Last year, the Montana State Auditor’s Office took a rather unusual approach to educate investors about the dangers of investment fraud. It teamed up with the AARP to produce Fraud Under the Big Sky, an hour-long documentary highlighting two major cases of securities fraud in Montana, including one that involved stockbroker Thomas J. O’Neill and Piper Jaffray & Co.
The O’Neill/Piper Jaffray case reveals how O’Neill “churned” the accounts of his clients, making an excessive number – more than 6,000 – of unauthorized trades in order to generate huge commissions for himself. Many of O’Neill’s clients were elderly. Evidence later showed that one of the victims was a 92-year-old man, who had seven speculative trades made in his account while in a coma. A final trade was conducted hours after he had died. O’Neill pleaded guilty in U.S. District Court in January 2005 to wire and securities fraud for activities from 1997 to 2001. In April 2005, he was sentenced to two years in prison for defrauding clients.
This year, in February 2009, O’Neill filed a lawsuit in a Butte district court against his former employer, accusing Piper Jaffray of destroying hand-written records while he worked for the firm that could have been used to help in his defense. The complaint also alleges that the records provide evidence that O’Neill had followed Piper Jaffray’s business plan and that the firm also reviewed and approved all of O’Neill’s transactions.
O’Neill’s complaint further accuses Piper Jaffray of knowing its business plan was fraudulent yet allowing him to continue implementing it.
Based in Minneapolis, Piper Jaffray’s origins date back to 1895. Over the years, the company evolved into one of the most powerful brokerage and investment firms in the United States. At the same time, however, Piper Jaffray also acquired a slew of investor complaints, regulatory sanctions and allegations of securities fraud, unauthorized trading and misuse of research for financial gain. On the latter allegation, Piper Jaffray reached a settlement in 2003 with the Securities and Exchange Commission (SEC), NASD, NYSE, NASAA, and the New York Attorney General and agreed to pay a $32.5 million fine.
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