Legal Matters

An arbitration panel for the Financial Industry Regulatory Authority (“FINRA”) awarded two retired schoolteachers a combined $2.38 million in an arbitration based on the teachers’ claims of excessive trading, unauthorized transfers and withdrawals, and fraud in their Capitol Securities Management accounts. According to the Award, Claimant Beryl Patin is a retired schoolteacher and in her mid-80s. Claimant Jain Lakin is also a retired schoolteacher. Ms. Patin’s nephew was her registered representative at Capitol and she had a personal relationship with him and his immediate family and a special trust and confidence in him (he is identified only as “Mr. T” in the Award). Ms. Lakin met the nephew through Ms. Patin and also opened an account with him at Capitol. Over a course of years, the Capitol representative traded aggressively in the accounts, with much short-term trading as well as transfers in and out of the account. The account was turned over at a rate of 13%, necessitating a return [...]

FINRA EXAMS TO INCLUDE COMPLIANCE WITH ELDER ABUSE RULES The Financial Industry Regulatory Authority (“FINRA”), the self-regulatory organization which enforces rules governing the activities of all registered stockbrokers and broker-dealer firms, has announced that it will look “more closely” at brokers’ compliance with new elderly abuse rules as part of its broker examination process. FINRA Rule 2165, entitled “Financial Exploitation of Specified Adults,” went into effect in February 2018. The rule permits brokers/firms to place a hold on a disbursement of funds from an account if the firm reasonably believes that there has been, is, or could be, financial exploitation of a person age 65 and older or an adult with a mental or physical impairment which renders the individual incapable of protecting his or her own interests. FINRA previously has reminded its members of their obligations towards senior investors in FINRA’s Notice to Members Regulatory Notice 07-43. In this Notice, FINRA highlighted the suitability requirements which may be of [...]

A Financial Industry Regulatory Authority (“FINRA”) arbitration panel has entered an award of over $276,000 against Quest Capital Strategies, Inc., of Lake Forest, California. The case centered around a customer’s complaint that Quest Capital violated federal securities laws; Virginia securities laws; the Florida Securities and Investor Protection Act; breached its customer contract; breached its fiduciary duty; committed fraud; and was negligent in its sales of promissory notes of the Woodbridge Mortgage Investment Funds 1 and 2 to the customer. Last fall, Robert Shapiro, the CEO of Woodbridge Group of Companies, agreed to pay $120 million to the Securities and Exchange Commission to settle allegations against him related to the Woodbridge Group’s alleged $1.2 billion Ponzi scheme. Prior to that settlement, the SEC had already brought charges against five individuals and four companies for unlawful sales of the Woodbridge Group of Companies investments to main street investors. According to SEC allegations, Woodbridge and Shapiro defrauded more than 8,400 investors in unregistered [...]

The Woodbridge Group of Companies has appeared frequently in this blog space related to the ongoing investigations and penalties involving its vast Ponzi scheme operation. Its legal woes have continued, with a federal court judge in Florida ordering the Woodbridge Group and its former CEO Robert H. Shapiro to pay a combined penalty of over $1 billion dollars as a result of the scheme. Woodbridge Group must pay $892 million and Shapiro must pay a $100 million civil penalty and disgorge more than $20 million in ill-gotten gains and interest. The Securities and Exchange Commission had brought charges against the company in December 2017, alleging that the company had spearheaded a $1.2 billion Ponzi scheme which defrauded over 8,400 investors nationwide, many of whom were seniors In typical Ponzi scheme fashion, investors were promised attractive guaranteed annual returns but the money instead went to fund Woodbridge Group’s related companies, pay off other investors, and fund a lavish lifestyle for Shapiro. [...]