California Securities Fraud Lawyer Blog

Montana Securities Regulators Take Disciplinary Action Against Securities America Over Medical Capital Fiasco

Tue, 24 Aug 2010 12:00:52 -0800

On August 4, 2010, the Montana Securities and Insurance Commissioner filed a disciplinary action against Securities America and several of the firm's top executives alleging securities fraud in connection with the sale of the failed Medical Capital private placement. The Montana lawsuit seeks the imposition of fines and restitution on behalf of four different groups of investors identified in the lawsuit and also to provide appropriate restitution to all Montana participants. Montana's disciplinary action is similar to the lawsuit filed by the Commonwealth of Massachusetts against Securities America back in January 2010.

For more information, select a topic below:

Securities Regulators Vow to Make the Protection of Senior Investors a Top Priority

Thu, 12 Aug 2010 10:53:59 -0800

If the type of cases that are coming into my securities law firm are any indication, then claims of account mismanagement and securities fraud involving senior citizens are on the rise. Without a doubt, the recent economic downturn wreaked havoc on many retirement portfolios. According to the Investment Company Institute (ICI), retirement assets in the United States fell by $4.5 trillion between the end of 2007 and the first quarter of 2009.

Because the estimated number of Americans who are 65 or older will more than double to 89 million individuals over the next 4 decades, regulators have made protecting seniors from investment fraud and abuse a top priority. In a report issued today by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and the North American Securities Administrators Association ("NSAA"), the three agencies outlined the steps that financial services firms should take in order to improve their policies and procedures when working with senior investors. Click here to download the joint report.

The regulators are urging financial services firms to adopt these latest practices when serving senior investors. "Best practice" guidelines alone, however, are not enough to protect millions of soon-to-be-retired baby boomers. Securities regulators will need to aggressively monitor and bring enforcement cases against financial services firms that prey upon senior investors.

California Stockbroker Discipline Report for July 2010

Mon, 02 Aug 2010 15:33:41 -0800

The following information regarding broker misconduct and disciplinary activities taken against California stockbrokers was released by the Financial Industry Regulatory Authority (FINRA) in July 2010:

Stephen White Wilson (Westlake Village and Thousand Oaks, California) formerly with AFA Financial Group, Brookstreet Securities, Wedbush Morgan Securities, Securities America and Wachovia Securities, among others, was barred from association with any FINRA member in any capacity for making fraudulent and material misrepresentations in the sale of mutual funds, inducing customers to switch mutual funds, and for engaging in unauthorized trading when switching customers from Class B to Class C mutual fund shares. Mr. Wilson has appealed this decision.

First Allied Securities, Inc. (formerly known as FFP Securities, Inc.) of San Diego, California, was fined $27,500 and, without admitting liability, consented to an entry of findings that the firm failed to provide customers with a confirmation and other information disclosing the total price paid or the amount of commission paid by customers in connection with the purchase of variable life settlements. The findings also noted that the firm failed to supervise the broker that handled the life settlement transactions.

Seyed Ahmad Hashemian formerly with Centaurus Financial and formerly with First Allied Securities/FFP Securities was censured and fined $10,000. Without admitting or denying the findings, Hashemian consented to findings that he failed to provide customers with a confirmation and other information disclosing the total price paid or the amount of commission paid by customers in connection with the purchase of variable life settlements.

Wedbush Securities, Inc. based in Los Angeles, California, was fined $10,000 and made restitution totaling $581.38. Without admitting liability, the firm consented to an entry of findings that it failed to fully and promptly execute orders and use reasonable diligence to ascertain the best inter-dealer market and also failed to take steps to ensure that the resultant price to its customer was as favorable as possible under prevailing market conditions.

Stephen A. Hancock formerly with Wells Fargo Investments and Wells Fargo Bank in San Francisco, California, was barred from association with any FINRA member in any capacity for misappropriating $11,320 in funds from an elderly bank customer's account.

Jeffrey Scott Mayer formerly with The Seidelman Companies Incorporated and now with Crowell, Weedon & Co. was fined $5,000 and suspended effective June 21, 2010, through July 16, 2010, for failing to supervise a broker who improperly handled customer accounts in his branch office.

Michael Alcide Poutre (Tarzana and Beverly Hills, California), formerly with Brookstone Securities, Maxxtrade, Inc. and GunnAllen Financial California was fined $5,000 and suspended from association with any FINRA member in any capacity for two years for failing to provide complete responses to FINRA requests for information and documents in a pending investigation.

