Securities Fraud Lawyer Blog

Ex-Broker for UBS Alleged to Have Bilked Investors for Over $17 Million

May 18, 2022 | Bryan Forman

Stockbrokers and financial advisors occupy a place of trust. And, in most cases, a client’s trust in their financial advisor is well-placed. However, perhaps more often than most people realize, stockbrokers and financial advisors engage in illegal conduct specifically intended to enrich themselves at their clients’ expense.

This is exactly what is alleged to have occurred at UBS Wealth Management USA. According to a recent report, one of the firm’s former brokers in Waco, Texas, stole more than $17 million from customers over a period of more than 25 years. Evidently, the broker was able to “fraudulently convince” more than 20 clients to invest in a “sham” investment that he and a friend from college created. To induce clients to make this investment—which was not included among UBS’s offered products—the broker promised them between 4% and 8% interest, which would compound quarterly. And to keep the fraud going, he and his partner would send out fake account statements purporting to show that the accounts were increasing in value, as promised.

However, in September 2021, the fraudulent investment scheme started to unravel. At this point, The broker left UBS and began working for another investment firm. There are allegations that he continued to push the same fraudulent investment at his new firm.

Need to Know Info for Texas Investors Considering Adding Cryptocurrency to Their Holdings

April 6, 2022 | Bryan Forman

Over the past decade, cryptocurrency has been all the rage. It all started with Bitcoin, which was created back in 2008. However, since then, the number of cryptocurrencies has grown significantly, as have the ways that investors can purchase these assets.

Cryptocurrency was initially met with skeptical eyes across the finance community; however, in more recent years, many notable investors have gotten onboard with the crypto craze. Investors considering adding cryptocurrency to their portfolios should familiarize themselves with cryptocurrency, its risks, and what can be done in the event of crypto fraud or crypto hacking.

What Are Cryptocurrencies?

Cryptocurrency is a digital currency that is backed by a complex algorithm making it nearly impossible to counterfeit. However, cryptocurrency is not tied to any financial resource, which is why so many were skeptical of the asset class initially.

Beware of Financial Fraud During Troubled Times–Ed Martin, Sage Investigations, LLC

March 26, 2020 | Bryan Forman

From Bryan Forman, Forman Law Firm, P. C.–In an effort to provide our readers with unique perspective of other professionals in the world of investments and securities regulation, arbitration, and litigation, I will occasionally invite friends, colleagues, and other experts to publish a blog piece from their unique perspective. If you like what they have to say, please say so and forward! Thanks for reading.

In this Guest Blog Piece, we hear from Edmond (Ed) Martin of Sage Investigations, LLC in Austin, Texas. Ed brings some unique experience and perspective to “Ponzi Schemes” a topic that has been around for a while and one on which we have often posted (see, “Ponzi Schemes Recommended By Stockbroker—How Can Firms Miss Them”), but one that is likely to experience a resurgence at the end of the recent bull market and the recession possibly brought on as with the Coronavirus Correction as more and more schemes are revealed as the proverbial house-of-cards comes tumbling down. Ed is a Certified Fraud Investigator, and gained substantial experience working as a Special Agent for the U. S. Treasury and Internal Revenue Service, Department of Justice, Texas State Securities Board, and other government agency types that you never really want to hear from unannounced–you would always rather call them as a victim of a scam. Ed has investigated all sorts of financial fraud, with a particular emphasis on Ponzi Schemes, and has told his stories on a number of television programs. See his CV here. We invite him here to share his perspective on two of the more notorious Ponzi schemes—Madoff and Russell Erxleben, and to highlight a few of the early warning signs for investors.

Beware of Financial Fraud During Troubled Times.

Should I Stay, Or Should I Go Now?

March 15, 2020 | Bryan Forman

As I sit here on a Sunday afternoon, listening to some tunes and wondering what will be the ripple effect of these strange times, particularly for the retail investor who has enjoyed an 11 year run of a bull market, I for some reason thought of The Clash’s “Should I Stay, Or Should I Go Now?”. It’s worth a listen…

Who would’a thought that the title and lyrics from the English punk rock band “The Clash” from 1981 might aptly describe the retail investor’s conundrum given the Coronavirus meltdown in the equity markets? As a retail investor with a sizeable amount of your life’s savings in the market, “should you stay or should you go…?”

For Many That Invested Heavily on Margin, Their Chickens Have Come Home to Roost.

