Rhonda Breard’s conscience may have finally caught up with her. The former ING investment broker has been under investigation for fraud on allegations that she bilked clients out of millions of dollars. On March 2, the disgraced investment advisor and TV personality reportedly tried to take her life.

Breard’s alleged actions came to the attention of regulators in February 2010 after she was fired by ING Financial Partners for reportedly “altering customer statements.” On March 10, federal prosecutors officially charged Breard, 47, with mail fraud. According to the criminal complaint, Breard accepted millions of dollars from investors, telling them that their money would be placed in a variety of financial and insurance products.

Instead, investigators say she used the money for her own expenses and mailed phony statements to clients.

A preliminary investigation by the Washington State Department of Financial Institutions (DFI) indicates that investors could be out more than $8 million. According to the DFI, Breard’s ability to act as a broker was terminated in nine states, including Washington and Oregon, on Feb. 10.

Breard, who also goes by the names Dean Tucker and Rhonda Lee Dean, is the owner of Kirkland-based Breard Associates and Wealth Management.

Breard isn’t the only one facing scrutiny. As her supervisor, ING also may also be held liable for investors’ financial losses because of its alleged supervisory failures.

Some of the investors affected by Breard’s alleged scheme include fifth-grade teacher Sandee Gren, who had plans to retire in the near future. Now, with half of her retirement account, roughly $300,000, gone, those plans are in peril.

“I stood in that woman’s office pouring my heart out about how I’ve been a single parent, how I’d just lost my daughter and I needed to know what to do with my stocks,” says Gren.

Records with the Financial Industry Regulatory Authority (FINRA) show a long and lengthy list of complaints and enforcement actions against Breard during the course of her investment career.

In 1991, Breard was allowed to resign from Smith Barney because of unauthorized trading of clients’ accounts. In 1992, she faced similar allegations and was fined $15,000. In 1993, while employed at Prudential Securities, Breard settled a complaint against her for $74,493.

The Washington State Department of Financial Institutions, the Washington State Office of the Insurance Commissioner, and the FBI are continuing their investigation of Breard.

Maddox Hargett & Caruso P.C. is launching its own investigation into investors’ allegations against Rhonda Breard. If you suffered investment losses through Breard, contact us with your story. You may have a claim for recovery.

The debacle involving Fair Finance and owner Tim Durham just keeps getting bigger. There are more than 13,000 outstanding Fair Finance investment certificates valued at more than $208 million, according to a just-released report from Brian Bash, the court-appointed trustee of Fair Finance. Translation: More than 13,000 claims will be filed as part of the Chapter 7 bankruptcy proceeding.

The offices of Fair Finance have remained closed since Nov. 24, after federal agents seized banking records and company computers. On that same day, the U.S. Attorney’s Office in Indianapolis filed court papers alleging that Fair Finance operated as a Ponzi scheme, using money from new investors to pay off prior purchasers of the investment certificates.

In other Fair Finance news, friends and business associates of Durham who accepted millions of dollars in loans from his company could be facing problems of their own.

As reported March 6 by the Indianapolis Business Journal, the trustee in the case, Brian Bash, is going to try and turn Fair Finance’s assets into cash wherever possible. That means firms and companies with outstanding loans from Fair Finance can expect to hear from Bash in the near future.

Extending loans enabled Durham to continue listing the money as assets on Fair Finance’s balance sheets, which in turn gave investors the false impression that the company was fiscally sound.

Moreover, Fair Finance had no outside auditor. In other words, there was no one to sound the alarm that there was something awry with Fair’s accounting procedures.

The various people and companies listed as owing money include Scott McKain, former vice chairman of Durham’s Indianapolis-based business Obsidian Enterprises; Joan SerVaas, Durham’s ex-wife and owner of Curtis Publishing; Jeff Osler, Durham’s brother in law and owner of Geist Sports Academy; Henri Najem, an Indianapolis restaurant owner who is best known for his Bella Vita restaurants; and MyGhetto.com, a social-networking site created by the rapper Ludacris, a close friend of Durham’s.

As reported in the IBJ article, some of the people and firms listed cite inaccuracies with the trustee’s list.

While private companies are gradually withdrawing from their addiction to risky investments, public pension funds have been slow to follow suit. Following the market’s downturn - which produced about $1 trillion in losses - state and local governments faced a Catch 22 situation: Slash retirement benefits or try to boost returns with high-risk investments.