Investor Home Equity to be Excluded from $1 Million Minimum Net-Worth Requirement for Accredited Investors

Wed, 21 Jul 2010 14:15:44 -0800

Today, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009. Now, brokers will have a much harder time justifying the sale of private placements to small investors. Effective as of July 21, 2010, an investor's primary residence will no longer be considered when attempting to qualify for the $1 million minimum net-worth requirement for accredited investors under Rule 501(a)(5) of Regulation D. Also, one year from the date of enactment, the SEC will undertake a review of the "accredited investor" definition to determine whether any other requirements should be implemented for the "protection of investors, in the public interest, and in light of the economy."

See Related Blog Postings:

It's Time to Change the Accredited Investor Rule for Private Placements

Even for Accredited Investors, Stockbroker Recommendations to Buy Private Placements Are Subject to the Suitability Rule

FBI Reports 105% Increase in High Yield Investment Fraud Investigations

Mon, 19 Jul 2010 11:58:01 -0800

According to an FBI report on Securities Fraud before the Senate Judiciary Committee, there was a 105% increase in High Yield Investment Program investigations by the Bureau in 2009. My California securities law firm has also experienced a similar surge in investor complaints involving high-yield investments like Medical Capital Notes, which were sold through a network of brokerage firms such as Securities America, a firm that is now the subject of numerous securities fraud lawsuits and class action lawsuits.

High Yield Investment Programs ("HYIP") may seem like the ideal investment for retirees seeking greater income. However, for most investors, the acronym HYIP really stands for "Hazardous to Your Investment Portfolio." Promising large returns with seemingly no risk, these high yielding investments have raised millions of dollars from unsuspecting investors. In reality, many of these to-good-to-be-true investments turned out to be nothing more than Ponzi Schemes that needed to bring in new investor money in order to continue paying existing investors. During the recent financial crisis, many of these Ponzi schemes ultimately fell apart when the pool of available investors evaporated.

High yield investments are often sold through private placements that can only be purchased by "accredited investors." Because private placements are typically high risk investments with limited liquidity, they are only suitable for wealthy and sophisticated investors who can bear the risk of loss.

See related blog posting:

Even for Accredited Investors, Stockbroker Recommendations to Buy Private Placements Are Subject to the Suitability Rule

California Stockbroker Discipline Report for June 2010

Fri, 09 Jul 2010 14:18:03 -0800

Donald Edwin Derieg, formerly with Wedbush Morgan Securities in Encino, California, was barred from association with any FINRA member in any capacity for what appears to be a case of elder financial abuse. According to FINRA, Mr. Derieg acted as a successor co-trustee in an elderly customer's account, was appointed as a beneficiary of the client's trust and life insurance policy, borrowed money from the client and made unsuitable investment recommendations.

Carlos Suazo of Marina del Rey, California, formerly with MetLife Securities, Inc. in Los Angeles, California, was barred from association with any FINRA member in any capacity for misusing $12,000 in customer funds that were supposed to be used to purchase a variable annuity.

IMH Secured Loan Fund: Investor Class Action Filed

Tue, 15 Jun 2010 17:16:23 -0800

On June 7, 2010, an IMH Secured Loan Fund Unitholder, filed a proposed class action lawsuit captioned, Charlotte Wood, on behalf of herself and all others similarly situated v. IMH Secured Loan Fund, LLC, IMH Financial Corporation, Investors Mortgage Holdings, Inc., IMH Holdings, LLC, IMH Management Services, LLC, Shane Albers, William Meris and Steven Darak (the "IMH Defendants"), before the United States District Court for the District of Arizona (the "Wood Action"), as well as an application to enjoin the vote from proceeding. In summary, the Wood Complaint alleges that the Conversion Transaction was: (1) being effectuated pursuant to a false and misleading Consent Solicitation and other false statements by the IMH Defendants, and (2) that the Conversion Transaction was both procedurally and substantively unfair to IMH Unitholders. Therefore, the complaint alleges, the Conversion Transaction is a breach of both the IMH Defendants common law fiduciary obligations to the Unitholders and their duties under the Fund's Operating Agreement.

On June 9, 2010, the IMH Defendants announced that they had obtained a sufficient number of votes to move forward with the Conversion Transaction, although the vote had not been certified, thereby mooting Wood's injunction motion. According to the preliminary results reported by IMH, 64.67% of the total membership interests submitted a vote with 57.48% of the net votes being cast in favor of the Conversion Transaction. On June 10, 2010, the IMH Defendants further announced that they were voluntarily dismissing the action entitled, IMH Secured Loan Fund, LLC v. David I. Kurtz, an individual, on behalf of himself, and all other persons similarly situated, Case No. 2:10-01071-ROS (the "Kurtz Action"), which they had filed before the Arizona court, alleging that certain Unitholders were trying to interfere with the vote.