March 12, 2020 | Bryan Forman

How Margin Risk Can Devastate a Brokerage Account.

WAAAAY BACK in January of 2018, I blogged about how trading on margin, even in a prolonged bull market, can have devastating results if (when) the markets dramatically decline. See, “Investing On Margin—Will Your Chickens Come Home to Roost?” I was concerned for those investors for which margin investing might be unsuitable, as the outcome can be devastating. Certainly, there are generations of new investors with a great deal of investment dollars that only began investing real money during this bull market; meaning they have never faced a down market and the margin calls that come with. This may be a rude awakening.

With the recent Coronavirus Correction (headed toward recession), it is likely that many investors that were investing using margin have suffered significant losses, AND had to sell other securities in order to cover margin calls. In my January 2018 post, I noted that at the end of November 2017, FINRA reported there was more than $627 Billion in margin debit balances in retail customer accounts, compared to $553 Billion at the beginning of 2017, more than a 13% increase in borrowing to invest in stocks (Note: A margin debit balance represents the amount of money the investor owes the brokerage firm). Two years later, at the height of the bull market, FINRA reported there was $561 Billion in margin debit balances in retail customer accounts, a ~10% decline from the same statistic from two years before. Overall, 2019 showed somewhat lower levels of margin than 2018 and 2017, so based on this alone, it would appear that borrowing to invest leveled out at the “end” of the recent bull market. However, if one were to look at the margin debit levels in 2010-2012/13, margin balances have doubled! Clearly, investors wanted to leverage their accounts by purchasing securities using margin debt. But, as the analogy for this post goes, your chickens may come home to roost amid this market correction!

Texas Securities Act– The Statutory Basis for a $2.8 Million Arbitration Award On a $1.6 Million Investment.

March 11, 2020 | Bryan Forman

Austin, Texas Investor Wins $ 2.8 Million in Arbitration on Claims Under The Texas Securities Act

Investors in Private Offerings in Texas Have Substantial Tools At Their Disposal Through the Texas Securities Act (TSA).

In February of 2018, we posted a piece about how the Texas Securities Act was a “Powerful Tool For Victims of Oil and Gas Fraud” and we discussed how the TSA might apply to oil and gas investments, as we were seeing a significant number of investors’ inquiries about their investments in private oil and gas deals. As we noted, the TSA considers “any interest in or under an oil, gas or mining lease” to be a security. It is true that the TSA is a powerful tool for oil and gas investors that have been lied to about a deal, but the TSA is not limited to just oil and gas deals, but is applicable to the offer or sale of any security or investment contract. In this post, we highlight one of the firm’s recent awards where our client received all of his investment back, plus interest, costs, and a substantial award for his attorneys’ fees. The investment was not in an oil and gas deal, but was a somewhat typical investment in a start-up venture.

Financial Exploitation of Elders–What You Need To Know.

March 11, 2020 | Bryan Forman

Financial Exploitation of Elders – What You Need to Know

Due to age and the impairments that accompany it, our elderly population is, unfortunately, at a high risk of being taken advantage of financially. Elderly investors are vulnerable to financial exploitation and investment fraud due to a general desire to trust their financial professional, and the difficulty of keeping abreast of the ever-changing financial, retirement, annuity and insurance products marketed by Wall Street.

By the year 2030, all baby boomers will be over the age of 65. By 2035, the amount of people over 65 will be greater than those under the age of 18 for the first time in history. Naturally, a substantial amount of wealth and retirement savings will be found in this demographic. However, close to 20 percent of people over the age of 65 have some form of cognitive impairment. For those over 85, more than half have Alzheimer’s disease of some other form of dementia. The aging of our investor class presents inherent opportunities for the unscrupulous promoter of unsuitable investments, or those intent on defrauding others.

Yield Enhancement Strategies (YES) – Just Say No!

October 28, 2019 | Bryan Forman

UBS and other well-known investment firms are currently making the news for marketing Yield Enhancement Strategy (YES) to its clients as “safe” and “conservative .” While YES was marketed as a safe way for investors to enhance their income stream, YES was anything but safe. Brokers that recommended YES strategies to clients without proper due diligence and disclosure, or that recommended the strategy to conservative income oriented clients, likely engaged in broker misconduct, which could make them liable to those clients. Rather than enhance yield, as promised, the strategy actually resulted in large losses.

