Florida Securities Fraud Lawyer Blog

The SEC has filed a civil suit against Trade-LLC, a Palm Beach Gardens investment advisor, and its managing members, Philip Milton (also of Palm Beach Gardens) and William Center. Trade-LLC is alleged to have told investors its trading software could double the investors' money in a year. In reality, the SEC says the company was nothing more than a Ponzi scheme creating phantom profits.

Three investment clubs (Cash Flow Financial, LLC; New Life Club, LLC; and DC Advisors, LLC) collected more than $27.7 million for Trade-LLC. The scam reached approximately 800 members from as far north as Michigan and Ohio. An investigator at the Florida Office of Financial Regulation stated many of the investors were retirees looking to protect their savings. Financial reports prepared by Trade-LLC supposedly showed a return on investment of 8% a month, totaling 100% over the course of the year. To the contrary, Trade-LLC actually lost $2 million through trading, inflated salaries to its managing members, business costs and other expenses.

As a result, Trade-LLC, along with three other companies Milton and Center transferred Trade-LLC's funds to, agreed to asset freezes and all assets will be placed in receivership. Milton agreed to return $2.35 million, pay a $130,000 penalty, and agreed to an order to stop breaking federal securities laws.

Francisco Alberto Diaz Jr., a broker from Coral Gables who was fired by UBS in 2009, has had new complaints filed against him alleging misuse of his clients' funds. Diaz had a history of misusing client funds which included a judgment rendered by FINRA in favor of a former client. The new complaints allege his clients, natives of Venezuela, had approximately $600,000 of their money misappropriated. The type of fraud perpetrated by Diaz is known as an "affinity" scam, as it targets persons of a common ethnicity or religion. According to the clients' complaints, Diaz targeted his fellow Venezuelans, using fear of local national economic unrest along with the reputation of his employer to lure them into investing.

One such client had $250,000 invested in CDs, which made between 10 and 12 percent in Venezuela, when she met Diaz. This money was going to be used for her children's education, and she merely wanted to keep the funds safe. Upon executing an agreement with her new broker, Diaz inflated her net worth, claimed she had no children, and requested credit card and check-writing privileges. Diaz proceeded to take unapproved risks with his client's money which were not in line with the client's financial goals.

Diaz' scheme involved making incredibly risky investments with his clients' money (which, in turn, provided him with large commissions) by making unauthorized margin trades. Diaz also made his clients sign authorizations written in English, despite the fact they could not read the documents, as they trusted him with their money. Claims against Diaz include breach of contract, failure of UBS to supervise and employee negligence, and breach of fiduciary duty.

The SEC has sued two Canadian men for running a $300 million Ponzi scheme that promised returns of as much as 36 percent on investments in gold-mining companies.

Milowe Brost, 56, and Gary Sorenson, 66, took the savings of more than 3,000 investors in shell companies from 1999 to 2008 and millions of dollars to purchase houses, ranches and a fishing resort.

Brost and Sorenson held investor seminars where they pitched themselves as educators who had discovered investment opportunities in gold mining. The two men paid returns with money raised from new investors.

Brost and Sorenson organized a far-reaching fraud through a maze of shell companies and foreign bank accounts.

While Florida seems to be the mecca for Ponzi Schemes, we are seeing more and more of them across the United States and now north of the border.

Scott Rothstein, a lawyer in Fort Lauderdale, who purportedly was running a powerhouse law firm that, at one time, was seemingly expanding offices faster than any law firm in Florida, was sentenced today to 50 years in federal prison for coordinating one of Florida's largest Ponzi frauds ever. United District Judge James Cohn, somewhat surprisingly, imposed a decade longer sentence than prosecutors and the defense had requested for the $1.2 billion Ponzi scheme. Here, the judge was clearly sending a message that white-collar crime will not be tolerated and ruins the lives of many investors when such a fraud is perpetrated.

On June 2, 2010, the SEC charged Luis Felipe Perez in a $40 million Ponzi scheme who raised funds to purportedly support jewelry businesses and pawn shops.

Perez arranged "no-risk" loans with mostly Hispanic investors and promised to pay them guaranteed annual returns of 18 percent to 120 percent. Perez misrepresented to investors that their investments were collateralized by diamonds.

Instead of financing his jewelry businesses, Perez misappropriated new investor money to pay prior investors and stole at least $6 million for lpersonal spending.

Perez spoke of his track record in providing risk-free investments in order to solicit new investors through word-of-mouth from existing investors.

Perez told some investors that diamonds from the pawn shops had specifically been set aside for them as collateral securing their investments. In some instances, Perez placed them in a bank safety deposit box to which he and the investor had access. The diamonds, however, were fake.

Perez told other investors that he added them as beneficiaries on his life insurance policy. He omitted, however, that he defaulted on his policy premiums and let the policy expire.

Why does South Florida remain the Ponzi Scheme capital of the United States? It appears that a combination of cultural and demographic factors make our area fertile ground for fraud.

FINRA recently issued a regulatory notice on Private Placements, reminding broker-dealers of their duty to conduct reasonable investigations in recommending investments in Regulation D offerings.

The notice provides that any broker-dealer recommending securities under Regulation D must the suitability requirement under NASD Rule 2310 and must comply with the advertising and supervisory rules of FINRA and the SEC.

FINRA has found problems in recent examinations and investigations, including sales and fraud practice abuses in Regulation D offerings. FINRA noted that a broker-dealer's customer may be sophisticated does not obviate the duty to investigate.

Broker-dealers also must resolve any conflicts of interest that could impair their ability to conduct a thorough and independent investigation.

Further, a broker-dealer must note any information that it encounters that could be considered a "red flag" that would alert a product person to conduct a further inquiry. When presented with red flags, the broker-dealer must do more than simply rely upon representations by the issuer's management.

Firms must also have supervisory procedures reasonably designed to ensure that the firm's personnel, including its registered representatives engage in an inquiry that is sufficiently rigorous to comply with their legal and regulatory duties.

Finally, a reasonable investigation of the quality of the issuer's assets and facilities is required. Such a reasonable investigation might include visits and inspections of such assets or facilities; examining geological or other reports; and obtaining expert opinions.

For the complete Regulatory Notice 10-22, click the link below:
http://www.finra.org/Industry/Regulation/Notices/2010/P121299

An investor has received the first arbitration award against a broker-dealer over the sale of a private placement investment.

When Peak Securities did not show up to defend the claim arising from the purchase of notes offered by Medical Provider Funding Corp., the investor won a $400,000 FINRA arbitration award.

Those notes are at the center of a Securities and Exchange Commission fraud complaint issued last summer. The SEC charged Medical Capital Holdings Inc. with fraud in the sale of $77 million in notes. Many independent broker-dealers sold the notes.
Several class actions have been filed against various broker-dealers that sold Medical Capital notes. In addition, investors have filed hundreds of arbitration claims against individual broker-dealers who sold those notes.

Peak Securities has lost its FINRA registration to serve as a broker-dealer.

Local police in Boca Raton, Florida are investigating an investment scam that cost an 86 year old woman $70,000 of her life's savings. Edith Schneider apparently gave the money to a Jamaican man named David McAllister. Schneider's niece called police to report the scam. Police are investigating the case and would not give further details of the alleged investment fraud.

This is another example of unscrupulous people preying upon Florida's elderly. Some of these investment scams are born in the United States; others derive from foreign countries.

Investors and their investors need to be diligent and careful only to invest their money with traditional firms and after proper investigation. If an investment sounds too good to be true, it is.