2016
The following are summaries of administrative actions and orders taken between Jan. 1 and March 30, 2016.
SoBell Corp. and Andrew Gamber: Emergency Cease and Desist Order
Texas Securities Commissioner John Morgan on Feb. 1 entered an Emergency Cease and Desist Order against a heavily sanctioned firm selling investments that supposedly earn returns from the payout of pension benefits it acquires from federal government employees, members of the military, and certain corporations.
The order requires Andrew Gamber of Jonesboro, Ark., and the company he incorporated, Jackson, Miss.-based SoBell Corp., to cease and desist from selling the investments. SoBell is selling its “Pension Income Stream Program” in Texas.
The Texas cease and desist order cites SoBell and Gamber’s failure to disclose sanctions imposed from 2013-2014 by state securities regulators in Arkansas, Pennsylvania, California, and New Mexico.
Those four states levied multiple cease and desist orders against Gamber, Voyager Financial Group LLC, and persons who sold the pension-based income investment. The orders cited violations of state law for selling unregistered securities, misleading investors about the riskiness of the company’s investment products, including the default rates relating to the sale of pension income streams by companies controlled by Gamber, and not disclosing the fact that assigning pension payments violates federal law.
SoBell executes agreements with pensioners that give it the authority to sell the income from the pensions to investors.
The starting purchase price for an investor is $35,000 and can exceed $1 million. SoBell claims to earn investors an annual return of 7% to 8%, depending the length of the payment term.
SoBell and Gamber are selling unregistered securities, engaging in fraud by failing to disclose their history of sanctions, and making other statements to investors that are misleading and deceiving, according to the Texas order.
The order became final in March.
Bristol Lamar Whittington D/B/A Whitco Medical Overseas SA: Cease and Desist
Texas Securities Commissioner John Morgan on Feb. 1 entered an agreed Cease and Desist Order against Bristol Lamar Whittington of Stafford, who sold unregistered foreign exchange-based investment contracts to investors in Texas and promissory notes to investors in Canada.
Whittington does business as Whitco Medical Overseas SA.
Under the terms of the investment contracts offered and sold to Texas residents, investors would transfer money to Whittington, who would use their funds to pay expenses related to trading bonds on a foreign exchange.
PTI Securities & Futures LP: Notice of Hearing
The staff of the Texas State Securities Board filed a notice with the State Office of Administrative Hearings to determine whether PTI Securities & Futures LP should be fined $80,000 and reprimanded for violating procedures in wiring more than half of the amount in a Texas client’s retirement account to unknown parties. The Notice of Hearing was filed Feb. 8.
According to the hearing notice, in 2015 PTI sent two separate payments totaling $91,560 to persons or entities who requested distributions using the client’s email address. The hearing notice alleges that the distribution request forms sent to PTI listed an incorrect Social Security number and date of birth for the client, and the signature did not match the client’s. The client lives in Texas yet the transfer requests at issue listed addresses in Louisiana and Alabama.
PTI Securities transferred 60% of the amount the client held in his Individual Retirement Account. A third requested transfer, which would have almost wiped out the account, was rejected by the bank holding the funds.
PTI Securities violated Board rules by failing to enforce written procedures to supervise its agents to ensure compliance with the Texas Securities Act, according to the hearing notice.
Ronald Eugene Harrison: Suspension, Cease and Desist
Ronald Eugene Harrison, an investment adviser representative in Carrollton, has been suspended for 90 days and is required to repay a client $5,000, which represents a portion of the commissions he earned in sale of an investment to the client. Texas Securities Commissioner John Morgan entered the Consent Order on Feb. 16.
Harrison violated the registration requirements of state law and sold investments he did not have a reasonable basis to believe were suitable. One of his clients, a retiree, filed a complaint with the State Securities Board over her investment.
