Ex-New Jersey Broker Dealer Has A Good Time On His Clients’ Dollars

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Kochav

Brokerdealer.com blog update profiles ex-New Jersey broker dealer, Evan Kochav, who stole more than $500,000 from clients and using it spend on poker at casinos and football tickets. This brokerdealer.com blog update is courtesy of NJ.com’s reporter, Christopher Baxter “Ex-N.J. stock broker indicted for stealing $562K from clients for poker, football tickets“. An excerpt from NJ.com is shown below.

A Jersey City man has been indicted for stealing $561,745 from clients of his investment firm and spending the money on personal expenses including poker at casinos and football tickets, state authorities said today.

From 2012 to 2014, Evan Kochav, 33, allegedly stole money from 10 investors he had solicited through his Red Bank-based firm, White Cedar Group, which he marketed as an economic consulting firm that had links to investment and business groups worldwide.

But authorities said the business was a front for Kochav, a professional poker player, to divert money to himself in order to pay for his gambling at casinos in New Jersey, Pennsylvania and Florida and on at least two poker websites.

He also allegedly transferred money to his wife and paid for shopping, dining, air travel, hotels, football tickets and other entertainment. A small sum was paid to his investors in order to cover up the scam, authorities said.

“Kochav bluffed investors like the poker player he is, claiming ties with lucrative business ventures around the globe to convince clients their hard-earned money was securely invested,” acting state Attorney General John Hoffman said.

The indictment, handed up by a state grand jury Monday, charged Kochav with theft by deception, money laundering, misconduct by a corporate official and writing bad checks for more than $85,000 to a client who had questioned what happened to his money.

For the entire article from NJ.com, click here.

Ex-NFL Player Forces Defunct Broker Dealer to Fumble But Can’t Recover

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NFL

Brokerdealer.com blog update courtesy of InvestmentNews’ Mason Braswell’s 16 March article, “Ex-NFL player left out in the cold after $2 million award”. Ex-NFL and former Green Bay Packer tackle, Bruce Wilkerson found himself in a ponzi scheme has won some money back from a defunct broker-dealer but won’t be able to recover it all. An excerpt from InvestmentNews is below.

Resource Horizons Group, a defunct broker-dealer that had racked up more than $4 million in unpaid damages from arbitration claims, can add another $2 million to that list.

Bruce Wilkerson, a former tackle who started for the Green Bay Packers in the 1996 Super Bowl, was awarded $2 million in damages last week after losing $650,000 in an alleged Ponzi scheme carried out by a rogue broker at the Marietta, Ga.-based firm.

Mr. Wilkerson, however, is not likely to ever recoup any of the money, which represented a substantial portion of his net worth, according to his attorney, Adam Gana.

“It’s outrageous,” said Mr. Gana of an eponymous firm. “There’s virtually no chance that [Mr.] Wilkerson is going to get paid.”

Resource Horizons Group, which had around 220 brokers, went out of business in November after accruing more than $4 million in judgments against it from two arbitration awards, which it could not afford.

“Funds for payment are not available, which is why the company is being forced to close,” the firm said on a filing in its BrokerCheck report. “The clients will have the same right as any other creditors of the company for the funds that are available.”

The Financial Industry Regulatory Authority Inc. officially suspended the firm in December for failing to comply with a $4 million award and then in January canceled Resource Horizons Group’s license, according to its public BrokerCheck record.

The firm, which had only around $500,000 in excess net capital on hand, has paid only a “very small percentage” of the $4 million award, according to the attorney in that case, John Chapman of an eponymous firm.

Mr. Chapman said Resource Horizons Group had applied for insurance coverage around the time the first complaint about the alleged Ponzi scheme cropped up, but was denied coverage because of the nature of the fraud.

“To me this underscores the question of why does Finra allow broker-dealers to operate with such incredibly thin resources?” Mr. Chapman said. “We’re sort of stuck.”

The arbitration awards are tied to an alleged rogue broker at the firm, Robert Gist. In 2013, Mr. Gist agreed to pay $5.4 million to settle charges from the SEC that he had conducted a Ponzi scheme and converted funds from at least 32 customers for personal use between 2003 and 2013. Mr. Gist could not be reached for comment.

