The Financial Industry Regulatory Authority earlier this month expanded its recommendation that disciplinary action be brought against former Morgan Stanley Advisor Ami Forte, following its initial Wells Notice sent in January.
FINRA said on Jan. 25 that it had made a preliminary decision that disciplinary action should be brought against Forte concerning potential violations of rules tied to excessive trading, suitability and high standards of commercial honor, according to her BrokerCheck records.
The Oct. 3 notice advises Forte of additional potential violations of rules tied to conflicts of interest, as well as the use of any device, scheme or artifice to defraud. Other violations included in the Oct. 3 notice relate to rules tied to the suitability of recommendations and transactions, conduct of municipal securities and municipal advisory activities, and books and records.
Forte, once Morgan Stanley’s most celebrated and prominent financial advisor with $2 billion in assets under management, lost her job at the wirehouse when an arbitration panel ordered her, her branch manager and Morgan Stanley to pay $38 million to the estate of Home Shopping Network co-founder Roy Speer in 2016. Lynnda Speer, the entrepreneur’s widow, argued that the estate had been harmed by unauthorized trading, churning and elder abuse. Forte had a romantic relationship with Roy Speer.
Forte had recently begun a career resurrection of sorts. In March of this year, Pinnacle Investments announced it hired her as chief business development officer.
However, as of Oct. 17, Forte no longer works at Pinnacle, according to BrokerCheck.
Forte maintains that she engaged in no wrongdoing and did not trade in the Speers’ accounts being investigated by regulators.
Former State Street Executive Sentenced to Prison for Defrauding Customers
A judge in federal court in Boston sentenced Ross McLellan, a former State Street Corp. executive, to 18 months in prison for his role in a scheme to defraud customers of State Street’s Transition Management line of business.
Earlier this year, McLellan was found guilty of applying hidden commissions to billions of dollars of securities trades for these customers.
The criminal conviction is based on substantially the same conduct alleged in a parallel enforcement action brought by the Securities and Exchange Commission.
The SEC’s complaint against McLellan, which was filed on May 13, 2016, alleges that between February 2010 and September 2011, McLellan led a scheme to add secret commissions to securities trades performed for at least six clients of State Street’s “transition management” business. That business helps institutional clients move their investments between asset managers or to otherwise restructure large investment portfolios.
The complaint further alleges that these commissions were charged in addition to fees the clients had expressly agreed to pay the bank, and that McLellan took steps to conceal the commissions from the clients and others within State Street.
The SEC’s litigation is ongoing.
Co-Owners of Defunct New York-Based Private Equity Firm Charged With Defrauding Clients
The SEC charged the two co-owners of a now-defunct New York-based private equity firm with defrauding the firm’s advisory clients and pocketing millions in fees.
One of the co-owners consented to a judgment, which was entered on Oct. 19, without admitting or denying the allegations, permanently enjoining him from violating the antifraud provisions of the federal securities laws.
The SEC’s complaint alleges that, from March 2013 to February 2014, Alexander Burns, the majority owner and control person of Southport Lane Management, acquired insurance companies and thereby obtained the ability to control the investment decisions for the insurance companies and those companies’ related reinsurance trusts.
Burns allegedly used fraudulent transactions, which he recommended through his affiliated registered investment adviser, Southport Lane Advisors, to covertly steal money from the insurance companies and related reinsurance trusts. Burns’s alleged scheme ultimately led to at least five insurance companies having insufficient assets to pay policyholder claims, and the companies were placed into receivership.
The SEC further alleges that Andrew Scherr, a co-owner of Southport Lane, aided and abetted Burns’ fraud by acquiring assets that were worthless or overvalued and which were sold by Burns to his advisory clients. The SEC’s litigation against Scherr continues.
Without admitting or denying the allegations in the SEC’s complaint, Burns consented to the entry of a judgment permanently enjoining him from violating the charged provisions of the federal securities laws. The judgment further provides that the payment of disgorgement plus prejudgment interest, and the imposition of civil monetary penalties, will be determined at a later date.
Orchestrator of Microcap Fraud Scheme Fined $80,000
The orchestrator of a microcap fraud scheme who defrauded investors by directing the issuance of false press releases about the microcap company’s prospects and hiding his secret control of the company was barred by a federal court from participating in penny stock offerings and ordered to pay an $80,000 penalty, according to the SEC.
In October 2017, the SEC charged John Madsen with masterminding a pump-and-dump scheme involving Nevada-based penny stock company, Andalusian Resorts and Spas Inc., and with recruiting a strawman CEO, Bernard Fried, to conceal Madsen’s secret control of the issuer and his prior guilty plea to mail fraud. Fried, who pleaded guilty in a parallel criminal case, settled the SEC’s charges earlier this year.
On March of this year, Madsen agreed to the entry of a judgment that barred him from participating in penny stock offerings, and provided that the court would determine whether to impose a civil penalty based on the SEC’s motion.
The court entered a final judgment on Oct. 17 that imposed an $80,000 penalty. The court’s entry of judgment against Madsen concludes the SEC’s litigation.
Attorney, Businessman Barred From Penny Stock Offerings Over Pump-And-Dump Scheme
Two South Florida men agreed to lifetime bars from participating in penny stock offerings to settle charges brought by the SEC alleging that they facilitated a pump-and-dump scheme involving shares of a Sunrise, Florida, company that purported to be in the beauty products business.
The SEC’s complaint alleges that attorney Mark Fisher and businessman Joseph Capuozzo received millions of shares of Valentine Beauty Inc. in connection with a pump-and-dump scheme orchestrated by Eddy U. Marin, who controlled Valentine. Earlier this year, the SEC charged Marin and a stock promoter with fraud for their roles in the scheme.
The SEC alleges that Fisher and Capuozzo coordinated with Marin and others to launch a marketing campaign touting Valentine’s purported operations. Once the promotional campaign increased the liquidity and price of Valentine’s stock, Fisher and Capuozzo sold a significant portion of their shares, collectively reaping more than $150,000 in stock sale proceeds.
Fisher and Capuozzo have agreed to settle the SEC’s charges and be barred from the penny stock industry. Capuozzo also agreed to be barred from serving as an officer or director of a public company.
The settlement with the SEC, which is subject to court approval, also permanently enjoins Fisher and Capuozzo from violating the charged provisions of the federal securities laws and provides that the court will decide the amounts of disgorgement, interest, and civil penalties at a later date.
In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida announced criminal charges against Fisher and Capuozzo.
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