Barred Broker With 37 Client Complaints Hit With SEC Fraud Charges

A former broker who was barred from the industry by the Financial Industry Regulatory Authority and was the subject of 37 client disputes has now been charged by the Securities and Exchange Commission with defrauding at least 100 advisory clients.

The 37 disputes were all included in disclosures on Michael F. Shillin’s report on FINRA’s BrokerCheck website in 2020 (six of them) or 2021 (the remaining 31), after he was terminated by Raymond James Financial Services on May 21, 2018, and voluntarily resigned from Alliance Global Partners on Oct. 2, 2020, while under investigation for alleged securities violations. Four were closed without action.

In the disputes, most of which are still pending, Shillin is accused of making a diverse array of misrepresentations to clients, including:

• Misrepresenting that he bought securities in claimants’ accounts when he didn’t and presenting claimants with documents that led them to believe the securities had been bought.
• Telling clients he bought shares of SpaceX stock with their funds when he did not.
• Saying he would switch a client’s (and separately the client’s wife’s) life insurance policy from State Farm to John Hancock. The wife’s policy was switched, but the documentation the client received regarding his policy switch appeared to be falsified and JH indicated the client had no policy with it, according to BrokerCheck.
• Providing clients with falsified 1099 forms for 2019, causing the clients to complete an inaccurate tax return. Clients also said they took more money out of an IRA in 2019 than they otherwise would have based on Shillin’s advice and misrepresentation that the interest on the bonds that they held in their individual accounts was tax-free.
• Making misrepresentations and providing bad advice in connection with the viability of a life insurance policy purchased in 1988, and the resolution of a claim by one of the beneficiaries of that policy.
• Failing to inform claimants that there were limits on penalty-free withdrawals from 401(k) accounts that had been rolled into an IRA and incorrectly representing to claimants they could withdraw from their IRAs when the withdrawals were prohibited transactions.

FINRA barred Shillin in December after he refused to produce information or documents or give on-the-record testimony as requested by FINRA staff — a surefire way to be barred by the industry self-regulator.

Without admitting or denying FINRA’s findings, Shillin signed a FINRA letter of acceptance, waiver and consent on Dec. 14, agreeing to be barred from being associated with any FINRA member firm in all capacities. FINRA signed the letter Dec. 18.

In the SEC complaint, filed Thursday in U.S. District Court, Western District of Wisconsin, the SEC alleged that Shillin, 32, of Appleton, Wisconsin, fabricated documents and made misrepresentations to clients, many of whom were seniors, while acting as an investment advisor.

Raymond James declined to comment on Monday. AGP did not immediately respond to a request for comment.

‘Myriad Lies’

Shillin misrepresented that certain clients had successfully subscribed for initial public offering or pre-IPO shares in high-profile companies when they had not, and lied to clients about the actual value of their investment portfolios, according to the SEC.

The complaint alleged Shillin encouraged several clients to roll over their existing life insurance policies into new policies, which caused certain clients to sell securities to pay premiums for policies that did not exist or had far fewer benefits than Shillin had told them.

The complaint also alleged Shillin received hundreds of thousands of dollars in ill-gotten gains as a result of his fraudulent conduct.

The complaint provided examples of exactly how Shillin scammed clients, according to the SEC. In one case, while selling a life insurance policy, he told one client that it contained a long-term care benefit. The client, who now has stage 4 cancer, learned no such policy or benefit existed only after his diagnosis.

Another client decided to retire early after Shillin told him he was $450,000 richer. Shillin had alleged the money was profit from Shillin’s purchase of Space Exploration Technologies (SpaceX) stock for the client. Only later did the investor learn the truth: The SpaceX stock and resulting nest egg were merely “figments of Shillin’s deception,” according to the complaint.

“These are only two examples of Shillin’s myriad lies and the resulting suffering they have caused so many of his clients,” the complaint stated. “Shillin went to great lengths to deceive his clients. He even set up an online portal for his clients to monitor their portfolio of securities and profits — much of which, as we now know, were pretend.”

Shillin allegedly violated antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The SEC seeks injunctive relief, disgorgement with prejudgment interest, a civil penalty, and a bar against Shillin serving as an officer or director of a public company.

The complaint also pointed out that, on Jan. 22, the Wisconsin Department of Financial Institutions, Division of Securities issued a summary order permanently barring Shillin from registering with the Division in any capacity.