Wall Street Investment Fraud Lawyer Blog

The Securities and Exchange Commission (SEC) has issued a press release stating that the SEC has charged Paul T. Mannion, Jr., of Norcross, Georgia, and Andrews S. Reckles, of Milton, Georgia, two hedge fund portfolio managers, with defrauding investors in the Palisades Master Fund, L.P. Specifically, it is alleged by the SEC that these individuals, along with their investment advisory businesses, PEF Advisors LLC and PEF Advisors Ltd., overvalued illiquid fund assets that were placed in a "side pocket." A side pocket is defined as "a type of account that hedge funds use to separate particular investments that are typically illiquid from the remainder of the investments in the fund." Robert Kaplan, Co-Chief of the SEC's Asset Management Unit explained that "side pockets are not supposed to be a dumping ground for hedge fund managers to conceal overvalued assets. Mannion and Reckles deceived investors about the fund's performance and extracted excessive management fees based on the inflated asset values in a side pocket."

The SEC also alleges that Mannion and Reckles used investor funds to fund their own personal investments. Further, it is alleged that these individuals made false representations to a securities issuer about their trading positions so that they could participate in a private offering.

Scott Friestad, Associate Director of the SEC's Division of Enforcement stated that "Mannion and Reckles put their own selfish interests ahead of Palisades' investors, treating the fund like their own personal bank account by stealing and improperly borrowing millions of dollars in fund assets."

The SEC's complaint alleges that investors were defrauded over at least a three-month period in 2005 and that Mannion and Reckles took more than one million warrants in World Health that were worth approximately $1.6 million. Further, it is alleged that these individuals took out a personal undisclosed loan totaling $2 million in order to finance their own personal investments. In addition, the complaint states that they used approximately $13,000 from the fund for services allegedly not rendered to the fund. The SEC also alleges that in 2004 Mannion and Reckles made misrepresentations in connection with a PIPE (private investment in public equity) offering which was conducted by Radyne ComStream Inc.

The SEC's complaint charges these men with "violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940." The SEC seeks financial penalties, disgorgement of profits, prejudgment interest, and injunctive relief.

If you would like further information on investment fraud, please visit our website at www.dossfirm.com. If you believe that you may be a victim of investment fraud and would like to speak with us, please call our firm for a free consultation.

On September 30th, the SEC announced that it charged two former State Street Bank and Trust Company employees, John P. Flannery and James H. Hopkins, with misleading investors about their exposure to sub-prime investments.

The SEC alleged that Flannery and Hopkins marketed State Street's Limited Duration Bond Fund as an "enhanced cash" investment strategy that was an alternative to a money market fund. In truth, however, by 2007, the fund was almost entirely invested in sub-prime residential mortgage backed securities and derivatives.

Earlier this year, the SEC charged State Street in a related case and the firm settled the charges for more than $300 million.

If you have lost money in the State Street Limited Duration Bond Fund or any other investment that was marketed as a money market alternative, please contact us for a free consultation.

According to an article in today's Atlanta Journal Constitution, Rhea Dignam was named the regional chief for the Securities Exchange Commission. Ms. Dignam will be working from the Atlanta-based regional office and she will oversee the office's enforcement and examination activities for the five-state region of the Southeast. According to the article, she is replacing Katherine Addelman, who left the position to enter private practice.

The Securities and Exchange Commission (SEC) has charged Frank Bluestein, of Detroit, Michigan, with fraud, alleging that he scammed many elderly investors into investing into a $250 million ponzi scheme. It is claimed by the SEC that Bluestein focused his efforts on elderly investors, costing many of them their retirement and even their homes.

Bluestein is said to have been the largest salesperson at E-M Management, the ponzi scheme operated by Edward May. The SEC has already filed charges against both Edward May and E-M Management. The SEC alleges that Bluestein would use investment seminars to reach potential investors, often convincing elderly investors to refinance their homes to invest. The SEC says that Bluestein falsely assured investors that these "investments" were safe. Additionally, the SEC claims that Bluestein mislead investors into believing that he conducted a thorough investigation of the investments, when in fact he did little, if anything, to determine the legitimacy of E-M Management's offerings. The SEC also alleges that Bluestein did not disclose the compensation he was receiving from E-M Management for touting their investments. It is said that Bluestein received $1.4 million in compensation from investor funds and $2.4 million in the form of commissions.

