Professional Athletes and Financial Fraud

It’s no secret that large sums of money change hands every day in professional sports, both at the college and pro level. Even the NCAA, which has rules that are meant to protect its amateur athletes, isn’t immune from issues related to big money. As a result, athletes are at a risk of fraud and need to be vigilant and alert with regard to their finances.

Why is an Athlete More at Risk?

The career span of an athlete is typically very short and can be made even shorter by injury or diminution of skills. They don’t benefit from a long-term work life to build and manage their wealth Therefore, practical financial advice and management is indispensable for professional athletes as well as college athletes about to turn professional.

Professional Athletes are particularly susceptible to investment fraud as their wealth is typically new and increases very quickly. Consequently, they could be targets for many advisors who would like to “help” them with their finances.

These consultants are capable of taking advantage of the athlete’s wealth, pushing high risk investments (often represented to be low risk investments) that offer high fees and commissions for the advisor, rather than providing the opportunity to fully capitalize on the returns which should be available for the risk involved.

What does the law say?

In most states, it is illegal for sports agents to give gifts to college athletes. The law requires agents to register with state regulators before they approach an athlete, and violators can be prosecuted.

Often though, financial advisors find loopholes to these regulations. The NCAA prohibits athletes from accepting money or gifts, but shady financial advisors are often able to skirt around this by offering to “assist” in the management of the athlete’s investments. Brokers, insurance agents, and bankers will often solicit athletes who show promise in their future professional careers.

The Player

While playing at Pennsylvania State University from 2008-2011, five financial advisors approached Cincinnati Bengals defensive tackle Devon Still. He was a prime target, as it was clear he would go onto to play in the NFL and receive a high salary. In his senior year, he was procured by a broker who convinced him to invest $100,000 after joining the NFL. Mr. Still never got his money back. The broker was banned from the securities industry for life after failing to appear at a disciplinary proceeding.

The Broker

Mary Wong was well known amongst the University of Nebraska football team. She would host barbecues at her home for the players, who loved her short ribs. She would also woo the players with clothes, private jet flights, and nightclub parties.

The players were more inclined to take these gifts because she wasn’t offering money outright. She wasn’t a sports agent either. Therefore, as a financial advisor to players who had nothing to invest yet, the players felt there was no risk in accepting her gifts.

Ms. Wong was able to convince former Dallas Cowboys linebacker Steve Octavien to give her $80,000 including his signing bonus in 2008. His entire $80,000 “investment” disappeared.

Mary Wong pleaded guilty to securities fraud in 2010 related to an alleged Ponzi scheme. She is serving a sixty-three month sentence in federal prison.

Solutions

Because of the risks posed to amateur and professional athletes, it is in their best interests to seek out sound financial and legal advice. The attorneys at Vernon Litigation Group have devoted their careers to represent investors who have encountered rogue or deceptive financial advisors and unreliable investments. The Vernon Litigation Group is focused on helping investors who have been swindled or deceived by all sorts of financial affairs.

The attorneys at the Vernon Litigation Group understand that athletes have particular needs, and they can assist athletes who have been taken advantage of by pursuing recovery of funds in arbitration and litigation.

The attorneys at the Vernon Litigation Group have represented former and current professional athletes in court, arbitration, and pre-suit negotiations

If you’re an athlete, you are being pitched a significant investment or feel that you have been the victim of a fraudulent investment scheme, contact the Vernon Litigation Group at info@vernonlitigation.com or call (239) 649-5390 to speak with an attorney regarding your situation.

Avoiding Big Investment Mistakes in 2015 with Your Retirement Portfolio

Many investors are generally aware of the concepts of risk management, including allocation and diversification. However, many investors continue to fall prey to deceptive sales pitches for specific investment products or strategies. If you are considering the investment of a significant amount of money in a single investment or a single strategy, then please consider this article before you do. Although it is not possible for me to identify all the types of investment products out there that might apply to this discussion, this would include significant investments in products and strategies such as annuities, non-traded REITs, hedge funds, proprietary trading strategies, as well as many products referred to as alternative investments.

Always Measure Risk Versus Reward

In today’s investment world, the first thing an investor should independently determine is what levels of risk they are willing to take with respect to the money they are investing. Risks can include liquidity risks, credit risks, spread risks, maturity risks, interest rate risks, crisis risks, complexity risks, etc. Although these sound like a lot of very complex financial concepts, some are only that way because of the terminology Wall Street uses to keep us all confused. For example, liquidity risk essentially means how hard or easy it is to resell an investment that you’ve purchased without penalty. Another example is credit risk, which is basically the risk that the company or entity in which you are investing will go out of business or have severe financial problems which could translate to a loss of principal for you. Investors should first determine the types of risks and how much risk they are willing to take before they consider any investment. By doing this first, you will not be shopping for investment products and strategies that are outside of your risk parameters. It is similar to deciding how much you want to spend on a car before you decide to go car shopping for a Ferrari on a Toyota budget.