As it turns out, the latter option is becoming the option of choice for more public pension funds.

“In effect, they’re going to Las Vegas,” said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, in a March 8 article in the New York Times. “Double up to catch up.”

Among the strategies public pension funds are gambling on with workers’ retirement money: Commodity futures, junk bonds, foreign stocks, deeply discounted mortgage-backed securities and margin investing. Hedge funds, which were once cast aside as an investing strategy, are now gaining favor, as well.

Examples of public pension funds in crisis because of risky investments are not hard to find. Last month, the Atlanta firefighters’ pension fund sued the custodian managing its plan, Chicago-based Northern Trust, accusing it of making several risky investments that could cost the fund millions of dollars.

The lawsuit claims that Northern Trust breached its contract and fiduciary duty with mortgage-backed securities investments - investments that ignored the warnings of the company’s chief economist. The Chicago Public School Teachers’ Pension and Retirement Fund also joined lawsuit, which was filed Jan. 29 in a federal court in Chicago.

Investment giant Morgan Stanley also is the subject of a high-profile case involving pension funds and risky investing strategies. A December 2009 article in the New York Times first reported the story. According to the article, a Virgin Islands pension fund sued Morgan Stanley based on allegations it defrauded investors by marketing $1.2 billion of risky mortgage-related notes that it expected to fail.

The lawsuit, which was filed Dec. 24 in a Manhattan federal court, also accused Morgan Stanley of collaborating with the credit rating agencies Moody’s Investors Services and Standard & Poor’s to obtain AAA ratings for notes sold in 2007 as part of a collateralized debt obligation known as “Libertas.”

Financial reform is a hot topic on Capitol Hill, with legislation designed to rein in broker/dealers through new oversight measures currently being contested on the Senate floor. At the heart of the debate is a bill containing a provision to strengthen the protection of consumers by requiring stock brokers and insurance agents to act in the best interest of their clients. As it turns out, the provision may never see the light of day.

As reported March 8 by the Washington Post, certain Senators are in disagreement over the provision, prompting some insiders to predict that new legislative language will ultimately be inserted into the bill that directs the Securities and Exchange Commission (SEC) to study the rules currently governing brokers and registered investment advisers.

As it is, investment advisers operate under fiduciary standards. That means they are legally and ethically bound to put their clients’ interests ahead of their own. By comparison, brokers adhere to suitability standards, meaning they only need to have “reasonable grounds” to believe that the financial products they recommend to clients are suitable for their needs. In some instances, however, those investments could be lucrative for the broker at the expense of clients.

In addition, broker/dealers usually do not have to make as many disclosures regarding conflicts of interest, fees or previous infractions as investment advisers.

And therein is the problem. The services that broker/dealers and investment advisers provide are almost indistinguishable. Case in point: In 2008, the SEC commissioned a study by the Rand Corp., which showed that investors were equally confused about the differences between the two groups.

It would seem commonsense that investment advisers, broker/dealers and any and all financial professionals connected in some way to investment-related services and products should be subject to a consistent, uniform fiduciary standard. The operative word, however, is commonsense.

Popular retirement-plan products known as target date funds are facing regulatory scrutiny from both the Securities and Commission (SEC) and the Department of Labor. The criticism comes after target date funds, which entail a combination of stocks, bonds and other investments and are designed for people nearing retirement, suffered massive losses following the market collapse of 2008. Even some of the most conservative target date funds have lost 30% to 40% of their value.

Critics of target date funds contend too many investors simply have the wrong perception of the products. A survey conducted by the research firm Behavioral Research Associates LLC last March showed that 61% of respondents thought target date funds made some type of “promise.” Other investors said target date funds meant a “secure investment with minimal risk,” while some stated that target date funds provided a “guaranteed return.”

All three assumptions are incorrect. Target date funds typically invest in other funds, making them subject to those underlying holdings and, at the same time, the potential for volatility and risk.

Moreover, there is no one-size-fits-all approach to target date funds. The mix of stocks, bonds and other securities varies from fund to fund. That means two funds with the same target date could easily have a vastly different underlying mix of holdings. A Feb. 27, 2009, article by SmartMoney illustrates this point. Oppenheimer’s 2010 fund (OTTAX) had 65% in stocks and lost 41% in 2008. By comparison, the NestEgg 2010 portfolio (NECPX) had about 32% in stocks and lost less than 10%.

