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Archive for March, 2013

LPL growth causes legal and compliance headaches

In February, the country’s largest independent broker-dealer, with more than 13,000 contractor representatives and advisers, was ordered by Massachusetts to pay up to $2 million in restitution to clients and a fine of $500,000.

Ameriprise Financial Inc. and LPL Financial are the two largest sellers of nontraded REITs, accounting for about 20% of the annual $10 billion in sales of such investments.

A problem for LPL is that sales of alternative investments represent a growing stream of revenue. Commission revenue for alternative investments jumped 25% to $143 million last year, from $114 million in 2011.

As demand increases, regulators are watching how financial advisers sell the products more closely than ever.

As a consequence of Massachusetts’ investigation into its sale of nontraded REITs, LPL already has made some changes to the oversight of its alternative products, including nontraded REITs.

“In July of 2012, LPL changed its policies and procedures, creating a separate complex-products team to review all alternative investments,” according to the Massachusetts lawsuit.

In a move that shows how wary the firm has become of complex products, LPL this year also put restrictions on its advisers’ sales of leveraged, inverse and monthly- reset mutual funds.

LPL’s recent rash of compliance problems stem from inadequate oversight of its far-flung group of reps and advisers, according to the Times story.

State regulators, who operate as local cops on the beat, have long faulted the independent-broker-dealer industry for a shortcoming in overseeing its reps.

Boston pair charged in Ponzi scheme case

A Boston couple has been charged in connection with what prosecutors are calling a multimillion dollar Ponzi scheme in which they used investors’ money to fund a lavish lifestyle.  Steven Palladino is scheduled to be arraigned Monday on multiple counts, including larceny and loan sharking.  Palladino and his wife, Lori, were indicted last week. She is scheduled to be arraigned next month.

Prosecutors say the Palladinos were the owners of Viking Financial Group Inc.  Prosecutors allege Viking borrowed money from investors, who were told the funds would be used to provide loans at a higher interest rate.  Very little of the money was used to make loans, but instead was used to pay for vacations, gambling and other personal reasons.

SEC halts plasma engine investment scheme

The Securities and Exchange Commission today announced an enforcement action previously filed under seal in federal court in Las Vegas. The SEC has obtained an emergency order to halt an investment scheme that has defrauded at least 98 people nationwide out of at least $1.4 million since 2009.

The SEC’s complaint alleges that Nevada resident John P. Rohner and his companies Inteligentry, Ltd., PlasmERG, Inc. and PTP Licensing, Ltd., have been operating a fraudulent investment scheme. Rohner and his companies solicited investors for the scheme by claiming that they have developed, tested and patented an operational “plasma engine” fueled by abundant and inexpensive noble gases (such as helium), which they claim will replace the internal combustion engine. Rohner and his companies claim that the engine is non-polluting and has unlimited uses to generate electricity in homes, businesses, boats, and aircraft. For example, Rohner told at least one investor that one of his plasma engines has been running a generator on a dairy farm for 18 months and he claimed on company websites that the pollution-free engine “can run for over 3 months on a $12 gas fill”. As alleged in the complaint, Rohner originally offered securities in Iowa-based PlasmERG, Inc. from 2009 to early 2011, and from May 2011 to the present Rohner has offered securities in Nevada-based Inteligentry, Ltd., using PlasmERG and PTP Licensing as related business entities.

Rohner and his companies lured investors into purchasing stock by claiming that the companies would be worth billions of dollars when the plasma engine is publicly revealed, repeatedly promising to publicly show his operational engine at stockholder meetings and trade shows. However, the claims were and are entirely fictitious. Rohner and his companies have never run an engine fueled by noble gases, nor have they obtained patents relating to the engine or the plasma technology.

Rohner and his companies also made false and misleading statements to investors that Rohner has advanced degrees from the Massachusetts Institute of Technology and Harvard University, and that they have trademarks relating to the purported engine and its plasma process. As alleged in the complaint, these representations are false. Rohner has never attended or obtained degrees from MIT or Harvard, and has never been assigned a trademark related to the engine or its purported technology.

According to the SEC’s complaint, Rohner, Inteligentry, PlasmERG, and PTP Licensing used investor funds to pay Rohner’s personal expenditures as well as business expenses. The complaint alleges that a significant portion of the funds raised from investors was used for personal expenses, including among other things the purchase of a home in Iowa for Rohner and his wife, the purchase of vehicles for Rohner’s family members and Inteligentry employees, the purchase of home goods, and the payment of personal expenses including automobile repair services and insurance, medical services, and meals at restaurants.

None of the defendants charged in the SEC’s enforcement action has ever registered with the SEC to sell securities.

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