GBP Capital And Its Owners Facing An Onslaught Of Securities Fraud Charges From Regulators

Today, the SEC charged GPB Capital Holdings and several of its owners and affiliates with securities fraud, calling GPB a Ponzi scheme that raised over $1.7 billion from investors. The North American Securities Administrators Association (NASAA) also announced today that seven state securities agencies have filed regulatory actions against GPB and others for their involvement in the securities fraud scheme that has defrauded approximately 17,000 investors across the United States.

Criminal charges were also filed against GPB owners and affiliates David Gentile, Jeffry Schneider, and Jeffrey Lash in federal court in the United States District Court for the Eastern District of New York.

According to the filings, GPB Capital Holdings projected an aura of success and fixed 8% annualized distributions – but it was a complete illusion. In reality, GPB was riddled with irreconcilable conflicts of interest and used investor funds – rather than earnings from operations – to pay investors distributions. The regulators alleged that David Gentile, Jeffrey Schneider, and Ascendant Capital engaged in illegal self-dealing, and federal prosecutors have charged them with securities fraud, wire fraud, and conspiracy to commit the same.

Meyer Wilson has been following and reporting on GPB Capital Holdings since it came under regulatory inquiry in 2018 for potential securities laws violations. The investment fraud attorneys at Meyer Wilson currently represent numerous investors across the country who were victims of the GPB scheme.

If you invested in a GPB fund, you can call (614) 532-4576 or contact us online to speak confidentially with an attorney about your legal options.

New SEC Rule Requires Brokers To Stop Calling Themselves “Advisors”

Long have stockbrokers referred to themselves as “financial advisors” or “wealth advisors.” Until now, regulators have allowed it. Next month, the rules change.

“Brokers” conduct investment transactions for their clients. Under the current rules, they are allowed to recommend products that are suitable for an investor but which may also earn them the highest commission.

Conversely, an investment adviser has a fiduciary responsibility — a legal duty that requires an advisor to act in a client’s best interests — when making investment recommendations. Because investment advisers are not paid by commissions for their investment recommendations (they are paid fees for their investment advice), advisers are considered to have no conflicts of interest with their clients.

In the past, brokers have been allowed to use the term “advisor” in their titles. This gives the potential for brokers to mislead investors into thinking they are getting a fiduciary standard when they actually are not. According to a recent study, more than 40 percent of investors incorrectly think that both brokers and advisers are held to a fiduciary standard and are required to act in clients’ best interests.

A new rule issued by the Securities and Exchange Commission going into effect on June 30, 2020, will prohibit brokers who are not also investment advisers from referring to themselves as “advisors.”

There are still countless terms brokers can and do use that blur the lines and suggest fiduciary standards where there is none: financial consultant, chartered wealth advisor, retirement consultant, wealth manager, and retirement counselor – just to name a few.

The rule also does not apply to individuals that are dually-registered as both a broker and an investment adviser. Those individuals can essentially wear both hats – a broker and fiduciary financial adviser – with the same client. When the professional switches from his or her fiduciary hat to the lesser standard of suitability and sales, the vast majority of the time the client has no idea.

New Rule: The SEC Permits Summary Prospectuses For The Sales Of Variable Annuities

The U.S. Securities and Exchange Commission (SEC) announced last week that it will allow brokers to sell variable annuities to investors by providing a simplified disclosure to investors about the features, fees, and risks of the investment.  While the SEC’s stated goal (improving investors’ ability to make informed purchase decisions) is a worthy goal, the new rule may actually be a step backwards.

While the SEC claims that the changes permit the use of a “concise, reader-friendly prospectus,” we, as investor protection advocates, worry that, given the regularity with which variable annuities are the subject of abusive brokerage firm sales practices, this will simply allow brokers to omit important information during the sales pitch for a variable annuity.

Variable annuities are incredibly complex products often riddled with opaque terms and conditions, high annual fees, high surrender charges, and illusive tax benefits. In our experience, many advisors who sell them do not have a thorough understanding of the complexities of these annuities. It is not clear whether, or to what extent, providing a summary disclosure document could fully convey these complexities will lead to informed investor decision-making.  In many cases, it is not reasonable to expect that even the best summary disclosure document will clearly convey key information in a way that most Main Street investors will be able to truly understand.