On June 14, 2010, the "Committee to Protect IMH Secured Fund," filed an action and injunction motion similar to the Wood Action, before Vice Chancellor Leo Strine in the Chancery Court for the State of Delaware. Thereafter, the Vice Chancellor Strine held a short telephonic hearing indicating that he was denying any application for injunctive relief, but that the any harm to the Unitholders as a consequence of the Conversion Transaction and the attendant vote, could be compensated for by monetary damages. Wood has re-filed her action before Vice Chancellor Strine, and intends to continue her action for damages on behalf of the Unitholders.

Click here for more blog postings about the IMH Secured Loan Fund

California Stockbroker Discipline Report for May 2010

Tue, 01 Jun 2010 10:23:33 -0800

Mission Securities Corporation of San Diego, California, was expelled from FINRA membership and the firm's principal Craig Michael Biddick was barred from association with any FINRA member in any capacity. The firm and Mr. Biddick were also ordered to pay $38,946.06, plus interest, to customers, for converting and misusing securities held in customer accounts to pay firm operating expenses.

Wedbush Morgan Securities Inc. of Los Angeles, California was censured and fined $12,500 and required to make restitution to customers totaling $5,986.26 for allegedly selling municipal securities to customers from its own account at unfair and unreasonable prices.

Martin David Batstone with Independent Financial Group in San Diego, California, and formerly with QA3 Financial Corporation was fined $5,000 and suspended from association with any FINRA member in any capacity for 10 business days for allegedly participating in the sale of equity indexed annuities when his employing brokerage firm did not have a selling agreement with the issuing companies.

Jason Allen Groth with Independent Financial Group in San Diego, California, and formerly with QA3 Financial Corporation was fined $5,000 and suspended from association with any FINRA member in any capacity for 90 business days for allegedly participating in the sale of equity indexed annuities when his employing brokerage firm did not have a selling agreement with the issuing companies. Mr. Groth consented to the described sanctions and to the entry of findings that he failed to disclose to his employing firm that he sold equity-indexed annuities with a face-value of $4,800,000 for which he earned approximately $524,142 in commissions.

Reed Theodore Johnson with CUSO Financial Services in San Diego, California, was fined $7,500 and suspended from association with any FINRA member in any principal capacity for 10 business days for allegedly approving the unsuitable sale of securities by a broker under his supervision.

Harold ("Hal") Sheldon Minsky with J.H. Darbie & Co., Inc.--recently with Strasbourger Pearson Tulcin Wolff Incorporated; Peak Securities Corporation; and also National Securities Corporation--was fined $10,000 and suspended from association with any FINRA member in any capacity for 30 days for allegedly selling unregistered stock that was not exempt from registration resulting in net proceeds of $6 million that was wired to offshore accounts.

FINRA Files Complaint Against Thomas Weisel Partners LLC Over Sale of Auction Rate Securities (ARS)

Fri, 28 May 2010 09:28:07 -0800

Thomas Weisel Partners LLC based in San Francisco, California, was named in a securities fraud lawsuit filed by the Financial Industry Regulatory Authority (FINRA) alleging that the firm and the head of its fixed income desk, Stephen Henry Brinck Jr., sold $15.7 million worth of auction rate securities (ARS) to customers out of the firm's own accounts without their customers' knowledge or consent. FINRA's complaint further alleges that, after "stuffing" customer accounts with ARS, the firm gave false and misleading information to its customers about the transactions in an attempt to have the customers forfeit their right to take any legal action against the firm. (FINRA Case #2008014621701).

IMH Secured Loan Fund IPO: Management Wants to Come Out of Hibernation

Mon, 24 May 2010 16:30:14 -0800

My securities law firm represents several IMH investors, some of them unaccredited investors who never should have been allowed to purchase the fund in the first place. A large percentage of these investors purchased the IMH Secured Loan Fund from brokers registered with Independent Financial Group. My clients want their money back as soon as possible. The quickest way to accomplish this was to cash out at the price of $1,000 per unit as part of the tender offer from MacKenzie Patterson Fuller (MPF) which expired on April 26, 2010. Admittedly, the $1,000 per unit price is a steep discount from the $4,406.86 per unit book value reported by IMH in the Form 10-K recently filed with the SEC for the period ending December 31, 2009. However, investors currently have no way to sell or redeem their units at this or any other price. The next opportunity for investors to sell their units may be as part of an initial public offering (IPO)--assuming the company's restructuring plan is approved by investors and the company can pull off a successful IPO under what may prove to be very challenging market conditions. IMH management anticipates that the initial IPO price will be set at a discount to the book value per share price.

