Are the Sales of Private Placements an Indication of Brokers Gone Bad?
The rise in sales of private stakes in companies is raising concerns among regulators and investors about investment fraud. The sale of private placements to investors, especially senior investors are popular among unethical brokers who are looking to increase personal profits.
Do Sales of Private Placements Indicate Fraud?
According to the Wall Street Journal, high-risk brokers are selling billions of dollars of private placements every year. In reviewing over one million regulatory records, the Journal found more than 100 firms where 10 to 60 percent of in-house brokers had three or more complaints from investors, regulatory actions, and/or criminal charges on their records. These brokerages sold more than $60 billion in private placements to investors.
According to market studies, sales of private placements are on the rise. In 2017, more than 1,200 securities firms sold approximately $710 billion of private placements. The first five months of 2018 are expected to top last year's record-setting numbers. Private placements can be stakes in oil companies, construction projects, real estate, high-tech companies, bio-tech research, and many other privately-held enterprises. They offer investors higher returns than publicly traded stocks and bonds, but limited company information creates a greater risk for financial losses.
With the rising numbers of lucrative sales of private placements, regulators are worried about high-risk brokers and brokerage firms looking to increase their profits. High commissions create strong motivations to sell, often without considering an investor's best interests. The Financial Industry Regulatory Authority (FINRA), a watchdog agency has expressed concerns about private placements. They are investigating broker markups and sales perks, how private placements are sold to investors, and whether the companies involved are legitimate businesses. Sophisticated and wealthy investors like insurers and hedge funds are often drawn to private placements as alternatives to publicly-traded stocks and bonds.
The Wall Street Journal states that high-risk brokers tend to flock to brokerages selling private placements. Reports show that unethical brokers with questionable tactics can make huge commissions on the sale of private placements at the expense of their clients who often suffer significant losses. Investors who suffer losses due to broker fraud and misconduct can often recover their investment principal, the expected gains (if money had been invested appropriately), arbitration costs, attorney's fees, and punitive damages for egregious misconduct. According to the SEC, private placements are considered unregistered offerings, and investors should be aware of fraudsters using unregistered offerings to conduct investment scams.
If you lost money because of an investment scam, broker misconduct, fraud, etc., contact Meyer Wilson today. Our securities fraud attorneys have secured more than $350 million in verdicts and settlements since we first opened our doors, and we will fight to secure the compensation you deserve. Call us at (800) 738-1960 today to speak with a member of our firm, or send us your information through our online form to schedule a free case consultation.
Defrauding Investors by Inflating Fund Performance
Broker-dealers who inflate investment fund performance to retain business and gain new clients deny investors the opportunity to make informed investment decisions.
Inflating Fund Performance is Illegal
In May 2018, the Securities and Exchange Commission (SEC) filed charges against Premium Point Investments, a New York investment firm, for inflating fund performance to retain and attract investors. The SEC alleges that the firm engaged in a high-level, six-month investment scam where a firm's adviser exchanged trades with a broker-dealer who inflated valuations on mortgage-backed securities. The firm allegedly inflated fund performance even further by using mid-point valuations. The scam allegedly inflated the value of Premium Point’s securities holdings and grossly exaggerated investment returns to investors.
The recent SEC complaint filed charges against the CEO and chief investment officer of Premium Point Investments, Anilesh Ahuja, as well as a former portfolio manager, Amin Majidi, and a former trader, Jeremy Shor. All three men were charged with fraud and aiding and abetting fraud. The SEC is seeking permanent injunctions against the men, as well as the return of illegally obtained gains including interest and civil penalties.
Hedge funds commonly use pooled funds from large institutional investors and high-net-worth individuals with private investments. When investors invest in hedge funds, cash is distributed into a variety of investments chosen by fund managers who usually receive a percentage of returns. This often creates an opportunity for hedge fund fraud by unethical hedge fund managers. Since hedge funds do not have to register with the SEC, they are not regulated by mandatory reporting rules like other types of investment funds. It's easier for dishonest hedge fund promoters to entice potential investors by promising fast, high returns on their investments.
Most hedge funds do not engage in unethical or illegal behavior. However, large investments and intense competition can lead to investment fraud. Although hedge funds are not subject to mandated reporting rules, mandated fiduciary duties may still apply. Hedge fund managers and promoters must comply with the same duties as other securities brokers. If they don't, they can be charged with investment fraud.
Investors rely on their brokers to accurately value their investments so they can make informed investment decisions. When the true performance or value of an investment is masked and an investor loses money, he or she can file a lawsuit or arbitration case to hold the broker liable for damages. Investors who lose money may be able to recover the purchase price of the securities, the gains he or she reasonably should have expected to make had the funds been invested appropriately, arbitration costs, and reasonable attorney fees. In some situations, when egregious misconduct is involved, the investor may be entitled to punitive damages.
