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Aidikoff, Uhl & Bakhtiari partner Ryan Bakhtiari to speak at 2017 Practicing Law Institute Securities Arbitration program

Aidikoff, Uhl & Bakhtiari partner Ryan Bakhtiari has been invited to participate as a speaker at the 2017 Practicing Law Institute (PLI) conference program on Wednesday, September 27, 2017. Mr. Bakhtiari’s panel is titled “Preparation for Expungement Hearings in Securities Arbitration.”  This discussion will include topics, issues and procedures involved in arbitrating expungement matters.

For more information and to register for the conference, visit http://www.pli.edu/re.aspx?pk=186672&t=LBA7_FCLTY

Former $2 billion private equity fund now nearly worthless – EnerVest Ltd.

Wells Fargo and a number of other lenders are negotiating to take control of a hedge fund previously valued at more than $2 billion that is now worth close to nothing, according to a report from the Wall Street Journal.

EnerVest Ltd., a Houston private equity firm that focuses on energy investments, manages the private equity fund that focused on oil investments. The fund will leave clients, including major pensions, endowments and charitable foundations, with at most pennies on the dollar, WSJ reported.

The firm raised and started investing money beginning in 2013 when oil was trading at around $90 a barrel and added $1.3 billion of borrowed money to boost its buying power. West Texas Intermediate crude prices closed at $46.54 a barrel on Friday.

Only seven private-equity funds worth more than $1 billion have ever lost money for investors, according to data from investment firm Cambridge Associates LLC cited in the report. Among those of any size to end in the red, losses greater than around 25 percent are extremely rare, though there are several energy-focused funds in danger of doing so, according to public pension records.

Clients included the J. Paul Getty Trust, John D. and Catherine T. MacArthur and Fletcher Jones foundations, which each invested millions in the fund, according to their tax filings, the Journal reported. Michigan State University and a foundation that supports Arizona State University also disclosed investments in the fund.

The Orange County Employees Retirement System was also an investors and has reportedly marked the value of its investment down to zero.

EnerVest – $2 billion energy investment goes bust

  • A $2 billion EnerVest fund that invested in oil and gas wells has essentially gone bust.
  • Major pensions and other investors could be left with just pennies on the dollar at best.
  • The loss is unusual for a private equity firm of EnerVest’s size and raises concerns that similar funds offered by competitors could fail.

Houston-based private equity firm EnerVest has posted a spectacular loss in one of its energy funds, a troubling sign that other firms could yet face a reckoning after a three-year oil price downturn.

EnerVest’s $2 billion energy fund that borrowed heavily to buy up oil and gas wells when crude prices were soaring has essentially gone bust, The Wall Street Journal reported. The blowup is expected to leave the pensions, endowments and charitable foundations that invested in the fund with just pennies on the dollar at best, according to the newspaper.

The fund’s lenders, which are led by Wells Fargo, are seeking to take control of the assets, people familiar with the situation.

The WSJ traced the failure to EnerVest’s strategy of taking out debt to amplify returns in the fund, which began investing in oil and gas wells in 2013 and focused on improving their output. As oil prices plunged from more than $100 a barrel in 2014 to a low of $26 a barrel last year, the value of the wells, which served as collateral on the debt, eroded. That triggered repayment demands from lenders that EnerVest could not meet.

 

Barclays to Pay $97 Million for Overcharging Clients

The Securities and Exchange Commission today announced an enforcement action requiring Barclays Capital to refund advisory fees or mutual fund sales charges to clients who were overcharged.

In a settlement of more than $97 million, Barclays agreed to settle three sets of violations that resulted in clients being overbilled by nearly $50 million.  The SEC’s order finds that two Barclays advisory programs charged fees to more than 2,000 clients for due diligence and monitoring of certain third-party investment managers and investment strategies when in fact these services weren’t being performed as represented.  Barclays also collected excess mutual fund sales charges or fees from 63 brokerage clients by recommending more expensive share classes when less expensive share classes were available.  Another 22,138 accounts paid excess fees to Barclays due to miscalculations and billing errors by the firm.

