California Securities Fraud Lawyer Blog

State of California to Receive $779,795 in Regulatory Action Over the Unsuitable Sale and Exchange of Variable Annuities

2010-02-08T19:11:35Z

The state of California will receive $779,795 as its share of a multi-state settlement with Nationwide Life Insurance Co. and Nationwide Life and Annuity Insurance Co. who agreed to pay a fine totaling $2.1 million due to the alleged unsuitable exchange or replacement of two variable annuities developed for and sold by financial advisory firm Waddell & Reed, known as the Waddell & Reed Advisors Select Plus Annuity and the Waddell & Reed Select Annuity. The regulators contend that Nationwide failed to exercise proper supervision and control over the sale and exchange of these variable annuities. Nationwide's settlement agreement was entered into with insurance regulators for California, Kansas, Missouri, Minnesota and Wisconsin.

As part of the settlement, customers from California, Kansas, Missouri, Minnesota and Wisconsin who replaced their United Investors Life Insurance Company annuity with a Waddell & Reed Select or Select Plus annuity between January 1, 2001, and August 31, 2002, will receive a notice advising them about their right to receive reimbursement of fees and charges incurred and other applicable remedies such as rescission and modification of their policies.

Click here to download a copy of the settlement agreement.

IMH Secured Loan Fund Securities Lawsuit Alert

2010-01-31T01:56:17Z

The Alcala Law Firm was recently contacted by several California investors who invested in the IMH Secured Loan Fund, LLC, a private placement managed by Scottsdale based Investors Mortgage Holdings, Inc. The Financial advisors who sold the IMH Secured Loan Fund to these investors also sold them other private placements, including Medical Capital and Provident Asset Management, two speculative investments that turned out to be ponzi schemes and are now the subject of numerous securities fraud lawsuits.

Before recommending any investment, particularly risky and speculative private placements, financial advisors have a fiduciary duty to adequately disclose the risks involved and also to exercise due diligence in determining whether such investments are suitable for the customer. The Alcala Law Firm is in the process of investigating the possibility of filing securities arbitration claims before the Financial Industry Regulatory Authority (FINRA) to recover investment losses related to these private placements.

Medical Capital Update: Massachusetts Regulators Charge Securities America With Securities Fraud

2010-01-29T22:17:28Z

On January 26, 2010, Securities America, the beleaguered brokerage firm that is already subject to a multitude of securities fraud lawsuits, including a pending class action in California, was charged by the State of Massachusetts with misleading investors in the sale of notes issued by companies owned by Medical Capital Holdings, Inc. The regulatory complaint alleges that Securities America ignored red flags and deliberately failed to disclose the risks involved when selling $697 million worth Medical Capital Notes to unsophisticated investors. According to the complaint, investors were told that the notes were secured and low risk when, in reality, the notes were "unregistered, speculative, high risk securities, which were draped in the mantle of safety."

Our securities law firm has been contacted by investors who purchased Medical Capital Notes from stockbrokers at Securities America, National Securities Corporation, CapWest, QA3 Financial and others. We are in the process of filing securities arbitration claims before the Financial Industry Regulatory Authority (FINRA) seeking to recover Medical Capital losses from these brokerage firms, pending further investigation.

Related blog posts:

Medical Capital Class Action or Arbitration: Investors Should Consider Their Options

For more blog posts, select a category below.

Securities Arbitration Award Results for 2009 Better Than Expected for San Francisco Investors

2010-01-15T19:42:22Z

During my year-end review of securities arbitration award results for San Francisco, California, I made a conscious effort to limit my analysis to investor disputes involving stockbroker misconduct and breach of fidcuciary duty.

For 2009, there was a 43% increase in the number of securities arbitration cases filed with FINRA nationwide. Based on my analysis of the two-dozen or so cases that went all the way to hearing in San Francisco, I found that customers prevailed about 37.5% of the time. On a national basis, FINRA reports that investors won 45% of the 304 cases that went all the way to hearing. Are San Franciso Bay Area investors less likely to prevail in a FINRA arbitration hearing? I don't think so. When I look at the arbitration awards for San Francisco cases, I noticed the following factors that can lead to a poor result:

Investors who went to the arbitration hearing alone without an attorney did very poorly. Out of 8 arbitration cases analyzed, only one self-represented investor was awarded anything at all--the grand sum of $792 on a claim $37,500.

If only attorney-represented cases are considered, the percent of winners jumps from 37.5% to 53%. This confirms my belief that investors who have meritorious cases may have a better than average chance of winning.

