SEC Freezes Assets of Capital Cove Bancorp and Rashid Khalfani

On June 24, 2015, The SEC announced that it had obtained a court order freezing the assets of Capital Cove Bancorp and its owner Rashid K. Khalfani, charging them with pocketing money raised from investors.

The SEC alleges that Rashid K. Khalfani (real name Christopher M. Lee) operated under an alias, and hid his past criminal convictions while raising nearly $2 million through his firm Capital Cove Bancorp.

Khalfani aka Christopher Lee raised the money for purported investments in two private funds that invested in distressed real estate. Khalfani/Lee enticed investors by falsely claiming that REO Opportunities Fund II and Rittenhouse Square Trust were “vetted, qualified, and registered” with the SEC and several other government agencies. Lee misappropriated investor money from both funds, and used it to purchase his own real estate.

The SEC further alleges that Lee and Capital Cove Bancorp offered and sold membership interests in the REO fund without registering the transactions or securities with the SEC, and they filed materially false Forms ADV that did not disclose Khalfani/Lee’s criminal record.

The SEC’s complaint was filed on June 18 in U.S. District Court for the Central District of California. The complaint charges Capital Cove Bancorp and Khalfani/Lee with securities fraud and conducting an unregistered securities offering.

The above allegations contained in the SEC’s complaint have not been proven, and the issuance of a complaint represents the SEC’s initiation of a formal proceeding in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint.

The Law Office of David Liebrader practices exclusively in the field of investment loss recovery. For the past 23 years, we have dedicated our law practice to assisting investors who have been victims of investment fraud via fraudulent and unsuitable investment transactions. During that time we have recovered money for over one thousand individuals, pension plans, trusts and companies. The recoveries we have obtained via judgments, awards and settlements on behalf of our clients exceed $40,000,000.

When investors contact our firm they can expect prompt attention, and a detailed analysis of their issues. Typical claims that we are asked to review involve “unsuitability (where a financial advisor makes investment recommendations that are inconsistent with a customer’s investment objectives), claims for “churning” (where a broker enters into an excessive number of trades for the purpose of generating commissions), claims involving illiquid investments such as private placements (I.e., real estate investment trusts, limited partnerships, equipment leasing and oil and gas drilling programs) as well as claims for violations of state securities laws, which often provide investors remedies like attorney’s fees and interest, if they are successful on the claim.

Since a Supreme Court ruling in the 1980s, most investment related disputes between brokerage firms and their customers have been filed in an arbitration forum hosted by FINRA Dispute Resolution. FINRA, along with the SEC, serves as a securities industry “watchdog” and regulator. Most brokerage firms require their clients to sign binding arbitration agreements, mandating that any disputes between them be arbitrated at FINRA.

Investors pursuing claims at FINRA typically advance claims related to suitability. FINRA rules require that all registered representatives make suitable investment recommendations to their clients. Other claims are based on negligence or breach of fiduciary duty, while another category includes claims based on misrepresentations and fraud. Most claims filed with FINRA are resolved within 15 months, and oftentimes, the cases are resolved via settlement or mediation in under a year.

FINRA’s rules require that all investment recommendations made by licensed financial advisors be suitable in light of a customer’s needs, objectives and risk tolerance. In addition, all registered representatives are required to be properly supervised, with periodic inspections and reviews by qualified supervisors, whose job it is to vigorously investigate suspicions of wrongdoing (red flags).

If you suspect that you have been the victim of investment fraud, or had a financial advisor recommend unsuitable investments to you, call us today for a free, confidential consultation at (702) 380-3131.