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Category Archives: Ponzi Scheme

LPL To Pay $1.3M To Victims Of Ponzi Scheme

LPL Financial Corp. (LPL) will pay nearly $1.3 million in restitution to Montana investors plus a fine of $150,000 to the State of Montana under a settlement reached with the Montana Commissioner of Securities and Insurance. The restitution and fine are tied to alleged illegal activity on the part of a former LPL registered representative, Donald Chouinard, who is accused of operating a Ponzi scheme and the alleged failure of LPL to supervise him.

The settlement with LPL did not resolve any claims against Chouinard individually or his companies, which the Montana Department of Securities continues to pursue.

In September, the state of Montana issued a Temporary Cease and Desist Order against Chouinard and filed a Notice of Proposed Agency Action against him and his companies, DC Wealth Management and DC Associates. The action alleges that Chouinard and his companies committed securities fraud and conducted a Ponzi scheme involving Montana and Idaho investors who invested in what they thought was a “day-trading” program. In reality, however, the investors received proceeds taken from money contributed by newer investors.

Specifically, the Department’s action alleges Chouinard convinced one investor to obtain a $100,000 loan and invest with him because he could guarantee a high return in 30 days. Instead of investing the $100,000 in the “day-trading” program, Chouinard used $50,000 to pay off a previous investor, deposited $25,000 into his personal joint-checking account, and gave the other $25,000 to his attorney.

The Department also alleges that Chouinard traded investors’ accounts without their authorization, forged investors’ signatures to authorize certain trades, and failed to provide investors with statements or tax documents for their “day-trading” investments. Chouinard routinely informed the investors about the values of their investments orally or via email. The investors allege Chouinard misrepresented the values of their investments – in one case by as much as 10,000%.

The excessive trades resulted in thousands of dollars in commissions for Chouinard.

If you have suffered losses in LPL Financial and wish to discuss your situation, please leaving a message in the Comment Box below or via the Contact Us form. We want to counsel you on your legal options.

FINRA Claims, Lawsuits Target Securities America

Securities America, a subsidiary of Ameriprise Financial, is becoming the target of more investor claims filed with the Financial Industry Regulatory Authority (FINRA) over allegations it falsely misrepresented private placement offerings associated with Medical Capital Holdings – the same company that the Securities and Exchange Commission (SEC) has charged in a $2 billion Ponzi scheme.

In a federal lawsuit filed in Omaha, Nebraska, a Sarasota woman alleges that Securities America sold hundreds of millions of dollars worth of securities in the form of notes for Medical Capital Holdings, a medical receivables financing company based in Tustin, California.

In August, Medical Capital was sued by the SEC for investor fraud. Among the charges, the SEC alleges that Med Cap and various subsidiaries raised more than $2.2 billion since 2003 through the offering of notes. As of August 2008, five of the “Special Purpose Corporations” were in default or late in paying nearly $1 billion in principal and interest to investors.

The lawsuit contends Securities America violated Nebraska securities law and was negligent for failing to investigate accounting irregularities at Medical Capital. It seeks class action status to represent investors who bought the Medical Capital notes from Nov. 21, 2007, through July 31, 2008.

“Securities America did not care; instead, in favor of millions in commissions and fees, it turned a blind eye to the truth, which is that the medical receivables company’s accounting records and practices strongly pointed towards the existence of a Ponzi scheme,” the lawsuit says.

If Securities America or another brokerage has sold you Medical Capital notes, please contact us by leaving a message in the Comment Box below or on the Contact Usform.

SEC Charges Financial Adviser Frank Bluestein In $250M Ponzi Scheme

Frank Bluestein, a Detroit-area financial adviser, has been charged by the Securities and Exchange Commission (SEC) of luring elderly investors into refinancing their home mortgages in order to fund investments in a $250 million Ponzi scheme operated by Edward May and his company, E-M Management Company LLC (E-M). Bluestein’s latest run-in with authorities isn’t “new” news, however. More than two years ago, Michigan state securities regulators and the SEC were investigating Bluestein for the very crime he now is alleged to have committed. Bluestein denied similar allegations in a 2008 class-action lawsuit filed by investors who allege Bluestein bilked them out of millions of dollars. That case is still pending.

According to the SEC’s Sept. 28 complaint, regulators allege that Bluestein acted as the single largest salesperson in May’s Ponzi scheme and that Bluestein’s “role” was to specifically target retirees and elderly investors into attending so-called “investment seminars” held in Michigan and California. The purpose of the seminars was to lure potential investors into putting their money into May’s company, E-M.

