Securities Industry Commentator by Bill Singer Esq

When An Undisclosed Settlement Gets Disclosed to FINRA (BrokeAndBroker.com Blog)

Two Florida Men and Baltimore Woman Facing Federal Indictment in Maryland for Nationwide Scheme That Allegedly Defrauded at Least 70 Elderly Victims of More Than $1.5 Million / Allegedly Part of an International "Grandparent Fraud" Scheme Where They Collected More Than $1.5 Million in Cash Payments by Falsely Telling Victims that a Relative-Typically a Grandchild-Needed Money for Bail, Legal Fees, and Other Expenses (DOJ Release)

Home Health Aide Pleads Guilty to Bank Fraud Involving Check Taken From Elderly Client (DOJ Release)

East Stroudsburg Financial Planner Sentenced To 17 1/2 Years Of Imprisonment For Scheme To Defraud His Clients (DOJ Release)

Former CEO and Founder of Tech Start-Up Sentenced for $18 Million Investment Fraud Scheme (DOJ Release)

FINRA Fines and Bars Retired Rep Over High-Yield Muni Trades

In the Matter of Jeffrey Fladell, Respondent (FINRA AWC)

[F]rom January 2018 through November 2019, the defendants were part of a conspiracy to defraud elderly victims by persuading them to send thousands of dollars in cash to members of the conspiracy by falsely stating that the money would be used to help the victims' relatives pay legal or other expenses in connection with crimes and other incidents that had not actually occurred.  Conspirators allegedly telephoned elderly victims throughout the United States, posing as a police officer, lawyer, or other individual, falsely telling the victim that a relative, typically the victim's grandchild, had been incarcerated in connection with a car accident or traffic stop involving a crime, and needed money-often tens of thousands of dollars-for bail, legal fees, and other expenses. 

As stated in the indictment, during the telephone calls, the conspirators directed victims to send cash to a particular address via an overnight delivery service.  The conspirators allegedly even posed as the victims' relatives to further induce them to send the cash.  Once the victims did send money, the conspirators called the victims asking for more cash, regularly obtaining tens of thousands of dollars from the retirement savings of victims.  To prevent the victims from sharing the information with anyone, the conspirators allegedly told the victims that a "gag order" had been placed on the case requiring secrecy, or that the situation was embarrassing for the grandchild and they didn't want anyone else to know about it.

The indictment alleges that Ulysse recruited individuals in Florida with promises of travel and cash payments to participate in the scheme by retrieving packages of cash sent by elderly victims and delivering the packages to him.  Ulysse allegedly directed conspirators to travel from Florida to Maryland and other states and to identify residential locations across the country where the cash should be sent. At Ulysse's direction, conspirators identified locations that were either vacant or for sale, so that no one would be at those locations at the time of the deliveries, and then retrieved the packages of cash when they were delivered.  Avboraye-Ibginedion, English and other conspirators allegedly retrieved packages of cash from designated locations and relayed directions to other participants in the scheme about where and when to retrieve packages of cash.  The conspirators would then allegedly deliver the packages to Ulysse, English, or to other conspirators.  Ulysse allegedly distributed, and directed other conspirators to distribute, cash payments to other participants in the fraud scheme. 

[F]rom at least on or about January 24, 2019, through no earlier than the first quarter of 2020, Cofer worked as a home health aide (HHA) for senior citizens in the South Florida community. 

On May 31, 2019, without the knowledge or consent of a senior citizen client, Cofer deposited a $4,200.00 fraudulent check, belonging to the victim, into a bank account belonging to another individual.  The authorized accountholder of the bank account  gave Cofer permission and authority to use her account to deposit the stolen check and access the deposited funds.  Cofer withdrew funds from the account and used the proceeds she obtained from cashing the unauthorized check for her own, and others', personal benefit.

During the course of her employment, through at least two companies and as a private HHA, Cofer victimized at least five senior citizens, including the bank fraud victim.  Cofer stole the personal identifying information (PII) of her elderly clients (to include: name, date of birth, Social Security number, bank account and credit card information); gained unauthorized access to the victims' bank and credit card accounts; added herself on victims' accounts; made unauthorized and fraudulent purchases and transactions using victims' accounts (to include credit cards and a bank accounts); deposited checks; and used stolen PII to open unauthorized accounts and make fraudulent purchases.  In addition, Cofer stole an iPhone and credit cards from a sixth victim. 

[F]rom approximately 2008 through April 2015, Diaz owned and operated Financial Planners Group of America, a financial planning business in East Stroudsburg and Scotrun, Pennsylvania.  Diaz persuaded his clients to invest in high risk, illiquid "alternative investment products," including real estate investment trusts, business development companies, oil and gas drilling companies, and equipment leasing companies.

A dozen of Diaz's former clients testified at trial that Diaz convinced them to invest their life savings in the alternative investments through a series of false representations, including that the investments were low-risk, with guaranteed protection of principle and guaranteed rates of return, and that the investments were liquid, giving investors access to their funds in an emergency.  Evidence introduced at trial showed that the investments were high-risk and speculative, with no guarantees, and that in some instances, investors lost all of their money.  Evidence at trial also showed that the investments had lengthy holding periods, with no access to funds, and that could be extended indefinitely at the unilateral discretion of the investment company.  Some witnesses testified to having invested money over a decade ago that they still could not liquidate.

