Oren Eugene Sullivan, a former broker with New York Life Securities, was a master at pulling the wool over investors’ eyes. For decades, the former South Carolina broker fleeced investors out of millions of dollars in an elaborate Ponzi scheme. What makes Sullivan’s case truly shocking, however, are the victims Sullivan allegedly preyed upon. Many were more than 80 years of age, mentally and physically impaired, widows, church members and/or long-time family friends. One investor who gave Sullivan $70,000 suffered from Alzheimer’s disease. Another investor was confined to a wheelchair, her legs amputated. She invested tens of thousands of dollars with Sullivan.

In August 2009, the Financial Industry Regulatory Authority (FINRA) permanently barred Sullivan for life from working in the securities industry. On Jan. 4, 2010, Sullivan pleaded guilty to one felony count of mail fraud in connection to operating a Ponzi scheme.

Sullivan apparently ran his scam from 1998 to October 2008, obtaining money from investors for his personal use while leading clients to believe they were investing in promissory notes or other legitimate financial products issued by New York Life and its affiliates.

The scheme came crashing down after one of Sullivan’s elderly customers and her daughter discovered that he had misappropriated $10,000 given to him for the purchase of variable annuities. Instead of investing the money as promised, Sullivan used the funds to pay for his son’s wedding. Over a period of approximately three years, the customer had never received a statement showing the purchase or the investment performance of the variable annuities.

Most of Sullivan’s victims had previously invested in one or more NYLife products sold by the former South Carolina broker. In exchange for the money he took from customers, Sullivan usually provided a one-page note that outlined the amount of principal and the promised annual interest rate. That rate ranged from 6% to 12%.

In total, federal authorities say Sullivan misappropriated $3.7 million from investors.

As for Sullivan, he faces a maximum fine of $250,000 and the possibility of up to 20 years in federal prison. Sentencing is scheduled for April 2010.

Securities America and financial adviser Bradley Hofhines have been sued in a potential class action tied to Provident Royalties and oil-and-gas private placements that the Securities and Exchange Commission (SEC) alleged in July were fraudulent. Securities America has been named in at least two other related potential class actions; however, this may be the first time an adviser and his individual practice are cited.

As reported Dec. 1 by Investment News, a lawsuit filed Nov. 25 in an Idaho federal court alleges that Bradley K. Hofhines and his firm, Summit Retirement Advisors LLC, failed to disclose to clients that returns from investments in Provident Royalties LLC securities did not come from revenue generated by actual investments in oil-and-gas properties.

“Rather, investor funds were commingled, and funds raised from later offerings were used to pay so called dividends or “returns of capital” to earlier Provident investors,” the article says.

Hofhines is affiliated with Securities America, an independent broker/dealer subsidiary of Ameriprise Financial. Securities America and Ameriprise are named in the latest lawsuit.

The complaint alleges that the defendants violated federal securities laws and the Idaho Uniform Securities Act, as well as provided investors with materially untrue and misleading offering materials regarding Provident Securities.

In July, the SEC charged Dallas-based Provident of allegedly committing fraud in connection to the sale of $485 million of preferred stock and limited partnership offerings in oil and gas deals. Since then, many investors have begun legal action to get their money back by filing individual arbitration claims with the Financial Industry Regulatory Authority (FINRA).

If you have suffered investment losses and wish to discuss filing an individual arbitration claim with FINRA or have questions about these investments, please contact us.

MetLife Securities and three affiliates - New England Securities Corp., Walnut Street Securities, and Tower Square Securities - are facing a fine of $1.2 million by the Financial Industry Regulatory Authority (FINRA) for failing to properly monitor and review their brokers’ email correspondence with the public. One of those brokers is Mark Salyer, who stole nearly $6 million from his customers through private securities transactions he initiated to raise capital for various real estate development companies.

In January 2009, the Securities and Exchange Commission (SEC) barred Mark Salyer from associating with any broker, dealer or investment adviser.

The $1.2 million fine also resolves allegations that MetLife supervisors failed to properly monitor brokers’ participation in outside business activities and private securities transactions.