“Barclays failed to ensure that clients were receiving the services they were paying for,” said C. Dabney O’Riordan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “Each set of clients who were harmed are being refunded through the settlement.”

The SEC’s order finds that Barclays violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-7 as well as Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.

Without admitting or denying the SEC’s findings, Barclays agreed to create a Fair Fund to refund advisory fees to harmed clients.  The Fair Fund will consist of $49,785,417 in disgorgement plus $13,752,242 in interest and a $30 million penalty.  Barclays will directly refund an additional $3.5 million to advisory clients who invested in third-party investment managers and investment strategies that underperformed while going unmonitored.  Those funds also will go to brokerage clients who were steered into more expensive mutual fund share classes.

Aidikoff, Uhl & Bakhtiari Announces Katrina Boice as New Partner

Aidikoff, Uhl & Bakhtiari is pleased to announce Katrina Boice as a new partner in the firm. Ms. Boice has been with the firm since 2008 and has regularly tried cases on behalf of clients who have disputes with the financial services industry.

Ms. Boice is a member of the Public Investors Arbitration Bar Association and has served on its membership committee, annual meeting committee and bar journal committee. Ms. Boice has spoken before law students and professional groups on various topics which include social media, the handling of securities arbitration and litigation involving brokerage firms.

In May 2017, Ms. Boice was nominated as a public member of the National Arbitration and Mediation Committee (NAMC) of the Financial Industry Regulatory Authority (FINRA) which is the advisory group that provides recommendations on rules, regulations and procedures governing arbitrations, mediations and dispute resolution. She was also appointed to serve on the Discovery Task Force Committee (DTFC) of the Financial Industry Regulatory Authority (FINRA) which is the advisory group, established in conjunction with a directive from the U.S. Securities & Exchange Commission, that will review substantive issues relating to discovery in arbitration proceedings that are conducted under the auspices of the FINRA Code of Arbitration Procedure.

Oppenheimer Orchestrates Management Shift in Los Angeles

Richard Wisely, who has managed Oppenheimer & Co.’s shifting fortunes as manager of its Los Angeles-area office under several ownership structures, has stepped aside, a spokeswoman said.

Wisely, who has been with Oppenheimer & Co. and predecessor companies since 1984, is handing the reins of the New York-based firm’s approximately 50-broker office in Westwood office to Kevin F. Friedman, who joined as a producing manager from running Wells Fargo Advisors’ Woodland Hills branch.

Wisely, who began his career at Prudential-Bache Securities predecessor Bache & Co. in 1972 before joining then-Oppenheimer parent CIBC World Markets in 1984, will remain with the New York-based firm as its regional manager for Arizona and southern California, the spokeswoman said. She could not immediately say how many branches or brokers are in the region, but Oppenheimer has about 90 U.S. branches.

The veteran broker was prominently mentioned in a long-running “raiding” arbitration case that Oppenheimer pressed against Citigroup in 2003, when the bank’s Smith Barney unit recruited nine brokers allegedly representing about 30% of production from Wisely’s office. The actions occurred as Oppenheimer was trying to reassure brokers concerned about the firm’s pending sale by parent Canadian Imperial Bank of Commerce to the small Canadian firm Fahnestock Viner Holdings.

The arbitration, decided in Citigroup’s favor in 2011 at a cost of $100,000 to Oppenheimer, mentioned that Wisely himself came close to jumping with a group of brokers to Bank of America. Fahnestock, under the control of Albert Lowenthal, still chairman and CEO of Oppenheimer, offered Wisely “a generous retention package and bonus” but rejected his advice to up its package to other brokers to 75-100% of trailing 12-month production from 35-40% and to retain an attractive deferred compensation plan.