Dishonest brokers often defraud investors by inflating hedge fund performance to show profits that do not exist. If you have been a victim of securities fraud and need legal assistance with loss recovery, contact the attorneys at Meyer Wilson at 888-390-6491 for a free consultation today.
Did Your Broker Engage in Unsuitable Options Trading on Your Behalf?
Although options can add flexibility to a client's portfolio, clients are often enticed into unsuitable options trading with high risks, speculative returns, and big losses.
Understanding the Basics of Options Trading
An option is a type of security that constitutes a binding contract with specific terms. Options allow buyers the right to buy or sell underlying assets at a certain price by a specific predetermined date. There are two types of options in options trading, call options and put options. The right to buy is called a call option, and the right to sell is called a put option. One option contract controls 100 shares of stock, but clients can buy or sell as many contracts as they want.
Call options give the owner the right to buy a specific number of shares of an underlying stock at a previously determined price. The client must pay the seller a fee, and the option must be purchased by a certain date or it expires. Call options provide opportunities to profit from price gains in the underlying stock at a fraction of the cost of owning the stock.
Put options give the owner the right to sell a specific number of shares of an underlying stock at a specific price on or before a certain date. Put options act like an insurance policy because they allow the client to profit on stocks that fall in value. Put options will offset the losses on the stock by allowing the owner more time to sell safely.
Options involve risks and are not suitable for every investor. Using the wrong strategy in options trading can lead to disastrous results. Taking unnecessary risks can result in big investment losses. Stockbrokers have a duty to make suitable recommendations for investments based on certain factors:
- The client's age
- The client's financial status
- The client's short-term and long-term objectives
- The client's investment knowledge
- The client's ability to tolerate risks and losses
If a client loses money in unsuitable options trading, the broker and brokerage firm may be held liable for broker misconduct. An appropriate investment for one person can be a very inappropriate investment for another. To protect investors, the broker must carefully consider an investor’s personal circumstances before recommending investments and options trading. If your broker bought unsuitable put or call options on your behalf and you lost money, contact a securities litigation attorney with Meyer Wilson at 888-390-6491.
How Does FINRA Define High-risk Brokers?
Mike Rufino, the head of the Financial Industry Regulatory Authority (FINRA) member regulation, recently outlined how the organization defines a high-risk broker during its annual conference in Washington.
Rufino said that while there is no strict definition, FINRA uses specific criteria to identify these financial representatives, including:
- Geographical location
- Exam attempts
- Employment and termination history
“Then we use that quantitative assessment that we qualitatively assess and look at the number of complaints a broker has, the nature of those complaints,” Rufino said.
FINRA also looks at the number of disclosures the broker has, and when they occurred. Rufino said that when a broker has a high number of recent disclosures, it could elevate the level of risk associated with them. FINRA will also look at whether or not they are currently appealing sanctions.
“If FINRA has barred the individual and you have an appeal [to FINRA’s National Adjudicatory Council] we deem those individuals to be of the highest risk, and they will automatically be deemed a high-risk broker by FINRA,” he said. “We will monitor and examine those individuals very closely while they wait for their appeal.”
At Meyer Wilson, we are committed to working with people who lost money because of their financial advisor’s reckless or negligent actions. Contact us today to discuss your case and learn more about the next steps you can take.
Tips to Protect Your Elderly Loved Ones from Financial Exploitation
Senior investors are among the most frequently targeted victims of financial exploitation. In order to better protect this group of people, the Financial Industry Regulatory Authority (FINRA), adopted new rules to allow brokers to take additional steps to protect senior investors and other specific groups, the first nationally standardized protection of its type in the nation. These rules include:
Including an Additional Person as a Point of Contact on Accounts
This new FINRA rule requires brokers to make a reasonable effort to secure someone to fill the role of designated trusted contact person to include on the senior investor’s brokerage account. This person will act as a resource for the brokerage firm who can assist in responding to possible cases of exploitation, the protection of assets, and account administration.
Placing Holds on Suspicious Activity
Placing holds when potential fraud is detected is not a new process in the financial world, brokers now have permission to use the same responses as most banks in these situations. This rule specifically applies to accounts belonging to people 65 years old and above and people with physical or mental impairments that make it difficult for them to protect their investments.
"Before this new rule, firms were really struggling with this day to day," said Jeanette Wingler, an attorney in FINRA's Office of the General Counsel. The new rule gives "the firms time to investigate when a request for a disbursement raises red flags."