At trial, jurors saw extensive client documentation bearing false information about the clients' assets, risk tolerance, investment experience, and investment objectives.  Clients testified that Diaz regularly had them sign blank documents, with the promise that missing information would be filled in by his office.  Former employees of Diaz testified that he ordered them to add false information to the account forms, inflating clients' assets, risk tolerance, and investment experience to qualify them as suitable investors for the alternative investments.

Jurors also learned that Diaz was terminated by five broker-dealers and permitted to resign by a sixth broker-dealer.  Clients who asked about the frequent changes to new broker-dealers were told that it was for their benefit.  Diaz's former employees testified that they were ordered to conceal his firings and lie to the clients about his changes between broker-dealers.

Jurors also learned that Diaz was suspended by the Certified Financial Planners Board of Standards in 2013, and under investigation by the Financial Industry Regulatory Authority and the Pennsylvania Department of Banking, both of whom ultimately barred Diaz from the securities industry in 2015.  Diaz's clients testified that he failed to disclose his suspension from the Certified Financial Planners Board of Standards, and concealed the nature and severity of the regulatory investigations.

Various industry witnesses testified that Diaz earned commissions on the alternative investments that were often double, or even quadruple the commissions earned on more conventional investments, such as stocks, bonds, and mutual funds.  Documents at trial showed that Diaz regularly earned in excess of $1.5 million in commissions annually.  Witnesses described how Diaz spent his money on expensive automobiles, a dozen properties across the United States, and frequent vacations to exotic locales.

Labeling Diaz a "sophisticated criminal," Judge Mannion highlighted how Diaz "lied through his teeth" when testifying at trial, and emphasized the gravity and volume of his offense.  In pronouncing the sentence, Judge Mannion also noted that Diaz had made "no showing of remorse" and queried, "Are you such a con man that you don't know you're a con?"  Diaz faced an enhanced sentence under the advisory Sentencing Guidelines for the sophisticated nature of his scheme, the substantial financial hardship caused to numerous victims, for supervising the criminal activity of others, for violating securities regulations as an investment advisor, and for obstructing justice by committing perjury at trial.

At sentencing, dozens of former clients of Diaz submitted victim impact statements, and several told Judge Mannion about how Diaz invested their family's retirement savings in illiquid investments, which they were unable to use in times of need.  Diaz stipulated in advance of sentencing that he had caused actual and intended losses of between $1.5 million and $3.5 million to the victims to testified at trial alone [sic].  Judge Mannion ordered Diaz to pay restitution of $1,020,840 to those victims.

[B]eginning in 2015, Daniel Boice, 41, of Alexandria, fraudulently solicited investments in Trustify, an Arlington-based company that Boice promoted as the "Uber" of private investigator services. Boice raised more than $18 million from over 250 individual and corporate investors by, among other things, falsely overstating Trustify's financial performance. To secure investor capital, Boice inflated Trustify's monthly and annual revenues in detailed fraudulent financial statements and investor presentations, and he fabricated large corporate business relationships to support his false statements about Trustify's growth. In addition, Boice created a fake email account to pose as a prominent potential investor, and he then used the account to send a fraudulent email to successfully convince an investment firm to invest nearly $2 million in Trustify.

Boice also made false statements to investors about the amount of investor funds that he would personally receive, while diverting a substantial amount of the investor money to his own benefit. Boice personally derived at least $3.7 million in proceeds from the fraud, including several million dollars in transfers from Trustify to bank accounts under his control and in personal charges on credit cards paid with Trustify funds. Boice diverted Trustify funds, for example, to secure the down payment on a $1.6 million house in Alexandria and a $1 million beach house in New Jersey, as well as to pay for a chauffeur, house manager, and various luxury items. Boice also used Trustify funds to pay for family vacations, private jet trips, and over $100,000 for premium seats at sporting events.

In 2019, faced with declining revenues and the consequences of Boice's diversion of company assets for his personal expenditures, Trustify was placed into corporate receivership by the Delaware Chancery Court. The company's collapse led to over $18 million in losses to investors and over $250,000 in unpaid wages and associated costs for Trustify's employees.

From February 2014 through August 2015, Customer M was a retired senior over 100 years old, who was the trustee for two conservative trust accounts at RBC. One trust account was for herself and the other was for the benefit of her sister-in-law, who also was a senior. Both accounts had the most conservative investment objective with a low risk tolerance. Beginning in 2014, despite the volatility of the municipal bond market at the time, Fladell repeatedly recommended that Customer M invest in high-yield municipal bonds, a recommendation that was contrary to the investment profile of the trust accounts. By June 2015, 86 percent of Customer M's holdings and 100 percent of Customer M's sister-in-law's holdings, in conservative trust accounts, consisted of risky high-yield municipal bonds. 

• Securities Industry Commentator
• Bill Singer