The SEC alleges that Bluestein, through his company Maximum Financial's investment seminars, was able to raise approximately $74 million dollars from over 800 investors over the course of five years.

The SEC is seeking a permanent injunction to prevent Bluestein from engaging in future fraudulent conduct, as well as disgorgement of ill-gotten gains and financial penalties.

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 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.

An article in today's Wall Street Journal entitled SEC Takes On Target-Date Funds, discusses the SEC's efforts to improve disclosures made in these popular investments.

What are Target-Date Funds?  

Like most mutual funds, Target-Date Funds invest in a mix stocks and fixed income investments.  What makes these mutual funds different is that the percentage of asset classes change over time as the fund approaches a target date.  For example, if you plan to retire in 20 years and live off of the income from your investments, you could invest in one of these funds with a target date of 2029. At the beginning of your investment period, the fund would be heavily weighted in stocks as opposed to the fixed income investments.  As you approached the 20 years target date, the fund would become more heavily weighted in fixed income investments.  Because of this shift over time towards a more fixed income-centric, the fund presumably becomes more conservative and income- oriented as you approach retirement. This shift in asset allocation is commonly known in the securities industry as a "glide path."

Why is the SEC scrutinizing these funds?

As with most securities related problems, it usually boils down to poor returns and poor disclosure.  According to the Wall Street Journal article, the average loss in 2008 among 31 funds with a 2010 retirement date was almost 25%.  One of the issues that the SEC is considering is whether the use of a particular target date in fund's name is misleading.  It is plausible that investors could construe a target date as some sort of guarantee about future results. 

Also, disclosures about the "glide path" methodology that a fund manager uses to shift asset allocations over time are based on assumptions that may not conform to an individual investor's real life circumstances.  These assumptions are not always adequately explained in the prospectus. As a result, the investments may not be suitable for a particular investor's financial needs.

For more helpful information about ways to avoid becoming a victim of investment abuse, visit our Investor Resource Center.

The Doss Firm, LLC is an Atlanta-based law firm devoted to protecting the rights of consumers/investors against the financial services industry. For more information about our firm, pleae visit our website at www.dossfirm.com.

According to the Securities and Exchange Commission (SEC), the SEC has charged seven church leaders, in Queens, New York, for orchestrating an investment fraud scheme that took advantage of elderly church members.  It is alleged that the elderly investors were defrauded of more than $12 million.  The SEC says that the seven church leaders would make false promises of returns as high as 75% in an effort to get the investors to invest in two hedge funds, the Logos Fund and the Donum Fund.  Once the investors invested, the money would be misappropriated rather than invested.  The church leaders would allegedly use the investor's funds to sustain lavish lifestyles, which included purchasing jewelry, clothing, luxury cars, and funding expensive foreign travel.

The SEC's complaint states that the fraudsters took advantage of more than 80 investors, claiming incredible returns.  The SEC says that the fraudsters "misrepresented the performance of the Logos Fund, the amount of assets under management,  the identity and skill of the portfolio managers, and the level of supervision of the portfolio managers. Further, the SEC states that the defendants also "misrepresented the registration status of the Donum Fund by falsely claiming to investors that the fund was registered with the SEC."  In addition, it is alleged that instead of investing the money as promised to the investors the fraudsters immediately misappropriated the investor's money as soon as they invested with the funds. Along with lavish purchases, the fraudsters used the money to pay for unauthorized operating expenses of Jadis Capital and Jadis Investments. 

Affinity fraud occurs when a fraudster exploits investors in close knit communities like church groups.  Unfortunately, this type of fraud is common. The SEC has had to bring similar affinity fraud enforcement actions against fraudsters who have exploited members of a deaf community, various minority groups, and other religious groups similar to this matter. Fraudsters prey on individuals within such groups by exploiting the trust relationship that they share with the individuals within the same small group. 