He conducted the scheme and made false customer statements for clients through Gist, Kennedy & Associates Inc., an unregistered entity not affiliated with Resource Horizons, according to the SEC’s complaint.

Several clients, including Mr. Chapman’s, filed claims against the firm and its top two executives, David Miller and his wife, Kelly Miller, for negligence and failing to supervise Mr. Gist. They were held jointly liable along with the firm for the nearly $4 million in claims from Mr. Chapman’s case.

To read the entire article from InvestmentNews, click here.

BrokerDealer Smacked With Price Gouging Penalty-Class Action Award for $850k Against Newbridge

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price gouging

Brokerdealer.com blog update couresy Bruce Kelly of InvestmentNews from 25 February.

An independent broker-dealer, Newbridge Securities Corp., has reached an agreement to settle a class action suit costing the firm $850,000. The suit filed was filed by Newbridge clients from June 2008 to January 2013. The former clients alleged the firm price gouged clients for postage and handling on securities transactions. In addition to the class action suit, Newbridge Securities Corp., was fined $138,000 by FINRA for failing to buy and sell corporate bonds at a fair price for their customers. 

Per Investment News:

The Financial Industry Regulatory Authority Inc. fined the firm $138,000 for allegedly failing to buy and sell corporate bonds at a fair price for their customers. The firm allegedly failed to take into consideration relevant circumstances “including market conditions with respect to each bond at the time of the transaction, the expense involved and that the firm was entitled to a profit,” according to Newbridge’s BrokerCheck profile. The firm did not admit or deny the allegations as part of the settlement.

The firm lost $434,600 on $37.9 million in revenue in 2013, according to its most recent annual audited financial statement submitted to the Securities and Exchange Commission.

In May 2011, Finra CEO and chairman Richard Ketchum raised the issue of postal price gouging by broker-dealers in a speech to industry executives.

Postage and handling fees charged by broker-dealers ranged at the time from $3 or $4 to as high as $75 per transaction, executives said. Some firms had been inflating postage and handling fees after the financial crisis as a way to boost profits.

The issue of postage and handling costs has been hanging over Newbridge for four years. In April 2011, the Connecticut Banking Commissioner fined Newbridge $10,000, alleging that the firm charged a “handling fee” that was unrelated to actual transactional costs and that the firm failed to tell customers the fee included a profit to Newbridge, according to BrokerCheck. Finra in January 2013 fined Newbridge $50,000 over the same issue.

For the entire article from InvestmentNews, click here

Broker-Dealer Enforcement Cases and Developments: Fines & Restitution Record

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SEC Fines

Brokerdealer.com blog update is courtesy of the law firm, Morgan Lewis.

In a record year for enforcement, the SEC brought a landmark number of cases, and FINRA imposed an exceptional level of fines and restitution.

This LawFlash highlights key U.S. Securities and Exchange Commission (the SEC or the Commission) and Financial Industry Regulatory Authority (FINRA) enforcement developments and cases regarding broker-dealers during fiscal year 2014. The full 2014 Year in Review is available here.

The SEC

There were few significant personnel changes at the SEC last year. The Commission’s composition was stable in 2014 with Chair Mary Jo White continuing to lead the SEC. The other commissioners are Luis A. Aguilar, Daniel M. Gallagher, Kara M. Stein, and Michael S. Piwowar. Notable changes were made with appointments in two major SEC divisions (Stephen Luparello was named the director of the Division of Trading and Markets, and Stephanie Avakian was named the new deputy director of the Division of Enforcement). New directors were also appointed to lead the Philadelphia and Atlanta regional offices.

The enforcement statistics compiled by the SEC during fiscal year 2014 (which ran from October 1, 2013 through September 30, 2014) set several records. Other aspects of the enforcement program led the Commission to dub fiscal year 2014 “A Year of Firsts.”

In fiscal year 2014, the SEC brought a record 755 cases, a figure likely boosted by the number of open investigations carried over from the prior year. Moreover, the SEC’s actions resulted in a record tally of monetary sanctions being imposed against defendants and respondents.

