Articles Posted in Investment Advisers

The US Supreme Court has agreed to hear the appeal of an investment adviser who is challenging the liability findings against him in a securities fraud case presided over by a US Securities and Exchange Commission administrative law judge (ALJ). Raymond Lucia, also a former radio host, was accused of misleading prospective investors about his “Buckets of Money” investment strategy by claiming the methodology he used was back-tested when that was not the case. This created a false sense of security especially among retirees who were told that their money would grow.

An SEC ALJ found him liable for fraud, including that he violated the Investment Advisers Act. Lucia was not only barred from the securities industry but also ordered to pay a $300K fine. He appealed the ruling.

Lucia also questioned whether it was constitutional for the SEC to hire administrative law judges and if they should instead by appointed rather than brought in through human resources. In 2016, The U.S. Court of Appeals for the District of Columbia Circuit turned down Lucia’s appeal, finding that contrary to his contention, SEC judges are not officers with the power to make decisions but are, in fact, employees. Also, the Commission has to approve their rulings.

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Ex-Philadelphia Eagles Player Who Bilked Former Coaches is Sentenced to 40 Years
Merrill Robertson Jr., a former Philadelphia Eagles football player, will serve 40 years in prison for a $10M fraud that bilked investors. Among his investor fraud victims were coaches he knew from when he played football at the University of Georgia and the Fork Union Military Academy.

The SEC also filed a case against him in a parallel civil case. According the regulator, Robertson, Sherman C. Vaughn Jr., and their Cavalier Union Investments diverted almost
$6M of investors’ money to pay for their own expenses and repay earlier investors.

Investment Advisers Accused of Mislead Investors About Conflicted Transactions
The US Securities and Exchange Commission has filed charges against Mohlman Asset Management, LLC, Mohlman Asset Management Fund, LLC, and Louis G. Mohlman, accusing them of misleading investors and engaging in conflicted transactions. Mohlman and the two investment advisers managed two private funds.

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The US Securities and Exchange Commission has filed fraud charges against John Rogicki. The New York-based financial adviser, who is the chief compliance officer and managing director of Train, Babcock Advisors, LLC, is accused of defrauding a non-profit charitable foundation of $9M. The founder of the Foundation had named Rogicki, who had been her husband’s financial adviser, as the trustee and trust president in her will.

She and Rogicki became friends in the 1990’s when she was already an elderly woman. She died at 97 in 2001. Just a few years before that, it was Rogicki who introduced her to a trusts and estate attorney. This lawyer executed a trust and will that made all the designations to Rogicki.

Rogicki was also the non-profit’s investment adviser and he was tasked with making all investment decisions for the Foundation, including directing all securities transactions in the latter’s advisory account. The Commission believes that Rogicki committed the alleged fraud between 2004 and 2016.

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A federal grand jury has indicted two men for their alleged involvement in a nearly $230M financial scam involving biotech companies. G. Steven Burrill, the owner and CEO of Burrill & Company, and Marc Howard Berger are the two defendants named in the criminal indictment. Burrill is charged with 26 counts of wire fraud, one count of investment adviser fraud, and one count of tax evasion. Berger is charged with multiple accounts of aiding in preparing fraudulent tax returns.

According to the criminal indictment, Burrill send letters that were false and misleading to persuade limited partners to give capital to the fund. He also allegedly moved millions of dollars in unnecessary management fees to companies under his control, as well as submitted the allegedly fraudulent tax returns.

It was in March of last year that Burrill settled civil charges brought by the US Securities and Exchange Commission accusing him of taking funds from the Burrill Life Sciences Capital Fund III in order to maintain his expensive lifestyle and keep some of his other businesses in operation. The regulator claimed that Burrill took from the Fund III and pretended that these were management fees he was issuing to himself in advance. He then allegedly went on to spend the money on vacations, jewelry, private planes, and other expenses.

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FINRA Fines Ex-Morgan Stanley Broker, Issues 15-Day Suspension

The Financial Industry Regulatory Authority has fined an ex-Morgan Stanley (MS) broker $10K and ordered him to serve a 15-day suspension after he allegedly tried to resolve a client’s complaint without the firm’s consent. The regulator is charging Lewis H. Robinson, who now works with BB & T Securities in Florida, with violating Rule 2010. The rule mandates that brokers satisfy “high standards” as they pertain to commercial honor and principles of trade.

