Investor Fraud

FINRA BARS FA JAMES DAUGHTRY FOR FAILING TO COOPERATE WITH THE REGULATOR

March 23, 2020 | Herskovits, PLLC

00025601-300x166
On March 18, 2020, FINRA barred FA James Daughtry for his refusal to appear for an on-the-record interview, which is akin to a deposition. Daughtry consented to the bar from the securities industry by executing the Letter of Acceptance, Waiver and Consent (AWC) in Department of Enforcement v. James Blake Daughtry, Matter No. 2020065293201.

Background

According to BrokerCheck, Daughtry entered the securities industry in 1999. He registered with Kestra Investment Services, LLC in February 2015 and remained with Kestra until his termination in March 2020. James Daughtry worked from a branch located in Dothan, Alabama.

FEDERAL COURT EXPANDS THE DEFINITION OF “CUSTOMER” FOR PURPOSES OF COMPELLING FINRA ARBITRATION

March 20, 2020 | Herskovits, PLLC

00025601-300x166
In Next Financial Group, Inc. v. GMS Mine Repair and Maintenance, Inc., Case No. 3:19-cv-168 (USDC W.D. Pa.), the federal court was asked to define the term “customer” as it relates to FINRA’s Code of Arbitration Procedure. The definition of that term carries significance because “customers” can compel a member firm to participate in FINRA arbitration whereas non-customers cannot. In the case at hand, GMS Mine Repair had no account with Next Financial and received no goods or services from Next Financial itself. This case bears some significance because the court compelled arbitration even though GMS Mine Repair was nothing more than an investor in the FAs outside business activity.

Background

The case arose from a supposedly fraudulent investment scheme perpetrated by Douglas P. Simanski, a former registered representative of Next Financial Group. According to BrokerCheck, Next Financial terminated Douglas Simanski in May 2016 because “RR sold fictitious investment and converted funds for his own personal use and benefit.” Mr. Simanksi currently has 30 disclosures on his BrokerCheck report, reflecting numerous settled customer claims. On November 2, 2018, the SEC filed a complaint against Mr. Simanski alleging that Simanksi “raised over $3.9 million from approximately 27 investors by falsely representing he would invest their money in one of three ventures: (1) a ‘tax free investment’ providing a fixed return for a specific number of years; (2) one of two coal mining companies in which Simanski claimed to have an ownership interest; or (3) a rental car company.” According to BrokerCheck, the SEC ultimately barred Simanski and Simanski plead guilty to criminal charges filed by the U.S. Department of Justice.

VIRGINIA BANS MANDATORY ARBITRATION IN ADVISORY AGREEMENTS

February 5, 2020 | Herskovits, PLLC

19-new-regulation-300x199
New Rule

Virginia recently added Section F to 21 VAC5-80-200 (Dishonest or Unethical Practices), which provides: “For purposes of this section, any mandatory arbitration provision in an advisory contract shall be prohibited.”

Background

FINRA BARS A SUPERVISOR FOR THE MISDEEDS OF ANOTHER

January 31, 2020 | Herskovits, PLLC

00025601-300x166
Courts call a lifetime bar “the securities industry equivalent of capital punishment.” PAZ Sec. Inc. v. SEC, 494 F.3d 1059, 1065 (D.C. Cir. 2007). It is a draconian measure which not only permanently removes you from the securities industry but also subjects you to “statutory disqualification” under Section 3(a)(39)(A) of the Securities Exchange Act of 1934 and all the collateral consequences that come with it.

Given the seriousness of a lifetime bar, a recently released AWC presents an alarming fact pattern in which a supervisor was barred due to the transgressions of an FA he failed to properly supervise. Let’s consider the case of Michael Leahy, FINRA Case No. 2019063631802. The question is, why did FINRA go after the supervisor with guns blazing?

The Applicable Rule: FINRA Rule 3110

Massachusetts Watchdog Targets Broker-Dealers’ Inadequate Oversight of Private Placements

July 11, 2018 | Herskovits, PLLC

94-william-galvin
The head of Massachusetts’ state securities regulatory body, Secretary of the Commonwealth William F. Galvin, issued a public statement announcing an inquiry into the practices of some of the top local broker-dealers related to private placement investments.