There is at least one group lead by LGM Capital Partners LLC that is opposing IMH's plan and advising members to vote against the reorganization. On May 18, 2010, "The Committee to Protect IMH Secured Loan Fund" filed a statement with the SEC advising members to reject management's restructuring plan. Additional information was filed by the committee on May 20, 2010. Click here to download the committee's "talking points" which was intended for use by broker dealers when advising customers about IMH management's proposal.

Investors have until 5. p.m. on June 14, 2010, to cast their vote on management's proposal to restructure the company. If management's plan is approved, investors will be allowed to exchange one ownership unit for 220.3419 shares of Class B or Class C common stock. When investors cast their vote, they must elect whether to receive Class B stock, Class C stock, or some combination of the two. Those who do not make an election will automatically receive Class B common stock in exchange for their membership units.

Even investors who plan to vote against the restructuring plan
should make an election, just in case the plan is approved.

Many investors are understandably confused about the different classes of shares. Investors who elect to receive Class B shares will receive a fixed percentage of series B-1, B-2 and B-3 stock. Class B shares cannot be sold immediately after the IPO. Series B-1 shares can be sold 6 months after the IPO. Series B-2 shares can be sold 9 months after the IPO, while Series B-3 shares may not be sold until 12 months after the IPO. Class C shares, on the other hand, can be sold immediately after the IPO. Investors who want to liquidate their investment at the next available opportunity may want to convert some or all of their units into Class C shares, rather than Class B shares. Investors who can afford to hold onto their investment long-term and are optimistic about the company's prospects may want to choose Class B shares.

Below is a chart that was presented to investors during a video produced by IMH's management in support of the restructuring plan.

Click on image to enlarge.

Click here for more blog postings about IMH Secured Loan Fund.

California Stockbroker Discipline Report for April 2010

Sat, 01 May 2010 12:39:20 -0800

Heriberto Americo Artiga Sr. of Sylmar, California, formerly with Lincoln Financial Securities Corporation in Downey, California, was barred from association with any FINRA member in any capacity for engaging in private securities transactions involving the sale of $2.5 million of promissory notes to individuals that were promised to be risk-free, high yield investments.

Horus River Brown, formerly with Banc of America Investment Services in La Jolla, California, was barred from association with any FINRA member in any capacity for engaging in a private securities transaction outside the scope of his employment involving the investment of $200,000 in a convertible debenture that Brown promised would return 10 percent within ten months.

Keevin Lorenzo Gillespie of Santa Ana, California, formerly with National Securities Corporation in Irvine, California, was suspended from association with any FINRA member in any capacity for nine months for exercising control over elderly individuals' accounts and effecting excessive and unsuitable securities transactions in the accounts causing a total net loss of approximately $135,414 and generating gross commissions totaling approximately $182,820.26.

Scott Daniel Hendrickson of Yorba Linda, California, formerly with Ameriprise Advisor Services, was fined $10,000 and suspended from association with any FINRA member in any capacity for two years. Hendrickson was terminated by Ameriprise for misappropriation/conversion of customer funds and unauthorized trading.

Richard Alan Mechikoff Jr., formerly with Securities America in Fresno, California, was fined $10,000 and suspended from association with any FINRA member in any capacity for two years for making unauthorized and unsuitable recommendations resulting in the excessive concentration of speculative and volatile stocks in customer accounts.

William Frederick Nord, formerly with Morgan Stanley in Newport Beach, California, was fined $2,500 and suspended from association with any FINRA member in any capacity for 10 business days for settling a customer's complaint by paying the customer and agreeing to lower commission rates on the customer's future stock purchases without his member firm's knowledge or approval.

It's Time to Change the Accredited Investor Rule for Private Placements

Thu, 29 Apr 2010 10:52:23 -0800

My California securities law firm has been inundated with inquiries from small investors who were sold unregistered private placements even though they were clearly not wealthy or financially sophisticated. Some of these private offerings--such as those issued by Medical Capital Holdings and Provident Asset Management--turned out to be outright frauds.

