Securities Lawyer Blog | Victim of Fraud?

TAG | Securities America Inc.

Sep/12

17

Weston, Florida, Broker Andrew Glen Rosenberg Fined and Suspended by FINRA

Comments off · Posted by Securities Lawyer in FINRA

The following appeared on FINRA’s website under, ““Disciplinary and Other FINRA Actions, September, 2012.”

Andrew Glen Rosenberg (CRD #2944124, Registered Principal, Weston, Florida)

submitted a Letter of Acceptance, Waiver and Consent in which he was fined $10,000 and suspended from association with any FINRA member in any capacity for three months. Without admitting or denying the findings, Rosenberg consented to the described sanctions and to the entry of findings that he performed legal services for an issuer through his law practice, a sole proprietorship, and received approximately $98,000 in compensation.

These findings stated that for approximately 18 months, Rosenberg, acting through his company, presented and/or sold approximately $4.5 million worth of the issuer’s notes and debentures to investors, most of whom were his member firm’s customers.

Rosenberg failed to disclose to the investors that he was providing legal services for compensation to the issuer, thereby negligently failing to disclose a material fact to the investors. The findings also stated that Rosenberg advised his firm of his law practice on an outside business activities form and represented he was unaware of any potential conflicts of
interest, but failed to promptly notify his firm through an amended form that he, through his law practice, was providing legal services for compensation to the issuer, an entity whose securities he was selling to investors, including firm customers.
This suspension is in effect from August 6, 2012, through November 5, 2012. (FINRA Case #2009018649001)

The following information appears on FINRA’s website under BrokerCheck.

ANDREW GLEN ROSENBERG CRD# 2944124

The following was a portion of the information listed under Regulatory Action Initiated by FINRA from July, 2012:

“ROSENBERG FAILED TO DISCLOSE THE INVESTORS THAT HE WAS PROIDING LEGAL SERVICES FOR COMPENSATION TO THE ISSUER, THEREBY NEGLIGENTLY FAILING TO DISCLOSE A MATERIAL FACT TO THE INVESTORS. ROSENBERG ADVISED HIS FIRM OF HIS LAW PRACTICE ON AN OUTSIDE BUSINESS ACTIVITIES FORM AND REPRESENTED HE WAS UNAWARE OF ANY CONFLICTS BUT FAILED TO PROMPTLY NOTIFY HIS FIRM THROUGH AN AMENDED FORM THAT HE, THROUGH HIS LAW PRACTICE WAS PROVIDING LEGAL SERVICES FOR COMPENSATION TO THE ISSUER, AN ENTITY WHOSE SECURITIES HE WAS SELLING TO INVESTORS, INCLUDING HIS FIRM CUSTOMERS.”

Rosenberg has neither admitted nor denied these allegations. He did consent to the described sanctions and to the entry of findings.

Rosenberg was listed on BrokerCheck as being currently employed by Securities America, Inc., Securities America Advisors, and Focus Wealth Management, LLC, all of Sunrise, FL.
Please note, on Brokercheck, if a Broker is no longer registered with FINRA, they are not required to register their current employment.

If you were a client of Andrew Glen Rosenberg, 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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Nov/11

30

Due Diligence on Private-Placements Labeled ‘Sloppy’

Comments off · Posted by Securities Lawyer in FINRA

In a November 25, 2011, article in InvestNews.com, Bruce Kelly writes that broker-dealers who sold billions of dollars in allegedly fraudulent private placements failed massively in their due-diligence responsibilities to investors, according to the assessment of forensic accountant and expert witness Gordon Yale, who has worked on more than 50 legal claims brought by investors against broker-dealers stemming from the failed deals. The clients bought private placements issued by DBSI Inc., Medical Capital Financial Corp. and Shale (Provident) Royalties.

The Securities and Exchange Commission, SEC, had charged Medical Capital Financial and Provident Royalties with fraud in 2009; DBSI filed for bankruptcy protection in 2008.

Kelly writes that broker-dealers’ due diligence showed incredible “sloppiness,” according to Mr. Yale, a certified public account and principal of Yale & Co.

“It was basically the same recklessness with which major investment banks conducted their mortgage-backed-securities business, but it was done by middle- or lower-tier firms and [with] a different set of products. You need to understand the underlying business and management’s representations about the performance of that business, and then begin performing due-diligence procedures that are either going to corroborate those representations or not,” Mr. Yale said.

“Another failure was that everyone seemed to rely on the fact that [MedCap] payments had been made in a timely way,” he said.

