Monthly Archives: January 2014

Despite the fact that JPMorgan Chase & Co. has recently been mired in regulatory and criminal probes – which ultimately cost the bank more than $23 billion in settlements – the person who oversaw the fiasco unfold is getting a big raise. As reported in the company’s public filing last week, JPMorgan’s board of directors opted to give CEO Jamie Dimon a 74% raise – or $20 million – last year, bringing his pay closer to where it stood before the board faulted his oversight of botched derivatives bets, reports a story in the Los Angeles Times.

Directors had previously cut Dimon’s 2012 pay after the company lost $6.25 billion on the so-called “London Whale” derivatives trade that Dimon once referred to as a “tempest in a teapot.”

Other tempests in the teapot that later proved noteworthy included a record settlement of $13 billion to resolve inquiries into mortgage-bond sales. The bank also paid $2.6 billion and avoided criminal prosecution while settling claims that it failed to stop disgraced broker Bernie Madoff’s Ponzi scheme.

Elder fraud is one of the fastest-growing crimes in the United States, with several research studies reporting that the elderly lose more than $3 billion every year to financial fraud and investment scams.

Earlier today, Mark Maddox joined Indiana Secretary of State Connie Lawson and Nancy Stone of the Senior Medicare Patrol on WFYI’s No Limits with John Krull for a discussion on Elderly Fraud. Among other things, the panel talked about common investment scams that target the elderly, what children of aging parents can do to protect their elderly parents from becoming investment fraud victims and the red flags of elder fraud.

“Seniors are targeted for a number of reasons; many have money, some are retired or lonely. We see a lot of seniors these days who have been preyed upon by people they trust: greedy children, unscrupulous caregivers. One of the biggest cases we worked on a few years ago and which was seen in the movie, the Wolf of Wall Street, concerned Jason Belfort and Stratton Oakmont. His boiler room operation stole about $200 million from customers – most of whom were seniors,” said Mark Maddox of Maddox Hargett & Caruso on today’s program.

If you missed today’s show, you can listen to it here.

The issue of Elder Fraud will be featured on NPR’s No Limits program today, Jan. 23, from 1 to 2 p.m. EST. Panel guests include Mark Maddox of Maddox Hargett & Caruso, P.C., Indiana Secretary of State Connie Lawson and Nancy Stone of the Senior Medicare Patrol. Join the conversation and post any questions you may have for the panel at https://facebook.com/NoLimitsWFYI.

A summary of the show will be posted here on this Web site later today.

The hype surrounding the movie “The Wolf of Wall Street” – which chronicles the rise and fall of broker-turned-investment swindler Jordan Belfort – shines yet another spotlight on the inner-workings of Wall Street and, specifically, what is and isn’t being done to protect investors from fraudsters like Belfort.

Last year, Frontline addressed this very subject in a documentary to mark the fifth anniversary of the global financial crisis of 2008. Titled The Untouchables, the documentary explored a number of questions. Among them: Why had no major bank or top executive been found criminally liable and prosecuted for the crisis or the fraud tied to the sale of toxic mortgages? Why were federal prosecutors so reluctant to act on credible evidence that Wall Street knowingly packaged and sold bad mortgage loans to investors? Are banks simply too large to prosecute and therefore too big to jail? Will Wall Street ever be held accountable for its wrongdoings and excessive risk taking?

Following interviews with top prosecutors, government officials and industry whistleblowers, Frontline reveals that many Wall Street bankers ignored pervasive fraud when buying pools of mortgage loans. Tom Leonard, a supervisor who examined the quality of loans for major investment banks like the now-defunct Bear Stearns, said bankers instructed him to disregard clear evidence of fraud. “Fraud was the F-word, or the F-bomb. You didn’t use that word,” said Leonard. “By your terms and my terms, yes, it was fraud. By the [industry’s] terms, it was something else.”

Former Sen. Ted Kaufman (D-Del.) was one of the individuals who was determined to see bankers punished for their bad behavior and their involvement in the financial crisis.  “I was really upset about what went on Wall Street that brought about the financial crisis,” Kaufman recalls. “That doesn’t happen if there isn’t something bad going on.”

As the documentary shows, Kaufman became increasingly frustrated by the lack of criminal prosecutions and left office in 2010.  Meanwhile, Jeff Connaughton, Kaufman’s chief of staff, remains convinced that the U.S. Department of Justice never made prosecuting Wall Street one of its top priorities. “You’re telling me that not one banker, not one executive on Wall Street, not one player in this entire financial crisis committed provable fraud?” asks Connaughton in the documentary. “I mean, I just don’t believe that.”