Attorney-represented investors that did win recovered approximately 79% of their claimed compensatory damages. The reliability of this figure is somewhat questionable, however, because the damage amounts claimed could have been overstated. Also, the recovery rate was somewhat skewed by a large 7-figure award to a single customer. These results, together with other award studies that I'm familiar with, underscore the fact that arbitrators can be fairly stingy in their awards. (More on the subject of arbitrators below).

I was not surprised to see that certain arbitrators repeatedly found against customers. Because the arbitration rules give each side the limited ability to remove arbitrators from their case, a great deal of care and attention must be paid when selecting arbitrators. An unfortunate side effect of this system is that customers often end up with arbitrators who are "middle of the road" and have a tendency to "split the baby."

In summary, if you have a case that is truly meritorious, don't be discouraged. Rather than try to go it alone, retain an experienced securities attorney who can effectively pursue your claim and ensure that fair-minded arbitrators are appointed to your case.

California Stockbroker Discipline Report for December 2009

2009-12-31T22:05:41Z

The following information regarding broker misconduct and disciplinary activities taken against California stockbrokers was released by the Financial Industry Regulatory Authority (FINRA) in December 2009:

Dean Jay Addinanti formerly of Wells Fargo Advisors, LLC and A.G. Edwards & Sons, Inc. in Torrance, California, was fined and suspended from association with any FINRA member in any capacity for 60 days for allegedly conducting unauthorized transactions in customer accounts.

Stephen Crai Keifner formerly of First Allied Securities, Inc. and A.G. Edwards & Sons, Inc. in Ventura and Oxnard, California, was barred from association with any FINRA member in any capacity for allegedly engaging in unauthorized trades in customer accounts, making unsuitable recommendations and altering customer account documentation.

California Based Pacific Cornerstone Capital Fined $750,000 Over Private Placements

2009-12-22T17:37:28Z

Pacific Cornerstone Capital, Inc. of Irvine, California, and it's CEO were fined a total of $750,000 by the Financial Industry Regulatory Authority (FINRA) for making false and misleading statements to purchasers of Cornerstone Industrial Properties LLC and CIP Leveraged Fund Advisors LLC. The two private placements raised approximately $50 million from 950 investors who purchased them either directly from Cornerstone or through a nationwide network of stockbrokers and investment advisers. Without admitting or denying FINRA's charges, the firm and its CEO consented to the following findings:

The firm had no reasonable basis for including representations in its offering documents that the targeted yield for a $100,000 investment was in excess of 18 percent over two to four years
Periodic update letters from the firm's CEO gave investors unrealistic performance estimates that misrepresented the true financial condition of each company.
The firm and its CEO failed to adequately supervise and monitor the sale of the private placement offerings.

FINRA and the SEC have recently stepped up enforcement and oversight activities involving the fraudulent sale of private placement offerings, also known as Regulation D offerings.

SEC Files Securities Fraud Lawsuit Against Brookstreet Securities of Irvine, California

2009-12-09T00:17:10Z

Today, the SEC charged California-based Brookstreet Securities with securities fraud over the sale of riskly and unsuitable mortgage-backed securities, known as Collateralized Mortgage Obligations (CMOs), to conservative investors, many of them seniors and retirees who were financially destroyed. According to the SEC, Brookstreet sold approximately $300 million worth of CMOs to its customers between 2004-2007 even though the firm knew, or should have known, that the CMOs were unsuitable.

The SEC is seeking injunctive relief and disgorgement of all ill-gotten gains plus prejudgment interest from the firm plus financial penalties against the firm's President Stanley Brooks. Brookstone customers who were victims of the firm's CMO program also have the option of pursuing a securities arbitration claim against Brookstone to recover their finanicial losses.

SEC Strikes at Striker Petroleum for Securities Fraud

2009-12-07T18:29:08Z

Striker debentures can now be added to the growing list of private-placement offerings that were marketed through a network of stockbrokers that have recently become embroiled in securities fraud lawsuits. This week, the SEC alleged that Striker Petroleum, LLC deceived approximately 540 investors into purchasing $57 million worth of fraudulent debentures. The SEC is alleging that Striker was selling the debentures to pay off prior debenture holders and to pay fixed returns to investors who had invested in Legacy oil and gas properties.

According to one industry news source, the Striker debentures were sold through a nationwide network of stockbrokers, including CapWest Securities. As a result, many investors who purchased Striker debentures may also have been sold interests in Provident Asset Management and Medical Capital--two private placements that are already the focus of SEC and investor lawsuits. As we noted in a recent blog posting on this very subject: Brokers who recommended these investments have a lot of explaining to do.

Click here for related blog postings.

