Securities Fraud Lawyer Blog

In November, 2015, the Financial Industry Regulatory Authority (“FINRA”) announced that Sterne Agee Financial Services, Inc. of Birmingham, Alabama) submitted a letter of Acceptance, Waiver and Consent in which the firm was censured and fined $25,000.

Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that Sterne Agee failed to enforce its written supervisory procedures prohibiting solicitation of inverse or leveraged exchange-traded funds (ETFs). The findings stated that the firm maintained written supervisory procedures that prohibited its registered representatives from soliciting transactions in inverse or leveraged ETFs. A registered representative solicited transactions in leveraged and inverse ETFs in contravention of the firm’s WSPs and mismarked all of the order tickets as “unsolicited” when, in fact, he had solicited each order.

Despite the occurrence of almost one thousand transactions in a concentrated number of inverse and leveraged exchange traded funds, Sterne Agee failed to investigate whether the transactions were, in fact, unsolicited. As a result of the incorrectly marked order tickets, the firm’s books and records were inaccurate.

In November, 2015, the Financial Industry Regulatory Authority (“FINRA”) announced that registered representative Jeff Mohlman of Dayton, Ohio and formerly associated with Questar Capital submitted a letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Jeff Mohlman consented to the sanction and to the entry of findings that he refused to provide on-the-record testimony FINRA requested during the course of an investigation into allegations that he engaged in unapproved and undisclosed private securities transactions.

Jeff Mohlman’s registration and disciplinary history

In order to lawfully sell investments to the public, one must either be registered or exempt from registration.

In November, 2015, the Financial Industry Regulatory Authority (“FINRA”) announced that registered representative Todd Shanholtzer of Las Vegas, Nevada and formerly associated with Park Avenue Securities submitted a letter of Acceptance, Waiver and Consent in which he was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in any capacity for six months.

Without admitting or denying the findings, Todd Shanholtzer consented to the sanctions and to the entry of findings that he mishandled funds from a brokerage customer by mistakenly directing $58,622 of the customer’s funds into the wrong account, which caused the customer to incur a significant tax liability. The findings stated that Shanholtzer failed to deposit the funds into a qualified tax-deferred account, as the customer and the customer’s wife instructed him, and instead the funds were mistakenly deposited into the customer’s and his wife’s joint brokerage account. As a result, the $58,622 was deemed a taxable distribution and an early withdrawal subject to state and federal tax. When the customer complained to Shanholtzer about this error and other prior transactions, Shanholtzer settled the complaint away from his member firm by making a total of $50,000 in payments directly to the customer.

Todd Shanholtzer asked the customer and his wife not to mention their complaints to anyone, including the firm, and to not use the word “mistake” in any written communications to him. Shanholtzer did not inform his firm of the customer’s complaints or of the payments to the customer.

Daniel Pancake, a registered representative formerly affiliated with several Reno, Nevada based broker dealers was suspended from FINRA membership for violations of Rule 9552

FINRA Rule 9552. Failure to Provide Information or Keep Information Current

provides if a member, person associated with a member or person subject to FINRA’s jurisdiction fails to provide any information, report, material, data, or testimony requested or required to be filed pursuant to the FINRA By-Laws or FINRA rules, or fails to keep its membership application or supporting documents current, FINRA staff may provide written notice to such member or person specifying the nature of the failure and stating that the failure to take corrective action within 21 days after service of the notice will result in suspension of membership or of association of the person with any member. In September, 2015 Daniel Pancake was suspended from FINRA membership for violating Rule 9552.

In a complaint filed by FINRA, and reported in September, 2015 Red River Securities of Plano, Texas and Brian Keith Hardwick were named respondents in a FINRA complaint alleging that they willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 by making material misrepresentations and omissions related to joint venture offerings that were organized as general partnerships for the purpose of engaging in oil and gas drilling.

The complaint concerns five offerings by Regal Energy, LLC; Boonsville #2, Waggoner #1, Waggoner #2, Cosper #1 and Pierce #1.

The complaint alleges that Red River Securities and Hardwick misrepresented to investors that prior wells drilled were producing and profitable, when they were not; and omitted from offerings the authorizations for expenditures (AFEs)—the expected costs to complete the proposed projects—although Hardwick had prepared and relied upon the AFEs in pricing the offerings. In addition, Red River Securities and Hardwick misrepresented to investors the amount of income investors in prior wells had received by wildly inflating those prior income distributions and failed to disclose conflicts of interest to investors in offerings. The firm and Hardwick also failed to disclose to investors that they were investing in a “wildcat” well that was subject to additional specific development risks than those disclosed in the offerings for well drilling in general, and failed to disclose to the investors that Hardwick himself had written the purportedly independent geologist report in the offering documents.

