Sometimes, you just can’t make this stuff up.
Every week at ThinkAdvisor, we pore over dozens of enforcement cases from the Securities and Exchange Commission, the Financial Industry Regulatory Authority and other regulators.
Some are small fines for minor bookkeeping matters. Some are giant settlements for bribery or busts of massive insider trading rings. But other cases are more notable for their details, the reminders that even the driest corners of finance are not immune from human weirdness.
There are the advisors and brokers who find, shall we say, innovative ways of making money, some of which pan out better than others. Others use the lure of Hollywood to draw investors into movie-related frauds. And others misused their clients’ money and trust to fund a string of offbeat ventures, from litter boxes to reality TV shows.
(Related on ThinkAdvisor: 12 Worst Financial Advisors in America: 2014)
Here are eight of the oddest enforcement cases we saw in 2014.
1. Schwab Broker Fired for Stealing and Reselling Office Equipment
A former Schwab financial consultant was permanently barred in November by the Financial Industry Regulatory Authority for allegedly stealing and reselling $1 million in office equipment.
The broker, Jeffrey Brian Grove, was fired from Schwab in August after using the firm’s procurement system to buy office equipment, which he then removed from the branch office and sold to “different individuals,” according to FINRA’s BrokerCheck.
Grove is also facing criminal charges for conspiracy to traffic in oxycodone and using a two-way communication device to commit a crime, according to BrokerCheck.
2. Lawyer Bilked Client, 90, to Fund Litter Box Invention
A California elder law attorney was accused in August of bilking a 90-year-old client and his daughter to fund a cat litter box system he had invented.
The lawyer, Delbert Joe Modlin, 63, advised the client to sell all of his assets and invest the $120,000 in the litter box system, according to court papers cited by The Sacramento Bee.
“Modlin told (the daughter) he would double her investment in four years,” The Bee reported.
But he omitted several important details: He was not licensed to sell securities in California, was awaiting a federal trial, had filed for bankruptcy protection in 2004 and 2012 and had a severe gambling problem.
Modlin was charged with financial elder abuse, grand theft and securities fraud. He agreed to stop practicing law until the criminal proceedings were completed.
In December, the California Department of Business Oversight filed a desist and refrain order against Modlin. When asked by The Bee about the order, he said, “I’m not aware of anything like that. I don’t consider [what he sold to the client] securities. I had three investors.”
The patent for the improved litter box was first filed in 2008. It purports to take away the messy scooping aspect from cleaning cat litter by using a litter box bag with mesh in its center, and has “peripheral” drawstrings to remove each bag individually.
3. Tipster Wrote Illicit Stock Info on Napkins, Then Ate Them
Some white-collar criminals act like they are in a movie. That seemed to be the case with three men charged with running a $5.6 million insider trading scheme the SEC busted in New York in March.
According to the SEC, Steven Metro, the managing clerk at law firm Simpson Thacher & Bartlett in New York, tipped Frank Tamayo of Brooklyn during meetings at a New York coffee shop. Tamayo then passed the tips to his broker, Vladimir Eydelman, a mutual friend.
Tamayo would meet Eydelman near the clock and information booth in Grand Central Terminal, where he would reveal the relevant ticker symbol written on a Post-It Note or napkin. He would then destroy the evidence by chewing up and sometimes eating the note.
Eydelman worked at Oppenheimer and Co. and in 2012 moved to Morgan Stanley, which paid him a $3 million promissory note bonus.
Tamayo pleaded guilty in federal court in September to one count of conspiracy to commit securities and tender offer fraud, one count of securities fraud, and one count of tender offer fraud. He was fined $1 million and ordered to forfeit certain property, including the contents of two brokerage accounts and an Audi Q7.
Eydelman and Metro were charged in federal court with conspiracy, securities fraud and tender offer fraud. A FINRA arbitration panel ordered Eydelman to repay the $3 million note to Morgan Stanley, which fired him over the allegations. Metro was also fired.
4. Investors Bilked for Fake Movie Not Starring Jean-Claude Van Damme
Three California men, Samuel Braslau, Rand Chortkoff and Stuart Rawitt, were charged in February with luring 60 people into investing a total of $1.8 million in a fake movie.
According to the SEC, Braslau, an attorney, set up two companies, Mutual Entertainment and Film Shoot, to raise funds. Mutual Entertainment spent $25,000 to purchase the rights to “Marcel,” an unpublished story set in Paris during World War II. After that, Mutual Entertainment began raising investor money through a boiler-room operation that Chortkoff ran out of Van Nuys.
Rawitt and other salespeople used high-pressure tactics to lure more than 60 investors with promises that big-name actors like Donald Sutherland and Jean-Claude Van Damme would appear in the movie (not true, of course). They promised investors a 300% return, along with returns on action figures and other tie-ins to the movie, which was at first called “Marcel” and later “The Smuggler.”