Medical Capital Holdings. Securities America. Behringer Harvard REIT I. Main Street Natural Gas Bonds. Tim Durham. Fannie Mae, Freddie Mac Preferred Shares. Goldman Sachs CDO Fraud. Lehman Structured Notes. These names were among the hot topics that dominated the investment headlines in 2010.

In January, Securities America was accused by Massachusetts Secretary of State William Galvin of misleading investors and intentionally making material misrepresentations and omissions in order to get them to purchase private placements in Medical Capital Holdings. Medical Capital was sued by the Securities and Exchange Commission (SEC) in July 2009 and placed into receivership. Its collapse ultimately created about $1 billion in losses for investors throughout the country.

According to the Massachusetts complaint, as well as other state complaints that would follow, many investors were unaware of the risks involved in their Medical Capital private placements. They also didn’t know about the crumbling financial health of the company. Securities America, on the other hand, was fully aware of both, regulators allege.

In February, non-traded real estate investment trusts like the Behringer Harvard REIT I became front-page news, as investors filed complaints over what their brokers did and did not disclose about the investments. In the case of Behringer and other non-traded REITs, including Cornerstone, Inland Western and Inland American, investors found themselves blindsided after discovering their investments were high-risk, illiquid and contained highly specific and lengthy exit clauses.

In March, rogue brokers Bambi Holzer faced charges in connection to sales of private placements in Provident Royalties. Like Medical Capital Holdings, the SEC charged Provident with securities fraud, citing $485 million in private securities sales. In March 2010, the Financial Industry Regulatory Authority (FINRA) formally expelled Provident Asset Management LLC, the broker-dealer arm of Provident.

Ponzi schemes were big news, as well, in March. Heading the list of offenders was Rhonda Breard, a former broker for ING Financial Partners. State regulators contend Breard scammed nearly $8 million from investors in a Ponzi scheme that allegedly had been going on since at least 2007.

In April, Goldman Sachs and its role in the financial crisis faced new scrutiny by Congress. Internal emails became the driving force behind the interest. Eventually, charges were filed by the SEC over a synthetic collateralized loan obligation – Abacus 2007-ACI – that produced about $1 billion in investor losses. Goldman later reached a settlement with the SEC, paying a $550 million fine. The fine remains the biggest fine ever levied by the SEC on a U.S. financial institution. Goldman also acknowledged that its marketing materials for Abacus contained incomplete information.

In May, FINRA stepped up its own scrutiny of non-traded REITs. On its watch list: Behringer Harvard REIT I, Inland America Real Estate Trust, Inland Western Retail Real Estate Trust, Wells Real Estate Investment Trust II and Piedmont Office Realty Trust. In particular, FINRA began to probe the ways in which broker/dealers marketed and sold non-traded REITs to investors.

In June, 49 broker/dealers found themselves named in a lawsuit involving sales of Provident Royalties private placements. The lawsuit, filed June 21 by the trustee overseeing Provident – Milo H. Segner Jr. – charged the broker/dealers of failing to uphold their fiduciary obligations when selling a series of Provident Royalties LLC private placements. Among the leading sellers of private placements in Provident Royalties were Capital Financial Services, with $33.7 million in sales; Next Financial Group, with $33.5 million; and QA3 Financial Corp., with $32.6 million.

In July, Fannie Mae and Freddie Mac were back in the news, as a rash of investors began filing lawsuits and arbitration claims over preferred shares purchased in the companies. In 2007 and 2008, investment firms like UBS, Morgan Stanley, Citigroup, Merrill Lynch and others sold billions of dollars in various series of preferred stock issued by the two mortgage giants. According to investors, however, the brokerages never revealed key information about the preferred shares, including the rapidly deteriorating financial health of Freddie Mac and Fannie Mae and the fact that both companies had a growing appetite for risky lending, excessive leverage and investments in toxic derivatives.

In August, new issues regarding retained asset accounts (RAAs) came to light. Specifically, RAAs allow insurers to earn high returns – 4.8% – on the proceeds of a life insurance policy. Meanwhile, beneficiaries often receive peanuts via interest rates as low as 0.5%. Adding to the issues of RAAs is the fact that the products are not insured by the Federal Deposit Insurance Corp. (FDIC).

In September, new concerns about the suitability of leveraged, inverse exchange-traded funds (ETFs) for individual investors began to crop up. Among other things, regulators cautioned investors about the products and stated that they may be inappropriate for long-term investors because returns can potentially deviate from underlying indexes when held for longer than single trading day.

In October, the ugliness associated with some non-traded REITs gained new momentum. A number of non-traded REIT programs eliminated or severely limited their share repurchase programs. At the same time, some non-traded REITs continued to offer their shares to the public. As of the first quarter of 2010, this group included Behringer Harvard Multi-family REIT I, Grubb & Ellis Apartment REIT, Wells REIT II, and Wells Timberland REIT.

