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Articles Posted in Investment Fraud

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.

Today, the Texas State Securities Board (TSSB) announced in a Disciplinary Order the suspension of Jason Anderson, a broker from Beaumont, Texas formerly working in the last two years with each of LPL, Kovack Securities, IFS Securities, and since March of 2017, was seeking registration as an investment adviser with IFS Advisory, LLC (later withdrawn), and then went on to seek registration as an investment adviser with Financial Management Services of America, LLC.   Last year, Mr. Anderson was “indefinitely” suspended by FINRA for failing to comply with an arbitration award, pay a settlement, and/or failing to tell FINRA about the status of that award.   Mr. Anderson has been very busy—-why?  Some of the answers may be found in Mr. Anderson’s BrokerCheck, which reveals a rather concerning string of customer complaints and other problems.  So, is Mr. Anderson suspended?  Yes as a FINRA broker, and yes in the State of Texas, just not for long.

Well, while Mr. Anderson was with LPL between 2007 and February 2016, and perhaps while at the subsequent firms, Mr. Anderson was recommending to many of his clients an active trading program pursuant to a technical analysis.  The Texas State Securities Board called the trading program the “Equity Strategy.”  Similarly, there have been a number of customer complaints, and even a lawsuit filed against Mr. Anderson for his practices with his customers.

Mr. Anderson’s, and hence LPL’s, Equity Strategy involved actively trading stocks based apparently on Mr. Anderson’s belief in his prescient technical analysis.  The Texas State Securities Board stated that Mr. Anderson “did not consider the trading costs, which included commissions…or the impact that such costs would have on the rate of return the Equity Strategy would need to earn to generate a positive return for a client.”  The TSSB noted that for one client, the costs were 30%, meaning that in order for the client to breakeven, the Equity Strategy would have to earn 30%–no small feat for an investor with a moderate risk tolerance!  Not surprisingly, the TSSB concluded that Mr. Anderson did not have a reasonable basis to believe that the Equity Strategy was suitable for his clients because of his disregard of the trading costs (his own commissions), and thus such practice was deemed by the TSSB to be “inequitable practices in the sale of securities” and it suspended Mr. Anderson’s registration.  Hmmm…

This week FINRA published a Recovery Checklist for Victims of Investment Fraud and at the risk of being called sensitive, it seems the Checklist seemed to omit, at least on its face, that hiring an attorney may be the most direct route to seeking any compensation that may be due from being a victim of a financial crime or a victim of investment fraud.  Granted, if you click through to the embedded links, you will find another page published by FINRA titled “Legitimate Avenues for Recovering Investment Losses.”  Therein you will find FINRA’s suggestion that “…You may want to hire an attorney to represent you during the arbitration or mediation proceedings to provide direction and advice.”  I guess it is nice to be considered a “legitimate” avenue by FINRA, as any suggestion of illegitimacy would not sound quite as nice.

But back to the “Checklist.”  FINRA provided a number of resources to report the crime, and victims of investment fraud and financial crimes should report these crimes to all appropriate agencies, as those agencies represent the only real process that can (whether they will is a different issue) bring criminal or regulatory charges against the perpetrator.  However, it is in my experience rare that the authorities responsible for enforcing the criminal and regulatory statutes will recover the victim’s damages, although it certainly happens from time to time.  That is not their real responsibility–they want to enforce the criminal laws and regulations and put deserving criminals behind bars or revoke licenses.  Yes, recovery will sometimes be the product of criminal enforcement, but hiring someone that has no purpose other than representing the victim in seeking the appropriate recovery is wise.

I am glad FINRA acknowledges that the damage done by investment fraud not only includes the damages from financial loss, but also includes  “…at least one severe emotional consequence—including stress, anxiety, insomnia, and depression.”  These damages are real, and should be recoverable in arbitration, right?  Well, FINRA knows that it is not easy to recover from investment fraud, and states so plainly.  FINRA states, “While full financial recovery may be difficult to achieve…” and again states  “It can be difficult to recover assets lost to fraud or other scenarios in which an investor has experienced a problem with an investment. But there are legitimate ways to attempt recovery. In most cases, you can do so on your own—at little or no cost.”  Alas, is this a comment on the fairness/difficulty in recovering legitimate damages in its own arbitration forum?  Perhaps, but don’t expect FINRA to connect these dots.  But given this  admitted “difficulty”, why does FINRA seemingly encourage victims of investment fraud to go it alone?  FINRA is certainly aware of what can happen to the investor/claimant/victim proceeding on their own  against veteran Wall Street attorneys in its FINRA arbitration forum—something akin to throwing raw meat into a crowded lions’ den comes to mind.  Granted, experienced FINRA arbitrators will recognize a meritorious claim before them, but when it comes to recovering money from investment fraud, don’t go it alone!