Under the new rule, detailed information about a variable annuity or variable life insurance contract must still be made available online, but the investor would have to demand to receive access to it. In our experience representing individual investors in cases involving these products over the past 20 years, very few people will make any such requests.

SEC Investor Alert: the Risks of Investing in Marijuana-related Companies

The Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy (OIEA) consistently hears complaints about marijuana-related investments, one of the countless “hot” industries scammers are using to take advantage of unwary targets. It recently issued a new Investor Alert to warn potential investors about the risks of market manipulation and investment fraud relating to marijuana-related investments.

Market Manipulation

One of the most common tactics used by scammers involves manipulating stock prices by spreading misleading and/or false information about the company or product in question. This is especially dangerous with penny stocks or other similar products because information about these potential investments can be much harder to find than information about larger stocks. Some red flags related to market manipulation the SEC highlighted include:

Investment Fraud:

Fraudsters often take advantage of the latest hot topic in the media, and the consistent buzz around the growing legalization of marijuana across the United States can give additional easy promotion for their latest scams. Some things to keep an eye out for include:

If you were the victim of a scam or investment fraud, Meyer Wilson may be able to help you recover your losses. We have spent nearly two decades working with clients across the United States, and through our efforts we have secured more than $350 million in verdicts and settlements. Give us a call at (614) 532-4576 to discuss your situation with one of our investment fraud attorneys, or send us your information through our online form today to set up a free, in-depth consultation with a member of our firm.

$5 Million Ponzi Scheme Defrauds Investors

According to the Securities and Exchange Commission (SEC), Edward Lee Moody, the owner of CM Capital Management LLC in Virginia has been charged with operating a $5 million Ponzi scheme that allegedly defrauded approximately 60 investors. The SEC has been granted a restraining order to freeze assets in more than 30 brokerage and bank accounts controlled by CM Capital Management. They are also seeking an injunction, disgorgement, and fines and penalties against Moody and CM Capital Management.

According to the SEC, Moody represented CM Capital as a successful money management firm that invested client money in securities. To support alleged profitable investments, CM Capital Management created fictitious monthly account statements for investors that showed high returns. Instead of actually investing his clients' money, Moody used it to pay off earlier investors and to fund his personal trading and expenses for a new house, a new car, exotic travel, and other luxury items. Moody created a separate company, G.E. Holdings, to receive and transfer funds from exploited investors. At least 13 of Moody's alleged Ponzi scheme victims were elderly adults who funded their investments by liquidating existing IRA accounts.

Moody launched CM Capital Management in June 1999, and his Ponzi scheme activities began in October 2009. In addition to close to $5 million in losses for investors between 2009 and 2017, Moody allegedly took more than $1.1 million from investment fraud victims in 2018.

Ponzi schemes take millions from investors. They promise low-risk investments with high returns. Rather than investing client funds, money collected from new investors is used to pay prior investors. Since Ponzi schemes have no legitimate earnings, they require a constant flow of new money to succeed. When new investors fall off or a lot of existing investors cash out, Ponzi schemes typically collapse rather quickly.

Investors who have been victimized by investment fraud may be able to recover damages, which could include investment principal, expected gains if money had been invested appropriately, arbitration costs, and attorney's fees. In cases where egregious misconduct is involved, investors may be entitled to punitive damages. Most cases against brokerage firms are handled through mandatory FINRA arbitration. For help with investment fraud loss, contact the attorneys at Meyer Wilson at (614) 532-4576 today to set up a free case consultation.

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Did You Overpay for Mortgage Bonds?

The SEC has charged Merrill Lynch with misleading customers on mortgage bond prices and overcharging for trades to increase profits.

Mortgage Bond Fraud

The Securities and Exchange Commission (SEC) has ordered Merrill Lynch to pay $15.7 million to settle allegations of securities fraud. According to an SEC investigation, Merrill Lynch traders and salespeople overcharged customers for residential mortgage bond trades between 2009 and 2012. Merrill Lynch RMBS traders lied to bank customers about the actual price they paid for the securities, according to the SEC. Since mortgage bond pricing is not public information and bonds are not publicly traded on an exchange, customers were easily duped by broker-dealers who negotiated the bond transactions.