The private placements that are causing the most trouble were widely sold by stockbrokers who were only allowed to target wealthy individuals that have the financial capability to bear the risk of investing in unregistered and illiquid securities. These qualified investors are referred to as "accredited investors" under the federal securities laws. As discussed in a previous blog posting about accredited investors, an individual will be considered "accredited" if they have a net worth of $1 million or an annual income in excess of $200,000 (or $300,000 when combined with a spouse). The financial threshold for "accredited investors" was established under "Regulation D" which was adopted back in 1982. These requirements have not been updated since they were implemented 28 years ago. According to an analysis conducted by Businessweek, if adjusted for inflation, the accredited investor net worth requirement would increase from $1 million to $2.25 million and the income requirement would increase to $449,000 (single) and $674,000 (married). It is estimated that there were approximately 1.5 million "accredited investors" back in 1982. By 2008, the estimated number of households that were "accredited" swelled to as much as 7.2 million.

With such a low barrier to entry, many small investors were allowed to unwittingly put their retirement savings at risk--often lured by assurances from their stockbroker of high returns, safety and liquidity. An increase in the accredited investor qualification requirements is necessary to curtail the sale of private placements to individuals who can least afford to lose their investment.

See related blog posting:

UPDATE: Investor Home Equity to be Excluded from $1 Million Minimum Net-Worth Requirement for Accredited Investors

Even for Accredited Investors, Stockbroker Recommendations to Buy Private Placements Are Subject to the Suitability Rule

Charles Schwab Settles YieldPlus Class Action Securities Lawsuit

Tue, 20 Apr 2010 08:46:03 -0800

Charles Schwab has agreed to settle a securities class action lawsuit filed in San Francisco federal court on behalf of investors who purchased its YieldPlus Fund. Without admitting liability, Charles Schwab has agreed to pay the plaintiffs $200 million in order to avoid trial which had been scheduled for May. Losses sought by the plaintiffs in the class action were as much as $802 million. The settlement has yet to be approved by the court. Also, investigations into Schwab's handling of the YieldPlus fund by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are still ongoing.

Medical Capital Update: Stockbroker's License Revoked for Violating the Prohibition Against General Solicitations

Mon, 12 Apr 2010 18:00:00 -0800

On April 12, 2010, the Colorado Division of Securities revoked the securities license of stockbroker John B. Guyette for his role in the sale of Medical Capital Notes to a number of Colorado investors in violation of Rule 502 of Regulation D, which prohibits general solicitations or advertisements in connection with the sale of private placements. Under Regulation D, sales agents may only target potential investors with whom they have a substantial pre-existing relationship.

The types of general solicitations that are prohibited under Regulation D typically include: (1) newspaper advertisements; (2) radio or television broadcasts; and (3) seminars or meetings. Only when there is a substantive and pre-existing relationship, can a stockbroker target a particular investor to purchase a private placement. One of the purposes of the "preexisting relationship" requirement is to ensure that the selling agent is reasonably certain that the targeted investor is sufficiently sophisticated in financial matters to participate in the offering. According to the Securities and Exchange Commission (SEC), the mere fact that sales are directed only to accredited investors does not mean that the solicitation is in compliance. The Alcala Law Firm is pursuing securities arbitration claims on behalf of Medical Capital investors who were improperly targeted by stockbrokers through general solicitations. Many of these investors were financially unsophisticated and/or did not qualify as accredited investors.

See related blog posting:

Even for Accredited Investors, Stockbroker Recommendations to Buy Private Placements Are Subject to the Suitability Rule

IMH Secured Loan Fund Tender Offer (Update 1)

Thu, 01 Apr 2010 18:00:00 -0800

Today, management for the IMH Secured Loan Fund filed with the Securities and Exchange Comission (SEC) a statement [Form SC 14D9] recommending that investors reject the tender offer from MacKenzie Patterson Fuller (MPF) to purchase their units at a price of $1,000 per unit. MPF's offer expires April 26, 2010. MPF is offering investors the opportunity to obtain an immediate cash out of their investment in the fund. IMH's fund manager characterized the tender offer as "an opportunistic attempt to deprive the Members of the Fund who tender Units in the Offer of the potential opportunity to realize a greater long-term value of their investment in the Fund." IMH's fund manager, however, could not provide any guarantees or assurances to investors about the fund's long-term prospects. Before deciding whether to accept or reject the tender offer, investors are strongly urged to read "Item 8 (Additional Information)" contained in the recent SEC filing by the fund's manager.

Investors in desperate need of cash who accept MPF's tender offer may be able to recover some or all of their losses through securities arbitration. The Alcala Law Firm currently represents several investors, many of them elderly or retired, who are pursuing arbitration claims against their financial advisors for inappropriately recommending the IMH fund to them.