“Bluestein convinced elderly investors to refinance their homes to invest in securities that he falsely claimed were safe,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “His lies, false assurances, and unscrupulous tactics put many investors at risk of losing not only their life savings, but also their homes.”

Bluestein’s past gets even more sordid. A Nov. 27, 2007, article by Registered Rep reports that after Bluestein was fired from the brokerage firm GunnAllen Financial in October for reportedly selling unregistered securities, Bluestein set up shop down the street and began working under a new name, “Frank Julian,” as part of a so-called “research team” at a company called Freedom Road. (The name listed now, however, on Freedom Road’s Web site is, in fact, Frank Bluestein.) According to the Web site, Freedom Road provides stock selection and market education to individuals. Its advertising moniker is: Luck is not an investment strategy.

Information posted by Freedom Road on its Web site touts Bluestein as “picking hot stocks for over 40 years,” with a “unique approach [to finding] big opportunities in both dividend paying stocks and growth stocks with limited risk.” “After many years as one of the nation’s leading financial advisors, Frank is now sharing his million dollar secrets exclusively with members of Freedom Road. Frank’s vision is to share his hard earned experience and success with investors on a global scale.”

It’s what Freedom Road didn’t say about Frank Bluestein that has come back to haunt investors. Bluestein isn’t even registered with the Financial Industry Regulatory Authority (FINRA). According to the Registered Rep article, Bluestein’s CRD report shows that in October 2007, 10 customer disputes had been logged against him totaling some $1.6 million in alleged damages. On Oct. 12, the Michigan Office of Financial Regulation notified GunnAllen, Bluestein’s former employer, that Bluestein was under investigation. Shortly thereafter, Bluestein was fired from GunnAllen.

Fast forward to Sept. 28, 2009. The SEC charges Bluestein of civil fraud, sale of unregistered securities and other violations in connection to helping orchestrate a multimillion-dollar Ponzi scheme. Specifically, the SEC alleges that Bluestein facilitated May’s fraudulent scheme by raising approximately $74 million from more than 800 investors through the sale of E-M securities over a five-year period. Bluestein, through his company Maximum Financial, conducted numerous investment seminars to find new E-M investors.

Based on the SEC’s complaint, Bluestein, 59, allegedly misrepresented to investors that the investments he pitched were low-risk and falsely claimed he had conducted adequate due diligence about the investments. He also apparently left out one other key detail: Bluestein received at least $2.4 million in commissions from May and E-M, in addition to the $1.4 million in disclosed compensation he received from investor funds.

Tell us about your relationship with E-M Management Company. We want to hear your story. Please fill out the Contact Us form, or leave a comment below. We can consult with you regarding your options.

Madoff Family Members Face Lawsuits For $198M

Bernie Madoff’s sons and other Madoff family members may soon be putting their over-the-top, extravagant lifestyles on the permanent backburner. Irving Picard, the man in charge of recovering assets from their convicted father for defrauded victims, stated in a Sept. 27 episode of 60 Minutes that he plans to sue Mark and Andrew Madoff, Madoff’s brother, Peter, and a niece for nearly $200 million.

Picard and David Sheehan, chief counsel, told 60 Minutes correspondent Morley Safer that the latest lawsuits will include charges of negligence and breach of fiduciary duty. In addition, the lawsuits will allege that family members personally profited tens of millions of dollars while working at Madoff’s New York investment advisory business.

According to the 60 Minutes interview, Sheehan believes about $36 billion went into the Madoff’s scheme. “About $18 (billion) of it went out before the collapse. And $18 (billion) of it is just missing. And that $18 billion is what we’re trying to get back,” Sheehan said.

Last December, Madoff confessed to one of the biggest frauds in Wall Street history when he admitted to conducting a decades-long $65 billion Ponzi scheme. He currently is serving a 150-year prison sentence.

Former LPL Financial Adviser Accused In Montana Ponzi Scheme

Two investment companies owned by a former LPL Financial broker have been shut down by the Montana Commissioner of Securities and Insurance on allegations their owner, Donald Chouinard, was running a Ponzi-like scheme that bilked investors, including some of Chouinard’s own friends, out of millions of dollars.

In addition to working for LPL Financial as a broker/dealer salesperson and investment adviser, Chouinard operated DC Wealth Management and DC Associates. On Sept. 18, Montana Commissioner of Securities and Insurance Monica Lindeen filed a Notice of Proposed Agency Action and issued a temporary Cease and Desist Order against Chouinard and his companies. According to state officials, Chouinard traded in investors’ LPL accounts without their authorization, traded excessively, and forged their signatures to authorize the trades. The excessive trades resulted in nearly $250,000 in commissions for Chouinard.