These funding rounds of securities, which are not sold through a public offering, but rather, presented to a select group of investors, commonly involve a higher risk of fraud.

The list of companies that have already received an inquiry letter from Galvin’s office includes, among others, Arthur W. Wood, Bolton Global Capital, Advisory Group, Santander Securities, LPL, U.S. Boston Capital, and BTS Securities.

WELLS FARGO Will Pay $480 Million to Settle Fraud & Insider Trading Class Action Brought by Shareholders

July 9, 2018 | Herskovits, PLLC

92-wells-fargo-at-night
Wells Fargo will pay $480 million to resolve fraud and insider trading allegations brought in a class action in California.

According to the plaintiffs, top executives at the bank engaged in insider trading after employees were directed to create millions of accounts under customer names, without the customers’ consent.

While litigation in California state court continues, the settlement will end the federal lawsuit.

California Attorney Found Guilty in Pump-and-Dump Scheme Case Involving Greenway Technology and Crown Marketing

June 16, 2018 | Herskovits, PLLC

89-jehu-hand-standout
Jehu Hand, a California-based attorney has been found guilty of securities fraud and is now awaiting sentencing. Following his trial, which took place in Boston, the defendant could be facing up to eight years in prison.

The federal jury found that Hand conspired with his two brothers to run a pump-and-dump scheme by falsifying documents. According to the evidence presented during trial, the defendant and his co-conspirators fraudulently obtained $1.5 million through the scheme.

Hand and his brothers allegedly misrepresented Greenway Technology Inc. as a company with tremendous potential, which was about to acquire lucrative gay-friendly hotels in California and Nevada.

SEC’s Lawsuit Against Woodbridge´s Robert Shapiro Over a 1.2 Billion Ponzi Scheme Has Many Ramifications

February 26, 2018 | Herskovits, PLLC

73-woodbridge-robert-shapiro-sec-lawsuit
On January 16th, a settlement was reached to create new fiduciary committees to handle a complex transition at the bankrupt Woodbridge firm, following a SEC lawsuit over a billion-dollar Ponzi scheme run by Woodbridge founder Robert Shapiro, who will now be totally excluded from the restructuring process.

Upon approval of the settlement, Judge Kevin Carey said, “As a condition for approval I require that that if any services beyond transition services are to be desired by the debtor, you need court approval with or without SEC consent.”

After Woodbridge filed for bankruptcy, Shapiro allegedly continued having access to company offices, and was paid a monthly $175,000 consulting fee. By designing a new team with no links to Shapiro to facilitate the transition, the settlement ensures decisions will now be made in the defrauded investors’ best interest.

CFTC Targets Multi-Million Dollar Cryptocurrency Fraud with Multiple Suits

February 16, 2018 | Herskovits, PLLC

68-crypto-currencies
In line with its expressed intent to increase its oversight over the cryptocurrency market, the Commodity Futures Trading Commission has filed three related fraud suits in a single week.

The third lawsuit targets the creators of “My Big Coin,” who allegedly used $6 million dollars received from buyers to pay off early investors and shop for luxury items. The allegations caused the freezing of all assets belonging to the creators of the supposed next-big-cryptocurrency.

The Nevada-based company, My Big Coin Pay Inc.; was founded by Randall Crater. The suit, filed in January, also named one of its salesmen, Mark Gillespie. According to the allegations, between 2014 and mid-2017, the defendants defrauded 28 investors out of six million dollars.

Former SEC Chair Warning: Lack of Oversight of Registered Investment Advisors an Impending Disaster

December 11, 2017 | Herskovits, PLLC

65-maryjowhite
According to former Securities and Exchange Commission Chair Mary Jo White, the SEC insufficient examination of registered investment advisors is a “disaster waiting to happen.”

Without adequate oversight, misconduct at small advisory firms could be building up for years. While FINRA and state regulators vet half of all registered broker-dealers annually, the SEC only manages to examine 12% of RIAs every year.

Speaking at the Practicing Law Institute in New York, White expressed her concern about the SEC’s failing oversight of the independent space. “It’s a real problem that keeps me up at night,” she commented.