The SEC investigation revealed that Merrill Lynch RMBS traders lied to customers about mortgage bonds prices and increased the prices to raise their profits on the trades. By deceiving customers with misleading statements and undisclosed, excessive markups on mortgage bond trades, Merrill Lynch acted recklessly according to the SEC. The SEC further alleged that Merrill Lynch RMBS traders charged some customers twice the amount they should have paid. Although Merrill Lynch had policies in place that prohibited traders from making false or misleading statements, they failed to implement the procedures and monitor traders' communications with customers according to the investigation.

The SEC investigation found that Merrill Lynch failed to properly supervise RMBS traders. By doing so, they allowed brokers to participate in mortgage bond trades that violated anti-fraud federal securities laws. As part of the settlement agreement, Merrill Lynch has been ordered to pay more than $10.5 million to customers and a fine of $5.2 million to the SEC for illegal securities fraud actions. Merrill Lynch agreed to the settlement without admitting or denying SEC allegations and issued a statement that they have taken steps to improve in-house procedures to prevent repeated actions.

Stockbrokers and financial advisors have a duty to recommend investments that are appropriate based on their clients' specific circumstances. Unfortunately, many investors are deceived by unethical brokers who put their profits above their clients' best interests. When an investor suffers financial losses due to fraud and investment misconduct, a claim can be filed through an investment fraud attorney. In most cases, claims against brokers are handled through FINRA arbitration.

Every case is different but investors who have been cheated out of their investments due to illegal, fraudulent broker actions can recover damages, which may include their investment principal, expected gains if money had been invested appropriately, arbitration costs, attorney's fees, and punitive damages if egregious misconduct was involved. If you lost money because of broker misconduct, call our investment fraud attorneys at Meyer Wilson today at (614) 532-4576 to schedule a free consultation.

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SEC Charges Transamerica Entities $97 Million over Faulty Investment Models

The Securities and Exchange Commission (SEC) announced that it charged four Transamerica entities $97.6 million for its misconduct in misleading retail investors with faulty investment models.

The SEC found that the faulty models developed and used by AEGON USA Investment Management LLC, affiliated advisers Transamerica Financial Advisors Inc. and Transamerica Asset Management Inc., and affiliated broker-dealer Transamerica Capital Inc. contained a number of errors and failed to work in the way that investors were promised. The affected companies reportedly invested billions of dollars into strategies and mutual funds that used this faulty model, and when the issues were discovered, the investment companies simply stopped using the models without first informing the investors of the errors or changes in models.

“Investors were repeatedly misled about the quantitative models being used to manage their investments, which subjected them to significant hidden risks and deprived them of the ability to make informed investment decisions,” Co-Chief of the SEC Enforcement Division’s Asset Management Unit C. Dabney O’Riordan said in a press release.

The four Transamerica entities agreed to settle the charges without admitting or denying the findings, and will pay a $36.3 million penalty, $53.3 million in disgorgement, and $8 million in interest to the affected investors through a fair fund. In addition to the $97.6 million charges, former AEGON USA Investment Management LLC Global Chief Investment Officer Bradley Beman and former AEGON USA Investment Management LLC Director of New Initiatives Kevin Giles were charged as the cause of some of these violations. Beman was charged $65,000 and Giles was charged $25,000 in penalties for their failure to take reasonable steps to ensure the models worked as intended and for contributing to the company’s compliance failings.

If you lost money after being misled by a broker or investment agency, you may be able to recover some or all of your losses by filing a claim. Our investment fraud lawyers at Meyer Wilson have represented thousands of investors since we first opened our doors nearly two decades ago, and we understand what it takes to secure the verdict or settlement you require. Through our efforts, we have secured more than $350 million in verdicts and settlements, and we continue to fight for the rights of our clients every day. Schedule a free consultation with a member of our firm through our online form.

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SEC Issues Warning About Cryptocurrencies, IRA Fraud

The United States Securities and Exchange Commission (SEC) recently issued an investor warning about the growing risks posed by unregistered IRAs and the growing levels of investment in cryptocurrencies.