Carefully Consider Liquidity

Once you have independently determined your parameters for risk, the second thing you should specifically consider is the liquidity risk of the investment you are considering. For example, what happens if your hedge fund becomes gated, which means a restriction might be placed on a hedge fund limiting withdrawals from the fund? What happens if your non-traded REIT suspends redemptions, which means the REIT refuses to buy back your investment and there is no active secondary market? What happens if your annuity has significant surrender charges, which means you have to pay a penalty to get out of the annuity? Liquidity risk is a looming problem today with retail investors because investors averse to market risks are susceptible to misleading pitches involving alternative investments that have the potential to become illiquid after the purchase.

Read the Fine Print

The third thing you need to determine regarding the significant investment you are considering are the other risks above and beyond liquidity risk. I understand investors’ hesitation to undertake reading written disclosures they receive relating to their investments when those disclosures are hundreds of pages of small print. Things like private placement memorandums and offering documents are written by lawyers and often decipherable only by PhDs in the financial arena. It is simply not realistic to expect an investor to read and understand these offering documents. However, I do recommend that you look for the word risk(s) on the first page of the big offering document and read the paragraph on page one that discusses risks. Reading the risks outlined on page one may give you a different perspective than the perspective provided by the investment professional recommending the product. Many investment professionals are not very knowledgeable about investments in general or the products they are selling and some are not ethical. Although you have a legal right to rely on the pitch being made by the investment professional, be skeptical when dealing with an investment professional selling these types of products for a commission.

The Author is Here to Help

Chris Vernon is a Naples based attorney who represents investors nationwide against Wall Street firms and other investment professionals. Mr. Vernon is currently a member of the Collier County Identity Theft Task Force. He can be reached at cvernon@vernonlitigation.com.

Investment Considerations regarding Your Retirement Portfolio….

Vernon Litigation’s founding partner, Chris Vernon, contributed an article to the Naples Daily News this last weekend regarding retirement investments. The article’s stated goal is to help investors avoid rogue investment products by carefully selecting the right investment professional.  Specifically, Mr. Vernon pointed out that asking the following questions may assist investors in selecting a financial adviser:

“How many customer complaints has the financial adviser had in the last 10 years?

Will the financial adviser earn a big commission if you buy the product he or she is recommending?

What qualifications does he or she have beyond a basic securities or investment license?”

Vernon Litigation has helped thousands of investors who have been ushered into bad investments by unscrupulous advisers.  If you believe that you or someone you know falls victim of questionable adviser practices, give us a call today.  For those who are preparing to select an investment professional, you can read the original article below or on MarcoNews .


Want to reduce the chances that you will make a catastrophic investment mistake for you and your family as you age? If you think this is an article about asset allocation and diversification, think again. While those theories are important and do impact your returns, I am talking about a decision that will impact whether you will have enough available money to support yourself and your family as you get older.

As I write this, I realize I sound like so many of the sales pitches that occur every day in Naples during season at some of our finer eating establishments. However, here is the difference: If you listen to me, I don’t make money. In other words, following my recommendation does not result in a big commission or ongoing payment stream to me.

Taking my advice will significantly reduce the chances that you make a big investment that subsequently destroys your financial security. If I sound overly dramatic, it is because I get calls almost daily from retirees who discover after it is too late that they bought a life-changing high-commission product that didn’t perform as they were led to believe, they no longer want, and they can’t sell because there is no buyer’s market.

Although investors have become painfully aware over the last few decades that incompetence and fraud are not anomalies among investment firms on Wall Street and elsewhere, successful sales pitches for bad products seem to continue unabated. State and federal regulators have proven they are not able to protect investors from this ongoing wrongdoing. As a result, it’s up to you and me to help you avoid rogue investment products.

Since most retail investors legitimately have a hard time telling the difference between good and bad investments due to complexity and the sales pitches that often accompany the investment, I propose an interim solution to protect yourself. I propose that you first focus on selecting a good investment professional before you make your next investment decision. Avoiding the wrong investment professional will significantly decrease the likelihood you will be pitched an investment product that can devastate your portfolio.

If you don’t already know it, you need to be aware that it is terribly easy to become an insurance salesman or financial adviser in comparison to the training, experience, education or testing required of doctors, certified public accountants or attorneys. Unless your financial adviser is a certified financial planner (CFP) or chartered financial analyst (CFA), it is unlikely he or she has the type of education and testing required of other professionals on whom you rely.

