Securities Arbitration Lawyers Blog

SEC Charges Oregon-based Aequitas Management LLC and Its Executives with Operating $350 Million Investment Fraud

March 16, 2016 | Silver Law Group

The U.S. Securities and Exchange Commission (SEC) has charged Oregon-based Aequitas Management, LLC (“Aequitas”), and several of its executives with operating a $350 million investment scheme that defrauded investors in a last-ditch effort to raise funds to save Aequitas from a complete financial collapse. Aequitas, along with CEO Robert J. Jesenik, Executive Vice President Brian A. Oliver, and former CFO and COO N. Scott Gillis, were charged with multiple violations of federal securities laws in a Complaint filed in Oregon federal court. The SEC is seeking injunctive relief, disgorgement of ill-gotten gains, prejudgment interest, and civil monetary penalties as well as bars prohibiting Jesenik, Oliver, and Gillis from serving as officers or directors of any public company.

According to the SEC’s Complaint, Aequitas and four of its corporate affiliates (Aequitas Holdings LLC, Aequitas Commercial Finance LLC, Aequitas Capital Management Inc., and Aequitas Investment Management LLC) defrauded more than 1,500 investors nationwide between January 2014 and January 2016 into believing they were making health care, education, and transportation-related investments. To the contrary, the Complaint alleges that invested funds were instead being used for other purposes, including to pay lucrative salaries and extravagant perks for Jesenik, Oliver, and Gillis; and to stave off the businesses’ impending financial collapse. In mid-2014, Corinthian Colleges, a for-profit education provider, defaulted on its recourse obligations to Aequitas, which significantly increased Aequitas’ already dire cash flow problems. Rather than disclose to its investors the rapidly deteriorating state of its finances, Aequitas purportedly hid that vital information and used investor funds to keep its enterprise afloat — even using some new investor funds to pay earlier investors in a classic Ponzi scheme fashion. By November 2015, Aequitas’ operations reached a point of nearly total collapse; and in February 2016, the firm dismissed two-thirds of its employees and hired a Chief Restructuring Officer.

“We alleged that Aequitas had severe and persistent cash flow shortages and top executives knew they weren’t using money raised from investors like they said they would. But they refused to disclose the true financial condition, continued to draw lucrative salaries, and roped even more unknowing investors into a losing venture,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office.

Broker Li Lin Hsu Suspended by Request of FINRA

March 16, 2016 | Silver Law Group

Broker Li Lin Hsu Suspended by Request of FINRA on silverlaw.com

Sales practice violations, misconduct and failure to respond to a FINRA request for information lead to suspension

Formerly registered with Ameriprise Financial in California, ex-broker Li-Line Hsu was recently suspended by the Financial Industry Regulatory Authority (FINRA). He was suspended under Rule 9552 which was failure to keep information current or to provide information.

Individuals who are subject to FINRA’s jurisdiction are responsible for providing testimony, data, reports, materials or information that has to be filed with the government agency. Individuals also responsible for keeping their supporting documents and membership applications current.

Silver Law Group Investigates CONCERT Wealth Management, Summit Advisor Solutions, Private Advisory Group and other RIAs who Sold Aequitas Securities Amidst SEC Allegations of it Running a “Ponzi-like” Scheme

March 16, 2016 | Silver Law Group

Silver Law Group is investigating numerous registered investment advisors (“RIAs”) connected to Oregon-based Aequitas Management, LLC’s (“Aequitas”) “Ponzi-like” scheme and $350 million of investor losses.

On March 10, 2016, the Securities and Exchange Commission (“SEC”) filed a complaint against Aequitas and its various subsidiaries. The complaint’s most damning allegations include Aequitas defrauded over 1,500 investors nationwide between Jan. 2014 and Jan. 2016 of more than $350 million as a last-ditch effort to raise funds to save it from complete financial collapse. This “Ponzi-like” scheme defrauded investors while the most senior executives used the investments to fund their lucrative salaries and extravagant company perks, according to the complaint.

According to news reports, numerous RIAs have been connected with the fraudulent Aequitas, including:

FBI Raids United Development Funding (“UDF”) Headquarters Amidst SEC Investigation

March 15, 2016 | Silver Law Group

On February 18, 2016, the FBI raided the headquarters of UDF, the manager of a family of real estate investment trusts (“REITs”) and other funds, sending shares of UDF’s largest fund, United Development Funding IV (“UDF IV”), tumbling 54% before NASDAQ halted trading, according to InvestmentNews.

The FBI raid is the most recent negative activity for the troubled fund manager. In November 2015, UDF’s auditor, Whitley Penn disclosed he would no longer be auditing UDF’s financial statements and UDF board member William Kahane resigned. A few weeks later in December 2015, Kyle Bass and his firm Hayman Capital Management, posted a report and letter alleging UDF was managed “like a Ponzi scheme.” UDF responded to the reports, saying that it had been under SEC investigation since April 2014.

