Securities Lawyer Blog | Victim of Fraud?

TAG | churning

Sep/12

18

Lawsuit Alledges Harvey Kadden, a Top Broker at MSSB, is Churning Customer Accounts

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Clifford Jagodzinski, formerly of Morgan Stanley Smith Barney LLC (MSSB), claims he was fired for blowing the whistle on one of the firm’s newest wealth managers, Harvey Kadden. According to the complaint, filed in U.S. District Court in the Southern District of New York, Kadden “was flipping preferred securities in a manner that was generating tens of thousands of dollars in commissions but causing losses or minimal gains for his clients and exposing (them) to unnecessary risks.”

Harvey Kadden, who was with Merrill Lynch for 30 years, listed regularly on the Barron’s Top 1,000 advisers list, joined MSSB October, 2011. According to the lawsuit, he received a $25 million guarantee for signing on.

“Consequently, [MSSB] had very significant earnings expectations for Harvey Kadden and did not want to take any steps to jeopardize his book of business,” the complaint alleges. Mr. Jagodzinski was thus “told to stop investigating Mr. Kadden,” according to the complaint.

The Dodd-Frank Act prohibits retaliation against whistle-blowers, according to the complaint filed by Mr. Jagodzinski.

Harvey Kadden manages assets in excess of $1 billion.

MSSB acknowledged that Mr. Jagodzinski was asked to investigate certain trades in customer accounts served by Harvey Kadden’s team and that he had discussed those trades with his superiors. The firm, however, denied the other allegations.

From December 2011 to April, when he was fired, Mr. Jagodzinski reported several violations by brokers. They included improper trades of Treasuries by another MSSB employee, the failure of some of the firm’s brokers to register home offices as alternate work locations and drug abuse by one of the firm’s brokers.

“Finally, during a conversation during the week of April 4, Mr. Jagodzinski told Mr. Turetzky (his superior) that these violations should be reported” to the Financial Industry Regulatory Authority Inc., according to the complaint. “Mr. Turetzky bristled at this declaration, and less than 10 days later, Mr. Jagodzinski was fired.”

If you were a client of Harvey Kadden of MSSB, or another broker who may have been churning your accounts, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website and complete our online form at: http://www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Sep/12

11

JP Turner & Co, Atlanta, Charged with ‘Churning’ Customers’ Accounts Over $2.7million

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The Securities and Exchange Commission alleged three former brokers at JP Turner & Co. in Atlanta, traded excessively in accounts of seven clients from January, 2008, through December, 2009. Regulators reported that these three brokers churned their client’s accounts and received $845,000 in commissions and fees for themselves and the brokerage. Unfortunately, their customers lost $2.7 million. The brokers, Ralph Calabro, Jason Konner and Dimitrios Koutsoubos, were said to have disregarded the customers’ conservative investment objectives and low risk tolerances.

The SEC said the affected accounts had annual turnover rates that were so high during the two-year period that investment returns would have had to have been 73.3% for the accounts to break even writes Liz Skinner of InvestmentNews.com.

Michael Bresner, JP Turner’s head supervisor, was charged with failing to supervise two of the brokers, according to the SEC administrative complaint filed on September 10th., 2012. Mr. Bresner ignored red flags that pointed to the brokers’ churning tactics, the commission said. The firm and its former president, William Mello, also were charged but agreed to settle without admitting to or denying the charges.

The JP Turner Atlanta firm will pay about $416,000 in penalties and Mr. Mello will pay a $45,000 penalty, according to the SEC. Mr. Mello, who helped found the firm in 1997, also is suspended from associating with a firm in a supervisory capacity for five months.

William Hicks, associate director of the SEC’s Atlanta office said,“Broker-dealers’ supervisory systems must provide customers with reasonable protection from churning and similar abuses. JP Turner’s supervisory systems failed to do that.”