According to FINRA, the failures allowed Salyer and another MetLife Securities broker to engage in undisclosed outside business activities and private securities transactions while working at MetLife Securities. Eventually, those failures cost MetLife Securities customers millions of dollars.

Investors who had accounts MetLife Securities and its three affiliates - New England Securities Corp., Walnut Street Securities, and Tower Square Securities are encouraged to contact us and tell us your story. Please leave a message in the Comment Box below or on the the Contact Us form.

Tom Hargett and Mark Maddox both mistakenly mentioned J.P. Turner in recent blog postings concerning Medical Capital Holdings.  We have learned that these posts were inaccurate, and we apologize to J.P. Turner and retract the statements made about the firm.

Yield Plus and the words, Charles Schwab lawsuit, are becoming one and the same these days. Hundreds of investors have filed arbitration claims with the Financial Industry Regulatory Authority (FINRA) over charges the San Francisco brokerage made false and misleading statements about the Yield Plus Funds and the extent to which investments were made in high-risk, speculative mortgage-backed securities.

Last week, Charles Schwab announced it had received a Wells notice from the Securities and Exchange Commission (SEC), in which the regulator outlined plans to recommend civil enforcement charges against the company over two Schwab bond funds.

Adding to the Schwab’s legal troubles: In August, a federal court in San Francisco certified a class action lawsuit on behalf of about 250,000 Yield Plus shareholders.

The Schwab Yield Plus Funds - the Schwab Yield Plus Funds Investor Shares (SWYSX) and the Schwab Yield Plus Funds Select Shares (SWYPX) - were initially offered as an safe, conservative investment alternative to money market accounts. Contrary to those representations, however, Schwab managers invested more than 45% of the funds’ assets in the mortgage industry. When the housing market crashed, so, too, did the value of the funds.

In May 2007, Yield Plus had more than $13 billion in assets. By March 2008, it was down to $2.5 billion. Today it has about $210 million.

Our lawyers are actively advising individual and institutional investors concerning the Schwab Yield Plus Funds. We have created an alliance with other experienced securities arbitration lawyers. Learn more about your  Schwab Yield Plus Funds. Tell us about your Schwab Yield Plus investments by leaving a message in the comment box, or the Contact Us page. We will counsel you on your options.

A warning from the Securities and Exchange Commission (SEC) in the form of a Wells Notice could have a direct impact on how Charles Schwab addresses current and future lawsuits and arbitration claims by investors who suffered losses in the  Schwab YieldPlus Funds.

The San Francisco-based brokerage acknowledged earlier this week that it had received the SEC’s Well Notice, which outlined possible civil enforcement actions against Schwab Investments, Charles Schwab Investment Management, Charles Schwab & Co., Inc. and the president of the YieldPlus funds for alleged violations of securities laws in connection to the two fixed-income mutual funds.

Companies that receive Well Notices are given a chance to respond to the SEC’s allegations before the commission decides whether to approve an enforcement action. The notice is not a formal allegation or finding of wrongdoing.

On Aug. 21, a California federal court certified an investor lawsuit involving the YieldPlus Fund Select Shares and YieldPlus Investor Shares as a class action. As reported Oct. 15 in an article by Investment News, the Oct. 14 Wells Notice plus other various supporting documents could very well serve as a road map for the class action lawsuit, which some analysts and attorneys contend dwarfs individual arbitrations by hundreds of millions, if not billions, of dollars.

Regardless of the outcome of the SEC’s investigation, Schwab YieldPlus investors are under a tight deadline to decide whether to stay in the class-action lawsuit or “opt out” if they wish to file an individual arbitration claim with the Financial Industry Regulatory Authority (FINRA). (Individuals are generally in a class action unless they formally ask to be excluded.)

The deadline to submit opt-out requests is Monday Dec. 28, 2009. In addition, investors must:

•Provide a written statement requesting exclusion from the Schwab YieldPlus class-action lawsuit;
•Sign and date the request and include your mailing address; and
•Ensure the written request is received by the Notice Administrator no later than Dec. 28, 2009. The address to mail the opt-out request is: Schwab Corp. Secs. Litigation Exclusion, c/o Gilardi & Co. LLC, P.O. Box 808061, Petaluma, CA 94975-8061.

