Wall Street Investment Fraud Lawyer Blog

FINRA has joined with the SEC issuing an alert warning investors of scams that are exploiting the oil spill in the gulf. Scammers are "promising financial gains from investments in companies that claim to be involved in cleanup operations."

Along with the warning, FINRA provides several tips to avoid these type of scams. First, FINRA suggests that you thoroughly investigate a company or individual before investing. Unfortunately, individuals rely on information that comes in an unsolicited correspondence sent via facsimile, email or even text message. This information often contains misrepresentations and glorified claims regarding the company's revenues, profits, contracts, or future stock price. FINRA suggests reading the fine print and finding out who sent the information. Do your research and do not rely solely on unsolicited information.

Second, FINRA advises that you should find out where the stock trades. Many of these unsolicited recommendations "involve stocks that do not meet the listing requirements of the major stock exchanges." Rather, they are often quoted on the OTC Bulletin or in the Pink Sheets. In that case, there do not exist minimum qualitative standards and likely trade infrequently, which may make it more difficult to sell any shares that you acquire. Further, when these type of shares do trade they often experience rapid price changes.

In addition, you should consider a company's SEC filings. You can check a company's filings in the SEC's EDGAR database. Be aware, however, that just because a company has made filings with the SEC it doesn't mean that investing in the company is a good idea.

Finally, use common sense and be skeptical. Remember if it is too good to be true it likely is. Look past the pitches and the theatrics and ask serious questions regarding the investment. Make sure that you also do independent research, looking beyond the salesperson and company for information regarding the investment. Also, take extra care where the investment allows immediate pay-offs, especially when the company is in its start-up phase or the service provided is still in development.

Unfortunately, scammers are often really good at promoting their "investments." Remember this is your hard earned money and don't ever invest in something that you haven't thoroughly researched.

If you believe that you are a victim of investment fraud and would like information about your legal rights, please call our firm for a free consultation.

On February 16, 2010, Financial Industry Regulatory Authority (FINRA) fined H&R Block Financial Advisors, Inc., (n/k/a Ameriprise Financial) $200,000 for failing to establish adequate supervisory systems and procedures for supervising sales of a unique and relatively new investment called reverse convertible notes to retail customers. FINRA also fined and suspended H&R Block broker Andrew MacGill, a Tampa-based financial advisor, for making unsuitable sales of reverse convertible notes to a retired couple. The firm was ordered to pay $75,000 in restitution to the couple for losses they incurred.

The Doss Firm, LLC, a law firm that focuses on representing investors against financial firms like Ameriprise Financial, may have uncovered that the circumstances surrounding Andrew MacGill's suspension and Ameriprises's $200,000 fine is not an isolated incident. The problem is regional, if not firm-wide and involves Ameriprise's financial advisors targeting senior citizens to purchase high-risk reverse convertible notes. These products are sold to investors as safe cash-alternative investments.

Today, the law firm filed suit on behalf of an elderly couple from Sun City Center, Florida (80 years old and 75 years old), who claim that they also were victimized by H&R Block Financial Advisors, Inc./Ameriprise Financial in connection with sale of reverse convertible notes. The elderly couple opened accounts at the firm after attending a free lunch seminar sponsored by H&R Block at an upscale restaurant in Apollo Beach, Florida.

In the press release announcing the fine and suspension, FINRA Chairman and CEO Richard Ketchum stated, "For the typical retail investor, for instance, it would be unwise to put anything more than a small portion of life savings into riskier structured products such as reverse convertible notes." In the case filed today, at one point over 40% of the elderly couples retirement accounts were invested in reverse convertible notes.

What is a reverse convertible note?

A reverse convertible note (RCN) is a structured product that typically consists of a high-yield, short-term note of an issuer and effectively a put option that is linked to the performance of an unrelated, or "linked," asset - usually a single common stock, but sometimes a basket of stocks, an index or some other asset. As a general rule, upon maturity of an RCN, the investor will receive either his full principal investment or a predetermined number of shares of the linked equity (which may be worth less than the principal investment), depending on the performance of the linked equity. Generally speaking, the higher the coupon rate, the higher the expected volatility of the linked equity and the greater the likelihood of the investment resulting in payment of shares. Reverse convertibles not only come with the risks that fixed income products ordinarily carry, such as issuer default and inflation risk, but with additional risks of the underlying asset, which can depreciate or even become worthless. The initial investment for most RCNs is $1,000 per unit and most RCNs have maturity dates ranging from three months to one year.

