Articles Posted in Fraud

iStock_sad-ppl-1-300x229Many people are surprised to learn that their investment losses are not covered by SIPC insurance. SIPC insurance may cover you in specific cases, but it’s important to know exactly what the Securities Investor Protection Corporation (SIPC) does and does not do.

From 1968 to 1970, confidence in the securities market plummeted as many broker-dealers went out of business. To restore faith in the market, in 1970 Congress passed the Securities Investor Protection Act. Against this backdrop, SIPC was formed—as a non-profit membership organization with no regulatory authority.

Spearheaded by its new CEO, Josephine Wang, and funded by the financial services industry itself, SIPC does not rely on taxpayer funds and is not a government agency.

Furman FordThe US Department of Justice announced on April 23, 2019 that it has arrested Raleigh, North Carolina’s Furman Ford, who has been charged with 11 counts each of wire fraud and mail fraud in the Eastern District of North Carolina.

According to the Department of Justice, Mr. Ford engaged in a scheme from August to December 2014 in which he “committed Mail Fraud and Wire Fraud based on the defendant’s scheme to submit fraudulent withdrawal letters on behalf of an elderly victim to New York Life Insurance (NYL) for payments totaling $246,000.” At the time, he was employed as a financial adviser at New York Life Insurance.

The charges against Mr. Ford note that his alleged victim in 2009 inherited property, valued at $1.3 million, from a relative in North Carolina. Mr. Ford allegedly helped this person establish a charitable trust via New York Life Insurance using the proceeds of the inheritance, and this trust allegedly provided the victim with an annuity of $6,000 per month. The charges state that Mr. Ford’s responsibilities as agent included the drafting and submission of authorized letters of withdrawal from the victim’s account to cover expenses. The charges note that firm guidelines require agents to “have the client sign the letter with ‘wet ink’ before submitting” the letters to New York Life Insurance, after which the funds in question would be wired to their recipients “as directed by the client with their full knowledge and consent.”

William Skelley and Sohin Shah

Publicly available records provided by the Securities and Excange Commission on September 26, 2018 report that the SEC has filed charges against William Skelley and Sohin Shah, in connection to allegations that the crowdfunding platform they co-founded, iFunding LLC, misappropriated more than $1 million in investor funds.

In its complaint, the SEC alleges that that Mr. Skelley and Mr. Shah employed “fraudulent claims” when they raised “$3 million from 42 investors in 17 states,” representing that their investors’ funds would be used to create an internet-based crowdfunding platform for real estate equity, when in fact they used more than $1 million of those funds “for their personal use.” The SEC alleges additionally that Mr. Skelley “made materially false and misleading oral statements” to his investors, and that in the process of soliciting investors, both iFunding and Mr. Skelley disseminated private placement memoranda that featured “false statements about the use of funds and misrepresented the number of real estate projects” funded by the company, as well as the sum of the funding raised on it.

With respect to the allegations that Mr. Skelley and Mr. Shah diverted investor funds for their own personal use, the complaint states that such use included “personal rent, trips, food, beverages, and entertainment and to make cash withdrawals.” The complaint goes on to allege that they used investor funds on expenses such as “dry cleaning and massages,” as well as “personal utilities such as cable and telephone.” Per the SEC’s complaint, “none of these purchases or cash withdrawals were for iFunding’s business operations,” and they were “far in excess of any salary or deferred compensation” the defendants were owed.

MerrillPublicly available records provided by the Securities and Exchange Commission on September 19, 2018 indicate that the SEC has obtained a court order halting “an ongoing Ponzi-like scheme” operated by Kevin B. Merrill, Jay B. Ledford and Cameron Jezierski. According to an SEC news release, the scheme raised more than $345 million in funds from more than 230 investors.

The SEC’s complaint, filed in a federal district court in Maryland, alleges that Messrs. Merrill, Ledford and Jezierski promised investors that they would make “significant profits” via the purchase and resale of consumer debt portfolios. In reality, according to the SEC, the scheme involved “a web of lies,” as well as falsified documents and forged signatures that were used to entice investors. Per the SEC, “Rather than direct investor funds to the acquisition and servicing of debt portfolios as promised, the defendants allegedly used the funds to make Ponzi-like payments to earlier investors.” The complaint alleges that Mr. Merrill and Mr. Ledford stole $85 million or more of their investors’ funds and directed them toward the upkeep of their “lavish lifestyles,” for instance, directing $10.2 million on “at least 25 high-end cars,” $300,000 on a diamond ring, and “millions of dollars on luxury homes.”

