively (marketed) to corporate and other sophisticated investors, who have the expertise and information to determine if the investment is a good one."

FINRA warns that investors should beware of promissory note schemes. There are promissory note programs which are deceptively marketed. Investors should be aware that returns are never guaranteed. Often, promissory note schemes guarantee extremely high returns, typically returns greater than 10%. FINRA warns that the "higher the return, the greater the risk."

Additionally, promissory notes are normally securities and as such must be registered with the SEC or the State in which they are sold. If the promissory note is unregistered, then it will not be subject to review by regulators before it is sold. This will leave the investigation of the promissory note up to the investor.

Finally, investors should be aware that individuals selling promissory notes are sometimes unregistered sellers and do not have the required securities sales license. FINRA offers a BrokerCheck service, which allows you to see if your broker is registered or has a disciplinary history. You should use this service to check on your broker prior to investing with him/her.

FINRA offers the following advice when considering investing by way of promissory note:
1) Since promissory notes are marketed to sophisticated investors, ask why the seller wants to sell to you an individual investor. This may be a warning sign of a promissory note scheme.
2) Check to see whether the promissory notes are registered with the State in which they are sold and the SEC.
3) Visit FINRA's BrokerCheck to see if your broker is properly registered and to determine if they have a disciplinary history.
4) If you are using a broker, make sure they are selling with the knowledge of their firm and not "selling away." If a broker is doing this on the side and outside of the firm, you may not be protected under the firm's regulatory obligations.
5) Avoid falling for "guaranteed returns." All investments carry some sort of risk. The seller may assure you that the notes are insured, however, the insurer may not be legitimate.
6) Remember that higher returns carry a higher risk.
7) Know how the broker is getting paid. FINRA explains that commissions rarely exceed 5%. Sometimes promissory notes offer a much higher commission, sometimes as high as 30% or even 50%.
8) Learn about how the company issuing the promissory notes intends on paying the interest on the notes. Determine how the capital the company will raise will be used, whether it will be for marketing and promoter's costs.

FINRA advises investors that they should receive answers to all of the above questions. Should you not, FINRA says to walk away.

If you are already involved in a promissory note scheme, you may have legal remedies to recover money invested. Contact The Doss Firm to discuss your legal rights. Our first consultation is free. Also, if you would like further information about our firm, please visit www.dossfirm.com.

According to a press release, the Securities and Exchange Commission (SEC) has charged Michael T. Rand, the former chief accounting officer of Beazer Homes, USA, Inc., with conducting a fraudulent earnings management scheme. It is alleged that this scheme took place over a period of years and that Rand mislead both internal Beazer accountants and outside auditors to hide his wrongdoing.

Specifically, it is alleged that Rand decreased the reported net income of Beazer through recording improper accounting reserves. This allegedly occured between 2000-20005 in an effort to "meet or exceed analysts' expectations for Beazer's diluted earnings per share (EPS) and maximize yearly officer and senior employee bonuses." Rand himself is alleged to have gained a lucrative bonus as a result of his scheme. It is stated that Rand then when Beazer's financial performance declined he began reversing the improper reserves in 2006 to offset loss.

The SEC alleges that Rand hid over $60 million in reserves. This amount represented approximately 7% of Beazer's actual restated net income for the period, which was $955 million. However, in 2006, Rand caused Beazer to overstate its income and understate its loss by $47 million.

Rand has been charged with violations of the "antifraud, reporting, books and records and internal control provisions of the federal securities laws." The SEC seeks a permanent injunction, a financial penalty against Rand, and for Rand to disgorge his ill-gotten gains from the scheme.

According to the Securities and Exchange Commission (SEC), Prime Capital Services (PCS), a New York-Based Firm, has been charged with luring Florida senior citizens through free-lunch seminars to buy variable annuities which were unsuitable for these individuals. The SEC states that PCS is a registered broker-dealer that is a wholly-owned subsidiary of Gilman Ciocia, Inc. (G & C), which is an income tax preparation business. G & C is headquartered in Poughkeepsi, New York, but also offers its services in Florida and Pennsylvania.

It is said by the SEC that PCS induced these senior citizens to attend seminars and then subsequent private meetings with PCS representatives to sell variable annuities which were unsuitable investments for these investors in consideration of their age, investment objectives, and liquidity. Of course, the sales of these variable annuities were said to have earned millions in commissions for PCS representatives. The representatives mentioned by the SEC are Eric J. Brown, of Highland Beach, Florida, Matthew J. Collins, of Boynton Beach, Florida, Kevin J. Walsh of Viera, Florida, and Mark W. Wells of Boca Raton, Florida.

It is alleged that G&C would arrange the seminars and would invite prospective customers by invitation to free-meal seminars. These seminars were held in Delray Beach, Boynton Beach, Boca Raton, and Melbourne. The PCS representatives would primarily promote variable annuities. Additionally, the representatives would fail to disclose key information about the variable annuity product, including surrender penalties and that the funds were guaranteed at death and that the value could fluctuate until such time.

Furthermore, the SEC's enforcement action indicates that documents provided to customers were inaccurate and incomplete. It is also alleged by the SEC that documents were altered by PCS representatives to indicate disclosures were made when they, in fact, weren't.

It is also alleged by the SEC that PCS failed to properly supervise its representatives, failing to detect and prevent violations of Federal securities laws.

The SEC explains that such actions by the PCS are even more egregious because this matter involves senior citizens. Because of their age, these individuals may not be able to recover from investing in unsuitable investments that diminish their retirement savings.

It is critical that investments suit the invidual investment needs of the investor, taking into account their age, financial status, and financial goals. It is unfortunate that often the motivator for investment advisors is the commission on the sale of a product. Therefore, it is important that investors carefully select financial professionals that they can trust and make sure that they do their research on any product, despite the trust they have for their advisor, prior to investing.

If you believe that you are a victim of investment fraud, there may be hope. You may have legal claims which may help you recover from investment losses as a result of inappropriate financial advice. Our firm welcomes calls from anyone who may have questions about their legal rights. Please visit our website at www.dossfirm.com for additional information.