Given the heightened attention that the movie, The Wolf of Wall Street, is creating about the greed and excesses of Wall Street, if you missed The Untouchables last year, it may well be worth your time now. You can view it online here.

Disgraced “Wolf of Wall Street” broker Jordan Belfort is no longer doing business in the securities industry, but some of his cohorts in crime continue to be on the radar of regulators.

As reported yesterday by Investment News, one of those brokers is Christopher Veale, who was charged Wednesday by Massachusetts Secretary of the Commonwealth William F. Galvin of engaging in abusive sales practices, churning a client’s account and using markups to conceal commissions in the account of an 81-year-old investor.

Regulators allege that the elderly Rhode Island investor put $873,622 into his account with Veale. He also was charged $319,818 in commissions and hidden fees. A colleague of Veale’s at Brookville Capital Partners LLC, Ali Habib Mayar, also is named in Galvin’s complaint.

The elderly client ultimately suffered out-of-pocket losses of almost $1.6 million as a result of the brokers’ alleged actions and Brookville Capital’s alleged failure to supervise their actions, the complaint says.

“[The] Senior Investor attempted to close his Brookville account twice, but both times was convinced to keep the account open. Specifically, Veale persuaded Senior Investor that he could turn the account around and promised Senior Investor that he would significantly increase profits, but that the only way Veale could make that happen was if Senior Investor put in another $200,000,” Galvin stated in the complaint.

The complaint seeks to revoke the registration of the two representatives and firm and permanently bar them from the securities industry in Massachusetts. Rhode Island also has filed a similar action against the two brokers and Brookville.

Veale infamously began his career in the securities industry in 1995 with the now-defunct Stratton Oakmont. Stratton Oakmont is credited with being one of the first ‘boiler room’ operations whose brokers aggressively cold called potential investors and pushed them to buy penny stocks that were manipulated by Stratton Oakmont.

Stratton Oakmont and its creator, Belfort, are now the subject of Hollywood in the movie, “The Wolf Wall Street.”

After Stratton Oakmont was put out of business by federal authorities, Veale went on to work with some 17 other broker/dealers, including the now-defunct John Thomas Financial.  That company closed its doors last year over fraud allegations. In December 2013, Anastasios “Tommy” Belesis, the founder of John Thomas Financial, agreed to be banned from the securities industry in a settlement with U.S. regulators who had accused him of defrauding investors in two hedge funds.

Veale currently works for Legend Securities, according to his BrokerCheck report with the Financial Industry Regulatory Authority (FINRA).

Aubrey Lee Price was a former Georgia investment adviser who went missing in 2012 after duping investors out of millions of dollars in a private-placement fraud scheme. Price was later presumed dead when authorities discovered an apparent suicide note detailing the fraud.

Now, it appears Price is back from the dead. The Federal Bureau of Investigations (FBI) reported on its Web site last week that Price had been captured and charged with securities and wire fraud.

In 2012, the Securities and Exchange Commission (SEC) froze the assets of Price, alleging that he had raised about $40 million from hundreds of investors by selling shares in an unregistered investment fund (PFG) that he managed. Price purported to invest fund assets in traditional marketable securities, but he also made illiquid investments in South America real estate and a troubled South Georgia bank. In order to conceal the mounting losses of investor funds, Price created bogus account statements with false account balances and returns that were provided to investors and bank regulators.

As reported today by Investment News, Price pleaded not guilty last Wednesday to federal bank fraud charges in U.S. District Court for the Southern District of Georgia before consenting to be held in custody while the case proceeds.

If convicted, Price faces a possible penalty of 30 years in prison and a $1 million fine. If that happens, it would be justice for victims like Rick Smith. Smith, 63, retired early from Lockheed Martin in 2007 on Price’s advice. Now, however, Smith and his wife have gotten part-time jobs and been forced to sell a boat and RV in order to compensate for the losses they incurred by investing with Price.

“It helps a whole lot just knowing where he is,” Smith said in a Jan. 6 story by the Globe and Mail. “Maybe he’ll pay for what he did.”

