Florida Securities Fraud Lawyer Blog

The Financial Industry Regulatory Authority (FINRA) has proposed giving investors filing arbitration claims the option of having an all-public arbitration panel, significantly increasing investor choice in the FINRA arbitration program. The proposal will be filed next month for approval with the Securities and Exchange Commission (SEC).

According to FINRA's Chairman and Chief Executive Officer, Richard Ketchum,"Giving each individual investor the option of an all-public panel will enhance confidence in and increase the perception of fairness in the FINRA arbitration process. All investors will have greater freedom in choosing arbitration panels, and any investor will have the power to have his or her case heard by a panel with no industry participants."

If approved by the SEC, the rule allows investors to either choose an arbitration panel consisting of two public arbitrators and one non-public arbitrator (the current option), or having an all-public panel. A non-public arbitrator is generally one associated with the financial services industry.

The proposed rule would apply to all investor disputes against any firm and any individual broker. It would not apply to arbitration disputes involving only industry parties.

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A financial advisor who defrauded investors, including quarterback Michael Vick among other NFL players, plead guilty to securities fraud in Nebraska. Mary Wong's Ponzi scheme involved convincing investors they were investing in real estate across Arizona, Tennessee and Michigan, as well as Gallup bonds. Prosecutors claim many of the investments did not exist. The more than $3 million Wong received from investors went to pay off earlier investors, as well as allow her to purchase expensive planes and homes while paying off business and personal credit card debt.

As part of a report on the Michael Vick saga, ESPN identified Wong as the person in charge of Vick's finances following his dog-fighting scandal and subsequent bankruptcy. Vick gave Wong power-of-attorney to handle his finances. Unfortunately, Wong failed to disclose she had been sanctioned by the New York Stock Exchange for putting a client's money into her personal bank account.

Subsequently, in her one year handling Vick's finances, Wong allegedly stole $900,000 from Vick's bank accounts and also had business entities in Vick's name transferred to her. Additionally, Vick's purported losses on investments recommended by Wong exceed $2 million. Vick filed a civil lawsuit in January 2009.

Irma Jeudy, Alix Charles, and Albertha Frederic were arrested last Friday for their involvement in an investment fraud, stemming from a Ponzi scheme targeting Haitian Americans. Each defendant faces a possible prison sentence up to 90 years, and the state attorney's office did not rule out the possibility of additional arrests.

The defendants, advertising on Creole radio and television, convinced their clients into investing in Gen-X Comp., Inc. Some investors were convinced to invest in a side project of the corporation, also a fraud, by telling investors the money was being set aside for building houses in Haiti. Gen-X Comp., Inc. promised a high return on investment in the form of interest payments, which would exceed various other investments on the market. Over a three-year period, investors funded the companies with investments ranging between $5 and $20,000. The scheme collapsed when interest checks began bouncing, and investors were told to be patient.

Though the Securities and Exchange Commission have yet to set a universal standard of care for brokers and investment advisers, one thing is certain: Investors want a single standard.

Out of 1,319 investors polled, over 90% of investors want a broker and investment adviser to have and follow the same fiduciary duty and investor protection rules, according to a survey released on September 15 by the Opinion Research Corp./Infogroup. In addition, 97% believe that financial professionals should put investor interests ahead of their own, and be forced to disclose fees and conflicts of interest, similar to what investment advisers are required to do.

The survey also revealed that over half of investors do now know the different standards of care that certain advisers must meet. And at least 60% of those surveyed responded that they assume that insurance agents and stockbrokers are already held to a fiduciary duty. This assumption is wrong, as brokers only have to satisfy a suitability requirement, i.e., investments must meet a client's investment objectives, risk tolerance and time horizon.

According to Barbara Roper, the director of investor protection at Consumer Federation of America, "This lack of understanding is not because investors are stupid. It's because the policy itself is stupid."

The supporters of a uniform fiduciary duty hope that the survey results will spur the SEC to clarify the confusion and establish a universal fiduciary standard of care for retail investors. Under the Dodd-Frank financial-reform law, the SEC must submit to Congress by Jan. 2011 a study about the differences between investment adviser and broker-dealer oversight, and any existing regulatory gaps. The SEC is then authorized to create a standard-of-care rule that applies to anyone giving personalized retail investment advice.

Fiduciary duty supporters believe that the investor survey directly answers two questions concerning the SEC study: Do investors know that different standards of care exist, and does this difference lead to confusion about the advice that they receive?

"This study is probably going to be the seminal study to address those issues," said Denise Voigt Crawford, Texas' securities commissioner and president of the North American Securities Administration Association Inc., a sponsor of the survey.