Friedman, Wisely’s successor at the branch, joined Oppenheimer two weeks ago with at least one client associate after an 18-year career with Wells Fargo Advisors and its predecessor firm Wachovia Securities. Neither he nor Wisely returned calls for comment.

Wells’ Woodland Hills office that Friedman managed is currently being overseen by Steven Townsend, the branch’s market manager, according to a person taking calls at the office.

Wisely’s BrokerCheck history over his 40-year career is unmarked by a customer or regulatory complaint, according to the Financial Industry Regulatory Authority database.  He gained notoriety in 2005, however, when he was permitted to cash out investments in a poorly performing hedge fund that had trapped some wealthy Oppenheimer clients, according to  this Wall Street Journal article.

Friedman was named a top branch manager in 2015 by “On Wall Street” magazine for his coordination of 50 brokers in the Woodland Hills branch. He has one mark over his 21-year career, a customer complaint lodged in June alleging that he failed to supervise a broker in connection with an unspecified complaint. The issue is pending, according to his BrokerCheck record.

Prior to joining Wells, Friedman was registered for three years with Merrill Lynch in New York City.

SEC Charges Businesswoman with Operating a Fraudulent Promissory Note Scheme

The Securities and Exchange Commission today announced fraud charges against a Niles, Illinois businesswoman accused of misappropriating investor funds.

The SEC’s complaint, filed in federal court in the Northern District of Illinois, alleges that Lucita A. Zamoras solicited investors for a promissory note program and subsequently misappropriated the investors’ funds. From at least October 2009 through December 2013, Zamoras engaged in a fraudulent scheme in which she raised approximately $727,049 from at least six investors by encouraging them to transfer their retirement accounts to self-directed individual retirement accounts and purchase promissory notes issued by her. Zamoras, originally from the Philippines, preyed on other Filipino investors by convincing the investors to purchase the notes, which offered them 3.5% to 5% annual interest. The SEC complaint alleges that Zamoras never invested her clients’ funds; instead she used the money to support her gambling habit and pay other personal expenses.

The SEC’s complaint charges Zamoras with violating Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder. The complaint seeks injunctive relief, disgorgement, prejudgment interest and a civil penalty against the Zamoras.

The SEC’s investigation was conducted by Paul Feindt and Scott Frost. The SEC’s litigation will be led by Daniel Wadley and Amy Oliver.

SEC Obtains TRO and Asset Freeze in Investment Scheme Involving Seniors

The Securities and Exchange Commission today announced an emergency asset freeze and temporary restraining order against a Chicago-based investment adviser and his financial management company accused of scamming elderly investors out of millions of dollars.

The SEC alleges that Daniel H. Glick and his unregistered investment advisory firm Financial Management Strategies (FMS) provided clients with false account statements to hide Glick’s use of client funds to pay personal and business expenses, purchase a Mercedes-Benz, and pay off loans and debts among other misuses.

According to the SEC’s complaint, Glick was barred by FINRA in 2014 and had his Certified Financial Planner designation and Certified Public Accountant license revoked for conduct unrelated to today’s SEC charges.

The SEC’s complaint also names Glick Accounting Services, Glick’s business partner David B. Slagter, and Glick’s business acquaintance Edward H. Forte as relief defendants for the purposes of recovering client funds that Glick transferred or paid them in the form of advances or loans.

The complaint alleges that Glick and FMS violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

The court issued a temporary restraining order against Glick and FMS at the SEC’s request, and issued an order freezing the assets of Glick, FMS, and Glick Accounting Services.

FINRA Dispute Resolution Issues Status Report on Arbitration Task Force Recommendations

Action Taken on 35 of 51 Recommendations to Date

The Financial Industry Regulatory Authority (FINRA) today released a status report on the recommendations made in the FINRA Dispute Resolution Task Force’s Final Report issued in December 2015. In July 2014, FINRA had formed a 13-member task force composed of individuals representing a broad range of interests in securities dispute resolution to consider possible enhancements to its arbitration and mediation forum. FINRA released an interim status report in October 2016 and today’s report sets forth further progress made to date. FINRA has discussed all of the task force recommendations with the National Arbitration and Mediation Committee (NAMC). FINRA has taken action on 35 of the 51 recommendations; 16 are pending.