According to FINRA, Robinson wrote $12,203 in checks to resolve three complaints made by the client. Advisor Hub reports that Robinson said that he notified Morgan Stanley as soon as the client noticed that the account was overcharged a higher commission rate than what had been agreed upon but that the firm refused to give a refund because the allegedly mistaken excess fee was charged too long ago.

Ex-Adviser of Retired NBA Player Tim Duncan is Barred from the Industry

The US Securities and Exchange Commission has gotten a judgment barring former financial adviser Charles A. Banks IV from the securities industry. Banks, who pleaded guilty to wire fraud that involved bilking ex-NBA player Tim Duncan, was sentenced to 48 months in prison in criminal court and ordered to pay $7.5M in restitution.

Now, because he committed investment fraud, Banks is also banned from the industry, as well as prohibited from serving as a director or an officer of any public company. Banks also must pay a penalty, disgorgement, and pre-judgment interest.

The Moore Charitable Foundation and Kendall JMAC, which are both owned by hedge fund billionaire Louise Bacon, have filed a securities fraud lawsuit against PJT Partners over the $16M loss that they claim they sustained in the Ponzi –like scam perpetuated by former investment adviser Andrew Caspersen.

The two entities want full restitution plus interest. They also filed a securities fraud lawsuit against Caspersen, who was a partner and managing director at the PJT Partners’ Park Hill Group when he defrauded investors.

Caspersen pleaded guilty in 2016 to bilking investors of $38M. He said he had a gambling addiction that compelled him to make up bogus Wall Street deals. He is serving a four-year prison term for his crimes.

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The US Securities and Exchange Commission is expected to charge Navellier & Associates with fraud. The registered investment advisor, in a Form ADV brochure filing, disclosed that the regulator’s enforcement staff had preliminarily determined to recommend that the SEC file a case.

The Commission has been investigating advisory firms that marketed F-Squared Investments-related exchange-traded fund investment strategies. F-Squared Investments admitted that some of its marketing strategy performance records were inflated.

Last year, at least 13 brokerage firms and RIAs settled with the SEC for including the Boston-based firm’s claims in their own marketing collateral, including that the AlphaSector ETF strategy had been out-performing the S & P 500 for a number of years. F-Squared promoted the strategy as utilizing an algorithm that could indicate when it was time to sell.

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Ex-Visium Fund Manager on Trial for Bond Fraud
Jury selection is scheduled to begin this week in the criminal trial against Stefan Lumiere, an ex-Visium Asset Management LP portfolio manager. Lumiere, who managed the Visium Credit Opportunities Fund, is accused of falsely inflating the value of securities in a fund and committing bond fraud.

Visium Asset Management LP is a New York based-hedge fund. The $8B investment hedge fund shut down in 2016 after a criminal investigation that led to charges against a number of people, including Sanjay Valvani, who  killed himself several months ago following allegations of insider trading.

According to prosecutors, from ’11 to ’13, Lumiere was among a number of people who conspired to bilk investors through the mismarking of securities’ values that were in a fund that invested in healthcare company-issued debt. The prosecution believes that the alleged misconduct caused the net asset value of the fund to be overstated by tens of millions of dollars monthly. Meantime, investors were fooled into thinking the bonds were very liquid even though they were illiquid.

Lumiere pleaded not guilty to securities fraud, conspiracy, and wire fraud charges last year.

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Financial Advisor Admits to Stealing $1.6M From Family’s Trusts
Brian Keenan, an ex-financial advisor, has pleaded guilty to criminal charges accusing him to stealing over $1.6M from three trusts belonging to members of the same family. Keenan had been employed with Train Babcock Advisors from about 5/2007 to 8/2012. It was during this time that the former financial adviser stole over $1.6M from the beneficiaries of three trusts.

Not only did Keenan take their money, but he also spent the funds on his own expenses. He set up a joint checking account under his name and the name of one of the beneficiaries, and he issued over 40 checks from the trust accounts to the joint account. The beneficiary under whose name he co-opened the account did not have access to it.

Issuing a statement about the financial fraud case, Manhattan District Attorney Cyrus R. Vance reminded the public that a financial adviser’s main duty is to act in a client’s best interest. Vance said that rather than fulfilling that obligation, Keenan took advantage of his clients. Keenan pleaded guilty to Grand Larceny in the First Degree.

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