In November, sales of structured notes hit record highs of more than a $42 billion. Leading the pack in sales of structured notes was Morgan Stanley at $10.1 billion, followed by Bank of America Corp., which issued $7.9 billion.

Because of their complexity, structured products are not for those who don’t fully understand them. Moreover, once an investor puts money into a structured product, he or she is essentially locked in for the duration of the contract. And, contrary to promises of principal by some brokers, investors can still lose money – and a lot of it – in structured notes.

Case in point: Lehman Brothers Holdings. Investors who invested in principal-protected notes issued by Lehman Brothers lost almost all of their investment when Lehman filed for bankruptcy in September 2008.

Also big news in November 2010: Tim Durham and Fair Finance. The offices of Fair Finance were raided by federal agents of Nov. 24. 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. According to reports, investors were defrauded out of more than $200 million.

The effects of Lehman Brothers’ bankruptcy continued to unfold in December 2010 for many investors who had investments in Main Street Natural Gas Bonds. Main Street Natural Gas Bonds were marketed and sold by a number of Wall Street brokerages as safe, conservative municipal bonds. Instead, the bonds were complex derivative securities backed by Lehman Brothers. When Lehman filed for bankruptcy protection in September 2008, the trading values of the Main Street Bonds plummeted.

Many investors who purchased Main Street Natural Gas Bonds did so because they were looking for a safe, tax-free income-producing investment backed by a municipality. What they got, however, was a far different reality.

Ex-Wachovia Securities brokers William Harrison and Eddie Sawyers told clients they had a “sure thing” for them to invest in – complete with 35% returns and no chance of losing their principal. Instead, investors ended up losing $8 million.

In a federal fraud lawsuit filed last week, the Securities and Exchange Commission (SEC) says Harrison, 33, and Sawyers, 45, created a “business” called Harrison/Sawyers Financial Services as a subterfuge to entice their clients to invest in a new investment product that promised big returns and no risk. The SEC says the two focused almost entirely on elderly customers, many of whom were unsophisticated investors.

According to the complaint, Harrison and Sawyers made numerous misrepresentations about the products they were selling. In one instance, Harrison told an investor that the money was being placed in stocks, when it was actually being used for high-risk options trading. The SEC says both men asked clients to sign blank forms, then filled out the forms designating Harrison’s wife, Deana, as the clients’ agent and power of attorney.

Harrison and Sawyers also created user IDs and passwords for some clients’ accounts on an online trading site called optionsXpress, as well as set up the accounts so that clients wouldn’t receive statements, according to the charges.

Meanwhile, Harrison and Sawyers were profiting from their scheme. In July 2008, the two men withdrew $234,000.

In early fall, as the financial crisis began to take hold, Harrison and Sawyers started to lose large amounts of their clients’ money. Some clients’ accounts fell 70%. One couple invested $100,000 and later learned that their account had dwindled to $16,000, the lawsuit says.

Harrison resigned from Wachovia Securities on Oct. 13, 2008. In his letter of resignation, he stated that he had “misdirected” $6.6 million of his clients’ money. Sawyers resigned the following day.

Most of the investors who became victims of Harrison and Sawyers had their money in conservative investment products and no knowledge of how to invest in stocks and bonds or how to read financial statements. Many were retired and living on fixed incomes, the SEC says.

Two former Wachovia Securities brokers – William Harrison and Eddie Sawyers – are accused of misleading dozens of elderly clients into investing in what they called a sure thing. Instead, investors lost approximately $8 million, according to a lawsuit filed Dec. 15 by the Securities and Exchange Commission (SEC).

The SEC complaint alleges that Harrison and Sawyers misrepresented the investment strategies they were selling to at least 42 clients in 2007 and 2008. Among their promises: A guarantee of 35% returns without any risk to investors’ principal investment. In reality, the brokers were using investors’ money to trade securities in risky online deals.

The SEC said that in July 2008, Harrison and Sawyers withdrew $234,000 from three client accounts as compensation for their management services. They split the amount.

As reported Dec. 16 by Bloomberg, the SEC accuses the duo of recruiting Wachovia investors to a new business venture called Harrison/Sawyers Financial Services.

According to the complaint, Harrison and Sawyers touted their venture as “an essentially foolproof investment plan guaranteed to make money regardless of market conditions.”

Instead, investors – all of whom the SEC says were “unsophisticated investors” – lost big.

In one instance, Harrison and Sawyers reportedly told a husband and wife who had invested $100,000 that their money had “maxed out” by achieving a 35% return. In truth, the couple’s investment had lost nearly $84,000.

Most of the investors involved in the scheme were more than 50 years of age. Some were retired and living on fixed incomes, the SEC says.

