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Entries in financial advisor (2)

Monday
Sep102012

Reno Man Indicted For Alleged $2.1 Million Ponzi Scheme That Preyed On Elderly

A Nevada man was arrested Friday for what authorities described as a long-running Ponzi scheme targeting elderly investors that may have bilked victims out of at least $2 million.  Gary Harrison Lane, 59, was charged with twelve counts of mail fraud, as well as five counts of tax evasion, in a federal grand jury indictment unsealed in early August.  Mail fraud carries a maximum potential prison sentence of twenty years per offense, while tax evasion carries a maximum 5-year term. 

According to authorities, Lane was a long-time financial advisor at Bank of America Investment Services, which later merged with Merrill Lynch.  There, beginning in at least May 2002, Lane targeted inexperienced elderly investors with the promise of steady annual returns of six percent through investments in United States treasury bonds with maturities of two years or less.  Based on these representations, Lane convinced twelve elderly investors to entrust him with $2.1 million.  After he received the money, Lane would then send each investor written documentation purportedly confirming the purchase of the promised treasury bond(s). 

However, according to authorities, a treasury bond with a maturity of two years or less never had an annual return of anywhere close to six percent during the relevant time period.  Additionally, there was no record of Lane purchasing the investments through his employer.  Instead, Lane is alleged to have diverted investor funds to his wife, who would then in turn deposit the funds into an E*Trade owned by her.  Lane never purchased any treasury bonds as promised, said authorities; instead, the purported "confirmations" were fictitious and investor funds were used for Lane's personal expenses or to make Ponzi-style payments to existing investors. 

Financial advisors often face strict procedures for ensuring compliance with securities laws and regulations.  These include regular disclosure of any outside business activities or unauthorized sales of securities, as well as prohibitions on targeting inexperienced or susceptible investors.  These duties are serious matters for brokerages and broker-dealers, who can face liability for failure to adequately supervise rogue financial advisors.  Indeed, several lawsuits appear to have already been brought and settled against Lane's former employers accusing them of failures to supervise Lane.  As such settlements are often accompanied by confidentiality agreements, specifics are unavailable.  

Monday
Aug132012

Soccer Gold Medalist, NFL Players Sue Bank and Investment Advisor For Ponzi Scheme Investment

Several prominent athletes, including a newly-minted gold medalist member of the U.S. Olympic Soccer Team, have sued their former financial advisor and his employer, SunTrust Bank ("SunTrust"), alleging that they were unwitting investors in several Ponzi schemes that ultimately resulted in millions of dollars of losses.  Several National Football League players, including St. Louis Rams quarterback A.J. Feeley and his wife, U.S. Olympic soccer team player Heather Mitts, were listed as plaintiffs in a lawsuit against Suntrust and financial advisor William Crafton, Jr.  In the suit, the plaintiffs alleged that, rather than make conservative investments, Crafton invested the plaintiffs' funds into several high-risk investments, including at least one Ponzi scheme, that resulted in a loss of millions of dollars.  

According to the complaint, Crafton began soliciting his NFL clients while he was a registered investment advisor with CSI Capital Management ("CSI") in 2003.  Playing to the short and uncertain nature of the career of a professional athlete, Crafton represented that he would employ a very conservative and low-risk strategy with the principal strategy of conserving underlying principal.  Beginning with Brandon Whitting, a member of the Philadelphia Eagles football team, Crafton began signing up various NFL players, including Brent Celek, Kevin Curtis, and Whitting's roomate, A.J. Feeley.  Additionally, Feeley's wife, recent U.S. Olympic soccer gold medalist team member Heather Mitts, also became a client.  All told, the complaint alleges that Crafton ultimately provided financial advisory services to at least 20 other professional athletes, whom Crafton referred to as his "roster".  

Reassured by Crafton's promises that he would only invest in low-risk conservative investments, the plaintiffs ultimately entrusted nearly $8 million with Crafton.  However, contrary to these promises, Crafton instead placed client funds into several high-risk and illiquid investments with whom he had either close personal or business relationships.  For example, Crafton invested plaintiffs in Westmoore Capital, a firm with which one of Crafton's brokers maintained a personal relationship with the principal. Westmoore was later shut down in June 2010 after being accused of operating a $53 million Ponzi scheme.  Additionally, Crafton invested in "Mar Vista", a high-risk venture in which Crafton, unbeknownst to plaintiffs, served as a partner.  This investment also resulted in a nearly-complete loss of principal.

Crafton moved around between several financial advisor firms before selling his "roster" to SunTrust in December 2009 and agreeing to serve as the head of SunTrust's San Diego office.  When the Westmoore scheme was unearthed in August 2010, SunTrust began notifying clients that those investments were essentially worthless.  However, Crafton and his team disputed this in communications with his clients, claiming that SunTrust was trying to fire him and poach away his "roster".  Ultimately, by early 2011, Crafton was no longer employed with SunTrust.  

In the complaint, the plaintiffs charge Suntrust, Crafton, and Crafton's previous employers with multiple violations of federal securities laws.  Additionally, it is also alleged that SunTrust negligently hired Crafton and failed to adequately supervise him.  Plaintiffs are requesting a jury trial, and seek compensatory and punitive damages, as well as fees, pre-judgment interest, and costs. 

A copy of the complaint is here