As a result of this, it is crucial you select a good investment professional. Here are some factors that should not form the primary basis for selecting your investment professional: Do they have a dynamic personality? Are they a great golfer? Did a good friend recommended them? Did they give you a free steak dinner at a seminar? Do they remind you of your favorite grandchild? These are not valid criteria for selecting or using a particular investment adviser.

If you were sitting across the table from me right now, here are some of the questions I would suggest you get answered before you invest:

How many customer complaints has the financial adviser had in the last 10 years?

Will the financial adviser earn a big commission if you buy the product he or she is recommending?

What qualifications does he or she have beyond a basic securities or investment license?

By focusing on the right criteria for selecting a qualified investment professional, you will effectively reduce the chances bad investment products end up in your portfolio.

 

Vernon Litigation files claim on behalf of investor against J.P. Morgan for engaging in speculating with U.S. Treasury STRIPS in $5 million discretionary account

Similar to other multi-million dollar claims filed recently by investors rights law firm of Vernon Litigation, this claim filed against J.P. Morgan today addresses what the law firm believes to be deceptive sales strategies designed to appeal to high net worth investors.  “We see a recent trend in pitching ‘risk management’ as a sales tool,” explained attorney Chris Vernon. The investors drawn to these types of sales pitches by Wall Street firms and Family Offices want to focus on reasonable returns with downside protection, not speculate with their net worth. But, according to Vernon, “Too often, investment firms sell strategies that result in devastating losses to investors who were trying to avoid speculative investing.”

In the J.P. Morgan case filed today, the financial advisor exercised both discretion and direction over the client’s account.  The advisor, who is based out of a California office of J.P. Morgan, has a number of investor complaints that have resulted in FINRA arbitration claims filed against J.P. Morgan as his employer.   Although the complaining investors are from diverse states– New Jersey, Washington, Florida, and California–the substance of virtually all the complaints seem to involve U.S. Treasury STRIPS or other government debt.  Like the Claim filed today, the FINRA arbitration claims filed by his other customers collectively include allegations of: misrepresentation of the level of risk, misrepresentation of the risk associated with the recommended strategy, over-concentration of the account, breach of fiduciary duty, failure to follow instructions and inappropriate use of margin and leverage.

According to the claim filed by Vernon Litigation (and consistent with other investor complaints against J.P. Morgan), this financial advisor exposed clients to an inappropriate level of risk by making a speculative bet that U.S. Government debt would fall in value. Again, Vernon Litigation sees this as a troubling industry-wide trend of luring conservative high net worth investors into high-risk strategies falsely promoted as low risk/reasonable return strategies.

The Claim filed today alleges that J.P. Morgan and its advisor’s use of margin and leverage compounded the harm caused by the incompetent investment advice. According to the Claim, at one point the margin balance in this customer’s account spiked to more than $2 million. This added to the leverage imbedded within the U.S. Treasury STRIPS strategy used by J.P. Morgan’s advisor.  Because STRIPS are traded at deep discounts to maturity value in lieu of interest, they are more volatile than traditional U.S. Treasuries. Thus, in effect, there were two levels of leverage in this strategy, according to the Claim. The first level of leverage was at the account level with the utilization of margin; the second level of leverage was at the position level with the use of STRIPS, which are typically much more volatile than Treasuries with the same maturity.

The Claim also argues that the J.P. Morgan advisor evolved his short selling of these STRIPS into more and more distant maturities, which further increased the risks of these investments.  Notably, the lion’s share of the alleged losses from this shorting of STRIPS resulted from the trades in the longest maturity STRIPS.

Just like a hedge fund, J.P. Morgan not only charged management fees but also charged performance or incentive fees.  According to the Claim, these types of fees actually incentivized its advisors to take risks with clients’ money because it resulted in extra fees for successful bets (and no reimbursement of incentive fees if the gains are reversed or losses are suffered).  It is hard for firms like J.P. Morgan to justify that the success of a portfolio should be measured over a long period of time by the client when incentive fees are collected annually.

“Although the Claim we filed today is against J.P. Morgan, others are following the same disturbing trend,” warned attorney Chris Vernon. The Vernon Litigation firm is currently conducting an aggressive nationwide and international investigation into similar practices on behalf of clients of other firms that cater to high net worth investors.  Specifically, Vernon Litigation believes that firms such as J.P. Morgan and its Wall Street competitors (as well as Trust Companies and Multi Family Offices) often lead such investors to believe these investment strategies are customized and that the risks are managed to a far greater extent than they are. Chris Vernon predicts that this is just the beginning, “Unfortunately, these marketing pitches will likely continue as long as they generate more in fees than what is paid out in lawsuits and arbitrations.”