If you were a client of JP Turner in Atlanta, or any of the above mentioned brokers, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website and complete our online form at: http://www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

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Sep/12

5

ATTENTION: Investors Located in the United Kingdom

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Recently, certain United States based brokerage firms have been contacting investors located in England, Scotland, Wales, and Ireland, soliciting customers to open accounts at USA based brokerage firms. The Securities Lawyers at Soreide Law Group have recently been receiving a large number of inquires from overseas investors. The UK investors are now looking to initiate FINRA arbitrations against their advisors in the United States. These complaints are primarily related to: excessive trading, churning, unauthorized trades and excessive use of margin.

If you are a resident of the United Kingdom looking for recourse against your broker/dealer, please contact Soreide Law Group at: (888) 760-6552, or visit our website and complete our online form at: http://www.securitieslawyer.com.

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Sep/12

4

Merrill Lynch Fined $400,000 by FINRA in Churning Case

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Merrill Lynch has agreed this week to pay a $400,000 fine in a ‘fund-churning’ case brought by the Financial Industry Regulatory Authority Inc. (FINRA). Merrill will also pay $139,718 in restitution to the customers involved.

Allegedly Merrill failed to supervise it’s former broker David Bredenburg, who worked in the Towson, Md. office. FINRA claimed Merrill did not take action to stop the alleged unsuitable trades until customers began to complain in April, 2008. Merrill then fired Bredenburg in February, 2009, for unauthorized trading, according to records filed by the company.

David Bredenburg was barred from the industry by Maryland regulators in March 2009, and by Finra in July 2010, according to regulatory filings.

Soreide Law Group, PLLC, represents clients nationwide. Call for a free consultation on how to potentially recover your financial losses. To speak with an attorney call 888-760-6552, or visit our website at: http://www.securitieslawyer.com.

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Jul/12

18

FINRA Awards $1.9 Million in Churning Case

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JHS Capital Advisors Inc. and a former broker, Enver R. Alijaj, were fined $1.9 million in a Finra arbitration last week stemming from allegations that the broker traded in a client’s account excessively to generate commissions. The broker was also forced to pay $500,000 to settle a previous charge of churning.

Churning is illegal and unethical. On the SEC’s website, churning is described as what occurs when a broker engages in excessive buying and selling of securities in a customer’s account mainly to generate commissions that benefit the broker. For churning to occur, the broker must exercise control over the investment decisions in the customer’s account, such as through a formal written discretionary agreement. Frequent in-and-out purchases and sales of securities that don’t appear necessary to fulfill the customer’s investment goals may be evidence of churning. Churning violates SEC and FINRA Rules.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you believe your broker has engaged in churning, please call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: http://www.securitieslawyer.com.

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Apr/12

16

JUDGE ORDERS FORMER MASSACHUSETTS BROKER TO PAY OVER $500,000 FOR DEFRAUDING 9/11 WIDOW

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THE FOLLOWING IS AN ARTICLE FROM THE SEC’S WEBSITE:

“The Securities and Exchange Commission (SEC) announced that a federal judge in Massachusetts entered a final judgment on March 14, 2012 ordering defendant James J. Konaxis, formerly a registered representative of Beverly-based broker-dealer Sentinel Securities, Inc., to disgorge more than $483,000 in commissions earned over a two-year period by defrauding a former customer who was left widowed by the September 11, 2001 terrorist attacks. Together with prejudgment interested and a civil penalty, Konaxis has been ordered to pay a total of $514,954. In granting the Commission’s motion for monetary remedies, Judge Denise L. Casper found that Konaxis was liable in the amount of all commissions earned from three of the victim’s accounts over a two-year period because he “misled the victim into thinking her investments were safe, while churning (e.g., excessively trading) her funds in a manner contrary to her interests[.]”

According to the Commission’s complaint, Konaxis violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder by excessively trading his customer’s funds while knowingly or recklessly disregarding her interests. During a two-year period, the Commission alleges that the value of his customer’s accounts (funded by payments made to the victim and her family by the September 11th Victim Compensation Fund) decreased from approximately $3.7 million to approximately $1.6 million, much of which was due to Konaxis’s investments and the resulting commissions paid to Konaxis.