THEY “PAY TILL THEY DON’T”

“The word was, “They’re paying.’ So what? That’s how all Ponzi schemes work. They pay till they don’t,” said Mr. Yale, who has served as an expert witness for a dozen different plaintiff’s lawyers in lawsuits stemming from more than $100 million in claims. The overwhelming majority were settled, and Mr. Yale testified in only one.

The investor won that claim last year, with an award of $1.2 million in damages and legal fees against Securities America Inc.and an affiliated broker.

The broker-dealers that sold $3.6 billion in MedCap notes, Shale Royalties preferred shares, and DBSI tenant-in-common exchanges, partnerships and notes have said that they performed appropriate due diligence. In several regulatory actions that involved fines or restitution to investors, the B-Ds neither admitted nor denied the findings. Regulators, however, recently have issued fines and sanctions that support Mr. Yale’s assertion.

The InvestmentNews.com article said that in September, for example, the Financial Industry Regulatory Authority Inc. levied a $10,000 fine and a six-month suspension against Brian Boppre, former president of Capital Financial Services Inc. Capital Financial was a leading seller of both Medical Capital Financial and Provident Royalties, and Mr. Boppre “knew of an issuer’s failure to make payments to its investors and was also aware of other indications of the issuer’s problems but approved the offering as a product available for the firm’s brokers to sell to their customers,” according to Finra. Mr. Boppre also “failed to conduct adequate due diligence of the offerings before allowing firm brokers to sell this security,” according to Finra.

WE ARE “SEEING A SHIFT’

One due-diligence executive said that broker-dealers have made some changes in the wake of the private-placement failures and are working more closely with third-party due- diligence analysts. “From an industry standpoint, we’re seeing a shift in trying to bring some standards as it relates to how these deals should be structured,” said Anthony J. Chereso, president of FactRight LLC.

“It’s an absolute necessity. There also needs to be some clarity as to what Finra and the regulators are expecting of the broker-dealers,” Mr. Chereso said. “We need to have the broker-dealers more involved in the process of managing the due diligence.”

“We encourage the broker-dealers to participate in the on-site visits [to companies issuing private placements] with us, to walk along with us in the due-diligence process. That way, they will know firsthand what some of the potential issues are,” said Yale.

After the SEC in July 2009 alleged that Medical Capital and its leading executives had committed fraud, executives with Securities America insisted that they performed “industry-leading” due diligence on private placements that they sold.

“It’s untrue, because basically what Securities America did, I believe, was to rely on management representations made by Medical Capital or rely on third-party due diligence that relied on management representations,” he said.

“Securities America continually enhances its policies and procedures in order to best serve its customers,” said Janine Wertheim, senior vice president and chief marketing officer of Securities America, who didn’t directly address Mr. Yale’s comments.

“One of the problems is that many of the firms relied on third-party due-diligence vendors,” Mr. Yale said.

“They viewed those reports as the end of the process, rather than the beginning. There’s a notice to [Finra] members, 05-48, that basically says you can outsource any function, but you can’t outsource your responsibility for compliance with federal securities laws or regulations,” Mr. Yale said.

“In many instances, the issuer paid those third-party due-diligence providers,” he said. “To believe that due-diligence functions stops with some independent — or purportedly independent — provider is a mistake.”

ACCOUNTANTS

To perform true due diligence, firms must use accountants to dig into the offering documents, Mr. Yale said.

“Why didn’t Securities America impose a third-party, independent CPA firm to verify the results of the [MedCap] loan pool histories? That was supposedly the primary business,” he said. “Or why didn’t they hire a CPA to look at the loan files? That’s state-of-the-art due diligence.”

“That’s what any private-equity firm would do and a whole lot more,” Mr. Yale said. “Neither Securities America nor any other firm whose documents I’ve seen ever did that.”

One third-party due-diligence analyst who wrote reports about Medical Capital Financial was “almost wringing his hands over Medical Capital investments in health-care-related businesses, particularly owner-occupied real estate,” Mr. Yale said.

The analyst, whom Mr. Yale declined to identify, “stated in his reports that this was not their expertise. The next-most-obvious question is: What did the financial statement say about those investments, and how are they performing?” he asked.

“So you need to go look at the investments that are disclosed in the footnotes to the financial statements, and you see a bunch of them are delinquent. Where was the follow-up?” Mr. Yale said as written by Bruce Kelly for InvestmentNews.com.

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have experienced losses with these or other stockbrokers/brokerages, 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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