Harrison sold investments in a “Resale Life Insurance Policy Program” (RSLIP) operated by Retirement Value LLC (RV) of New Braunfels. The investments were structured as loans to RV, which would use the proceeds to purchase life settlements. Harrison was not registered as an agent of Retirement Value when he sold RSLIP program investments. Retirement Value was placed in receivership in 2010 after the Securities Commissioner issued an emergency order finding, in part, that RV committed fraud in connection with the RSLIP program.
The client who filed the complaint invested $400,000 investment in the RSLIP program. As Harrison knew, the client was retired and depended on her retirement portfolio as her primary source of income. The RSLIP investments were illiquid, with no set payments to the investor.
LPL Financial LLC: Fine, Reprimand
LPL Financial LLC was reprimanded and paid a $95,000 fine for supervisory failures related to a former agent who obtained $2 million in loans from a LPL client. Texas Securities Commissioner John Morgan entered the Consent Order on Feb. 18.
LPL initiated a Financial Statement Review of the agent after receiving a tip that the agent had received a loan from a client. The analyst who performed the review noted a $1 million deposit listed on a bank statement, and the agent provided the name of an entity purportedly associated with the deposit. That entity included the last name of the one of the agent’s clients.
The analyst, however, did not compare the name with the agent’s client list and therefore missed the fact the $1 million was a loan. After the financial review was closed, LPL failed to maintain documentation of the review. Eighteen months later, the same client made another $1 million loan to the agent.
In August 2014, LPL received a second tip about potential misconduct by the agent involving a loan and the possible inappropriate sales of investments by the agent. LPL’s subsequent investigation resulted in the termination of the agent one month later. LPL voluntarily disclosed the results of its investigation to State Securities Board staff.
Since 2011, LPL has conducted reviews of financial activity in the accounts of agents who do business through fictitious or DBA names. The written supervisory procedures for the reviews require that analysts get an explanation for all deposits that are not LPL commissions and exceed $1,000.
In May 2015, the State Securities Board staff initiated an investigation into LPL’s financial statement reviews covering nine months in 2011 and seven months in 2014. The investigation found that some reviews weren’t conducted according to LPL’s supervisory procedures.
Donald Lee Laseter: Fine, Reprimand
Texas Securities Commissioner John Morgan on Feb. 23 entered a Disciplinary Order that fined Donald Lee Laseter $15,000 and reprimanded him for acting as an investment adviser when he was not registered to do so.
Laseter does business as Financial Consulting Services of Dallas.
Laseter applied for registration with the Securities Commissioner on March 23, 2015, after acting as an adviser for many years without the necessary registration.
In connection with the entry of the Order, Laseter's registration was approved.
Scottrade Inc.: Fine, Reprimand
Scottrade Inc. was fined $50,000 and reprimanded for failing to promptly notify certain customers when money was wired from their accounts to third parties.
Texas Securities Commissioner John Morgan entered the Disciplinary Order on March 7.
In 2014, the State Securities Board initiated an investigation into Scottrade’s supervision of third-party wire transfers that are processed through Scottrade’s Advisory Services platform. Scottrade provides the platform to customers who receive advisory services from independent investment advisers.
The State Securities Board investigated Scottrade’s compliance with its third-party wire transfer procedures from January 2011 through July 2015.
From January 2011 to October 2013, Scottrade didn’t provide certain customers with a contemporaneous notification that funds had been transferred from their account to a third party.
In one instance, Scottrade received a report of a fraud related to the processing a third-party wire transfer from a Texas resident’s account. Scottrade and the Texas customer resolved the matter.
In October 2013, Scottrade implemented an automated procedure to provide customers with a notification when customer funds are transferred via wire to a third party.
In failing to require a contemporaneous notification to clients of third-party wire transfers, Scottrade violated a State Securities Board rule requiring securities dealers to establish and enforce procedures designed to achieve compliance with securities laws.