In addition to allegations of misrepresentation, the lawsuit says that the two brokers set up online brokerage accounts in some clients’ names, while pooling the investment money from other clients into accounts set up in the name of Harrison’s wife and in a joint account held by the Harrisons.

If you’ve suffered losses while doing business with William Harrison and Eddie Sawyers, please contact our securities fraud team. We will evaluate your situation to determine if you have a claim.

Former Morgan Stanley broker Joey Wade Dean is facing regulatory action from the Financial Industry Regulatory Authority (FINRA) in connection to sales of unlisted structured notes.

The action, taken by FINRA on Sept. 10 and outlined on the regulator’s Broker Check Web site, alleges that Dean made significant misrepresentations and omissions regarding the products, as well as failed to disclose certain facts to investors.

Many of the investors apparently were elderly. According to FINRA, Dean told customers that their principal investment was protected and guaranteed a fixed annual rate of return. That didn’t happen. Instead, when the structured notes ceased paying income, Dean, without authorization from customers, sold their shares to raise cash so that they could continue to make withdrawals.

Former ING Financial broker Rhonda Breard is trading her swanky professional suits for prison garb. After pilfering clients out of $12 million, a federal judge has sentenced Breard to six years and eight months in prison.

The former chief executive officer of Breard and Associates Wealth Management in Kirkland was initially charged on March 10 to one count of mail fraud in connection to an investment scheme that defrauded clients out of millions. Breard later admitted she concealed the scheme by giving her clients fake account statements that showed investments in a variety of phony financial and insurance products.

The Financial Industry Regulatory Authority (FINRA) barred Breard from the securities industry in March.

After stealing from her clients, Breard allegedly used the money to purchase extravagant homes, jewelry and more than two dozen vehicles. In February, Breard tried to commit suicide, presumably because authorities were onto her fraud following a surprise audit by ING.

During Breard’s sentencing, several of the victims she defrauded were present. One of the victims was Shelly Heath, who had invested with Breard for 25 years. Gone from her account were her retirement savings and money for her children’s college education fund.

Another of Breard’s victims was an autistic man who lost his entire savings while working as a janitor and other small jobs.

As for Breard, she blamed her actions on greed and the need to appear wealthy.

Martin Wegener, a former financial representative for New England Securities, is accused of fleecing investors out of millions of dollars through an elaborate investment scam. The Securities and Exchange Commission (SEC) filed fraud charges against Wegener on June 14, 2010, accusing the one-time broker of scamming investors out of at least $6.5 million.

From December 1998 to May 2010, Wegener worked as a registered representative for New England Securities. According to the SEC, it’s during his employment at New England Securities that the investment scam allegedly occurred undetected.

In the SEC’s complaint, Wegener is accused of encouraging investors to withdraw funds from their New England Securities brokerage accounts so that he could, in turn, invest their money in certain publicly traded securities, publicly traded mutual funds, and other investment vehicles such as certificates of deposit or private businesses. In reality, however, Wegener deposited the money into bank accounts in the name of Wealth Resources.

As it turns out, the sole owner of Wealth Resources was Wegener.

In order to maintain the appearance of legitimate investing, Wegener provided customers with purported “brokerage account” statements from Wealth Resources, which falsely showed that Wegener had placed their money in a variety of investments.

The SEC says that never happened. Instead, Wegener used investors’ money for his personal gain.

Wegener reportedly operated his scam from at least 2007 through March 2010.

New England Securities is the licensed broker/dealer of New England Financial. Whether New England Securities could face regulatory sanctions in the future for failing to properly supervise Wegener remains to be seen. If that happens, however, it would not be the first time that New England Securities has been called on the carpet for supervisory violations.

According to the Financial Industry Regulatory Authority’s BrokerCheck, New England Securities paid a $500,000 fine in connection to that very issue in March 2009. Earlier that same year, the company was fined $1.2 million by FINRA for, among other things, failing to “establish, implement and enforce a supervisory system designed to monitor compliance with regard to participation of associated persons in outside business activities and private securities transactions.”

On March 24, 2010, New England Securities submitted an offer of settlement with the Massachusetts Securities Division over alleged supervisory violations of former representatives and sales of promissory notes.

The alleged stock broker fraud case involving Martin Wegener offers insight into what investors can do to avoid becoming victims of investment scams. On June 14, the Securities and Exchange Commission (SEC) charged Wegener and his companies – Wealth Resources, Inc. and Wealth Resources, LLC – with defrauding investors out of at least $6.5 million.

According to the SEC, Wegener was not a registered broker or investment adviser yet told his clients he would invest their money through Wealth Resources. He would then provide investors with purported “brokerage account” statements from Wealth Resources – statements that falsely represented a variety of investments courtesy of Wegener’s “financial acumen.”

