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Securities Fraud

Indianapolis Adviser Gets 10-Year Sentence

Kevin James, a former Indianapolis financial adviser, was sentenced by a federal judge to 10 years in prison and ordered to pay more than $1.3 million in restitution, after James pleaded guilty to stealing $1.4 million from 30 investors. In April, James was charged with securities fraud, mail fraud and money laundering. For 30 years, James worked as an insurance agent and financial adviser. He sold annuities and promised to reinvest current annuities for his insurance clients through a fictitious fund called the Financial Security Program. But James used the money for personal debt payments, Indianapolis Colts tickets and country club memberships. In a...

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SEC Charges Barclays $15 Million for Compliance Failures

The Securities and Exchange Commission (SEC) recently imposed a $15 million fine on Barclays Capital Inc. to settle charges that it failed to ensure proper compliance with its own rules and securities laws following Barclays’ acquisition of Lehman Brothers' advisory division in 2008. The Lehman purchase resulted in the creation of Barclays Wealth and Investment Management Americas. As of March 2014, the firm had about 260 financial advisers and $13 billion in assets under management. In a release announcing the charges, the SEC said that Barclays failed to oversee the growth of its advisory unit following the merger. Barclays Capital previously operated primarily as a broker-dealer. The SEC claims that...

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Morgan Stanley Fined $4.5M in Fraud and Negligence Case

The Financial Industry Regulatory Authority (FINRA) fined Morgan Stanley & Co. $4.5 million in an arbitration dispute involving Morgan Stanley and Banco Nacional de Mexico SA, the Mexican bank known as Banamex, a subsidiary of Citigroup. The $4.5 million award represents 87 percent of the $5.2 million in compensatory damages Banamex had requested. The damages were compensatory and not punitive. In 2012, Banamex’s fiduciary division sued Morgan Stanley for fraud, negligence and other allegations. The crux of the case was whether Morgan Stanley agreed to pledge the assets of a wealthy family’s trust against a third party debtor. A spokeswoman for Morgan Stanley claims that the patriarch of...

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Church Sues JPMorgan for Bad Investments

Christ Church Cathedral in Indianapolis recently filed a lawsuit against JPMorgan Chase & Co., alleging that the bank caused the church's trusts to lose about $13 million in value because of JPMorgan's decision to purchase 177 investment products. According to the church, the products produced the highest revenues for the bank to the detriment of the church. The products in question included private equity and hedge funds, managed accounts, cash sweep accounts and mutual funds that had so many expenses and fees, their failure to perform was inevitable between 2004 and 2013. According to the complaint filed in the U.S. District Court...

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Accounting Firm Agrees to Settlement in Ponzi Fraud Case

Indianapolis-based accounting firm DeWitt & Shrader PC agreed to settle a lawsuit brought by a receiver appointed for Samex Capital Partners, LLC involving the way it provided services for convicted Ponzi schemer Keenan Hauke. The suit alleged that DeWitt & Shrader violated the Indiana Securities Act and committed negligence and fraud, as well as breach of contract, by failing to monitor Hauke’s bank accounts. A prominent money manager, Hauke led the hedge fund Samex Capital Partners LLC. In December 2011, Hauke was sentenced to 10 years in prison for securities fraud and ordered to pay $7.1 million in restitution. Hauke concealed losses, estimated...

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Keep Your Broker on Task

If your investments went south, would you be totally responsible, or could your broker share some responsibility? According to the article, “Duty of a Brokerage Firm” by Mitchell & Associates, brokerage firms have the fiduciary responsibility to act in good faith for the benefit of their clients, even when clients may want to pursue risky investments. Citing a number of legal decisions, the article claims brokerage firms have the duty to monitor their clients’ accounts and recommend changes where appropriate to maintain the suitability of their clients’ accounts. Your broker’s fiduciary responsibility may extend much further than you think. Brokers are mandated to...

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Even Sophisticated Investors Can Be Duped

If Ball State University could be duped by an unscrupulous investment advisor, any other investor -- including you -- could also be scammed. This is perhaps the biggest lesson to be learned from the 2013 case in which Seth Beoku Betts, founder of Betts & Gambles LLC, was sentenced in a Manhattan federal court to four years and three months in prison for defrauding Ball State University out of more than $8 million. The government said that Betts persuaded the university to give him money to invest in collateralized mortgage obligations. However, Betts directed some of the money to disreputable investment dealers....

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Scott Starr Recognized as “Leader in Litigation” by Wilson, Kehoe & Winingham

Scott Starr was recently featured in the “Leader in Litigation” series by Wilson, Kehoe & Winingham, a well-known law firm that recognizes some of Indiana’s most interesting and accomplished lawyers. The article introduces you to one of Scott’s favorite former clients, a librarian known as “Jean” who invested in a small startup company that developed the patent for Claritin® - Jean became a multi-millionaire who unfortunately discovered just how devastating securities fraud can be. She came to Starr for help and today, remains a close friend. You’ll also learn about ‘the case that made history’ for Starr - the biggest class-action suit...

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It Matters How Often Brokers Take Their Securities Exams

Investors should know if a broker took his or her Series 7 and Series 63 exams more than once, because such brokers statistically accrue more disciplinary issues. This is the essence of a petition an organization of lawyers, the Public Investors Arbitration Bar Association (PIABA) presented to the Financial Industry Regulatory Authority (FINRA). An investigation of thousands of broker records by the Wall Street Journal reveals that the more times brokers failed their security exams, the higher the average total of negative strikes on their records. For example, those who failed the test more than twice were 77 percent more likely to...

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Investment Fraud Found in Many Non-Profits

Within the last five years, more than 1,000 non-profit organizations have been tainted by fraud, embezzlement and related misconduct, resulting in losses of at least $250,000 each. This is the result of a recent Washington Post study based on analysis of tax filings. The non-profits all indicated "significant diversion of funds" on their tax filings, revealing losses such as theft or embezzlement-related diversion of funds. According to the report, over the last decade, the 10 non-profits that suffered the most sustained $500 million combined losses. Many of these organizations were harmed by Bernie Madoff's Ponzi scheme. The report claims that many of the non-profit...

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