Mowery Capital Management LLC and Frederick Eugene Mowery: Cease and Desist, Fine
Texas Securities Commissioner John Morgan on March 18 entered a Disciplinary Order requiring Frederick Eugene “Fritz” Mowery and Mowery Capital Management LLC (MCM) of McKinney to cease and desist from engaging in fraudulent conduct in connection with services as an investment adviser. In addition, Frederick Mowery was fined $90,000.
The order found that Mowery and MCM breached their fiduciary duty to their clients, and thereby committed fraud, by only considering one brokerage, Worth Financial Group Inc., to recommend to their clients for executing brokerage trades.
Mowery and MCM did not make a good-faith determination that Worth’s trading costs were reasonable, nor did they properly evaluate their business relationships to make sure clients were provided the best value in services and weren’t affected by conflicts of interest on the part of Mowery and MCM.
Mowery had a pre-existing business relationship with Worth when he recommended the brokerage to his clients.
During the State Securities Board investigation, Mowery mispresented to staff the dates of two disclosure notice documents with clients. He back-dated the disclosure agreements to make it appear they had been provided at the time the clients entered into agreements with MCM for investment advisory services.
Mowery also committed fraud by disseminating plagiarized material. In one instance, Mowery plagiarized an article by financial commentator Lawrence Kudlow and claimed he wrote it.
James Poe: Revocation
Texas Securities Commissioner John Morgan on March 18 entered a Disciplinary Order revoking the registration of James Poe, a Fort Worth investment adviser representative who was found to have engaged in fraudulent practices and sold securities without being properly registered.
Jim Poe & Associates Inc., Poe’s investment advisory firm, was also sanctioned for failing to disclose excessive fees.
From 2011 to 2015, James Poe sold life settlement investments, promising investors a 75% return. The life settlements were issued by SRP-LS200 LLC, an entity Poe controlled.
Life settlement contracts are complex financial arrangements in which an investor receives an interest in the death benefits of a third-party. The benefits are paid to the investor when the third party dies.
Investors in the life settlements were informed in writing that their investments would be used to pay “all associated costs.” However, there was no written disclosure specifying the types of associated costs. As it turned out, the associated costs included a 10% commission paid to Poe and another entity that Poe owned.
While Poe indicated that he verbally disclosed the commission expense, he did not disclose that “associated costs” included payments to another entity, International Alternatives PR LLC, for consulting on life settlement investments. Poe owned International Alternatives, a conflict of interest he intentionally didn’t disclose to investors.
International Alternatives took in 20% of the funds raised from investors.
James Poe’s unregistered activity stemmed from his sales of these life settlements for a commission. Poe was not registered as a dealer when he sold the life settlement investments on behalf of SRP-LS200 between July 2011 and August 2015.
The findings against Jim Poe & Associates relate to three private investment funds managed by the firm and Poe. In 2011, Jim Poe & Associates started charging “non-qualified clients” – those who didn’t meet certain minimum financial requirements – a 10% annual management fee. In other words, once a year, regardless of how the investments in the funds performed, Jim Poe & Associates took one dollar out of every 10 a client had invested with the firm.
In 2013, Jim Poe & Associates lowered the annual management fee charged non-qualified clients to 6% from 10%. The firm continued to charge a 6% management fee until January 2015.
State Securities Board rules require that a registered investment adviser charging 3% or more of a client’s assets under management tell the client that the fee is higher than industry norms and lower fees for the same services can be obtained elsewhere.
Moreover, because Poe had authority over SRP-LS200’s bank accounts to which investors in the life settlements wired their funds, Jim Poe & Associates is regarded as having had custody of those assets. State Securities Board rules prohibit investment advisers from having custody of client funds unless safeguards are in place to make clients aware of the arrangement and the adviser’s control of client funds.
Woodbridge Mortgage Investment Fund 3 LLC and Robert H. Shapiro: Cease and Desist
Texas Securities Commissioner John Morgan on March 18 ordered a California-based investment fund to stop offering for sale or selling in Texas an investment program based on commercial mortgage notes. The investment is not registered with the State Securities Board or qualify for an exemption from registration.