In the enforcement matter against Ameriprise, FINRA found that during the period from January 2004 through December 2007, H&R Block engaged in sales of RCNs without having a system or procedures in place to effectively monitor customer accounts for potential over-concentrations in RCNs. As a result, the firm failed to detect and respond to indications of potential over-concentration in RCNs in numerous customer accounts.

FINRA found that H&R Block utilized an automated surveillance system to facilitate its suitability review of securities transactions and to monitor customer accounts for potentially unsuitable positions and activity. The system would flag for review any transaction or account meeting certain parameters established by the firm relating to, for example, account turnover and concentration levels in a particular security or class of security. The firm's system, however, was not configured or designed to monitor RCN transactions or RCN positions in customer accounts and the firm did not establish an effective alternative means to do so. As a result, H&R Block failed to detect and respond to indications of potentially unsuitable RCN concentration levels in numerous customer accounts. Additionally, the firm failed to provide sufficient guidance to its supervising managers on how to assess suitability in connection with their brokers' recommendation of RCNs.

According to The Star-Ledger, Stephen Severio, a former Merrill Lynch financial adviser has plead guilty to two counts of theft by deception and to commercial bribery relating to a scheme that netted nearly $700,000. Severio admitted to the court that he had convinced 31 long-term clients of Merrill Lynch to withdraw their money from their Merrill Lynch accounts and invest their money in other opportunities outside of Merrill Lynch. This practice is called "selling away" and violates Merrill Lynch policy as well as industry standards. Some of the Severio's victims had been clients of Severio's at Morgan Stanley. Severio had been an employee at Merill Lynch's Red Bank office for five years.

In an effort to persuade these clients, Severio promised returns of between 15 and 20 percent. Rather than investing the funds he received, Severio merely cashed the checks and used the money as he pleased. Authorities alleged that the scam ran more than a year and that the money was used to support a drug habit. Although the details are not clear as to exactly where the money went, police records indicate that Severio along with two 21 year-old women were arrested in July of 2008 on charges of possession of cocaine.

The prosecutor will recommend a seven-year prison term in exchange for Severio's plea. Additionally, Severio has agreed to a civil consent judgment to repay the victims
$685,653.

The Doss Firm, LLC is currently investigating whether Ameriprise Financial f/k/a H&R Block Financial Advisors violated industry rules on a wide-spread basis in connection with the unsuitable sale of reverse convertible notes to senior citizens.

FINRA fined the firm as well as Andrew MacGill, a broker with the firm, this week for making unsuitable sales of reverse convertible notes to a senior couple. Andrew MacGill practices out of Tampa, Florida. The Doss Firm, LLC has been retained by other Ameriprise clients who are complaining they too were sold reverse convertible notes.

Reverse convertible notes are inherently very risky investments. Unfortunately, in many instances they were sold as safe income-producing alternative investments, which is why FINRA has taken action against H&R Block Financial Advisors.

A reverse convertible note is a type of structured product. According to Notice To Members ("NTM") 05-59, structured products are securities created by investment banks that are derived from or based on a single security, a basket of securities, an index, a debt issuance, and/or foreign currency. As such, these investments come in many shapes and sizes.

Most structured products pay an interest or coupon rate substantially above the prevailing market rate. Structured products also frequently cap or limit the upside participation in the referenced asset. These unique financial instruments are typically issued by investment banks or their affiliates and have a fixed maturity date. Some structured products are listed on a national securities exchange and some are not. Because they are so unique, however, even those listed on a national exchange are thinly traded.

As a result, once an investor purchases such an investment, it is difficult to get out of it prior to the maturity date without suffering a substantial penalty. Structured products typically have two components - a note and a derivative (often an option). The note pays interest to the individual at a specified rate and interval. The derivative component or option component establishes the payment upon maturity.

Most reverse convertibles sold to consumer are linked to a single stock in a household name company (e.g. Jet Blue, Norfolk Southern, Lowes and Bristol Myers to name a few.) Prior to the maturity date, which was typically only a few months, investors receive interest payments at a rate that is higher than the prevailing market rate. Importantly, the reverse convertible notes do not allow investors to participate in any upside in the referenced underlying stock. Investors fully participate, however, in all downside market risk of that stock, because upon maturity (i.e. at the expiration of the option), if the price per share of the underlying stock falls below a predetermined value, the note converts into shares of underlying common stock at the eroded price per share. In other words, in exchange for receiving some income, investors risk losing some or all of their principal investment by assuming all of the downside risk of the underlying stock and by giving up all of the upside potential.

If you believe you have been sold unsuitable reverse convertible notes and suffered losses, you may have a claim to recover damages. Please contact The Doss Firm, LLC at 770-578-1314.