Medical Capital Holdings & Provident Asset Management Securities Fraud Update

2009-12-04T20:29:34Z

Since my last two blog postings about the Medical Capital securities class action lawsuits pending in California, I have heard from several investors that were defrauded into purchasing not only Medical Capital Holdings, but also Provident Asset Management. Brokers who recommended either one of these investments have a lot of explaining to do. Before recommending any investment, brokers have a fiduciary duty to exercise due diligence in determining whether an investment is appropriate and suitable for their customer. Defrauded investors interested in recouping their investment losses should consider all of their legal options, including the filing of a securities arbitration claim against their stockbroker or investment advisor that recommended the investment.

Below is a brief overview of the Provident Asset Management and Medical Capital securities fraud matters.

Provident Asset Management

On July 1, 2009, the SEC charged Provident Royalties LLC, Provident Asset management, and its founders with securities fraud for running what is alleged to be a $485 million Ponzi scheme involving at least 7,700 investors. The complaint also names as defendants numerous entities through which Provident raised funds: Provident Energy 1, LLP; Provident Energy 2, LLP; Provident Energy 3, LLP; Shale Royalties II, Inc.; Shale Royalties 3, LLC; Shale Royalties 4, LLC; Shale Royalties 5, LLC; Shale Royalties 6, LLC; Shale Royalties 7, LLC; Shale Royalties 8, LLC; Shale Royalties 9, LLC; Shale Royalties 10, LLC; Shale Royalties 11, LLC; Shale Royalties 12, LLC; Shale Royalties 13, LLC; Shale Royalties 14; LLC Shale Royalties 15, LLC; Shale Royalties 16, LLC; Shale Royalties 17, LLC; Shale Royalties 18, LLC; Shale Royalties 19, LLC; and Shale Royalties 20, LLC.

Click here to read the full complaint.

Medical Capital Holdings

On September 18, 2006, a class action lawsuit was filed in the Central District of California against the following brokerage firms Securities America, Inc., Ameriprise Financial, Inc., CapWest Securities, Inc, and Cullum & Burks Securities, Inc on behalf of investors that invested in Medical Capital Notes issued by Medical Provider Financial Corp. III, IV, V and/or VI.

See our blog posting: Medical Capital Class Action or Arbitration: Investors Should Consider Their Options

There are also many other brokerage firms who aggressively sold Medical Capital Notes to their customers who were omitted from the class action lawsuit, including some large brokerage firms and smaller regional firms. In addition to the class action defendants discussed above, I have heard from investors who invested in Medical Capital through brokers working with National Securities Corporation, QA3 Financial, Okoboji Financial Services, Redwine Securities and others that are still being reviewed.

Reminder to California Schwab Yield Plus Investors: Class Action Opt Out Deadline Looming

2009-12-01T16:57:30Z

Investors who purchased the Schwab Yield Plus (SWYPX and SWYSX) money market funds, have until December 28, 2009, to decide whether to remain in the pending class action lawsuit or affirmatively "opt out" and pursue a securities arbitration claim. The following investors will be automatically included as class members if they do not take steps to opt out of the class action:

Those that purchased the funds between November 15, 2006, and March 17, 2008;
Those that purchased the funds between May 31, 2006, and March 17, 2008; and
Any California resident who held the funds on September 1, 2006.

Investors should carefully consider whether or not opting out is the right choice for them based on their individual circumstances. Investors who elect to opt out of the class action can join hundreds of other investors who have filed their own independent securities arbitration claims with the Financial Industry Regulatory Authority (FINRA).

For more information, please see our previous blog posting: Securities Arbitration vs. Class Actions: Consider Your Options

California Stockbroker Discipline Report for November 2009

2009-11-30T22:39:32Z

Lisa Ann Tomiko Nouchi of Fairfield, California, was suspended from association with any FINRA member in any capacity for 90 days and fined $10,000 for allegedly entering inaccurate and false customer information while she was employed at UBS Financial Services.

Marc Winters of Chatsworth, California, was suspended from association with any FINRA member in any capacity for 90 days and fined $19,882 for allegedly entering inaccurate and false customer information while he was employed at UBS Financial Services.

Gary Thomas Armitage who is the principal of AGA Financial and was formerly with ePLANNING Securities, Inc. in Roseville, California, was named in a complaint filed by FINRA alleging unauthorized transactions in customer accounts and participating in unreported private securities transactions.