Between Sept. 1 and Oct. 1, the date on which the most current available decision with FINRA is posted, Schwab has lost seven out of 10 YieldPlus FINRA arbitration cases, according to the Investment News article.

We are very interested in your situation with Schwab YieldPlus. Leave us a message in the comment box or the Contact Us form. We want to counsel you on your legal options.

Securities America, a subsidiary of Ameriprise Financial, has been sued by Ilene Grossbard of Sarasota, Florida, over allegations that the Omaha-based brokerage failed to warn her and other investors about what she says was a multibillion-dollar Ponzi scheme involving sales of notes in Medical Capital Holdings. According to the complaint, Grossbard bought two promissory notes from Securities America last year for $112,000. The notes were issued by Medical Provider Funding Corp. V, a subsidiary of Tustin, Calif.-based Medical Capital Holdings - the same company that the Securities and Exchange Commission (SEC) charged with securities fraud in July.

Since December 2003, Medical Capital Holdings has raised more than $2 billion from selling the notes to some 20,000 investors. The notes included those issued by Medical Provider Funding Corp. V, which as of March 2009 had more than $400 million in outstanding notes to 4,270 investors.

Grossbard’s lawsuit against Securities America alleges that it failed to detect, probe or make investors aware of the numerous red flags that pointed to the alleged Ponzi scheme at Medical Capital Holdings.

Grossbard is seeking class-action status in her lawsuit.

On Sept. 14, 2006, a National Association of Securities Dealers arbitration panel (now the Financial Industry Regulatory Authority) fined Securities America $2.5 million for failing to adequately supervise one of its brokers, David L. McFadden, who had been charged with securities fraud for allegedly luring long-term employees of Exxon Corporation into retiring prematurely with unreasonable and exaggerated promises of high returns from reinvested funds from their company retirement plans.

In addition to the fines, the arbitration panel ordered Securities America to pay $13.8 million in restitution to 32 former Exxon employees.

Tell us about your situation with Securities America by leaving a message in the Comment Box below or via the Contact Us form. We want to consult with you about possible legal options.

In SmartMoney’s May 2008 issue, James B. Stewart writes an insightful article regarding auction rate preferred shares (ARPS).  Mr. Stewart calls on Wall Street to “do the right thing” and redeem investors positions.

ARPS are shares in closed-end mutual funds that own various kinds of triple A-rated bonds.  These shares were sold as “cash equivalents” to investors concerned with liquidity and preservation of capital.  Brokers told investors that these investments offered little or no risk because rates were set at regualr auctions, often every seven days.  However, due to the ongoing credit crisis, these auctions began failing in February.

At that time, Goldman Sachs and Citigroup stopped bidding in these auctions.  Other Wall Street firms soon followed suit.  The result was an evaporation of liquidity.

Now thousands of investors in the $330 billion auction rate securities market are left holding investments that were sold as safe, cash equivalents.  Three months into this crisis and many auctions remain frozen.

Mr. Stewart asks that Wall Street step up and take care of its customers.  But to date, Wall Street has refused to do so.  Many firms have offered their valued clients loans to cover any liquidity concerns, but none are redeeming these shares at par.  As Mr. Stewart points out, there is somehting wrong with the way Wall Street has chosen to handle this issue.

Clearly brokerage firms did not appropriately represent these products.  Although historically ARPS have performed similar to money markets, they are not money markets.  There are risks with auction rate securities (as many investors have now become aware).  Wall Street knew these risks existed. 

Should these auctions remain frozen and Wall Street not step up and redeem investors’ shares, the only recourse for aggreived investors will be filing claims for their losses.  If past actions of Wall Street are any indication, it appears that many investors will have no choice but file claims to recover their funds.  Funds that were supposed to be safe and liquid.  

Quoting Mr. Stewart, leave it to Wall Street to “turn a plain-vanilla product into a nightmare for investors.”