The top stories in the investment world for 2013 ran the gamut, from non-traded REIT deals that soured to a stampede of broker/dealers closing up shop. Among the highlights in 2013:

Non-Traded Real Estate Investment Trusts (REITs). In June, William Galvin, Secretary of the Commonwealth of Massachusetts, announced settlements with Ameriprise Financial Services Inc., Commonwealth Financial Network, Lincoln Financial Advisors Corp., Royal Alliance Associates and Securities America over sales involving non-traded REITs.  As part of the settlement, the five firms agreed to make $6.1 million in restitution to investors and pay fines totaling $975,000.

LPL Financial. In February, LPL Financial LLC was order by the Massachusetts Security Division to pay restitution of more than $2 million to investors who bought shares of non-traded real estate investment trusts (REITs). In addition to the restitution order, Massachusetts regulators levied a $500,000 administrative fine against LPL.  The settlement stemmed to allegations that LPL failed to supervise brokers who sold investments in non-traded REITs. LPL also agreed to review all other non-traded REITs offered to Massachusetts residents and to make restitution to investors in the state whose transactions violated Massachusetts or company rules.

Separately, a former adviser affiliated with LPL Financial LLC was charged in May by the Securities and Exchange Commission (SEC) of defrauding investors and stealing $2 million from at least six clients. According to the civil complaint, the adviser, Blake Richards, misappropriated client money that “constituted retirement savings and/or life insurance proceeds from deceased spouses.”

In one instance, Richards allegedly tried to gain an investor’s trust by delivering pain medication during a snowstorm to a client’s husband who had been diagnosed with terminal pancreatic cancer, according to the SEC complaint.

Private Placements.  Four culprits behind a massive multimillion-dollar private-placement fraud known as Provident Royalties were given jail sentences by U.S. District Judge Marcia A. Crone. Brendan Coughlin, 46, and Henry Harrison, 47, were sentenced to 21 months in federal prison. They founded and controlled Provident along with Joseph Blimline, 35, who already had been sentenced to 12 years in prison. Paul Melbye received a sentence of 18 months in prison.

Columbia Property Trust. Non-traded REITs again made headlines when Columbia Property Trust went public in October at $22.50 a share. Before going public, however, the REIT underwent a complicated reverse 4-for-1 share split, raising its price to around $29 a share from just over $7.33. Investors who initially bought into the REIT at $10 a share essentially were offered the opportunity to cash out at a net asset value of around 45% less than the price they paid at their initial purchase.

Making matters worse is the fact that Columbia Property Trust had cut its distributions twice since 2009.

Bambi Holzer. Known as the broker to the stars, Bambi Holzer made a name for herself in the securities industry by providing financial advice to Hollywood names like Julia Louis-Dreyfus (who ultimately sued Holzer over a dispute concerning $4.4 million invested in annuities). In October 2013, the Financial Industry Regulatory Authority (FINRA) also sued Holzer for allegedly lying to one of her former firms, Wedbush Securities, about the net worth of several clients when she sold preferred shares of one of the series of fraudulent deals issued by Provident Royalties LLC in 2008.

In December 2013, Holzer was officially barred from the securities industry as part of a settlement with FINRA.

Elder Fraud. Elder financial fraud and abuse came to the forefront of the big investment stories in 2013 as several research studies reported that the elderly were losing more than $3 billion every year to financial fraud and investment scams. Many of the scams involved unsuitable investments, variable annuities and alternative financial products like non-traded REITs and private placements.

Protecting investors – and especially the elderly – was in part behind a move by the Securities and Exchange Commission (SEC) to release a special bulletin warning investors about the myriad of financial titles in existence today. Among other things, the bulletin stressed that financial professional designations and licenses are not the same and that investors should never rely solely on a title to determine whether a financial professional has the expertise they need.

UBS Puerto Rico Bonds. In November, a unit of UBS AG offered to repurchase shares of closed-end municipal bond funds invested in Puerto Rico muni securities from certain clients. During the summer, the market for Puerto Rico’s $70 billion muni debt went south after Detroit filed for bankruptcy in July. UBS Financial Services of Puerto Rico is a huge player in the muni debt market in Puerto Rico, packaging and selling $10 billion in proprietary closed-end bond funds through the end of 2012. Meanwhile, the net asset value (NAV) of the 14 UBS closed-end funds have plummeted.

Investors purchased the proprietary bond funds for $10 a share. According to a story by Investment News, the NAV for the $375 million Puerto Rico Fixed Income Fund was $3.63 at the end of October, down 85% since the end of June. The NAV for the $449 million Puerto Rico Fixed Income Fund III was $4.08 at the end of October, a decrease in value of 68% since June.