Another issue for regulators concerns the costs of target date funds. According to Morningstar, more than half of target date funds have an annual management fee of 1% or more. By the time someone retires, that 1 percentage point in fees will add up, reducing an investor’s total accumulation by up to 20%.

A March 7, 2010, article in Investment News reports that the SEC and the Labor Department plan to issue a joint consumer alert on the use of target date funds in retirement plans.

First Allied Securities Firm will pay $2 million to settle allegations from the Securities and Exchange Commission (SEC) that it failed to properly supervise one of its independent contrators, Harold H. Jaschke. Jaschke, who worked for First Allied from 2005 to 2008, was accused of allegedly duping two institutional investors by making trades without their knowledge or authorization.

The SEC initially charged Jaschke in December 2009, accusing the former First Allied rep of churning client accounts and making unauthorized and unsuitable trades for the city of Kissimmee, Florida, and the Toho Water Authority of Florida. According to the complaint, Jaschke’s alleged actions netted commissions of more than $14 million.

As reported March 5 by Investment News, when First Allied’s former vice president of supervision, Jeffrey C. Young, was first notified of “abnormal trading” in the two clients’ accounts, he stated that he was “unsure” of whether to contact them with the information. Ultimately, no one at First Allied ever did.

The SEC says Jaschke routinely used his personal e-mail account to correspond with clients. This means First Allied should have been aware of the Jaschke’s conduct because he used the same e-mail account to correspond with supervisors and senior management, according to the SEC.

First Allied is owned by Advanced Equities Financial Corp.

Momentum continues to build over Medical Capital Holdings, as more MedCap investors file arbitration claims against the healthcare lender for the millions of dollars in losses suffered as a result of alleged questionable sales in Medical Capital private placement securities. Among the allegations investors cite in their claims: Misrepresentation on the part of Medical Capital, misuse of investors’ funds to pay administrative fees, and omission of critical facts concerning the track record of Medical Capital entities and the backgrounds and qualifications of the people responsible for running the companies.

Based in Tustin, California, Medical Capital raised approximately $2.2 billion from 20,000 lenders in the past six years. In July 2009, the Securities and Exchange Commission (SEC) sued the company and its top officers, Sidney M. Field and Joseph “Joey” Lampariello, for defrauding investors. A court-appointed receiver, Thomas A. Seaman, was appointed one month later.

In its lawsuit, the SEC accused Medical Capital - which raises money from investors then loans that money to hospitals - of misappropriating some $18.5 million from investors to pay administrative costs. The agency contends that when the company raised $77 million from investors it promised that none of the money would be used for such expenses.

In addition, the SEC claims Medical Capital misrepresented its financial track record. Contrary to the claims it made, three of its offerings programs had defaulted and a fourth was making late payments.

Since then, a number of lawsuits and arbitration claims have been filed by investors against various brokers/dealers that marketed and sold investments in Medical Capital. Then, in January 2010, the Commonwealth of Massachusetts filed a regulatory action against Securities America, accusing the broker/dealer of committing securities fraud on a “massive scale.”

As with other claims related to Medical Capital, the Massachusetts complaint accuses Securities America of failing to conduct proper due diligence of Medical Capital and its related entities, of ignoring red flags and making material omissions and misleading statements in connection to $700 million of promissory notes that were sold to Medical Capital investors.

“…All material risks and information regarding MC Notes were not disclosed to investors. These risks were known to [Securities America]. Year after year, the due diligence analyst, retained by [Securities America] to conduct a review of the various Medical Capital offerings, specifically requested and at many times pleaded that investors be informed of certain heightened risks,” the complaint reads.

Maddox Hargett & Caruso P.C. continues to file arbitration claims with the Financial Industry Regulatory Authority (FINRA) on behalf of investors who have suffered investment losses in their Medical Capital investments. If you purchased Medical Capital Notes from a broker/dealer and wish to discuss your potential rights for recovery, contact us today.

New Jersey broker David Steven Forman has been barred by the Financial Industry Regulatory Authority (FINRA) following allegations he ran an insurance scheme involving the sale a $5 million life insurance policy to a trust, which Forman - a former representative with the Private Consulting Group - then allegedly took control of. Forman didn’t admit nor deny FINRA’s finding, but consented to the regulator’s decision to ban him from the securities industry.