The Montana commissioner also says Chouinard failed to provide investors with statements or tax documents for their “day-trading” investments. Instead, he routinely informed investors about the values of their investments orally or via email. The complaints further allege that Chouinard misrepresented the values of various investments—in one case by as much as 10,000%.

Chouinard was fired from LPL in May.

One complaint alleges that Chouinard convinced an investor to make him a $100,000 loan and invest with him because he could guarantee a 40% return in 30 days. Instead of investing the money, however, Chouinard used $50,000 to pay off a previous investor, deposited $25,000 into his personal checking account, and gave the other $25,000 to an attorney.

Commissioner Lindeen’s complaint charges Chouinard and his companies of violating the antifraud provisions of the Montana Securities Act. Lindeen’s office is seeking to revoke Chouinard’s Montana securities license and suspend or revoke Chouinard’s Montana insurance producer license, as well as levy fines and demand restitution for investors. Chouinard could face penalties amounting to millions of dollars.

Tell us about your situation with a Ponzi scheme by leaving a message in the Comment Box below or Contact Us form. We want to consult you on your legal options.

Provident Royalties Caught Up In Massive Ponzi Fraud

Bernie Madoff and his $65 billion scam have singlehandedly made Ponzi schemes a near-daily front-page news story. Now it’s Provident Royalties LLC making news. Provident, along with its three founders – Paul Melbye, Brendan Coughlin and Henry Harrison – was charged by the Securities and Exchange Commission (SEC) in July for allegedly bilking thousands of oil and natural gas investors in a $485 million Ponzi scheme. Broker-dealer Provident Asset Management LLC and the 21 entities that offered and sold the securities to investors also were named in the lawsuit.

According to the complaint, Dallas-based Provident raised nearly half a billion dollars from more than 7,000 investors by promising high returns and misrepresenting how the funds would actually be used. The alleged fraud reportedly went undetected by regulators for three years – from September 2006 until January 2009. In typical Ponzi-like fashion, a portion of investors’ funds is said to have been used to pay earlier Provident investors.

“Investors were told that 86% of their funds would be placed in oil and gas investments. That representation was false,” the SEC’s complaint said.

For more information about the SEC’s action against Provident, you can read Litigation Release No. 21118. Dennis L. Roossien, Jr., has been named as the court-appointed receiver in the case. For the latest information about the receivership, visit the Receiver’s Web site.

Report: SEC Missed The Boat On Madoff

As expected, H. David Kotz, Inspector General of the Securities and Exchange Commission (SEC), has delivered a scathing report on the agency’s mishandling of the Bernie Madoff scandal. The much-anticipated report is 450 pages in length, and blasts the SEC for never conducting “a thorough and competent investigation or examination” of Madoff and his investment advisory businesses. The inspector general goes on to reveal how the agency’s “inexperienced” attorneys remained oblivious to Madoff’s $65 billion Ponzi scam, accepting Madoff’s answers to their questions even when the responses were “seemingly implausible.”

The report also notes that during the course of several examinations by SEC staff members into Madoff, the financier made overt efforts to “impress and even intimidate the junior examiners from the SEC.” According to the report, Madoff emphasized his role in the securities industry, emphasizing his ties with high-ranking members at the agency. One of the examiners characterized Madoff as “a wonderful storyteller” and “very captivating speaker” and noted that he had “an incredible background of knowledge in the industry.”

Read the executive summary of the report here.

In March, Madoff was sentenced to 150 years in a North Carolina federal prison for his role in masterminding what is considered the biggest Ponzi scheme in history. Investors, including ordinary citizens, hedge funds, charities, famous names in the entertainment world and others, lost more than $65 billion to Madoff’s scheme.

Don’t Be Left In The Dark When It Comes To Investing Your Money

These are scary times for investors. Stories of stockbroker negligence, record Ponzi schemes, investment fraud, and client misrepresentation have become an everyday occurrence. It’s no wonder investors – seasoned pros and novices alike – are increasingly wary when it comes to seeking advice from an investment advisor or financial representative, questioning if anyone associated with Wall Street can be trusted nowadays. I’m reminded of a scene from the 1976 film Network in which fictitious newsman Howard Beale (played by the late actor Peter Finch) delivers his “mad as hell and I’m not going to take this anymore” speech.

Jo L. Wright no doubt felt the way of Finch’s character. Wright, a church secretary from Whitestown, Indiana, lost thousands of dollars in a bond fund formerly managed by Morgan Keegan & Company. Wright’s initial introduction to the Memphis-based brokerage was through her local Indiana Regions bank branch manager. At the time of the referral, Wright had her money in what she deemed “safe” and “secure” investments: a certificate of deposit and a savings account.