Wegener never used his customers’ money for those investments, however. Instead, the SEC says he took clients’ money for his personal use, paid business expenses and made investments on his own behalf in entities where he had an ownership interest. Those companies included WU Ventures, LLC, Secura Technology, LLC, and Trailblazer Learning, Inc., as well as Wealth Resources. Investors’ funds also were transferred to Wegener’s former wife, Kristin Wegener.

The SEC further says that during the course of the alleged scam, Wegener used money from investors to make Ponzi-like payments to clients who wanted a portion or all of their investment returned.

The Wegener case offers several lessons for investors. First, before investing money with any financial professional, take time to verify that the person is a registered stock broker or financial advisor. Is the individual a member of the Financial Industry Regulatory Authority (FINRA)? Does the person have any customer complaints, disciplinary actions, fines, suspensions or other sanctions by FINRA, the SEC or other federal or state regulatory agencies listed on FINRA’s BrokerCheck Web site?

In addition, be leery of sales pitches that make exaggerated claims about the expected profitability of an investment, such as it will double in value in six months. The bottom line, if it sounds too good to be true, it usually is.

The admission of guilt came on July 15 as Goldman Sachs settled civil fraud charges with the Securities and Exchange Commission (SEC) over its marketing of a collateralized debt obligations (CDO) package known as Abacus 2007-ACI.

In settling the matter, Goldman agreed to pay a $550 million fine. It is biggest fine ever levied by the SEC on a U.S. financial institution. Goldman also acknowledged that its marketing materials for Abacus contained incomplete information.

“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” says Robert Khuzami, Director of SEC Enforcement.

Goldman’s troubles began back in April, when the SEC accused the investment bank of failing to disclose that one of its clients, Paulson & Co, had helped select the securities contained in the Abacus mortgage portfolio and which was later sold to investors.

According to the SEC, Goldman did not reveal that Paulson, one of the world’s largest hedge funds, had, in fact, bet that the value of the securities would fall.

Following the collapse of the housing market, the securities in that mortgage portfolio – i.e. Abacus – lost more than $1 billion.

Despite the settlement with the SEC, Goldman is far from being out of legal hot water. One of the investors in Abacus was the Royal Bank of Scotland PLC (RBS), which lost $841 million as a result of the deal. Of Goldman’s $550 million settlement with the SEC, approximately $100 million will be paid to RBS. However, the RBS may be considering a civil suit against Goldman Sachs Group to recoup additional financial losses it sustained in Abacus, according to a July 16 article in the Wall Street Journal.

Meanwhile, Fabrice Tourre, who is the only Goldman Sachs executive named as a defendant in the SEC’s fraud lawsuit, has yet to settle with the regulator.

Tourre, the creator of Abacus, has repeatedly denied the SEC’s charges that he misled investors. A number of potentially damaging emails seem to refute Tourre’s claims, however. In one email, Tourre comments on the state of the housing market and the inevitable demise of Abacus:

“More and more leverage in the system. The whole building is about to collapse anytime now … Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implication of those monstrosities!!!”

An influx of stockbroker fraud lawsuits and regulatory investigations has prompted the Financial Industry Regulatory Authority (FINRA) to significantly expand the information it provides through its BrokerCheck Web site.

Specifically, FINRA plans to increase the number of customer complaints reported publicly, make certain information about brokers available on a permanent basis, and extend the public disclosure period from two years to 10 years for any broker who leaves the industry.

“The greater amount of information that is available to the investing public will only provide the opportunity for investors to be better informed as to the investment professionals they are entrusting their assets to,” said Steven Caruso of Maddox Hargett & Caruso, P.C., in a July 14 phone interview with On Wall Street.

The BrokerCheck expansion will be implemented in two phases, according to FINRA. In late August, historic complaints will be added to the public records of all current and former brokers. By the end of 2010, full records will be publicly available for brokers whose registrations were terminated within the past 10 years.

The Martin Wegener fraud investigation is now the subject of a civil injunction action by the Securities and Exchange Commission (SEC). According to the June 14 complaint, the Grand Rapids stock broker defrauded investors of at least $6.4 million from March 2007 to March 2010.

Wegener’s office in Walker, Michigan, has been closed since April following a raid by law enforcement officials. So far, at least two of Wegener’s former clients are suing New England Securities, the company Wegener represented.

In its 13-page civil complaint, the SEC contends Wegener ran his alleged scheme by investing clients’ money in a variety of bogus securities, as well as in two companies of which he had ownership, Wealth Resources, Inc. and Wealth Resources, LLC.

In reality, however, Wegener was keeping investors’ money for himself, while sending out fake brokerage statements to clients.

The SEC also accuses Wegener of using investors’ money to make Ponzi-like payments to other customers who requested a return of all or a portion of their investment.

Maddox Hargett & Caruso P.C. currently is investigating both Martin Wegener and New England Securities on behalf of investors who sustained investment losses. If you have a story to tell related to this matter, contact our securities fraud team. We can evaluate your situation to determine if you have a claim.