Based in Naples, Florida, the securities attorneys at the Vernon Litigation law firm have conducted aggressive nationwide investigations of hedge funds, fund of fund hedge funds, managed futures, structured products, reverse convertibles, municipal bonds, bond funds, Puerto Rico bonds, non-traded REITs, private equity, EB-5, complex insurance products and strategies, TICS, and various securities fraud cases and Ponzi schemes. The firm’s investigations and advocacy on behalf of investors have been featured in AARP magazine and Forbes. More recently, one of Vernon Litigation’s ongoing investigations was reported in Barron’s.

The Law Firm of Vernon Litigation and the Law Office of Eric Norstedt, P.A. File Claims Against NFP Securities and WFG Investments For Losses Caused by Icon Investments

The Law Firm of Vernon Litigation and the Law Office of Eric Norstedt, P.A. filed today an arbitration claim against NFP Securities, Inc. and WFG Investments, Inc. for the inappropriate recommendation and sale of multiple illiquid and risky investments to a retired investor.  Two of the investments at issue include the Icon Leasing Fund Eleven, LLC and the Icon Leasing Fund Twelve, LLC.

According to the Claim filed in FINRA arbitration today, the advisor registered with NFP Securities and subsequently with WFG investments, approached a retired Arkansas woman to invest a considerable portion of her liquid net worth (and primary source of income) into a number of illiquid investments, including the Icon Leasing Fund Eleven, LLC and the Icon Leasing Fund Twelve, LLC.  The Claim states that the NFP/WFG advisor led the retired investor to believe that the investments involved little risk and that she would receive a very healthy annual dividend in excess of 9 percent.  Finally, the Claim states that the investor was also led to believe that she would receive all of her principal back when the Icon investments concluded approximately seven years later.

According to the Claim, what was not adequately explained to the retired investor is that the Icon Eleven and Icon Twelve investments are Funds that operate as an equipment leasing program in which the capital invested is pooled together to acquire equipment subject to a lease and, to a lesser degree, acquire ownership rights to items of leased equipment at lease expiration.  As a result, the investment in the Icon Funds not only involved a great amount of risk, but it was also illiquid with little or no secondary market to sell the shares.  Moreover, contrary to what was explained to the retired investor, the dividends that the investments would produce could not be predicted as they depended on profit derived from the equipment leases, the Claim states.

Although the Icon Eleven and Icon Twelve investments began paying healthy distributions during the “offering period” (i.e., while the Funds continued to be offered to new investors), soon after the Funds closed to new investors, the dividends became erratic and the value of the investment began to rapidly decline.  Consequently, the decline in share value for both Icon investments caused the retired investor severe losses.

Both Icon products were sold by the NFP/WFG advisor at a price of $1,000 per share.  Nevertheless, according to documents filed with the SEC, as of December 31, 2012, Icon Leasing Fund Twelve disclosed that the estimated value per share had declined to approximately $469.15.  This signifies a loss in value of over 53 percent of the investor’s initial investment.  Additionally, Icon Leasing Fund Twelve reported in its latest quarterly report (also filed with the SEC) that its current liabilities now exceed the amount of its current assets.  This could translate into further significant losses to investors.

The financial situation of Icon Leasing Fund Eleven is even more troubling.  SEC documents reveal that as of December 31, 2012, the estimated value per share of this Fund was deemed to be $159.31. This represents a decline in the value of the shares of over 84 percent (when compared to the original price per share of $1,000).

“It is evident that NFP Securities and WFG Investments failed to warn and provide investors with a fair and balanced assessment of the Icon investments,” said Chris Vernon, a securities fraud lawyer and founding partner of Vernon Litigation.  According to Eric Norstedt, also a securities fraud lawyer, NFP Securities and WFG Investments supervision and compliance practices appear to be negligent in this case. “These institutions’ failure to perform appropriate supervision over their own advisors is not only troubling, but also one of the determining factors that caused our client (as well as other investors) tremendous losses.”

According to an investigation conducted by the attorneys, it appears that the Icon investments gave advisors (and their firms) some of the largest commissions of any alternative products out there.  Specifically, according to information filed with the SEC, Icon Leasing Fund Eleven and Icon Leasing Fund Twelve only allocated approximately 81 percent of the investor’s overall investment in the purchase of actual equipment. The SEC filings display that a disproportionate 18 percent of the investor’s overall investment went to pay commissions, fees and expenses (approximately 8 percent of this 19 percent went to pay commissions for NFP and WFG).

Finally, the Claim filed today—asking for compensatory damages in excess of $225,000—alleges that both NFP and WFG failed to perform adequate due diligence as to the alternative investments sold to the retired investor (including the Icon investments).  For example, SEC filings reveal that the Icon Funds reserved the right to purchase shares for its officers and affiliates at a discounted price, which in turn generated higher returns for Icon related entities while diluting the investor’s share value.