With respect to its caseload, in what has become a trend, the SEC brought 7% fewer cases against investment advisers and investment companies—130 cases in fiscal year 2014, compared to 140 actions in fiscal year 2013. To contrast, in fiscal year 2014, the SEC reversed its downward trend from fiscal year 2013, bringing 37% moreactions against broker-dealers—166 in fiscal year 2014, compared to 121 in fiscal year 2013. Nevertheless, taken together, the SEC continues to devote significant resources to investigating regulated entities: cases in these areas have represented about 39% of the Commission’s docket in each of the last two fiscal years.

After a sharp decline in 2013, the Commission brought 52 insider trading cases in fiscal year 2014, an 18% increase from fiscal year 2013, but this increased number is still lower than the fiscal year 2012 total. We will see in the coming year how changes to the legal landscape may affect the SEC’s enforcement in this particular area.

FINRA

An interesting enforcement record emerged at FINRA last year. Although it instituted fewer disciplinary cases in 2014, its fines doubled from the prior year. Moreover, the amount of restitution that FINRA ordered in 2014 more than tripled the amount that had been returned to investors in 2013.

Specifically, in 2014, FINRA brought 1,397 new disciplinary actions, a noticeable decline from the 1,535 cases initiated in 2013. Along the same lines, FINRA resolved 1,110 formal actions last year; 197 fewer cases than it had in the prior year. With respect to penalties and restitution, in 2014, FINRA levied $134 million in fines (versus $60 million in 2013) and ordered $32.3 million to be paid in restitution to harmed investors (versus $9.5 million in 2013).

FINRA’s use of Targeted Examination Letters seems to be declining. In 2014, FINRA posted only two letters on its website, versus three in 2013 and five in 2012. Last year’s letters sought information on cybersecurity threats and order routing/execution quality. (In February 2015, FINRA published its Report on Cybersecurity Practices.)

To read the entire article from Morgan Lewis, click here.

BrokerDealer Fiduciary Standards and White House Leak: “I’m Shocked!” Says Frmr SEC Honcho Schapiro

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a-daffy_duck-1569294BrokerDealer.com blog is not as easily shocked as former SEC Chair Mary Shapiro seems to be, but then again, Ms. Shapiro left the SEC top job a mere two years after being appointed.

This update is courtesy of BankInvestmentConsultant.com

A leaked White House memo supporting a fiduciary definition for brokers selling retirement investments proposed by the Department of Labor was “pretty shocking,” according to former SEC chairwoman Mary Schapiro.

But in a discussion of industry issues at the NICSA Strategic Leadership Forum, Schapiro said that there was no clarity as to how the regulator would handle the proposal.

“It’s a muddled mess,” Schapiro said.

The memo, which was first reported by The Hill, states that there was evidence that “the current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.” The memo is in support of a proposed fiduciary definition for professionals selling retirement investments to 401(k) beneficiaries under the Employee Retirement Income Security Act.

Schapiro said it is difficult to understand how the proposal will ultimately be received by the SEC, as it has its supporters and detractors within the commission. “The issue is politically difficult within SEC,” she said.

Those who do not see any benefit for the proposal note that broker-dealers are already subject to more stringent regulation and scrutiny than financial advisors, Schapiro said.

She added that if the SEC does throw its support behind the proposal, it might cause SIFMA to walk away from its support of a fiduciary standard.

SIFMA believes the DOL proposal “is an overbroad expansion of the fiduciary standard,” but it does support a uniform fiduciary standard.

Raymond James Financial CEO Paul Reilly is among the industry executives against the proposal, calling it in a recent email to employees “an example of biased and distorted research (that) impugns the integrity of the work our advisors do every day to help clients achieve their financial goals.”

Schapiro said the goal in helping investors gain a better understanding of their investment options was valid. “We have to make things easier for investors one way or another,” she said, but predicted more debate before any resolution on the fiduciary standard matter.

“It’s completely unclear where it will go, but it will continue to be a fight,” she said.