In a complaint filed by FINRA, and reported in September, 2015 Equinox Securities, Inc. of Redlands, California, Stephen Oliveira of Phelan, California and Chris Palkowitsh of Cumming, Georgia were named respondents in a FINRA complaint alleging that Equinox Securities and Palkowitsh engaged in a manipulative, deceptive and fraudulent scheme by churning customer accounts. The complaint alleges that the firm and Palkowitsh acted with intent to defraud and/or reckless disregard of their customers’ interests by seeking to maximize their own remuneration.

The trading in the customers’ accounts had high annualized cost-to-equity ratios and the number of transactions were excessive in light of the customers’ investment objectives and financial situations. None of the customers agreed to the high level of trading in the accounts.

Six of the eight accounts were IRAs that constituted the bulk of the customers’ retirement savings. After the customers suffered substantial losses, Palkowitsh placed their remaining equity at risk by concentrating each account in a low-priced security. As a result of the excessive trading and churning in the accounts, each of the customers suffered extensive losses and paid exorbitant fees and commissions to Equinox Securities and Palkowitsh.

In a complaint filed by FINRA, and reported in September, 2015 Chestnut Exploration Partners, of Richardson, Texas and Mark Allan Plummer were named as Respondents alleging that they willfully made material misrepresentations and omissions to Chestnut Exploration Partners customers who purchased securities in a private placement oil and gas offering, the Chestnut 2007 4×4 joint venture.

The complaint alleges that Chestnut Exploration Partners acted as the placement agent and broker for the sales of the securities, and Plummer owned and controlled both the firm and the managing venturer of the joint venture. The firm customers who invested in the securities have collectively lost more than $5 million, representing more than a 90 percent loss on their investment.

In addition, the complaint alleges that the firm and Plummer improperly collected funds from the investors by charging them well completion assessments for an oil and gas well that was nowhere close to being drilled or completed and, in fact, was never drilled or completed. The firm and Plummer wrongfully misused over five hundred thousand of the well completion funds, which was in direct contravention of the representations that Chestnut Exploration Partners and Plummer had made to investors in the securities’ offering document. Plummer also failed to require the managing venturer to return the misused and wrongfully transferred customer funds, even after no efforts were ever made to drill or to attempt to complete the well.

In a FINRA Office of Hearing Officers’ decision reported in September, 2015 (which is presently on appeal) De Pere, Wisconsin broker dealer KCD Financial, Inc. was censured and fined $115,000. The sanctions were based on findings that the firm permitted registered representatives in two branch offices to use false and misleading advertisements as a marketing tool for their securities business.

The findings stated that these registered representatives separately ran what was sometimes referred to as a certificate of deposit finder or locator service. The KCD Financial representatives regularly advertised Federal Deposit Insurance Corporation (FDIC)-insured CDs at a rate of return that was far above the market rate. No FDIC-insured CDs existed at the advertised rate of return, but the advertisements made it seem that these CDs existed.

The representatives used the advertisements to entice potential customers into their offices in order to sell securities and other financial products to them. However, the advertisements did not mention securities. The CD advertisements were not separate and apart from the representatives’ securities business, but rather, were a marketing tool for their securities business. Further, from the customers’ perspective, the CDs and securities were offered and sold by the same person from the same office as part of the same business. The OHO decision found that KCD Financial was aware of, or at least turned a blind eye to, the nature and function of the advertising.

In September, 2015, the Financial Industry Regulatory Authority (“FINRA”) announced that registered representative John Waszolek of Scottsdale, AZ, and formerly associated with Raymond James submitted a letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member. Without admitting or denying the allegations, Waszolek consented to the sanction and to the entry of findings that he took unfair advantage of an elderly customer by having the customer give him successor trustee and residual beneficiary roles and responsibilities when he knew of her declining mental condition and lack of testamentary capacity.

The findings stated that John Waszolek knew that the customer had twice been diagnosed with Alzheimer’s disease and suffered from dementia and memory loss. Despite this knowledge, Waszolek procured the appointment as successor trustee and residual beneficiary of the customer’s trust, and following her death, attempted to inherit more than $1.8 million from her estate.

The findings also stated that John Waszolek concealed his roles as a fiduciary to the customer and a beneficiary of her trust from his broker dealer. Waszolek also failed to adhere to the firms’ written procedures when he failed to disclose or receive preapproval for his role as beneficiary or successor trustee of the customer’s trust, or that he had received a healthcare power of attorney over the customer. Waszolek neither sought nor obtained either firms’ approval to act in a fiduciary capacity as to the customer.