The Cease and Desist Order was entered against Woodbridge Mortgage Investment Fund 3 LLC and Robert H. Shapiro, the controlling person of the fund. Shapiro and the fund list offices in Sherman Oaks, Calif., and Boca Raton, Fla.
In July 2015, the Securities Commissioner entered an Emergency Cease and Desist Order against the Woodbridge fund and Shapiro, as well as individuals and firms in Texas who were selling investments in the “First Position Commercial Mortgage Note Program” issued by Woodbridge.
Woodbridge purportedly pools investors’ money to fund commercial real estate loans secured by real property.
The March 18 cease and desist order sets aside the emergency order.
Sarah Helen Hancock: Revocation
Texas Securities Commissioner John Morgan on March 23 entered a Disciplinary Order revoking the registration of Sarah Helen Hancock, a Dallas investment adviser representative who withdrew grossly excessive amounts of money from clients’ accounts. Hancock provided at least one client with inaccurate account values to justify the amount she collected as management fees.
Between 2007 and 2015, Hancock collected money from clients in amounts that far exceeded what those clients were contractually required to pay.
From 2007 through 2009, Hancock withdrew $1.6 million as management fees from a single client’s account. Hancock’s written agreement with clients called for a 1% annual fee based on the amount of money she managed for them. The actual fees that should have been withdrawn from the client’s account between 2007 and 2009 totaled approximately $45,000, meaning Hancock withdrew $1.5 million more than she should have.
During an investigation, Hancock told State Securities Board staff that some of the $1.5 million was used to make loans to a company named Traveler Overseas Holdings LLC, which shared office space with Hancock. But Hancock couldn’t provide any documentation associated with loans, nor were there any records that payments were made to Traveler Overseas on behalf of the client.
Hancock established a pattern of withdrawing fees from the client’s account and depositing them into Hancock-Smith’s account. For example, in August 2007, Hancock withdrew $62,320 from the client’s account. By the end of the month, Hancock-Smith’s account balance had dwindled to $1,300 even though no payments were made to Traveler Overseas. In August and September 2007, Hancock-Smith issued $51,000 in checks to Hancock and paid $63,000 to American Express.
Hancock continued to collect excessive fees from multiple clients during 2010 through 2015, providing invoices to at least one client that vastly overstated the client’s account balance. Based on the contractual 1% management fee, inflated portfolio values were used to justify fee payments far in excess of what was authorized.
During the State Securities Board staff’s investigation into Hancock’s withdrawals from client accounts, Hancock provided the Staff with incomplete and unsubstantiated claims regarding the amounts she collected as fees.
David Del Castillo: Emergency Cease and Desist Order
Texas Securities Commissioner John Morgan on March 30 entered an Emergency Cease and Desist Order requiring David Del Castillo of Austin to stop offering for sale investments in a foreign exchange trading operation.
Del Castillo promoted his expertise in forex trading in advertisements on craigslist, the Houston Chronicle website, and other online media. The ads direct viewers to Del Castillo’s company, International Forex Fund in Austin, according to the Cease and Desist Order.
Del Castillo is offering investments in the forex trading program and claiming that he has collected amounts from investors of between $5,000 and $15,000.
Del Castillo has never been registered in Texas as a dealer, agent, investment adviser, or investment adviser representative. Nor has he ever been registered with the National Futures Association to engage in foreign currency trading options.
Nonetheless, Del Castillo is advertising that he is a “Licensed Trader,” a “Licensed Foreign Currency Options Broker and Trading Agent,” and that he has been “[t]rading since 1998 in Forex interbank, and Philadelphia options exchange.”
Del Castillo filed at least four voluntary petitions for bankruptcy from 2004 to 2012 in U.S. District Court in the Western and Southern Districts of Texas.
The order became final in April.