Rogue Advisors on Parade

A Dover, Massachusetts life broker is going to jail for filing fraudulent tax returns. The broker, Anthony J. May, 62, was sentenced to eight months in prison and a year of supervised release after being convicted for failing to disclose commissions and other income on his federal tax returns. May owned two businesses: a life insurance agency and a life settlement brokerage, both operated out of an office suite in Hingham, Massachusetts. According to IRS investigators, May filed false income tax returns from 2006 through 2009, concealing $735,000 in income from insurance commissions, broker fees, and lease rental payments.

A former life insurance agent from Lubbock, Texas has received a life prison sentence for scamming his senior clients out of hundreds of thousands of dollars. According to investigators from the Texas Department of Insurance, Joseph Gaines sold annuities to a number of West Texas senior citizens only to confiscate their payments and use them for his own purposes. One of his victims was a 94-year-old woman who gave Gaines a $700,000 check in return for annuity coverage. However, when her family became suspicious, they called the insurer, which advised them they had no record of the woman’s purchase.

A San Diego life insurance agent submitted a guilty plea in February 2018 for stealing $1.5 million from senior citizens and other clients. The agent sold them various investment funds, but instead of passing their checks to the appropriate investment firms, he used them to buy personal items such as a luxury car, jewelry, and three rental properties.  The agent, Shawn Heffernan, 43, is facing a nine-year state prison sentence after his sentencing on March 7, 2018. According to authorities, Heffernan began his scams by selling clients annuities. However, before the policies expired, he would persuade them to replace the policies with new ones, generating new commissions for himself and surrender penalties for his clients. He also persuaded other clients to cash out their annuity policies and give him the proceeds for investing in other instruments. However, rather than making the promised investments, he pocketed the money, using it to buy a Maserati sports car, jewelry, and real estate. He also used Ponzi techniques to fulfill redemption requests from prior clients with new-client money.


To read more about ethical business practices, visit the Ethics Center at the National Ethics Association, sponsor of EOforLess. 

Scheming Brothers, Hedge Fund Phoney, Accelerated Benefit Scammer

 A former Morgan Stanley financial advisor was sentenced to two years in federal prison and three years of supervised release for defrauding a widowed client. The U.S. Attorney’s Office for the District of Oregon said that Gregory Walsh, a former Morgan Stanley Vice President, convinced the client to invest $1.1 million in California property. However, rather than make a legitimate investment, he conspired with his brother, Geoffrey Walsh, a bank executive, to put the client’s money into a business Geoffrey owned. At no point did Gregory provide his client with appropriate documentation. Geoffrey then sold off some of the property without the client’s permission in order to pay for personal expenses. The two conspired to do two similar deals that defrauded the client out of an additional $4 million. Geoffrey Walsh pleaded guilty on two counts and was sentenced to 30 months in federal prison and three years of supervised release.

A New York man has been charged with defrauding investors out of $5.3 million by claiming he was a successful hedge fund manager linked to the former Genovese drug store chain. According to prosecutors, Nicholas Genovese defrauded investors in his phony hedge fund for at least three years. According to securities regulators, he lied about managing $4 billion in assets for the Genovese family. He also falsely claimed he produced annual returns of between 30 percent to 40 percent, rather than disclose the fact that he actually lost money. During the fraud period, Genovese lost $8 million in client money. This did not stop him from spending $263,000 of their money on his lavish lifestyle, including being chauffeured around in a Bentley.   

A Virginia life insurance agent has been convicted on charges of defrauding a client in the amount of $182,000. According to authorities, Semyya Cunningham, 40, sold a life insurance policy to a friend. The contract included an accelerated benefit rider which allowed the insured to file for benefits in the event of a terminal illness. Several months after purchasing the policy, the insured was, in fact, diagnosed with a terminal illness. However, instead of helping her friend collect the benefits for which she now qualified, the agent altered the contact information for the policy to her own name so she could apply for benefits herself. After receiving the money, she then transferred it to several different accounts in order to prevent the insurer from reversing the transaction. Cunningham faces maximum jail time of 20 years. She will be sentenced in May 2018.

For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

­A Cautionary Tale: After 50+ Disclosure Events, Rogue Broker Finally Gets the Boot

For years, we’ve been preaching to financial professionals about the importance of keeping their compliance records free of black marks. Our argument: that all it takes is one bad disclosure to besmirch your record. And now that sanction reports live forever on the Internet, one event can make it impossible to generate new business . . . for years, if not decades, to come.

However, sometimes we run across news that makes us question this advice. For instance, Financial Advisor IQ recently reported the case of a renegade broker who racked up more than 50 disclosure events over a 14-year-time period, all easily found on his FINRA BrokerCheck record. The fact that the broker operated beyond the regulatory pale for years makes one question whether government agencies are capable of protecting consumers against rogue advisors. In this particular case, the answer, apparently, is no.