Robert Cook, FINRA’s President and CEO, said, “We are very pleased to report that we have already implemented many of the task force’s recommendations, and we are diligently responding to the remaining recommendations. Many of the recommendations we are putting in place are meaningful changes that will position the forum to better serve all parties involved. The NAMC and FINRA staff are doing an effective job of comprehensively reviewing and promptly taking action on the recommendations.”

Many of the recommendations, particularly those involving forum transparency, arbitrator recruitment and training, and case administration processes did not require rulemaking and were implemented in 2016. Among those, the report notes that FINRA received 945 arbitrator applications in 2016, far exceeding its goal to recruit 750 new arbitrators. FINRA’s latest arbitrator demographic survey, which was conducted by an external consulting firm, showed particular progress in adding women and African-Americans to the roster. In 2016, 33 percent of the arbitrators added were women (compared to 26 percent in 2015) and 14 percent were African-American (compared to 4 percent in 2015).

FINRA commenced the rulemaking process on six of the recommendations. Of those, the SEC has already approved two proposals related to the number of public arbitrators on lists and motions to dismiss; there are four proposals in various stages in the rulemaking process, including a proposal addressing the task force recommendation to develop an intermediate form of adjudication for small claims.

The task force’s recommendations were reviewed by the NAMC, FINRA’s standing Board advisory committee, which recommended items to implement immediately, items that would require further discussion and items that may not be feasible.

FINRA, the Financial Industry Regulatory Authority, regulates securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.

Morgan Stanley Financial Advisor Barry Connell Arrested for Stealing more than $5 million from Client Accounts

On January 3, 2017, Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that former Morgan Stanley financial advisor Barry Connell had been arrested and charged with wire fraud and aggravated identity theft for allegedly using his position as a financial adviser at Morgan Stanley to defraud multiple clients out of at least $5 million over a one-year period. (“Former Financial Adviser At Global Bank Charged In Manhattan Federal Court With Multimillon-Dollar Scheme To Defraud Clients”).

According to the press release that announced the indictment and arrest of financial advisor Connell, “as alleged, Barry Connell used his clients’ bank accounts as his own, siphoning off millions of dollars to pay for his extravagant lifestyle, including a country club membership and private jet expenses.”

According to the allegations in the indictment that was unsealed in the Manhattan federal court, from December 2015 to November 2016, Mr. Connell effected numerous unauthorized transactions from five accounts belonging to a single family of Morgan Stanley clients, and as a result, defrauded the clients of at least approximately $5 million.

It is alleged that, in some instances, Mr. Connell effected the fraudulent transactions by submitting Morgan Stanley forms falsely stating that he had received client instructions authorizing wire transfers to third parties for the client’s benefit, when in fact he had not received client authorization and the wire transfers were for financial advisor Connell’s own benefit. In other instances, Mr. Connell effected the fraudulent transactions by using one client’s checks, which had been intended only to pay the client’s bills, to instead pay for his own expenses including a year’s rent for a house near Las Vegas, country club membership fees, and private jet expenses.

Financial advisor Connell also allegedly paid bills for a credit card account in his spouse’s name, and made payments for his own benefit to automobile dealerships, an entertainment company, and a yacht company. Financial advisor Connell’s registration records indicate that, at the time of the events in question, he had been associated with the Morgan Stanley branch office located in Ridgewood, New Jersey.

Copies of both the U.S. Department of Justice press release and the indictment of financial advisor Connell can be found at: https://www.justice.gov/usao-sdny/pr/former-financial-adviser-global-bank-charged-manhattan-federal-court-multimillon-dollar.

If you are an individual or institutional investor who has any concerns about your investments with financial advisor Barry Connell or Morgan Stanley, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).


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