Firms or brokers that suspect financial exploitation may be occurring can place a hold on disbursements from that account for up to 15 business days, and may continue that hold for an additional 10 days if additional information supports the initial suspicion comes up during its investigation. The account holder and trusted contact will be notified of the hold.
If you or one of your loved ones was the victim of financial exploitation, our investment fraud lawyers at Meyer Wilson are ready to hear your story. Over the past 19 years, we have successfully recovered more than $350 million in verdicts and settlements for our clients. Send us your information through our online form to set up a free case consultation, or give us a call at one of our office locations to talk one of our attorneys over the phone today.
SEC Warns Investors of Scammers Impersonating Government Officials
The Securities and Exchange Commission (SEC) recently published an investor alert in order to warn investors of scammers posing as SEC employees in a scheme to trick investors into revealing account details or sending money.
In the alert, the SEC clearly stated that it doesn’t contact investors to record trade details, confirm trades, or to set up a trading account. In addition, it states that government agencies don’t sponsor or endorse any individuals or specific firms, professional credentials, services, products, issuers, or securities.
The SEC secured an audio recording of one of these scammers making their pitch to a potential victim, included in the alert.
“…I’m a senior compliance officer with the Securities and Exchange Commission… I am confirming a buy order from Mr. [REDACTED], who is a portfolio manager of [REDACTED]…in accordance to the regulations that are set forth by the Securities and Exchange Commission on the U.S. markets, Mr. [REDACTED], for the protection of both parties, what I’m going to do is record the details of the trade. It goes on file as a voice audio signature with the Securities and Exchange Commission as a regulated trade . . . It’s non-retractable…do I have your consent to place the order?”
If you were the victim of a scam, our investment fraud lawyers at Meyer Wilson are ready to hear your story. Send us the details of your case through our online form, or give us a call at one of our offices located across the country to schedule a free case consultation today.
Meyer Wilson is Representing Investors in Claims involving Columbus Broker Craig Sutherland
Meyer Wilson Investigates Former Morgan Stanley Broker David Olson Regarding Allegations of Engaging in Undisclosed Outside Business Activities
Former Morgan Stanley Broker Matthew Singer Investigated for Unsuitable Options Trading, Barred for Failing to Appear
When Your Advisor Is Too Close for Comfort
A financial advisor who develops a close emotional relationship with a client may engage in unethical practices that lead to advisor misconduct or fraud. Although many financial advisors have close professional relationships with their clients without any problems, some advisors develop close personal relationships as a means of deception.
Finding the Right Financial Advisor
Unethical advisors often manipulate their clients' emotions to persuade them to invest in certain products that increase advisor profits. To prevent potential misconduct and losses, it's important to maintain a professional relationship with a financial advisor. Here are some red flags that may signal the advisor is getting too close for comfort.
The Advisor is Overly Enthusiastic About Proposed Investment
Advisors who try to steer clients towards risky investments with enthusiasm may have their own profits in mind, rather than the clients' profits. Investors should be cautious of advisors who seem to be overconfident and make bold predictions, because there is no such thing as a sure thing.
The Advisor Doesn't Discuss Fees
Financial advisors should explain different fee structures related to investments. Fees for management services, investment advice, brokerage costs, and third-party fees are often rolled up in wrap-fees which can cost the investor more than individual fees.
The Advisor Relationship is Difficult to End
Financial advisors who get too close want to make it more difficult to end the relationship. In such cases, many clients stay with their advisor even when they feel unsatisfied with performance or are otherwise uncomfortable, because they think finding a new advisor will be too hard. In actuality, finding a new advisor is not that difficult.
If you or a loved one has suffered investment losses as the result of investment misconduct, contact a securities fraud lawyer at Meyer Wilson by calling us toll-free at 888-390-6491 to schedule a free case evaluation today.
There's No Such Thing as a "Guaranteed" Investment
Guarantees are a tantalizing way to spice up any offer, but there is no such thing in the investment world.
The Financial Industry Regulatory Authority (FINRA) recently issued an investor alert to warn people about the dangers of scammers posing as regulators in an attempt to target potential victims and separate them from their hard-earned money.
“We want you to know that neither FINRA, nor any of its executives, will ever provide a "guarantee" on an investment or offer to facilitate your participation in any sort of money-making scheme,” FINRA wrote. “Never.”
What To Look Out For In Potential Imposter Scams
Recent scammers have gone to great lengths to come across as legitimate as possible, including using FINRA’s logo, name, identity of officials, and posing as FINRA CEO Robert Cook. In messages sent to potential victims, the scammers are claiming that FINRA provided guarantees for an investment pitch that was actually just an advance-fee scam.
