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Rogue Advisors on Parade: Watch Out for Scammers

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.

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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.

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Rogue Advisors on Parade: The Mad Trader, Globe-Trekking Moocher, Ponzi Checkwriter

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.

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Rogue Advisors on Parade: 2018

A former Michigan life insurance agent will be taking an extended vacation behind bars for stealing $800,000 from his senior clients. According to state authorities, Paul Garceau, Jr., 51, of Grosse Point Park, pleaded guilty to perpetrating a Ponzi scheme against his mostly elderly customers. For his role embezzling money from a dozen Detroit-area clients, he was sentenced to a minimum of six years jail time and ordered to pay more than $600,000 in restitution.  A single complaint of embezzlement and forgery in October 2014 sparked a Michigan State Police investigation that uncovered a larger pattern of crime. Following the Ponzi template, Garceau approached his clients with promises of higher returns. After convincing them to cash out their legitimate investments, he pocketed the proceeds rather than invested them as promised.

A former University of Virginia athlete graduated from defending against opposing teams’ ground games to perpetrating a Ponzi scheme that won him a 40 year-prison term. According to federal prosecutors, Merrill Robertson, Jr., a former college linebacker, defrauded more than 60 investors to the tune of $10 million. His victims included his former coaches, fellow college alumni, and people he knew at his church and in his community. His scam took shape in the spring of 2016, when he began telling investors he could provide them with returns of between 10 to 20 percent in low-risk unregistered debt securities. He backed up his claims by publishing a website that displayed sham investments. He also convinced them to buy shares in a fake public energy company that purported to own technology that energized water and in a minority-owned investment firm that didn’t exist. After amassing $10 million in investor funds, Robertson and his co-conspirator Carl Vaughn, spent $6 million on expensive cars, residences, college tuition, shopping extravaganzas, and spa treatments. When earlier investors requested their money back, he used new-client money to cover the redemptions.

A former Pennsylvania life insurance agent was arrested for submitting 29 fraudulent life applications to three insurance companies. As a result of his crimes, Keynan Kinard received approximately $8,000 in commissions. After receiving insurer complaints, the Pennsylvania Criminal Law Division pulled Kinard’s license and referred the matter to Pennsylvania’s Criminal Law Division. According to its complaint, the agent used the personal information of friends, acquaintances, and former clients to produce applications he then sent to life insurers. He also included phony bank account information on the applications to make sure the policies would not be issued or would lapse when premium-payments failed to go through. Kinard was charged with one count each of identity theft, theft by deception, criminal solicitation, insurance fraud, and forgery.

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Rogue Advisors on Parade: Blind-Widow Bilker, California Trust Fraudster, New Jersey Securities Scammer

FINRA has fined a Northport, N.Y. stock broker for slamming a blind, elderly widow’s account with excessive fees. According to regulators, Hank Mark Werner convinced the woman to buy an unsuitable variable annuity and then used the account to generate excessive trades and fees for himself. Werner began churning the widow’s account in 2012 after her husband, who was also blind, died. Werner had served both clients until that point. Regulators say the broker bought and sold securities every week or so, generating more than 700 trades from October 2012 to December 2015. His churning produced $210,000 in commissions for himself and $175,000 in losses for the widow.

A California insurance broker has been sentenced to 60 months in jail for stealing $1 million from a widow’s trust account.  The broker, Gary Thornhill, of Santa Clara, was convicted of wire and mail fraud, according to U.S. attorneys on the case. Prosecutors say Thornhill sold life insurance to a married couple in 1998. The husband died seven years later, leaving the wife as the only insured on the policy. In 2008, the agent was named trustee of the entity that became legal owner of the policy. Using that position, Thornhill withdrew $1.5 million from the policy’s cash value without securing the widow’s permission. As part of his punishment, Thornhill was ordered to pay $1.4 million in restitution and serve three years of supervised release after completing a 60-month jail term.

A New Jersey financial advisor has been arrested for selling clients more than $1.8 million in fake securities, annuities, and life insurance. According to federal authorities, the advisor, William E. Fitzpatrick, was charged with one count each of mail, wire, and securities fraud. The advisor’s crime was long-standing in nature. Starting in 2007, he owned and operated at least three financial advisor and tax-return firms. After persuading clients to invest with him, typically in non-traditional investments such as a video-game production company and a movie financing firm, as well as in traditional mutual funds, annuities, life insurance, and money market funds, he failed to invest their money as promised, Fitzpatrick used their checks, which were made out to him personally, for his own purposes. The advisor is currently facing a maximum jail term of 30 years and a $1 million fine for the mail and wire fraud counts. He’s also facing a maximum penalty of 20 years in prison and a $5 million fine for the securities fraud count.

 

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