FINRA, Financial Industry Regulatory Authority announced that it was fining H&R Block Financial Advisors, Inc. (n/k/a Ameriprise Advisor Services, Inc.) $200,000 for failing to establish adequate supervisory procedures in connection with the sale of reverse convertible notes. FINRA also fined Andrew MacGill, an advisor of the firm for making unsuitable recommendations to a retired couple.

FINRA also released an Investor Alert, Reverse Convertibles - Complex Investment Vehicles, to educate consumers about these complex structured products. FINRA also issued Regulatory Notice 10-09, reminding firms of their sales practice obligations when recommending or selling reverse convertible notes.

A reverse convertible note is a type of structured product. According to Notice To Members ("NTM") 05-59, structured products are securities created by investment banks that are derived from or based on a single security, a basket of securities, an index, a debt issuance, and/or foreign currency. As such, these investments come in many shapes and sizes.

Most structured products pay an interest or coupon rate substantially above the prevailing market rate. Structured products also frequently cap or limit the upside participation in the referenced asset. These unique financial instruments are typically issued by investment banks or their affiliates and have a fixed maturity date. Some structured products are listed on a national securities exchange and some are not. Because they are so unique, however, even those listed on a national exchange are thinly traded.

As a result, once an investor purchases such an investment, it is difficult to get out of it prior to the maturity date without suffering a substantial penalty. Structured products typically have two components - a note and a derivative (often an option). The note pays interest to the individual at a specified rate and interval. The derivative component or option component establishes the payment upon maturity.

Most reverse convertibles sold to consumer are linked to a single stock in a household name company (e.g. Jet Blue, Norfolk Southern, Lowes and Bristol Myers to name a few.) Prior to the maturity date, which was typically only a few months, investors receive interest payments at a rate that is higher than the prevailing market rate. Importantly, the reverse convertible notes do not allow investors to participate in any upside in the referenced underlying stock. Investors fully participate, however, in all downside market risk of that stock, because upon maturity (i.e. at the expiration of the option), if the price per share of the underlying stock falls below a predetermined value, the note converts into shares of underlying common stock at the eroded price per share. In other words, in exchange for receiving some income, investors risk losing some or all of their principal investment by assuming all of the downside risk of the underlying stock and by giving up all of the upside potential.

These are inherently very risky investments. Unfortunately, in many instances they were sold as safe income-producing alternative investments, which is why FINRA has taken action.

If you were sold reverse convertible notes and lost money you may legal rights to recover your losses. Please call The Doss Firm, LLC for a free consultation.

According to the New York Times, U.S. Attorney General Eric Holder has announced that a new inter-agency task force has been created to address and "(halt) fraud involving mortgages, securities, economic stimulus programs and government bailouts." In a speech to a civic group in West Palm Beach, Florida, Attorney General Holder had a message for those who commit fraud of this kind. He promised fraudsters that "if (they) fabricate a financial statement, if (they) propagate an investment scheme, if (they) are complicit in an act of financial fraud, (they) are writing (their) ticket to jail."

The numbers of pending fraud investigations at the Justice Department and FBI are astounding. Attorney General Holder indicated that the Justice Department has more than 5,000 financial institution fraud cases pending and that the FBI was handling more than 2,800 cases involving mortgage fraud. Unfortunately, these numbers are up more than 400% from five years ago.

Attorney General Holder was also proud to announce that over 450 individuals who have committed corporate and securities fraud, including Bernie Madoff, have been convicted in 2009, preventing them from further victimizing investors.

Do you believe that you are a vicitm of an investment scheme or fraud? It may be that you have a legal remedy to recover your loses. If you would like to discuss your legal rights, please contact our firm for a free consultation. If you would like further information about our firm or investment fraud in general, please visit www.dossfirm.com.

With all of the talk these days about the need to find alternative energy sources, there is a real demand for "Green" energy. There are a lot of legitimate entrepreneurs out there looking for investors to put up money to fund new energy-saving environmentally-friendly ideas. With every legitimate entrepreneur however, comes a hundred scam artists also looking to make a buck from unsuspecting potential victims.

On December 29, 2009, FINRA, the organization tasked with regulating the financial services industry, issues an Investor Alert entitled, Save Your Greenbanks - Don't Fall for Green Energy Scams. The Investor Alert provides a great discussion on ways to avoid becoming a victim of these scams.

Some tips include:
1. Beware of investment opportunities promises high returns;
2. Beware of unsolicited recommendations communicated through methods such as faxes, emails, text messages, etc.;
3. Don't invest in things you do not understand.