A New York man received 5 years probation for a Ponzi Scheme involving $66 million that his investors thought was invested in the foreign-exchange market, where the money was spent on art and an Aston Martin.

Bradley Eisner was sentenced in Brooklyn, New York. He pleaded guilty in July 2008 after turning himself in and cooperating with the government.

Michael R. MacCaull, Eisner's partner, was sentenced in March to 15 years and eight months. His much stiffer sentence is attributable to the fact he previously served a sentence in federal prison for a boiler-room operation.

Eisner and MacCaull, both 38, pretended to be investing in the spot foreign exchange market while they retained most investor funds for their own use. The Ponzi scheme operated from January 2001 to January 2008.

Eisner took $10 million and Eisner lost about $1 million gambling. As part of his sentence, he's not allowed to gamble or visit places with casinos such as Las Vegas or Atlantic City, New Jersey.

Both men were depositing investors' money in a bank account from which they paid their living expenses. To conceal their scheme, they created fictitious account statements and returned tens of millions of dollars to investors with money from new investors.

In sum, it appears that Eisner's sentence was especially light because he turned himself in before the Government had the Ponzi Scheme on its radar.

Nevin Shapiro, the former owner of Capitol Investments USA Inc. and a booster of University of Miami athletics, pleaded guilty yesterday to running an $880 million Ponzi scheme. Shapiro, 41, of Miami Beach, Florida, admitted in federal court that he defrauded more than 50 investors between $50 million to $100 million in his bogus wholesale-grocery distribution business.

Shapiro's Miami Beach company was an alleged grocery diverter, which purchases low-priced groceries in one region and sells them for profit in another. From January 2005 to November 2009, Shapiro promised investors that their money would fund the grocery business, with returns between 10 to 26 percent. Shapiro boasted to investors that the company had tens of millions of dollars in annual sales, when in truth "Capitol had virtually no active wholesale grocery business," according to court papers. In reality, Shapiro was using new investors' money to pay off earlier investors.

Shapiro also admitted to using $35 million of investor funds to make mortgage payments on his $5 million house, pay off illegal gambling debts, and buy floor seats to Miami Heat basketball games. Shapiro also gave $150,000 to the University of Miami for an athletic lounge, as well as cash and gifts to numerous UM student-athletes.

According to U.S. Attorney Paul Fishman, "Nevin Shapiro made a name for himself as a big contributor to student athletics -- showering his favorite players with gifts and cash, living the high life, and rubbing elbows with the pros. Shapiro admitted that he built the façade of his lifestyle with money he stole from those who trusted him."

Shapiro pleaded guilty to one count of securities fraud and one count of money laundering. He faces as long as 30 years in prison on both counts. Sentencing is set for January 4.

In a related civil case, the Securities and Exchange Commission estimated Shapiro received approximately $900 million from new investors and used $769 million of those funds to pay the so-called returns to earlier investors. The SEC seeks to have Shapiro forfeit any ill-gotten gains and pay unspecified fines. The SEC also claims Shapiro paid $13 million in undisclosed commissions and fees to individuals who attracted new investors.

Neil Greenberg, an investment advisor in Boulder, Co., invested $174 million of his clients' money in funds run by Ponzi schemers Bernie Madoff and Tom Petters. Now, Greenberg is facing repercussions of his own after being charged by the SEC for fraud and breach of fiduciary duty. No redemptions have been allowed on Greenberg's funds since 2008, and the SEC does not expect investors to get much, if any, of their investment money returned.

Greenberg sold his clients on the safety and security his investment strategies would create, and convinced investors, primarily retirees who should have been focused on income-producing investments, to sell their annuities and invest in much riskier funds. Greenberg, in turn, received millions of dollars in fees. A class action suit filed against Greenberg describes many of the victims as "older, hardworking citizens of Colorado." While Greenberg generally had a specific type of clientele, two of Greenberg's more prominent clients included a former United States Congressman and a well-known radio talk show host.

Ironically, one of Greenberg's funds was named "Agile Safety Variable Fund."

David Smith, accused of perpetrating a $200 million Ponzi scheme, could now face up to 23 criminal counts in Orlando as a result of his scheme. Smith, a Jamaican banker, is also facing criminal charges in the Turks & Caicos. Smith convinced investors to put their money into his various companies, including Olint Corp., a company purportedly engaged in foreign currency trading. Smith found investors from all over the world, including the Turks & Caicos, Jamaica, and Orange County, FL.

Smith also faces a conspiracy to commit money laundering charge based upon his affiliation with i-Trade FX, a licensed foreign currency trading company. Prosecutors claims Smith was the major investor in the company with his contributions exceeding $2 million.