According to FINRA, Forman and another unnamed person netted nearly a $1 million from the scam.

As reported March 3 by Investment News, the case is similar to the action cited in a Illinois civil suit filed against both Private Consulting and Forman in 2000 and settled in 2008.

According to that lawsuit, Forman and an associate, Alan Gottlob, recommended that Ken and Norma Spungen buy a $5 million life insurance policy on Mrs. Spungen, with the idea to use the policy as a way pay taxes upon her death. In order to buy the policy and leave it to the benefit of her descendants, records show that Forman and Gottlob suggested that Mrs. Spungen created an irrevocable trust.

Through 2001 and 2002, the trust paid some $501,400 in premiums on the policy, according to the lawsuit. The following year, Mr. Spungen allegedly asked Forman and Gottlob if it made sense to continue paying on the premiums for the policy, in light of upcoming changes to estate tax laws. Allegedly, the two men recommended a sale of the policy for the benefit’s trust, selling it to Coventry First LLC for $900,000 plus a commission.

The Investment News article says that Forman and Gottlob did not advise Mr. Spungen of the sale and, instead, pocketed the proceeds. The client also alleged that the signed documents showing Mr. Spungen gave the men permission to keep the proceeds were fake. The case was settled for $506,000, according to Finra records, and dismissed in 2008.

Both Forman and Gottlob have been named in other civil suits.

Unsuitable investments in Inland American Real Estate Trust and the Inland Western Retail Real Estate Trust have become a growing source of concern for more investors these days. In many cases, sales of Inland REITs were appropriate from the start for some investors. Why? Because the broker/dealers behind the deals failed to disclose all of the necessary information associated with the products, including the high commissions that the REITs commanded. In some instances, those fees exceeded 15%.

The Inland REITs are considered unlisted REITs; they do not trade on national stock exchanges. Redemptions in unlisted REITs are limited and almost always have a minimum holding period. If investors want to exit an unlisted REIT entirely, they usually can only do so at specified times.

Perhaps the biggest criticism of unlisted REITs has to do with their lack of transparency. Unlisted REITs also typically come with no independent source of performance data. Moreover, critics of unlisted REITs cite the often vague prospectus language regarding their formal exit strategies.

In recent months, we’ve heard from several investors who say their broker/dealer never discussed the various risks that investors take on when they purchase shares of an unlisted REIT. In reviewing these complaints, we’ve also discovered that some investors were kept in the dark about the fact that their investment in an unlisted REIT could literally be tied up for an undetermined amount of time in the event the REIT suspends its share-repurchase program.

That’s exactly what happened with Inland American, which suspended its buyback program in March 2009. Investors had two options: Hold onto their shares until buybacks become re-instated or attempt to sell their share, at a significant loss, on the secondary market.

If you believe your broker/dealer failed to provide adequate information concerning investments in the Inland American Real Estate Trust, the Inland Western Retail Real Estate Trust or another unlisted REIT, contact us.

Investors are continuing to come forth with fraud allegations against various broker/dealers in the Medical Capital case. According to investors’ complaints, certain brokerage firms allegedly marketed and sold private placement offerings in Medical Capital Holdings without first disclosing important facts about the company’s deteriorating financial health and the risks attached to the investments they were pushing. In July 2009, the Securities and Exchange Commission (SEC) charged Medical Capital with fraud.

One broker/dealer at the center of the arbitration claims is Securities America. In February 2010, the Massachusetts Securities Division filed a lawsuit against Securities America, which already was facing a pending class action in California, for allegedly misleading investors over sales tied to a series of Medical Capital’s private offerings.

According to the Massachusetts complaint, Securities America ignored red flags and deliberately failed to disclose the risks involved when selling millions of dollars worth of Medical Capital Notes to unsophisticated investors. The complaint further alleges that investors had been told the notes were secured and low risk when, in reality, they were “unregistered, speculative, high-risk securities.”

Based on the Massachusetts Securities Division’s complaint, 400 Securities America advisers allegedly sold $700 million of the private placements in Medical Capital, about half of which are now in default.

If you experienced investment losses related to Medical Capital investments, please contact us. A member of our securities fraud team will evaluate your situation to determine if you have a viable claim for recovery.