YES, designed to earn investors more yield during a time when the markets were relatively stable and interests rates low, involved investing in a series of four options for the S&P 500 Index (SPX). This strategy is also known as an “Iron Condor” Options scheme, and involves an options strategy marketed by some brokers as a low-risk way for investors to enhance the yield from an investment portfolio. An Iron Condor strategy consists of selling one call spread and one put spread, each with the same expiration day, on the same underlying asset. Used properly, the iron condor is designed to have a high probability of earning a small profit, provided that the underlying security has low volatility.

While YES wasn’t going to make investors a huge yield if successful, its intent to hedge risk and earn small returns was not without risk. Not only is risk involved, but YES is extremely complicated, making it difficult for most investors to understand. Because of this inherent complexity, it is possible, even likely, that brokers and brokerage firms recommending the strategy failed to adequately disclose the risks involved, resulting in a lack of understanding on the client’s part. A broker has a duty to disclose all risks associated with an investment and firms must implement adequate risk controls and compliance systems to monitor a broker’s recommendation to engage in YES strategies. Failure to do so constitutes a breach of the suitability rules, is negligent, and also a breach of fiduciary duty.

Some Novel Defenses in Employee Forgivable Loan Cases

June 28, 2018 | Bryan Forman

Offering bonuses in the form of employee forgivable loans (EFLs) is common in the financial industry, but these so-called bonuses can result in a trap for unsuspecting brokers (see our website here). While there are a variety of defenses (LINK) available to brokers when a brokerage firm seeks to enforce these EFLs in a FINRA action, the fact is that arbitrators seem to rule against brokers in these matters almost reflexively. But a couple of novel theories might offer new alternatives.

The Uniform Commercial Code

One potential new defense to an arbitration proceeding to enforce a promissory note is based on the Uniform Commercial Code (UCC). The UCC is a model law adopted by states throughout the country to insure that certain financial instruments are subject to the same legal requirements nationwide. The relevant provisions of the UCC for our purposes apply to negotiable instruments, which include, for example, checks and promissory notes. A negotiable instrument is a signed, transferrable document promising payment to a named payee at a specified time or upon demand. For example, your mortgage document is likely a negotiable instrument transferrable between banks, which explains how your bank can sell your mortgage to another financial institution, and then you get a notice to send your payments elsewhere.

The Texas Securities Act–A Powerful Tool For Victims of Oil & Gas Fraud

February 4, 2018 | Bryan Forman

The Texas Securities Act , when applicable, is an extremely powerful tool for any investor seeking to recover an investment and other damages when they have been a victim of fraud or when the Texas Securities Act (TSA) has been technically violated, and this is particularly true when an investor invests in a private oil and gas deal that may not be compliant with the TSA or when the deal is misrepresented, or perhaps an outright scam. Oil and gas scams are, in fact, a staple of the enforcement actions brought by the Texas State Securities Board, and even though the Texas State Securities Board often shuts down the scams and the scammers, investors don’t always get compensated for their losses.

With the stock market reaching recent all time highs in late 2017 and going into 2018, private investment will predictably increase, and in Texas, a lot of investment dollars find their way into oil and gas drilling programs and other investments tied to our so-called “black gold.” One recent Houston Chronicle article made a good case of why we will see more and more money flowing into the oil and gas and drilling sectors in Texas. In short, with the price per barrel up from lows of last year, and with the Texas economy booming, it is reasonable to predict that there will be much more drilling activity, and investment into drilling activity. This usually translates to more private investment opportunities for individual investors in the Texas oil and gas sector, and this predictably will attract promoters and other scam artists hoping to exploit gullible and unsophisticated investors hoping to take part in the energized energy sector. And, surprisingly, it is still common for promoters of oil and gas deals to abscond with investors’ dollars.

Investments in oil and gas can come in many shapes and sizes. Investors can, of course, invest in a variety of publicly traded securities, including mutual funds, ETFs, Master Limited Partnerships, and specific companies (e.g. Exxon Mobile, Royal Dutch, and many others who are headquartered in Texas) whose share value is tied to the oil and gas industry. Investing in a public traded vehicle generally eliminates the opportunity for most registration fraud, IF you are investing through a registered broker that makes a suitable recommendation in light of your investment objectives, risk tolerances, sophistication, and financial condition, but when you are investing in a private investment, the potential of securities fraud may be increased.