The lawyers at Vernon Litigation and the Law Office of Eric Norstedt continue to represent investors across the country who have suffered considerable losses from alternative investments such as the Icon Leasing Fund Ten, Icon Leasing Fund Eleven, and Icon Leasing Fund Twelve. If you are concerned about your investments with NFP Securities and WFG Investments, or the circumstances under which any of the investments were offered and sold to you by any other financial institution, please call toll free either Eric Norstedt, P.A. at 866-537-6891 or Vernon Litigation toll-free at 1-877-649-5394 or by e-mail at info@vernonhealy.com or en@enpalaw.com.

Why Retail Investors Should Avoid Managed Futures

According to Bloomberg, the Commodity Futures Trading Commission (CFTC) is going to be investigating fees charged in the $300 billion plus managed futures market. In an article published last month, Bloomberg asserted that “89% of the $11.51 billion profits of 63 managed futures funds was consumed by commissions, fees and expenses.” These expenses are hugely costly to investors who would have seen a return of nearly 100% over the same ten-year period had the money simply been put into low-fee index funds. Instead, these funds lost money.

Despite the foregoing, Morgan Stanley argues for the efficacy of these funds. In a section entitled “The Powerful Arguments for Managed Futures” from a March 2003 prospectus for Spectrum Technical LP, Morgan Stanley touts the funds as non-correlated with the stock and bond markets. As the prospectus says, “historically managed futures have shown positive returns during most of the negative periods in stocks… [and] there have been fewer negative periods for managed futures.” And while this, over time, has proven to be true, it seems to ignore trading costs. These trading costs serve to benefit the brokers and fund managers at the expense of the investors. In the words of one of the CFTC’s five members, Bart Chilton, “the fees are so outlandish, they can wipe out all the profits.”

Investors often pay fees as high as 9% every year. This type of alternative investment, often entered into at the behest of a trusted broker to purportedly reduce risk through diversification, is now all-too-common in an industry rife with conflicts of interest buried in complex alternative products. And while the gross returns of these products are heavily marketed to investors, it seems clear that investors are often left in the dark about the much lower returns that actually result once commissions and fees are taken by the managers and brokerage firms.

The anecdotes about both the poor disclosure of fees and the profits that these fees destroyed are innumerable. One such example discussed in the Bloomberg article is about the Grant Park Futures Fund, a fund promoted heavily by the famous Swiss Bank, UBS. It appears that UBS inadequately disclosed the likelihood that the Grant Park Future Fund’s $25.6 million in gross gains since 2009 would be decimated by fees – resulting in a reported net loss for investors of $223.6 million. Other examples abound, demonstrating time and again that fees are unapologetically taken from funds at a rate that utterly destroys the profits that would have otherwise gone to investors.

In our opinion, Managed Futures are not designed for retail investors. Retail investors often pay four times what is paid by institutional investors to invest in managed futures. To put it bluntly, the best performing strategic fund of the last ten years for retail investors was the Morgan Stanley Smith Barney Spectrum Strategic Fund with its 2.1% return. During the same period, Fidelity’s low-interest, low-risk money market fund returned 2.9% to its investors.

If you are an investor in a Managed Futures fund and are among the victims of these high fees or you feel as though your advisor has misinformed you about the risks or costs associated with this type of investment, we encourage you to give us a call. Vernon Healy works daily to protect the rights of investors, and will make you aware of your options. Contact us today on the web at http://www.vernonhealy.com or call us toll free today at 877-649-5394. Vernon Healy’s investigations and advocacy on behalf of investors have been featured in AARP magazineForbes and Barron’s. In addition to its investigation into managed futures and Puerto Rican bonds and bond funds, Vernon Healy is currently resenting numerous investors involving products and strategies such as hedge funds, including fund of funds hedge funds and Non-Traded REITs.  Firms being pursued by Vernon Healy on behalf of investors include J.P. MorganUBSPro Equities, and various family offices and trust companies.

Closed-End Fund Distributions: Where is the Money Coming From?

FINRA has issued an investor alert, explaining what a closed-end fund is, why and how investors ought to think about them before investing their money. The purpose of the alert is not to dissuade investors from investing in closed end funds, but, rather, to alert them to potential risks and identify questions they need to ask before they invest.

The alert explains that closed-end funds are not the same as mutual funds.  While both types of funds pool investors’ money and hire mangers to oversee the investments, closed-end funds behave a lot more like a publicly traded stock, offering a fixed number of shares just like a public company, rather than allowing for continuous investments, like a mutual fund. For that reason, while mutual funds are affected by redemptions, closed-end funds are not necessarily affected at all. Closed-end funds may involve higher fees.  It is not uncommon to pay a premium for a closed-end fund to cover management fees and IPO costs, so the amount invested could be substantially heal less than the amount you paid.