The more you learn about this broker’s track record, the more shocking his story becomes. According to Financial Advisor IQ, FINRA recently threw Anthony Diaz, a Pennsylvania broker last registered with IBN Financial Services, Inc., out of the business. But it took him repeatedly selling unsuitable securities to at least 17 clients since 2000 for FINRA to act. To its credit, FINRA ordered him to refund $4.3 million to his clients, including $1 million in compensatory damages, $2.9 million in punitive awards, and $413,000 in legal fees. But it tolerated his behavior for years.

Over the course of his career, Diaz repeatedly made inappropriate recommendations. He pushed clients to make variable annuity exchanges with no reasonable basis. He misrepresented products to clients. He lied about their net worth so he could sell them alternative investments. He deceived his product firms and broker-dealers. He falsified signatures on annuity applications. He also got embroiled in numerous client disputes, including a 2017 complaint alleging he made poor recommendations, had a client sign a blank form, and put false information on their documents.

During his career, Diaz worked for 11 different securities firms and was fired from five of them. Apparently, the broker-dealers didn’t care about his atrocious disclosure history; they were more impressed with his sizable client list. And regulators only got serious about policing him over the last couple years, when FINRA finally barred him and the New Jersey and Pennsylvania securities agencies pulled his license.

But think about the impact he had on those 17 clients—how much they must have worried about losing their money, how aggravated they were filing FINRA claims, how much they shelled out in legal fees. If regulators had done their jobs years ago, clients could have entirely avoided this nightmare.

Now, surely the broker-dealers and the clients themselves share culpability. Why did firms keep hiring and firing this guy? And why did consumers retain the guy when even a cursory BrokerCheck read would have revealed his true nature? His track record should have disqualified him from holding even a janitorial position in the securities business.

So what are the lessons learned from the Diaz case?

  • First, if you’re insurance licensed and refer clients to a broker to purchase securities, please do careful due diligence on that person. Eliminate those with anything more than a trivial complaint in their past. And given the number of brokers who have flawless records, perhaps adopt a zero-tolerance posture regarding customer disputes.
  • Second, encourage your friends, family members, and colleagues to do serious research on potential brokers. The BrokerCheck system is user-friendly. There’s absolutely no excuse for a consumer not to do a deep dive into a broker’s compliance history to see if the person is trustworthy.
  • Third, if you’re securities licensed, supplement your BrokerCheck file with other sources of information your prospects might find useful. For example, give your prospects access to a comprehensive background check on you, available through the National Ethics Association. Also, consider joining the Better Business Bureau. And as long as you don’t have an investment-advisory license, give your prospects the names of several clients who can vouch for your integrity.
  • Finally, as disappointing as the Diaz story is, it highlights the tremendous opportunities financial professionals with clean records have. With so many ethically flawed competitors in the marketplace, those committed to doing business ethically and legally will have a huge competitive advantage over the unethical bottom-feeders. When consumers finish checking you out, they will know you’re the real deal—a financial professional who will serve their best interests and in whom they can place their trust.

To read more about ethical business practices, visit the Ethics Center at the National Ethics Association, sponsor of EOforLess. 

A Former Ameriprise Financial broker has been kicked out of the industry for excessive and unsuitable trading of senior accounts. FINRA also sanctioned broker Larry M. Boggs for exercising account discretion without written authorization. Case in point: Boggs made 101 transactions on the account of an 82-year-old university professor whose investment objectives were growth and income and who had a moderate risk tolerance. In order to pocket commissions of $34,889, the broker generated client losses of $19,391.

A Washington state investment advisor lived the high life at his clients’ expense, sparking an SEC fraud charge. According to authorities, Ronald A. Fossum, Jr., stole hundreds of thousands of dollars in client funds in order to pay his taxes, jet around the world, and live rent-free. The government claims Fossum persuaded more than 100 investors to invest $20 million in three unregistered funds he owned and controlled. His modus operandi was to offer clients promissory notes paying 8 to 12 percent returns and then invest the proceeds in distressed oil and gas firms, real estate ventures, and derivative instruments. However, instead of making the promised investments, he pocketed his clients’ money in order to buy a home; make mortgage payments; travel to Fiji, Africa, and Mexico; and buy cars. Fossum also used classic Ponzi tactics, using money from new investors to pay the returns of older investors. Fossum and a partner,  Alonzo R. Cahoon, of Morgan, Utah, face individual counts of fraud, multiple violations of the Exchange, Securities, and Advisers Acts, disgorgement of ill-gotten gains, and civil penalties.

A Baton Rouge, Louisiana investment advisor is in hot water for using client funds to pay for his lifestyle, to make other investors whole, and to invest in a high-risk real estate scheme. Ralph Willard Savoie is now looking at one count of wire fraud, according to acting U.S. Attorney Corey Amundson. Authorities say Savoie raised more than $150,000 from investors. But instead of investing their funds in securities, insurance, and in industrial cooling towers, he wrote checks to himself and to his family. He also used client money to pay off prior investors. When one customer suspected something was wrong, Savoie responded by promising to return the man’s money “as long as (the client) did not report the matter to law enforcement.”

For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.