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A Closer Look At GunnAllen Financial

On Sept. 28, 2009, the Securities and Exchange Commission (SEC) officially charged former GunnAllen Financial broker Frank Bluestein with fraud, alleging he helped run a $250 Ponzi scheme that entailed luring investors to refinance their home mortgages. The SEC did not name GunnAllen in its complaint. One year ago, however, in April 2008, seven investors who said they lost their life savings at the hands Bluestein sued GunnAllen, claiming the company “utterly failed to inquire into, monitor, and prevent” the multimillion-dollar scam for which Bluestein is now accused of allegedly committing.

A closer look at GunnAllen Financial, an independent broker/dealer firm headquartered in Tampa, Florida, reveals some interesting, if not disturbing, details about the company and, specifically, the fact that it appears to have a track record of hiring brokers whose conduct records are wrought with problems.

In 2008, for example, former GunnAllen broker Jeffrey Southard was accused of selling $1.4 million of fraudulent bonds to senior citizens as part of a Ponzi scheme he allegedly conducted while working for GunnAllen. Before that, Southard worked for Ameriprise Financial, where he was accused of selling fraudulent, nonexistent, and unregistered securities and combining client funds with his own money. Information from the Financial Industry Regulatory Authority's BrokerCheck reveals that investors later registered a complaint against Southard, and in August 2009, filed an arbitration claim with FINRA against both GunnAllen and Ameriprise, charging that they failed to supervise Southard. The case is still pending.

In April 2006, a NASD (now FINRA) hearing panel suspended former GunnAllen stockbroker Shawn Aaron for two years and fined him $50,000 for threatening and intimidating Optelecom-NKF, Inc. (OPTC) while he was registered with GunnAllen Financial. NASD charged that Aaron engaged in a scheme to defraud and extort OPTC by threatening to drive down the price of its stock from $13 to $6 per share unless the company provided him with confidential business information.

In 2008, another GunnAllen broker, David Adler, was the subject of enforcement actions by the Oklahoma Department of Securities, which charged Adler of transacting business as an unregistered agent while employed at GunnAllen. Six years earlier, while working for Bear Stearns, a client accused Adler of churning, overconcentration, constructive fraud, and breach of fiduciary duty. On Sept. 19, 2003, a FINRA arbitration panel ruled in favor of the claimants, awarding them more than $30,000. The Panel also held Bear Steams liable for its failure to supervise Adler at the time.

And then there's Marc Jaffe. Jaffe's affiliation with GunnAllen occurred in October 2004, shortly after his dismissal from Morgan Stanley for reportedly harassing colleagues by leaving threatening voice-mail messages. Jaffe eventually was found guilty of misdemeanor intimidation and sentenced to one year of jail time and one year of probation. The jail sentence was later dismissed.

Jaffe arrived at Morgan Stanley after a 10-year stint with Merrill Lynch. He resigned from Merrill following an internal review of his handling of client accounts and, specifically, for allegedly exercising unauthorized discretion in several of those accounts. Several clients filed complaints against Jaffe, including Jaffe's own grandmother. In September 2002, she was awarded $400,000 by an arbitration panel.

When Jaffe was hired at GunnAllen, it was under certain conditions mandated by the Indiana Secretary of State Securities Division. Specifically, the two-year agreement set forth in 2005 stated that Jaffe would not exercise discretionary authority over any of his Indiana customer accounts. It also stated that Jaffe would receive “strict supervision” from GunnAllen.

The most recent case involving charges against a former GunnAllen broker concerns Frank Bluestein. On Sept. 28, 2009, the SEC charged Bluestein with fraud, alleging that he lured elderly investors into a $250 million Ponzi scheme after convincing many of them to refinance their home mortgages. Last year, several of Bluestein's former clients filed a lawsuit against GunnAllen and others, accusing the Tampa brokerage firm of failing to adequately supervise its top-earning broker. The class-action suit estimates as many as 1,000 investors may have lost as much as $350 million.

Meanwhile, other arbitration claims regarding Bluestein continue to follow GunnAllen. Like the federal lawsuit, the claims seek damages from GunnAllen for failing to detect Bluestein's alleged scam.

Interestingly, the corporate tagline for GunnAllen Financial on it Web site is “Financial Chameleons.” With a past track record of hiring brokers who have questionable professional backgrounds and conduct issues - including some with criminal complaints on their U4s - it would appear the word, chameleon, is indeed apropos.

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