According to the SEC, the unregistered IRA market is estimated at approximately $100 billion in value, and while it gives people the opportunity to invest in properties outside the stock market like cryptocurrencies, private company stock, precious metals, and more, there is considerable risk in doing so. In its warning, the SEC reminded investors that these self-directed IRAs do not fall under the agency’s oversight – while there wasn’t a single event that pushed the agency to issue this warning, the entrance of cryptocurrency into the mainstream pushed it to update consumers to the potential risks.

"Now that some self-directed IRAs include digital assets — cryptocurrencies, coins and tokens, such as those offered in so-called initial coin offerings — we think it is important to alert investors about the potential risks and fraud involved with these kinds of investments that may not be registered," Director of the SEC's Office of Investor Education and Advocacy Lori Schock said in an interview with CNBC.

This is not the first time that the SEC has issued a warning to investors about cryptocurrency. Earlier this year, the agency stated that investors needed to use caution when diving into this new type of investment, especially since many of these exchanges are not regulated.

In its latest warning, the SEC noted that while self-directed IRAs are required to be set up by authorized custodians, these individuals don’t validate the legitimacy of any given investment which can increase the risk of being scammed. With a growing number of people from the baby boomer generation moving into retirement, the issue is growing as the potential number of targets grows in size. One key red flag to look out for, according to Executive Director of the Retirement Industry Trust Association Mary Mohr, is when promoters say that an investment was approved by the IRS – the IRS does not approve assets. Most importantly, any time an investment seems too good to be true, there’s a high likelihood that it is, and it actually a scam.

The SEC included a number of tips and examples of fraud in its investor warning, which can be found here. If you were the victim of fraud, our investment fraud lawyers at Meyer Wilson are ready to hear your story. With nearly two decades of experience under our belts, we understand what it takes to fight for and secure the maximum compensation possible. Since our firm first opened its doors, we have successfully recovered more than $350 million for our clients. Fill out our online form to schedule a free, in-depth consultation with a member of our firm.

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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.

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SEC's Best Interest Standard Causing Confusion Over Undefined Rules, Vague Language

The Securities Exchange Commission (SEC) has proposed a new best interest standard that requires brokers to act in the best interest of their clients, but the rule lacks clarity.

What is the Best Interest Standard?

Recently, a new “best interest standard” proposed by the SEC is creating confusion about broker-dealer rules related to an investor's best interest. The rule addresses the question of whether changes should be made to one of the standards of conduct that may apply to broker-dealers who make recommendations about securities to investors and retail clients. Due to the relationships between brokers and investors, the potential for conflicts of interest is high. Unethical brokers who seek to maximize personal profits sometimes sell products that are not in the client's best interest.

Since broker-dealers provide recommendations and advice on investments, they are subject to certain FINRA rules and regulations under the Exchange Act. While FINRA rules and regulations are extensive, there is no specific obligation under the Exchange Act that broker-dealers must make recommendations that are in their clients' best interest. The new SEC “best interest standard” seeks to make enhancements to current regulations and better clarify the “best interest obligation” for all broker-dealers. Of course, there are other standards of conduct under state statutory laws or common law that may apply in many circumstances.

FINRA is primarily responsible for holding broker-dealers to the appropriate standard of care and enforcing the securities laws and regulations. When violations occur, FINRA can issue steep fines and suspensions against firms and individuals and bar brokers from practicing within the securities industry.

Whatever the standard, brokers have a duty to recommend investment products and trading strategies that are suitable for their clients. When they recommend unsuitable investments, brokers and their firms can be held liable for damages. Those who have lost money from risky investments may have a cause of action against the broker who recommended that investment. Investors may be able to recover some or all of their financial losses.

If you lost money because of your broker’s actions, our investment fraud lawyers at Meyer Wilson may be able to help you fight for the compensation you deserve. We have worked with thousands of clients since we first opened our doors in 1999, and through our efforts have secured more than $350 million in verdicts and settlements. Fill out our online form today to schedule a free case evaluation, or call us at (614) 532-4576 to speak with a member of our firm over the phone.

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