Common advance-fee scams attempt to convince potential victims to send money to pay for regulatory or administrative charges associated with buying back stocks that are currently underperforming. These scammers typically attempt to build a rapport with their targets and may send official-looking documents in order to give an air of legitimacy to their offers.
At Meyer Wilson, our investment fraud attorneys have helped over a thousand victims of investment fraud fight for and secure the compensation they deserve. Through our attorneys' efforts, we have recovered more than $350 million in verdicts and settlements for our clients, and are ready to use our knowledge and experience to help you in your case. Send us your information to request a free case consultation, or call us at one of our offices located across the United States to speak with a member of our firm today.
Protect Your Hard-Earned Money by Learning How Boiler Room Scams Work
Understanding the tactics scammers use is an important step to take when protecting yourself from becoming a victim of investment fraud.
The Financial Industry Regulatory Authority (FINRA) recently published an article that discussed some of the tactics used in telephone boiler room scams. In the article, FINRA focused on one victim in particular who lost an estimated $500,000 after falling prey to multiple telephone investment scams.
The victim, a 70-year-old rancher living in Washington State, is far from the only person suckered in by enticing offers and promises of financial gain in return for a simple investment. Cold call scams are popular among fraudsters because of how successful they can be.
According to FINRA’s article, the National Telemarketing Victim Call Center and the AARP Foundation are working to combat this by turning the techniques used in boiler room scams to their advantage. Back in 2012, these organizations created a network called Fraud Fighter Call Centers, funded by the FINRA Investor Education Foundation, that use what they refer to as a “reverse boiler room” approach. The organizations contact particularly vulnerable targets, warn them about investment scams, and arm them with tools they can use to protect themselves.
These call centers identify targets who are likely to end up on what are known as “mooch lists,” which are frequently put together and shared among scammers. These lists provide detailed financial and personal information of people who are either likely to, or already have, fallen prey to an investment scam. Trained volunteers call people identified in order to warn them about these con artists and provide fraud prevention counseling.
Research conducted by the FINRA Foundation discovered that more than 80 percent of people contacted reported having been solicited to participate in potentially fraudulent offerings, and more than one in ten reported losing a considerable sum of money after investing. Another study conducted by the Stanford Center on Longevity estimated that financial fraud brings in approximately $50 billion for scammers every year.
At Meyer Wilson, our investment fraud lawyers have spent years working with people who were the victim on scams. Through our efforts, we have secured more than $350 million in verdicts and settlements, and continue to fight for the rights of each client we take on. Fill out our online form to set up a free case consultation with one of our lawyers today, or give us a call at one of our offices located across the country to speak with a member of our firm and learn more about what we can do for you.
Ponzi Schemes Continue to Destroy the Financial Lives of Americans Every Day
Bernie Madoff was arrested for stealing $64.8 billion from investors in the single largest Ponzi scheme in United States history less than a decade ago, but Americans are still falling prey to these types of schemes every single day.
According to Kathy Bazoian Phelps, a bankruptcy law and fraud litigation lawyer based out of Los Angeles, a dozen or more Ponzi schemes are exposed every month. Phelps, the author of “Ponzi-Proof Your Investments,” catalogues these busts on her blog, and said that,
“People continue to be very trusting and not do the level of due diligence. If you don’t understand it after a five-minute conversation, don’t invest in it.”
David Wall, CPA at the Los Angeles-based accountancy firm CliftonLarsonAllen, sat down with MarketWatch to discuss a recent Ponzi scheme where the mastermind, Ryan Rude, stole nearly $5 million from his investors.
“[Rude] gave free seminars on how to get rich quick with no money down at airport hotels,” said Wall. “He sold CDs. He did those speeches as a guest host of a national educational organization. That organization introduced Ryan Rude as one of its disciples. He was billed as a highly successful real-estate investor who was worth millions and achieved his wealth through the application of the program.”
Unlike Madoff, Rude didn’t target the wealthiest people he could find – he went after people without much money to spare. He convinced at least one investor to shift from an IRA into a self-directed IRA which allowed her to invest with far fewer restrictions. He convinced another to take out $120,000 from their credit cards.
“It’s not wise to give everything you have to one man who promises the earth, but Rude’s MO was to target unsophisticated people who dreamed of building their wealth against all odds,” said Wall.
No matter the scheme, our team of investment fraud lawyers at Meyer Wilson are ready to provide our clients with the knowledgeable and dedicated representation they need to secure the compensation they deserve. Over the years, we have successfully recovered more than $350 million for our clients and continue to fight in arbitration, court, and at the negotiation table every day. Call us at one of our offices located across the United States, or send us your information through our online form to get started with a free consultation today.