Also closed-end funds are priced differently than mutual funds.  The fact that closed-end funds can be traded throughout the day means 1) that their price can fluctuate during the day and 2) that the price of a share can be more than or less than their net asset value. In contrast, a mutual fund’s price is set once, at the end of the trading day, and it is based on the net asset value in the fund.

The FINRA alert gives simple questions that investors ought to answer before putting their money into a closed-end fund:

  1. Does a closed-end fund fit into my investment objectives?
  2. What is the closed-end fund’s investment strategy?
  3. How much of what I pay per share in an IPO will actually be invested?
  4. What are the tax implications?
  5. How is the distribution rate set?  Are fixed distributions being paid out of capital?
  6. Are the shares trading at a premium or discount to Net Asset Value?

As investor advocates, we strongly believe your investments should be defined by your risk tolerance and your investment objectives. Unfortunately, it is not uncommon for unscrupulous financial advisors to push their clients into unsuitable investments. Closed-end funds may not be the best choice for all investors.  We join FINRA in encouraging you to make sure you get answers to these questions and understand the risks of closed-end funds before you invest.

Vernon Litigation works every day to protect the rights of investors. If you believe that you may are a victim of bad investment advice or that you purchased an investment that was not represented to you correctly by a financial advisor, give us a call today.

Success Trade Securities Sells $18 Million in Fraudulent Promissory Notes to Professional Athletes

The salaries of top-tier professional athletes has long-been noteworthy, earning significantly more than the average American in all too often short career. Many of these athletes, however, have no experience managing or converting their newly found high income into sustainable wealth. To make matters worse, like Doctors, these athletes go from very low salaries (or no salary) to very high salaries in a very sudden way, which makes them attractive targets for fraudsters and poor money management generally. As a result of this targeting and lack of experience, professional athletes can end up with no wealth to show for their efforts once their career is over.

Recently, Jinesh “Hodge” Brahmbhatt, a former broker of Success Trade Securities Inc., sold more than $18 million in fraudulent promissory notes to 58 investors, many of whom were former NBA and NFL players. FINRA, the industry’s regulatory authority, banned Mr. Brahmbhatt, though it did not cite the fraud as the reason for the ban. Rather, it cited his failure to appear and testify regarding the actions of Success Trade and its chief executive, Fuad Ahmed. Thereafter, FINRA filed both a complaint alleging “fraud in the sale of promissory notes” and a cease-and-desist order demanding that Success Trade and Mr. Ahmed “halt further fraudulent activities.”

While Brahmbhatt was not named in the complaint, it was his company, Jade Wealth Management, that fed the athletes’ investments into the allegedly fraudulent promissory notes. And, despite attempts to give the perception otherwise, there are indications that Success Trade Securities and Jade Wealth Management were much more closely tied to one another than Mr. Brahmbhatt claims. According to Forbes, Jade Wealth Management is listed as a division of Success Trade Securities, their office is listed as being in the same suite, and three of the Success Trade Securities employees responsible for selling the fraudulent notes were registered with Jade.

According to Yahoo sports, players who invested in this scheme include such big names as Brandon Knight (Detroit Pistons, NBA player), Joe Haden (Cleveland Browns, NFL player), Vernon Davis (Washington Redskins, NFL player), Clinton Portis (Washington Redskins, NFL player), Adewale Ogunleye (Chicago Bears, NFL player) and Jared Odrick (Miami Dolphins, NFL player) who has filed a FINRA arbitration complaint against Mr. Brahmbhatt, Success Trade, and Mr. Ahmed.

By his own admission, Brahmbhatt states that his company, Jade Management, failed to look at Success Trade’s books: “People say, ‘Man, you’re stupid. You should have looked at [Success Trade’s] last two or three years of income statements.’ But you know what? We didn’t. You know why we didn’t? Because he never missed a damn payment, and we never really thought about it.” Whether or not Mr. Brahmbhatt had knowledge of Success trade’s actions, the lack of due diligence on any investment is inexcusable for a firm or financial advisor that is trusted by their clients with the role of financial advisor.

Before trusting any investment firm or investment professional with your investments or investment decisions, we urge you to conduct your own due diligence using the free and simple tools we recommend. In the event it is too late to investigate before you invest and you have been harmed by an incompetent or unethical investment professional, please contact our law firm to discuss your recovery options: Phone: 877-649-5394; email: info@vernonhealy.com; or website: http://www.vernonhealy.com/.

Law Firms of Vernon Litigation and Dovin, Malkin & Ficken File Two More Claims Against GenSpring Family Offices on $25 Million Account and $10 Million Account

The Law firms of Vernon Litigation and Dovin, Malkin, & Ficken, have recently filed two more cases against GenSpring Family Offices, LLC in arbitration on behalf of two different ultra-high net worth investors.  Similar to previously filed Claims by the two law firms, both new Claims assert that GenSpring mishandled the significant investment accounts that were entrusted to them.