The most unfortunate part of these scams is that when something goes wrong, there is rarely a chance to recover the losses from the fraudster because they are almost always insolvent. As a result, the best approach is to stay away altogether.

According to the Courthouse News Service, the Securities and Exchange Commission (SEC) has fined Regions Bank $1 million for its role in an investment scam. SEC claims that Regions Bank's participation with an investment scam raised $255 million of funds through "exorbitant, undisclosed commissions and fees" from 14,000 investors. These investors were mostly from Latin America.

Specifically, it is alleged that Regions bank allowed U.S. Pension Trust to use its name in their marketing and sent individuals to Latin America to meet with potential investors. Regions allegedly served as the trustee of the investment plans of U.S. Pension Trust, which the SEC used deceptive sales practices to entice investors. It is said by the SEC that the U.S. Pension Trust "took up to 85 percent of initial contributions for those who paid annually, and as much as 18 percent for single-contribution plans.

The SEC says that Regions allowed the scheme to continue with an "air of legitimacy" and that Regions should have been aware of the deceptive sales practices of U.S. Pension Trust. Unfortunately, the SEC alleges that Regions continued with their participation despite the deceptive sales tactics. Additionally, the SEC adds that Region Bank failed to disclose the fees and commissions to the investors.

The SEC announced that the day the SEC filed suit against the bank the bank agreed to the fine.

According to The Daily Breeze, church members of Hope Chapel Christian Church, which is located in Hermosa Beach, California, are suing a former pastor, alleging that he has scammed them out of thousands of dollars. The church members have also sued the church, alleging that they were discouraged from filing a lawsuit, having been told it is "un-Christian" to sue.

The former pastor is Mike Maffe, who served as an associate pastor of the church for 16 years. Church leaders have stated that after being made aware of the alleged fraud and meeting with the alleged victims, Maffe was fired in January of 2008 from the 2,500 member church. It is alleged by the plaintiffs that Maffe promised high returns on a real estate investment in Texas. Further, it is alleged that Maffe prepared and distributed false documents each quarter showing 7 percent returns on the investment. It is claimed by the plaintiffs that rather than investing the money as promised Maffe used the money to buy risky stocks that ultimately lost all value. The plaintiffs further allege that Maffe did not disclose to them that he had filed for bankruptcy after gambling away his family's money.

Plaintiffs allege that the church has attempted to downplay the situation and sought to convince the plaintiffs not to file suit. Rev. Dale Turner, an associate pastor and administrator, believes that this matter should be resolved among the church members rather than with court intervention. Turner has stated that Maffee has admitted to the wrongdoing and promised to pay the members back. However, the plaintiffs say that that has not happened. The plaintiffs' attorney believes that the church has not acted in the best interest of his clients.

Unfortunately, investment fraud can occur anywhere, even within a church membership. It is important to remember that as a victim of investment fraud you may be able to recover investment losses as a result of the fruad. Please contact our firm to discuss your legal rights. If you would like further information on investment fraud, please visit our website at www.dossfirm.com.

According to a Securities and Exchange Commission (SEC) press release, the SEC and the Alabama Securities Commission (ASC) have charged Aura Financial Services, Inc. (Aura), a Birmingham, Alabama based broker-dealer, with churning of custormer accounts, "widespread supervisory failures" and other securities violations. The SEC and ASC believe that the actions of Aura, including several senior officers and registered representatives, caused signifcant harm to clients, while significantly enriching the profits of the firm.

Specifically, the SEC alleges that several of Aura's registered representatives used "fraudulent practices and high-pressure sales tactics to convince customers to open and invest money in Aura brokerage accounts, which the brokers subsequently churned." Churning is where a broker excessively trades a customers' account to generate commissions for the broker, disregarding the investment objectives of the customer. It is said by the SEC that Aura made approximately $1 million in commissions and other fees as a result of their fraudulent practices. Unfortunately, Aura profited while many of the customer's accounts were depleted as a result of trading losses and excessive transaction costs. It is believed by the SEC that this scheme began in 2005 and continued until at least April of 2009.

The ASC alleges that Aura and three managers failed to adequately supervise their brokers and violated compliance responsibilities outlined by Alabama securities laws. The ASC believes that Aura and these managers "failed to adopt appropriate procedures, failed to enforce rules, failed to conduct branch office inspections, and failed to maintain files of and follow up on consumer complaints." These responsibilities were even more critical since many of the firm's representatives allegedly had criminal or disciplinary backgrounds and many prior customer complaints.