In addition to these criminal charges, a civil suit against Smith is also ongoing in Orange County. The investor who brought the lawsuit claims to have lost his life savings, approximately $2.4 million, by investing in Smith's companies. The investor's demand for return of his money has gone unfulfilled. The lawsuit further alleges that Smith's companies were created solely to defraud investors.

The judge overseeing the liquidation of Bernard Madoff's investment firm recently asked the Supreme Court of Gibraltar to transfer $73.1 million for use as compensation for Madoff's ponzi scheme victims.

In the August 23 letter to Chief Justice Anthony Dudley of the Supreme Court of Gibraltar, U.S. Bankruptcy Judge Burton Lifland wrote that the money was to satisfy, in part, a $180 million default judgment entered against, among others, Vizcaya Partners Ltd, a British Virgin Islands-based hedge fund.

The default judgment stems from the April 2009 lawsuit brought by Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities, LLC, accusing Vizcaya of improperly profiting from Madoff's scheme. The judgment also applies to Asphalia Fund Ltd, Siam Capital Management, and Zeus Partners Ltd.

"At this stage," Lifland wrote, "it would be in the best interest of the BLMIS estate to turn the Gibraltar funds over to either this court or the trustee." The Gibraltar court gained custody of the $73.1 million last year through another litigation.

As of March 31, Picard had recovered over $1.5 billion for Madoff victims and is currently going after billions more from companies that fed money to Madoff, and former Madoff clients who potentially withdrew more money from Madoff's company than they deserved.

Madoff is serving a 150-year sentence in a North Carolina federal prison.

The SEC has charged a New Jersey investment adviser and 3 firms she ran with operating a multi-million dollar offering fraud, including the sale of fraudulent promissory notes to clients. Investment advisor Sandra Venetis told clients the notes were guaranteed by the FDIC and would earn interest of 6-11 percent annually and would be tax free.

Venetis used investor funds to pay business debts and personal expenses and gave investor money to her relatives. In the consent order, Venetis agreed to freeze assets and monetary payments including financial penalties to be determined at a later date. She also agreed that she will be barred her from future association with any investment adviser or broker-dealer.

Venetis' statements to investors were false and the promissory notes and other offerings were unsupported by any investments, assets, or related revenues. She further fabricated the names and signatures of "doctors" or forged signatures of other people she claimed were recipients of the loans.

The SEC's complaint also names three relief defendants for the purposes of recovering investor assets now in their possession: Jennifer Venetis (Venetis's daughter); Kevin Persley (Venetis's brother); and Venetis LLC (an entity owned and controlled by Venetis).

On September 15, Nevin Shapiro will appear in court to enter into a plea agreement as to the charges of money laundering and securities fraud against him. Shapiro is alleged to have defrauded sixty investors across three states, including Florida, into investing $900 million in Capital Investments USA, Inc. The company purportedly operated in the wholesale grocery distribution business. Investors were promised risk-free returns of 26%, but early investors were merely being paid off by the money provided by newer investors. To perpetuate the fraud and continue convincing investors his scheme was in fact a real enterprise, Shapiro manufactured and provided investors with phony financial documents.

In addition to the Shapiro's extravagant lifestyle, he also spent a tremendous amount of money in the sports industry. Among his expenditures are buying diamond-studded handcuffs for an unidentified athlete and a $150,000 donation to the University of Miami. The university was so appreciative of the donation, it named a student lounge after Shapiro. The appreciation, however, may be short-lived. Shaiprio's attorney recently announced her client is currently writing a book which details major NCAA violations committed by University of Miami players. Shapiro's attorney also says her client intends to pay back victims of the Ponzi scheme with the profits made off the book.

Raymond James & Associates, Inc., and one of the brokerage's advisers must pay $925,000 in damages to a Texas couple that purchased auction rate securities in 2008, a securities industry regulatory panel has ruled.

The Financial Industry Regulatory Authority panel awarded the damages to Rex and Sherese Glendenning, a Texas couple that originally sought $1.4 million in compensatory damages.

The Glendennings opened their account with Raymond James in January 2008, just prior to when the market for the securities collapsed. Milton recommended and invested their money in an auction rate security consisting of sewer revenue bonds, without disclosing the inherent risk that the auctions might fail, a case summary said.

The couple claimed that Milton's actions and conduct created a false impression that there was liquidity in the auction market, leading them to believe that these securities could and would easily be sold. When the couple asked Raymond James to repurchase the securities at full value, their requests were denied, the summary said.

This is the second time in a month that a subsidiary of Raymond James Financial Inc. has been ruled against in FINRA arbitration involving auction rate securities. In July, a panel ordered Raymond James Financial Services Inc. and Raymond James & Associates to repurchase $2.5 million in auction rate securities from an investor who claimed the company failed to warn him about the risks involved.