The first of the two new Claims notes that the Trust involved went through the necessary time and effort to interview multiple investment firms and other money managers.  In fact, besides GenSpring, the Trust spoke with CitiGroup, Goldman Sachs, Deutsche Bank, Credit Suisse and LaSalle Bank, all of whom had a similar recommendation: diversify across traditional asset classes—which include equities, cash and traditional fixed income in bonds. These institutions also recommended using some alternative investments as a separate class of investments for special situations.

According to the Claim, however, GenSpring stood out to the Trust because it represented that it employed a unique approach to the traditional asset class diversification model, which provided better returns with a higher level of downside protection.  As a result, the Trust met with Michael Zeuner—a former Senior Executive Partner at GenSpring—to discuss GenSpring’s strategy. Former GenSpring CEO Mel Lagomasino attended one of the introductory meetings as well.  At these meetings, Mr. Zeuner indicated that GenSpring’s advantage over the other firms derived from what he called a small “family” oriented office that used an “open architecture,” meaning that it did not use proprietary funds. The cornerstone of GenSpring’s approach was the specialized use of multi-strategy hedge funds as a substitute for the fixed income or the bond portion of their clients’ portfolios.

According to GenSpring, these Multi Strategy Hedge Funds had higher and more consistent returns than bonds, but with bond risk.  GenSpring asserted that the Multi Strategy Hedge Funds would behave like traditional bonds in terms of volatility and asset class correlation, but would provide superior returns across all market cycles.  The claim asserts that GenSpring also emphasized that this approach had been thoroughly tested under every conceivable market scenario.  As a result, the Trust entrusted approximately $10 million to GenSpring Family Offices and requested that capital preservation be the primary goal.

The second of the two new Claims asserts that during the initial meetings with GenSpring, the trustees explained to GenSpring that the funds in the Trust would need to be readily available for other potential business opportunities within the next 6 to 18 months, and therefore the Trusts needed to be invested in safe, liquid investments.  In response, GenSpring assured the trustees that it had developed an investment strategy that would provide higher returns than a traditional fixed income strategy with the same risk. GenSpring representatives informed the Trust that its proposed “Strategy” was as safe as it gets.  The key component of GenSpring’s “Strategy” was “substituting” Multi-Strategy Hedge Funds and “market neutral” hedge funds for traditional bonds.

Moreover, GenSpring represented that these hedge funds had “bond-like risk with equity-like returns.”  In fact, they labeled these hedge funds as “bond risk” investments.  Ultimately, the Trust invested $25 million with GenSpring in a strategy that was to have a time horizon of six to twenty-four months and employ the use of mostly Multi-Strategy Hedge Funds as substitutes for bonds and a small amount of equities.  The time horizon aspect was important to the Trust because it planned to use these funds in other areas over the next year or two.

Contrary to what the clients requested in each of these separate cases, when the equity markets plummeted in late 2008 and early 2009, the Multi Strategy Hedge Fund investments went down in virtually direct correlation to the stock market.  In contrast, traditional bonds (the benchmark used by GenSpring as to the Multi Strategy Hedge Funds) moved opposite of stocks, in accordance with historical norms, and went up more than 5 percent.

According to attorney Allison Ficken of Dovin, Malkin & Ficken, “GenSpring had no reasonable basis to believe that Multi Strategy Hedge Funds like Silver Creek would perform like bonds or provide adequate diversification from equities.”  Likewise, attorney Chris Vernon of Vernon Litigation indicated that many GenSpring clients “continue suffer liquidity risk damage because they are saddled with very large investments that they cannot liquidate because of lock-ups.”

Indeed, the Silver Creek Funds (i.e., the Multi-Strategy Hedge Funds discussed above) are “Funds of Funds”, that is, they invested in multiple other hedge funds, each with its own manager(s), many of whom were employing any number of strategies having nothing to do with bonds or fixed income investments. As a result, both of the Claims assert that GenSpring had no reasonable basis to believe that the Silver Creek funds would perform like bonds or provide adequate diversification from equities.  Moreover, at the time these investments were made for the Trusts, there was not enough historical data on these multi strategy funds of hedge funds to make reliable assumptions about the composition, risk or return of these funds.

As noted by attorney Ed Dovin of Dovin Malkin & Ficken, “It is truly troubling that GenSpring so boldly and successfully marketed this strategy to lure ultra-high net worth investors away from its competitors by implementing such a flawed and reckless strategy.  Once again, we see an investment firm putting its revenue stream ahead of the interests of the investing public.”