Katherine Addleman, Director of the SEC's Atlanta Regional Office says that Aura and six brokers "bought and sold securities in these accounts solely to generate commissions for themselves, with a total disregard for their customers' investment goals." Director of the ASC, Joseph P. Borg, is proud of the collaborative effort of the ASC and SEC in stoping investor harm and discipling those who engage in or allow fraud to occur.

Aura is required by the ASC, within 28 days, to show cause to the ASC why its registration as a broker dealer and agent in Alabama should not be revoked or suspended.

The SEC seeks preliminary injunctions against 4 of the 6 brokers associated with Aura and has requested expedited discovery period and a hearing within 30 days. The SEC also seeks court orders which permanently prohibit all of the defendants from violating the antifraud provisions of the federal securities laws in the future and seeks to have the defendants disgorge their ill-gotten gains and pay fines.

If you believe that you may be a victim of investment fraud, our firm may be able to help. Please do not hesitate to contact our office. For further information, you may visit our website www.dossfirm.com.

The Securities and Exchange Commission has charged Richard Karp, a trader from Fort Myers, Florida, with fraud relating to a fake press release the SEC says he issued in an effort to manipulate a company's stock price. Karp allegedly released a false announcement from WCI Communities, Inc. to the media, which in turn caused the company's stock price to soar.  Karp allegedly gained thousands of dollars in profits relating to his scheme.

It is alleged that Karp actively traded WCI's stock in hopes that a major shareholder would make a buyout offer. When that did not happen, Karp allegedly issued this false announcement claiming that WCI's board of directors received a $220 million buyout offer.

The SEC alleges that the false press release was sent to media outlets in Southwest Florida as well as national outlets on July 19th.  The information contained in the fake announcement was the allegedly reported by at least four Ft. Myers media outlets. The SEC says that following Monday, July 21, as result of this announcement, investors responded and the stock price increased dramatically. 

The SEC states that all in all Karp made approximately $29,000 in illegal profits by selling his shares in pre-market trading on July 21. The SEC is seeking a permanent injunction against Karp, disgorgement of his ill-gotten gains with prejudgment interest, and a fine.

According to today's Wall Street Journal in an article entitled Brokers Abandon Wall Street, the number of brokers leaving brokerage firms is on the rise due to slumping markets and shrinking fees.  In April alone, 2,800 brokers left the securities industry.  At this pace, 35,000 brokers will exit the industry by year end.  That would be record by a long shot.

Investors need to pay attention to this trend because it serves as a rare glimpse into the minds of financial advisors right now.  However, it is not the financial advisors who are leaving that investors need to be watching.  Investors should be paying close attention to those financial advisors who are not leaving the industry. In an environment where fees and commission are on the decline, financial advisors likely will be looking to sell higher commission products (ie. deferred annuities) to make up the difference. In addition, instances of churning will also be on the rise.  Churning is an unlawful practice where brokers make excessive trades in a client's account for the sole purpose of drumming up commissions. 

To find out more information about other common claims brought by investors, please visit our Investor Resource Center at www.dossfirm.com.

According to the Wall Street Journal today, Massachusetts securities regulators have begun an investigation into whether State Street Corp. misled pension funds investors by falsely repesenting that some its bonds funds were low risk vehicles even though they were actually invested in volatile mortgage-backed securities.

State Street is one of the largest managers of index funds. It is currently facing several lawsuits about its "enhanced index" bond funds.  Lawsuits filed by customers invested in those funds have alleged that State Street mispresented the risks associated with those funds. The products falsely marketed as low risk investments even though the underlying investments were in mortgage related securities.

According to the Atlanta Journal Constitution (AJC), Frederick Barton pled guilty today to defrauding a 90-year-old woman, who has Alzheimer's disease, of almost her entire life savings.  Barton will be sentenced for wire fraud on June 23rd.

Barton was fired in 2002 from a national brokerage firm. Thereafter, he began his own investment firms, Barton Asset Management and Twinspan Capital.  U.S. Attorney David Nahmias says that during the next five years Barton fraudulently diverted investors money to himself. In total, it is alleged by federal authorities that Barton defrauded investors of at least $2 million.

It is said by authorities that when Barton learned that one of his clients had Alzheimer's he took $1 million dollars of her assets, placing it into his own personal account. Unfortunately, according to U.S. Attorney Nahmias, the woman's bank accounts fell from around $1.3 million to less than $100 over a period of 5 years.

It is the hope of U.S. Attorney Nahmias that the guilty plea will send a message to other financial predators.  However, this situation should also serve as a warning to investors.  I wonder how many of Barton's clients researched his background.  Would they have trusted him had they learned of his firing or the reasons behind his termination? Was there other red flags that would have concerned investors and maybe caused them to find another investment manager? Investor beware!