At the time the Commission’s complaint was filed, Konaxis entered into a partial settlement with the Commission, in which he consented to be enjoined from future violations of the antifraud provisions of the Securities Act and Exchange Act, and to be barred from participating in any offering of penny stock. In addition, as part of the settlement, Konaxis agreed to be barred in related administrative proceedings from any future association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent. However, the Commission also filed a motion with the Court seeking disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of a civil penalty, which Konaxis opposed.

After a hearing on March 1, 2012, Judge Denise L. Casper issued an order granting the Commission’s motion for monetary remedies, including disgorgement in the full amount of Konaxis’ commissions earned over a two-year period from the three accounts churned, totaling $483,460.23, prejudgment interest in the amount of $31,494.44, and a civil penalty of $10,000, for a total of $514,954.”

END OF SEC’S ARTICLE

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide.
For a free consultation with an attorney, please call 888-760-6552, or visit our website at: www.securitieslawyer.com.

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Jul/11

21

FLORIDA OFR FINES BROWARD COUNTY INVESTMENT ADVISER $117,500 AND REVOKES REGISTRATION FOR DEFRAUDING VULNERABLE INVESTOR

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TALLAHASSEE, Fla. – On The Florida Office of Financial Regulation’s website it was announced, July 21, 2011, that The Florida Office of Financial Regulation (OFR) issued a final order on May 26, 2011, against investment adviser James Paul Birmingham (“Birmingham”) (CRD # 222511) and his Broward County companies Birmingham Investments and Birmingham Capital Advisors, LLC for multiple violations of the Florida Securities and Investor Protection Act (“Act”), Chapter 517, Florida Statutes.  Under Florida law, OFR has the authority to take enforcement actions against any firm or individual found to be in violation of the Act.  The registrations of both Birmingham and Birmingham Investments were revoked and fines of $117,500 were assessed against Birmingham and his two firms.  The time within which Birmingham could appeal the OFR final order expired on June 27, 2011.
 
The OFR reports that the order found that Birmingham misled a long time family acquaintance, with limited investment experience, to invest his incapacitated mother’s assets with Birmingham.  Birmingham then excessively traded the assets, resulting in substantial investor losses.  Birmingham’s trading pattern was inconsistent with the client’s wishes to preserve his mother’s assets, because the client’s mother was incapacitated and relied on her investments to survive financially.
 
“Investors cannot be too careful with whom they entrust their hard-earned money.  Once again, OFR had to take away a firm’s and individual’s registration to do business in Florida, because they took advantage of a trusting victim, with whom they had a long-time relationship,” OFR Commissioner Tom Cardwell said.  “When it comes to investing their money, investors should always be aware of the potential for greed, even with purported professionals they know.  Be vigilant about your investments, ask questions and be sure you know what is happening with your money and why.  After all, it’s your money, not the broker’s or adviser’s money.  Report anything suspicious to OFR, or the state securities regulator in your own state, if you live outside of Florida.”
 
According to the OFR article, Birmingham had been designated in 2005 to be the mother’s guardian by the Circuit Court for Miami-Dade County.  The guardianship was to provide prudent financial management of her property, as provided to incapacitated Floridians under the law.  Birmingham was granted authority to invest the mother’s money and trade the mother’s account for eight months without consulting anyone.
 
It was reported that the account was opened in March 2008, the mother’s assets invested with Birmingham totaled $375,000, which was most of the mother’s net worth.  While Birmingham managed the account over the next year, Birmingham excessively traded the mother’s brokerage account resulting in a loss of $122,000.
 
OFR reports that Birmingham and his firm were found to have committed multiple violations of the Act, including:
• Securities fraud
• Excessive trading of the mother’s account
• Failing to account for all received property
• Making unsuitable recommendations
• Violating OFR’s safekeeping requirements for advisers with custody of client funds
 
The Florida OFR’s Division of Securities recommends that investors do their research before investing with or having an investment or securities firm or representative manage the investor’s money. 
This article was obtained on Florida’s OFR’s website.

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have become a victim of James Paul Birmingham of Florida, Birmingham Investments, or Birmingham Capital Advisors, LLC, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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