On behalf of both clients, the law firms of Vernon Litigation and Dovin Malkin and Ficken have asserted separate claims for breach of fiduciary duty, negligence and breach of contract.   The claims pursued in each of these cases are not only for significant damages, but also for rescission of the Silver Creek funds that remain highly illiquid in the Trusts’ portfolios.

The Vernon Litigation and Dovin Malkin & Ficken team are now representing high net worth individuals in an aggressive nationwide and international investigation of GenSpring Family Offices.  The team has already filed multiple claims and collectively obtained damage and rescission awards on behalf of two former GenSpring clients well in excess of $5 million.

GenSpring Family Offices is owned by a wholly-owned subsidiary of SunTrust. According to GenSpring, it has more than $17 billion under management and its clients are among the wealthiest families in the world. It has offices in Miami, Florida; Wazata, Minnesota; Nashville, Tennessee; Memphis, Tennessee; Jupiter, Florida; Orlando, Florida; Costa Mesa, California; Atlanta, Georgia; Chevy Chase, Maryland; Greenwich, Connecticut; Charlotte, North Carolina;  Saint Petersburg, Florida;  Sarasota, Florida; New York, New York; Chapel Hill, North Carolina; and Hickory, North Carolina.

Based in Naples, Florida, the securities attorneys at the Vernon Litigation law firm have conducted aggressive nationwide investigations of hedge funds, structured products, reverse convertibles, municipal bonds, bond funds, hedge funds, non-traded REITs, private equity, EB-5, complex insurance products and strategies, TICS, and various securities fraud cases and Ponzi schemes. The firm’s investigations and advocacy on behalf of investors have been featured in AARP magazine and Forbes.  More recently, Vernon Litigation’s GenSpring investigation has been reported in Barron’s.

$4.3 Million Arbitration Award Against GenSpring Family Offices

The team of Dovin Malkin & Ficken and Vernon Litigation recently won a $4.3 million arbitration award against GenSpring Family Offices, a money management firm owned by SunTrust Bank, which offers investment advice and money management services to high and ultra-high net worth clients.

At the arbitration hearing, the Claimant was able to show that GenSpring had developed a strategic model whereby it advised the Claimant—a Florida entrepreneur with a $30 million portfolio—that he should invest 30% of his account in Multi-Strategy Hedge Funds instead of traditional bonds.  According to GenSpring, these hedge funds had a “risk profile similar to bonds” but with a higher and better return.

In reality, the hedge funds that GenSpring was touting were “Funds of Funds,” meaning that they invested in other hedge funds, each with its own managers, many of whom were employing investment strategies that were far riskier than even equity investments.  Moreover, these hedge funds suffered from a severe lack of transparency.  In fact, GenSpring did not even know what type of strategies all of the fund managers and sub-managers were following.  As a result, GenSpring had no reasonable basis for representing that the multi-strategy hedge funds were a low-risk “substitute for bonds.”

Consequently, in 2008 when the stock market plummeted, the hedge funds lost a large portion of their value — similar to the equity markets — while traditional bonds went up 5%.  In the end, GenSpring’s clients’ accounts were significantly overexposed to high risk investments during the worst financial crisis in modem history, because they had no traditional low risk bond investments to diversify their accounts.  In March 2009, GenSpring internally re-classified the multi-strategy hedge funds as “Growth” investments—like equities—instead of “Defensive” investments—like traditional bonds—as they had previously been classified.

“It is clear that GenSpring’s statements were misleading and inaccurate,” said securities attorney Ed Dovin, whose firm previously won a $1.3 million arbitration award for another GenSpring client.  “Prior to the 2008 financial crisis, GenSpring represented the hedge funds as a ‘substitute for bonds,’ claiming that they had the same risk as bonds but with higher returns.”  Moreover, “it appears that this was a systemic approach that GenSpring used with virtually all of its clients as means of attracting business and distinguishing itself from the other investment firms, which used more time-tested approaches to investing,” added Allison Ficken, Mr. Dovin’s partner.

According to Co-counsel Chris Vernon—founding partner of Vernon Litigation—GenSpring’s misrepresentations and questionable business practices were evident in this case. “We were confident that this claim would end in a significant win for another victim of GenSpring’s breach of duty and lack of due diligence. The strategies employed by the multi-strategy hedge funds that GenSpring was funneling its clients’ money into were cloaked in secrecy, and GenSpring’s clients were forced to rely on GenSpring because they had no access to any other information regarding these funds.”

The $4.3 million award is a positive sign for other investors who fell prey to GenSpring’s failed multi-strategy hedge fund strategy.

The securities attorneys at the Vernon Litigation and Dovin Malkin & Ficken law firms collectively have more than 65 years of experience representing investors all across the United States who are victims of securities fraud and all manner of financial fraud and negligence.