Wells Fargo Bank and Bank of New York Mellon Involved In Medical Capital Securities Class Action

2009-11-17T20:19:23Z

On November 2, 2009, a class action was filed in the Central District of California against Wells Fargo Bank and Bank of New York Mellon on behalf of investors who purchased Medical Capital notes. The class action alleges that the banks failed to safeguard investor assets while acting as trustees of the Special Purpose Corporations created by Medical Capital Holdings. The action, Michel Rapoport v. Wells Fargo Bank, National Association et. al, has not yet been certified by the court.

There are currently two separate class actions arising from the Medical Capital fiasco. In addition, a growing number of investors are pursuing securities arbitration claims directly against the financial advisors that solicited their purchase of Medical Capital notes.

SEC Reaches Settlement With San Francisco Brokerage Firm Regarding Failure to Supervise Securities Fraud Committed by Rogue Stockbroker

2009-11-10T22:59:54Z

Today, the Securities Exchange Commission (SEC) issued an order finding that Jon Merriman, founder of San Francisco brokerage firm Merriman Curhan Ford, and Christopher Aguilar, the firm's former general counsel, had failed to supervise broker David "Scott" Cacchione who was engaging in securities fraud.

Although the firm had placed Cacchione on heightened supervision because of prior disciplinary actions, the SEC found that the firm ignored red flags signaling potential fraud, including an elderly investor's complaint that Cacchione purchased risky penny stocks without her permission. According to the SEC, Cacchione committed securities fraud by placing unauthorized and unsuitable trades in customer accounts and also by helping an accomplice obtain more than $45 million in personal loans using securities held in the accounts of unsuspecting customers as collateral for the loans. After pleading guilty to securities fraud, Cacchione was sentenced to five years in prison and ordered to pay restitution of $47.5 million.

Without admitting or denying any wrongdoing, the three parties agreed to pay the following fines associated with their failure to supervise Cacchione: Merriman Curhan Ford $100,000; Jon Merriman $75,000; and Christopher Aguilar $40,000. In addition, Merriman and Aguilar agreed to a 12-month suspension from serving in any supervisory capacity.

Encouraging News for Securities Arbitration Claimants?

2009-11-02T02:41:20Z

Although my earlier blog posting about securities arbitration results in San Francisco was less rosy, today's Wall Street Journal article, "Investors Win More Broker Cases," did contain a bit of encouraging news for brokerage firm customers who may be considering whether to file a securities arbitration claim. The article noted that customers who went all the way to hearing before the Financial Industry Regulatory Authority (FINRA) have prevailed 45% of the time so far this year compared to just 37% in 2007. In other words, investors are not winning most of the time, they are simply winning a larger percent of cases than they did in the past. The WSJ article also noted that awards to investors for claims under $1 million were averaging about 50% of the damages requested.

Most Investor Claims Involve Mutual Funds

The WSJ article also makes a point of saying that a "good chunk" of the cases filed in the last two years involve auction rate securities. FINRA started keeping track of ARS cases on January 1, 2008. A total of 299 ARS cases were filed in 2008. This year, there have been 215 ARS cases filed through September 2009. A significant trend that was overlooked in the WSJ article is the fact that disputes involving mutual funds are the most frequently arbitrated type of securities product. This year, there have already been 1,272 mutual fund cases filed through September 2009--an amount that eclipses the total number of mutual fund cases filed in 2007 and 2008 combined.

Most Investor Claims Allege Breach of Fiduciary Duty and Misrepresentation

According to FINRA, the two most common types of customer complaints for 2009 are breach of fiduciary duty and misrepresentation. However, there are limitations to FINRA's statistics. For example, FINRA only includes four claim types for every case that is filed. This may explain why unsuitability--a widely alleged customer complaint--did not rank as high as it probably should have.

California Stockbroker Discipline Report for October 2009

2009-10-30T15:29:26Z

Kevin Michael Browne formerly of Regal Securities, Inc. in Dillon, California, was suspended from association with any FINRA member in any capacity for one year for allegedly defrauding investors in connection with the sale of Collateralized Mortgage Obligations (CMOs).

Pingping Shu (aka Carol Shu) formerly of Wells Fargo Investments in Camarillo, California, was barred from association with any FINRA member in any capacity for 30 days for allegedly copying and pasting customer signatures on client forms without their authorization and consent.

Michael Alfred Thome of Folsom, California, a former broker with TD Ameritrade, was ordered to pay $402,137.50 plus interest as restitution for the misappropriation of funds from a customer who thought they were investing in a real estate partnership.

Douglas Richard Smith formerly with Financial Advisors of America, LLC in Thousand Oaks, California, was named in a complaint filed by FINRA alleging unauthorized variable annuity transactions and placing the customer's signature and/or initials on documents without the customer's knowledge.