On February 5, 2016, Bass and his firm set up the website https://udfexposed.com/ in order to further substantiate his allegations. Additionally, Bass revealed that he had a significant short position in UDF.

Former Smith Barney, Raymond James, and Morgan Keegan Broker Claus Foerster Indicted for Fraud

March 14, 2016 | Silver Law Group

A grand jury of the U.S District Court in Spartanburg, S.C. indicted former broker Claus C. Foerster (CRD# 1912949) for defrauding clients of $2.8 million over a 14-year period.

Foerster perpetrated the fraud from 2000 to June 2014 while employed as a financial advisor at Smith Barney & Co., Morgan Keegan & Co. and Raymond James Financial Inc., according to an indictment filed March 8, 2016 in the U.S. District Court in Spartanburg, S.C.

The charges follow the Financial Industry Regulatory Authority Inc.’s 2014 decision to bar Foerster from the brokerage industry due to allegations that he was running a Ponzi scheme.

California Broker Rick Esparza Borrowed Money From Client, Permanently Barred by FINRA

March 9, 2016 | Silver Law Group

California Broker Rick Esparza Borrowed Money From Client, Permanently Barred by FINRA on silverlaw.com

Failure to respond to FINRA’s request regarding customer loan ends securities career.

In August 2015, Princor Financial Services Corp. broker Rick Esparza consented to findings he borrowed money from his client. The California broker allegedly made numerous withdrawals from his client’s variable annuity totaling a personal loan of $67,500. When Esparza failed to make timely payments, the client complained.

As a result, the client was granted $75,000 in settlement damages and, less than a week later, Princor Financial Services Corp. discharged Esparza from its employ.

Boca Raton Financial Advisor Robert Child Faces Yet Another Customer Dispute

March 8, 2016 | Silver Law Group

Boca Raton Financial Advisor Robert Child Faces Yet Another Customer Dispute on silverlaw.com

Three most recent complaints involve allegations of suitability

With almost 40 years in the securities industry, Child has a total of 14 disclosure events reported on his BrokerCheck record. Many events consist of customer disputes as to Child’s actions relating to customer brokerage accounts. The three most recent complaints involve allegations of suitability, with requested damages in excess of $2.5M since October 2015.

Previous customer disputes include allegations such as:

WFG Investments Broker Carl Busch Fined and Suspended by FINRA

March 7, 2016 | Silver Law Group

WFG Investments Broker Carl Busch Fined and Suspended by FINRA on silverlaw.com

Broker’s record includes failure to supervise, tax liens and civil judgments.

In his 46 years in the securities industry, Oklahoma City investment advisor Carl Busch has six disclosure events listed on his official FINRA BrokerCheck record. The most recent event in December 2015 shows that FINRA sanctioned Busch $5,000 and suspended him from participating in the securities industry as an advisor for 45 days.

According to the disciplinary action details, Busch failed to adequately supervise a registered representative of his firm, WFG Investments, who allegedly:

Have You Lost Money with Cantone Research Inc.?

March 1, 2016 | Silver Law Group

Have You Lost Money with Cantone Research Inc.? on silverlaw.com

Have you invested money with Cantone Research or its affiliates?

In an official FINRA disciplinary proceeding in 2012, New Jersey brokerage firm Cantone Research Inc. (CRI) and firm Vice President and Chief Compliance Officer Christine Cantone (Cantone) agreed to the entry of findings, violations, and sanctions filed against both parties. Allegations in the complaint involve Cantone’s failure to reasonably supervise broker Maxwell Baldwin Smith.

It is believed that Smith sold fictitious investments to the firm’s customers and misappropriated over $1.6 million of their funds. Cantone, according to FINRA, should have recognized certain signs of misconduct on the part of Smith, however, failed to do so, and as a result CRI investors suffered significant financial losses.

Have You Enlisted the Financial Services of William Bailey?

February 29, 2016 | Silver Law Group

Have You Enlisted the Financial Services of William Bailey? on silverlaw.com

Broker’s securities industry career is tainted with allegations, suspensions, and sanctions.

For a second time in his 25-year securities industry career, Bailey has been suspended from acting as a broker or otherwise associating with firms that sell securities to the public. This most recent suspension in November 2015 is due to Bailey’s failure to comply with an arbitration award or settlement agreement or to satisfactorily respond to a FINRA request to provide information concerning the status of compliance. According to FINRA records, Bailey was employed by Next Financial until 2008.

Bailey’s first FINRA suspension took place in September 2010 and involved allegations that Bailey made fraudulent and unsuitable mutual fund and variable annuity switch recommendations to retired and unsophisticated customers with little or no economic benefit to the customers. It was also alleged that Bailey failed to disclose key facts about investment choices, made investment trades without consulting his clients, and failed to disclose potential sales charges that ultimately cost his customers over $90,000.00 in unnecessary costs. At the same time, Bailey derived approximately $105,000.00 in commissions from these transactions.