According to the complaint, Mr. Merrill himself misappropriated “at least $45 million,” including the purchase of a home in Naples, Florida using $5.5 million of investors’ funds; over $2 million for home renovations; half a million dollars “for an interest” in a private jet; and “transferring approximately $1 million to casinos.” The complaint states additionally that the defendants paid about $197 million to their investors, and that these funds mostly “consisted of money received from investors,” consequently leading their investors to believe they were making a profit from their investments when in fact they were receiving other investors’ money. “As a result, many unsuspecting investors were victimized repeatedly and referred other prospective investors,” according to the complaint.

Timothy AyrePublicly available records provided by the Financial Industry Regulatory Authority (FINRA) on September 11, 2018 indicate that FINRA has charged Timothy Ayre with securities fraud and “the unlawful distribution of an unregistered cryptocurrency security” known as HempCoin. Fitapelli Kurta is interested in hearing from investors who have complaints regarding Mr. Ayre and/or investments in HempCoin.

Timothy Ayre has spent 25 years in the securities industry and was most recently registered as a broker with Four Points Capital Partners in New York, New York (2016). Previous registrations include Spencer Edwards in Agawam, Massachusetts (2016); Jera Securities in Agawam, Massachusetts (1999-2013); Northeast Securities in Mitchelfield, New York (1997-1999); AG Edwards & Sons in St. Louis, Missouri (1994-1997); and Merrill Lynch in New York, New York (1990-1994). He is currently not registered with any state or firm. According to his BrokerCheck report, Timothy he has received three regulatory sanctions and was discharged from a former employer in connection to alleged rule violations.

In 2016 he was terminated from MML Investors Services in connection to allegations he failed to disclose outside business activities, failed to disclose his participation in private securities transactions, and potentially misrepresented material facts regarding “a statement concerning securitization of assets” by a public company in which he served as president.

Phillip Frost

The Securities and Exchange Commission has charged Phillip Frost, non-executive chairman of Ladenburg Thalmann Financial Services, with fraud in connection to an alleged “pump-and-dump” scheme. He was charged alongside nine other defendants, as well as related businesses and entities. The alleged schemes generated millions for the defendants while leaving retail investors “holding virtually worthless stock,” according to the SEC.

Philip Frost is also the Chief Executive Officer and board chairman of OPKO Health and a noted investor in biotechnology. Ladenburg Thallman is a network of independent broker-dealer firms such as Securities America, Triad Investors, and Investacorp.

The SEC’s complaint alleges that Mr. Frost was part of “a group of prolific South Florida-based microcap fraudsters led by Barry Honig” who participated in the manipulation of the share price of three companies’ stock; Mr. Frost allegedly participated in two of the three schemes. His co-defendants include Barry Honig, John Stetson, Michael Brauser, John O’Rourke III, Mark Groussman, John Ford, Alpha Capital, Anstalt, ATG Capital, Frost Gamma Investments, Trust, GRQ Consultants, Grander Holdings, Melechdavid, OPKO Health, Southern Biotech, and Stetson Capital Investments.

Richard Belott

Publicly available records provided by the Securities and Exchange Commission (SEC) and the New Jersey Bureau of Securities accessed on August 16, 2018 indicate that former New Jersey-based investment adviser Richard Belott, and his former employer, Financial Planning Advisors, have been sanctioned by the Bureau in connection to various allegations of fraud.

According to the Bureau’s findings, the allegations against Mr. Belott include selling unregistered securities, acting as an agent without registration, making untrue statements of material fact and/or omitting material facts, engaging in “an act, practice of course of business which would operate as a fraud or deceit upon any person in connection with the offer, sale or purchase of securities,” doing the same upon advisory clients, engaging in dishonest or unethical practices in the advisory business, failing to maintain written investment advisory contract, failing to make and keep required books and records, and making false and misleading statements to investigators.

The Bureau’s complaint states specifically that from about 2008 until 2015, Mr. Belott and his employing firm, Financial Planning Advisors, made fraudulent sales of “at least 6.1 million of unregistered securities to at least eight investors,” including customers who were elderly. The products in question were at least 24 promissory notes that were represented as issued by local diners and a developer. “However,” according to the complaint, “instead of receiving promissory notes from the diners and developer, investors received personal promissory notes from the owners of the diners and the developer, who had undisclosed business relationships with Belott, and in one instance, from Belott himself.”

Dragon-Click CorporationPublic records published by the Securities and Exchange Commission (SEC) on June 11, 2018 indicate that the SEC has obtained a court order to halt an alleged ongoing fraud that involves stock in a company that “claimed to be developing a revolutionary internet shopping application and raised more than $2.4 million from at least 26 investors nationwide.” Fitapelli Kurta is interested in hearing from investors who have complaints regarding investments in Dragon-Click Corporation.