That all changed based on the recommendation of the bank manager and Morgan Keegan. Wright transferred her money into the Morgan Keegan Select Intermediate Bond Fund. Relying on the information provided by Morgan Keegan and her Regions Bank manager, she believed the fund was a safe, conservative investment and that any risk of principal loss was virtually non-existent.

In truth, Wright actually put her money into a high-risk and speculative financial product, one with significant ties to complex structured finance investments that included subprime mortgage securities. In no way was it the kind of investment that a conservative-minded investor like Wright should have been advised to purchase.

Wright didn’t know that, however, because her financial advisor allegedly didn’t tell her. Nor did Wright receive a prospectus about her investment before purchase.

Wright eventually filed a complaint against Morgan Keegan with the Financial Industry Regulatory Authority (FINRA), and in March 2009 was awarded $18,000 for the financial losses she suffered. Her case underscores several important issues, however, when it comes to investing your money and selecting a financial advisor.

First, it’s your money. That means investors need to do some due diligence of their own. This includes asking your financial advisor some tough questions. Chief among them: Where has your advisor worked in the past? Is there a pattern of multiple jobs in a short period of time? If the answer is yes, it could be a red flag.

Another key question concerns compensation. How is the financial advisor paid for his or her services? Is it based on an hourly rate, flat fee, or commission? In addition, find out if the advisor is given bonuses for selling certain investment products. If so, this clearly could be a conflict of interest if one of those products is pushed to become part of your investment portfolio.

Marcus Schrenker Heads To Federal Prison

Marcus Schrenker was Indiana’s own version of Bernie Madoff. Before his arrest in January, Schrenker had built a successful investment advisory business off of the money and trust of family and friends. Behind the scenes, however was a different story, with Schrenker selling nonexistent foreign currency funds, creating false account information, and using clients’ money to fund a lavish lifestyle that included a private plane and a luxurious lakeside estate. On Aug. 19, during federal sentencing in Pensacola, Fla., Schrenker was given 51 months in prison for charges stemming to the Jan. 11 plane crash in which Schrenker tried to fake his own death near Florida.

Schrenker’s legal issues are far from over, however. He still faces 11 felony counts related to his investment businesses in Indiana.

Schrenker’s victims include his aunt, Rita Schilling, who transferred more than $200,000 to one of Schrenker’s investment companies in August 2008. Another victim is a long-time friend, Charles Black. In 2004, Schrenker moved $100,000 out of Black’s account without his consent, according to a probable cause affidavit.

As in the case of Bernie Madoff, Schrenker’s roster of clients never became suspicious of the Indiana money manager because they knew him personally or had been introduced to him by people they trusted. Also like Madoff, Schrenker’s facade of investing prowess was aided by personal images of wealth and success.

Investment Fraud Arbitration Claims Rise In June

Investors filing claims of misrepresentation, churning, omission of facts, failure to supervise and stockbroker fraud are growing in number. According to the latest statistics released by the Financial Regulatory Authority (FINRA), new case filings through June 2009 were 3,875, compared to 2,129 cases in same period of 2008 and 1,656 in 2007. 

The type of controversy most frequently cited in FINRA’s June 2009 statistics was breach of fiduciary duty, followed by misrepresentation and negligence.  In comparison to 2008, the breakdown is as follows: 

  • Margin calls: 64 in 2008; 128 in June 2009.
  • Churning: 212 in 2008; 206 in June 2009.
  • Unauthorized trading: 248 in 2008; 440 in June 2009.
  • Failure to supervise: 1,029 in 2008; 2,552 in June 2009.
  • Negligence: 1,602 in 2008; 3,404 in June 2009.
  • Omission of facts: 1,201 in 2008; 2,436 in June 2009.
  • Breach of fiduciary duty: 2,836 in 2008; 4,432 in June 2009.
  • Unsuitability: 1,181 in 2008; 2,508 in June 2009.
  • Misrepresentation: 2,005 in 2008; 3,530 in June 2009. 

In addition to an influx of new arbitration claims filed, more investors are coming up victorious. Through June 2009, FINRA arbitration panels ruled in favor of investors 46% of the time, compared to 42% for the same period in 2008. 

The continued surge of arbitration claims is attributed to several factors, including the ongoing turmoil in the nation’s financial markets. Other reasons concern specific investment products such as variable annuities and credit derivatives. A proliferation of several high-profile Ponzi schemes and other investment frauds also has spurred a rise in claims by investors.


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