It seems outrageous that a person would take advantage of someone who they go to church with or someone who they share membership with in a community group.  But, we must remember that greed can penetrate any group.  Although it may be easy to trust a church member or a parent of a child in your child's boy scout troup, we must always be conscientious when investing.  Remember if the person who wants your business, to invest YOUR money, gets defensive when you ask questions about the investment, about their qualifications, or about the returns and does not want to provide an adequate prospectus or other necessary information to make your investment decisions, you may want to chose another person to trust with your investments.

If you believe you are a victim of affinity fraud or any other type of investment fraud, you may have a legal claim against an individual broker or brokerage firm.  The Doss Firm, LLC represents investors nationwide who have lost money as a result of investment fraud or due to faulty investment advice. We invite you to visit our website www.dossfirm.com for further information.   

The Securities and Exchange Commission (SEC) obtained a court order freezing the assets of an investment firm fraudulently claiming that Warren Buffett, the well known billionaire investor, was the firm's honorary chairman, according to the Los Angeles Times.  It is alleged that International Realty Holdings Inc. (IRH), of Palmdale, California, and its operators, Leticia Isabel Medrano and Ottoniel Medrano, bilked hundreds of thousands of dollars from investors with this scam.

The lawsuit, filed in the U.S. District Court in Los Angeles, alleges that the firm's representatives were promising returns of up to 15%. Further, it is claimed by the SEC that the representatives of the firm touted falsely that the company was owned in part by Credit Suisse, a Swiss banking giant.

A declaration made by Buffett himself was filed with the suit.  The declaration stated that Buffett was not and had never been the Honorary Chairman of the Board of Directors of IRH and that Buffett had not ever had any personal or business relationship with the firm.

Interestingly, the SEC claims that IRH actually misspelled Buffett's name in its brochures. The brochures also allegedly showed photos of Buffett with people said to be IRH employees, which the SEC claims was actually a photo taken of Buffett with students from the University of Michigan.

The SEC lawsuit alleges that IRH raised at least $485,000 from unsuspecting investors. In fact, the SEC claims that the total may be more than $700,000 from at least 15 investors from six different states.

The SEC says that much of the money from investors had been wired into bank accounts into the Philippines. At this time, the SEC is seeking to have the funds returned to the U.S., which should help to bring some relief to the defrauded investors.

It is hoped, for the sake of the investors, that they can recover at least a portion of their investment made in reliance on IRH's allegedly fake endorsements.

The Securities and Exchange Commission (SEC) has issued a warning to investors and financial service firms that there are con-artists claiming to be SEC employees seeking sensitive information to use to defraud. These fraudsters have tricked individuals into revealing private information and, in some cases, into sending money and other assets to the fraudster. Further, these con-artists have impersonated SEC examiners to obtain confidential information from broker-dealers and investment advisors. Often, the fraudster claims that they are conducting an "emergency" investigation.

It should be remembered that the SEC never makes or endorses investments nor do they participate in money transfers. The SEC wants folks to also know that they do not send emails asking from detailed personal information or other sensitive financial information.

The SEC advises that if you are contacted by someone claiming to be an SEC employee you can verify their employment by asking for the caller's name, the SEC office where they are employed, and their telephone number. With this information you can then call the SEC's personnel locator at (202) 551-6000 and ask to speak directly with that SEC employee. Also, if you are contacted by someone claiming to be an SEC employee you can report the call to the SEC by calling (800) 732-0330 or emailing them at help@sec.gov.

In summary, if someone purporting to work for the SEC calls you, make sure to verify their employment first and do not give out any information without verification from the SEC of their employment. Further, remember the SEC does not ask for money transfers or personal information via email.

It is always a good rule of thumb to NEVER give out personal or financially sensitive information over the phone or email without first verifying who the caller is and why they need such information. Often, if you question a caller, who is seeking to defraud you, of their identity and purpose behind the need for the information, the caller will hang up.  Additionally, if a person is legitimate then they will understand your need to verify who they are and why they need personal or sensitive information. Finally, it is also a good practice to tell the caller you will call them back at their place of employment to give them any information. If they refuse to give a call back number, do not give them any information.