According to the SEC, it has charged Dragon-Click Corporation; the company’s president, Isaac Grossman; Mr. Grossman’s wife, Adriana Grossman; and Ms. Grossman’s unregistered investment adviser, Dragon Management LLC, in connection with an “ongoing fraudulent offering of Dragon-Click stock and membership interests in Dragon Partners, LLC.” The SEC alleges that Dragon-Click and Mr. Grossman solicited investments in Dragon-Click stock from 2014 until 2018, and that they falsely represented that investors “would make huge profits” and that invested monies would finance the development and marketing of Dragon-Click’s product, an app for online shopping. They allegedly raised more than $2.4 million from at least 26 investors, according to the complaint, “most of them elderly.”

Contrary to their representations, the SEC alleges, Mr. and Mrs. Grossman “misused at least $1.3 million” in their investors’ funds to finance personal living expenses as well as their lifestyles, for instance, Mr. Grossman’s “gambling habits” and various luxury purchases. A list of items and services purchased, included the complaint, describes $35,000 spent on “Gambling at a casino”; $98,000 in “Payments for a Chevrolet Corvette and Chevrolet Tahoe”; $67,000 in “Mortgage payments on the Grossman family home”; $26,000 toward health and car insurance payments; $51,000 on “Jewelry, including a 3.8 carat yellow diamond”; and $16,800 in purchases at Wal-Mart. The defendants did not disclose to investors their misuse and misappropriation of investor funds, according to the complaint.

Palm House HotelPublicly available records published by the Securities and Exchange Commission (SEC) on August 3, 2018 indicate that the SEC has charged two Florida individuals, Joseph Walsh and Robert Matthews, in connection with a securities offering fraud that allegedly targeted immigrant investors. Fitapelli Kurta is interested in hearing from investors who have complaints regarding Mr. Walsh and/or Mr. Matthews.

The SEC alleges that for more than two years Joseph Walsh and Robert Matthews “defrauded dozens of foreign investors” who were participants in the US government’s EB-5 program offering foreign nationals the chance to receive permanent US residency by making investments in US-based projects that create jobs. The SEC alleges that Mr. Walsh “raised close to $44 million from foreign investors which, through a loan, was to be used to acquire, develop, and operate a Palm Beach hotel controlled by Matthews.” However, according to the SEC, Mr. Walsh allegedly misappropriated over $13 million of those funds, and Mr. Matthews misappropriated about $8 million, “some of which he used to acquire a 151-foot yacht and to purchase his former Connecticut home out of foreclosure.” The SEC also alleges that Walsh and two companies under his control, Palm House Hotel and South Atlantic Regional Center, misrepresented material facts to investors regarding an escrow account that was purported to hold investor funds before they were disbursed to Palm House Hotel, and he also allegedly made misrepresentations regarding his background and Mr. Matthews’ background.

The SEC filed its complaint in the Southern District of Florida. It has charged Mr. Walsh, Palm House Hotel, and South Atlantic Regional Center with violations of the Securities Act of 1933 and the Securities Exchange Act of 1934; it seeks “permanent injunctions, disgorgement of ill-gotten gains with interest, and penalties.” The SEC has also charged Mr. Matthews with violations of the same acts, and with aiding and abetting violations by Mr. Walsh, Palm House Hotel, and the South Atlantic Regional Center. The charges remain pending.

Daniel Rudden

Publicly available records published by the Securities and Exchange Commission (SEC) and accessed on July 31, 2018, as well as an Investment News report published on July 27, 2017 indicate that the SEC has filed charges against a group of companies and their principal in connection with an alleged Ponzi scheme that affected 150 investors.

According to an SEC release, the commission has alleged Daniel Rudden and a group of companies known as Financial Visions defrauded up to 150 investors whom they promised returns of or exceeding 12% on promissory notes issued to fund the company’s operations in “short-term financing for funeral services and related expenses.” The complaint states that “since 2010 or 2011, Rudden used new investor funds to pay interest and redemptions to existing investors and concealed the Financial Visions companies’ true financial performance and condition.” He also allegedly represented the company as successful to current and prospective clients even though he “knew that he was running a Ponzi scheme.”

The SEC’s charges were filed under seal in a Denver, Colorado federal court on July 20th, 2018 and unsealed on July 25th, 2018. Mr. Rudden and Vision companies have been charged with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking permanent injunctions, disgorgement, prejudgment interest, and penalties in the pending complaint. It has also named as relief defendants “three entities” which were allegedly controlled by Mr. Rudden and which allegedly received funds from the $55 million scheme.

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