Massachusetts Charges Accountant for Allegedly Selling Unregistered Investments

The Massachusetts Securities Division has charged Ronald J. Leger for allegedly selling more than $2.5 million in unregistered securities to Massachusetts investors.

Leger, a licensed public accountant and insurance salesman, allegedly sold investment products known as life settlements as far back as 2010. A life settlement is the sale of an existing life insurance policy where the original owner sells to a buyer in exchange for a lump sum of less than the value of the policy itself.

According to the administrative complaint, Leger opened his company New England Alternative Investments Inc. in 2010 for the purpose of selling life settlements. The regulators claim that Leger failed to register with the Massachusetts Securities Division, and did not register any of his companies.

He purportedly sold millions of dollars in investments offered by Texas-based Life Partners Inc. to investors in Massachusetts and other states, earning hundreds of thousands of dollars in commissions, the complaint states.

Life Partners filed for bankruptcy in 2015, after being ordered by a federal court to pay $46.9 million in penalties and restitution for violating federal securities laws.

The Massachusetts Securities Division is seeking an administrative fine, as well as an order requiring the respondents to disgorge all profits relating to the alleged wrongdoing and provide restitution to investors.

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Massachusetts Fines Wells Fargo $450,000 over Unregistered Agents and Supervisors

The Massachusetts Securities Division has fined Wells Fargo $450,000 for failing to ensure that its agents and supervisors were appropriately registered in Massachusetts.

Wells Fargo currently has more than 9,400 agents registered in Massachusetts.

According to the offer of settlement signed by the firm, during the 30-month period examined by the state regulator, 1,098 Wells Fargo agents and 561 supervisors of agents had a lapse in their Massachusetts registrations.

The regulator claims that the lapses in registration occurred despite informing the firm at least 159 times that certain supervisors were required to register.

In addition to censure and the $450,000 fine, Wells Fargo has agreed to register its agents conducting securities business in Massachusetts and to review and enhance its own policies and procedures related to registering its agents.

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Massachusetts Securities Division Fines LPL $1.1 Million over Unregistered Agents and Late Filings

The Massachusetts Securities Division has fined LPL Financial $1.1 million for failing to properly register agents in Massachusetts and timely file certain reportable events. The fine was agreed to by LPL, the nation’s largest independent broker-dealer, as part of a consent order that also requires a review of the company’s policies and procedures.

The consent order states that over the past six years, LPL had 651 agents who were not registered in Massachusetts, a violation of state securities laws. The order also states that during the same time period, the broker-dealer failed to file timely notice of nearly 800 reportable events, including customer complaints, criminal events, regulatory actions, bankruptcies, and judgments or liens.

“This is not the first time that we have had dealings with LPL, and I think that this case serves as an example that my securities division will continue to closely monitor those who have been found to be conducting securities business in Massachusetts without being registered,” said Secretary of the Commonwealth William F. Galvin.

LPL was also the subject of a $26 million nationwide settlement last June, stemming from an investigation by a North American Securities Administrators Association (NASAA) taskforce led by Galvin. According to regulators, the investigation found that LPL had been negligent in its duty to supervise its agents and prevent the sale of unregistered securities to its customers over a 12-year period.

“LPL’s failure to seek initial registration of these agents in Massachusetts, or maintain their registration in Massachusetts, prevented the division from reviewing the agents’ qualifications and disclosure histories in its effort to protect Massachusetts investors,” the consent order states.

In addition to the fine and required review and overhaul of LPL’s internal procedures, the firm has been censured by the securities division and ordered to cease and desist in violations of state securities laws.

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Massachusetts Securities Division Launches Sweep of Marijuana-Related Offerings

The Massachusetts Securities Division plans will begin a sweep of the growing number of Massachusetts-based business entities that are raising money from marijuana-related investments.

The state regulators said they have seen an uptick in marijuana-related fraud cases and have issued guidance to investors who may be considering putting their money into the growing cannabis industry. The guidance comes after the Securities Division brought its second complaint involving marijuana in the last two months.

This week, Massachusetts brought charges against David Caputo and his former company, Positronic Farms Inc. for raising capital through the offer and sale of unregistered securities to at least 25 Massachusetts investors, as well as investors in eight other states. Another Massachusetts man was recently charged running an unlicensed medical marijuana scheme that lost millions of dollars of investor money.

In an investor alert, the regulators warned Massachusetts citizens that fraudsters may exploit high-profile industries, such as marijuana-related businesses, to attract the attention of investors.

Cultivating and selling marijuana is now legal in Massachusetts, but remains illegal under federal law, which affects the operation of marijuana companies. Federal and state-chartered banks may refuse to accept deposits from the sale of marijuana-related products or refuse to make loans to marijuana-related businesses.

“No one regulator can police this marketplace,” said secretary of the Commonwealth William Galvin. “My securities division intends to scrutinize these offerings to proactively prevent investor harm.”

Massachusetts investors can contact the Massachusetts Securities Division at 1-800-269-5428 to check the registration status of any investment.

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Massachusetts Regulators Charge Company in $10 Million Ponzi Scheme That Targeted Employees

The Massachusetts Securities Division has charged a Rhode Island man with operating a Ponzi scheme which defrauded more than 40 investors out of more than $10 million. David Wagner of East Greenwich, Rhode Island and his company Downing Partners LLC and its subsidiaries are alleged to have required employees to invest in the company as a condition of employment, while using the invested funds to pay for operating expenses, including management fees and employee salaries.

“This case represents a classic Ponzi scheme, but unfortunately, in addition to costing these investors their savings, it has also cost them their livelihoods,” said Secretary of the Commonwealth William Galvin.

“My office is making every effort to get this money returned to the employees who were defrauded,” he added. “We have been working with the U.S. Attorney’s Office in the Southern District of New York on this case for several months and I intend to make sure that the Massachusetts victims get their fair share of the money from any victim assistance fund that is established.”

According to the administrative complaint, Wagner and the Downing companies engaged in an aggressive recruitment scheme which targeted potential employee investors. Recruited employees were promised six figure salaries and benefits but were first required to invest between $50,000-$250,000 in the company’s purported development of various medical products.

“In reality, the Downing Companies were experiencing significant financial difficulties and almost none of the funds raised from prospective investor-employees were used for the development and commercialization of products,” the complaint states. “Instead, the money raised was used to enrich Wagner and the management team as well as pay other investor-employees.”

The complaint alleges that “many of the affected employees who were lured into the company with fraudulent information about the company’s worth, promises of high salaries, and generous benefits left behind lucrative job opportunities and invested their retirement funds in the Downing Companies.”

Regulators claim that the majority of these employees never received the full salaries promised to them and saw their health insurance lapse when the company failed to make payments. Wagner was ultimately unable to further perpetuate the scheme, and as a result, the employees were never paid their full investments.

The Massachusetts Securities Division is seeking censure of those charged and an order that they cease and desist any violation of state securities laws. They are also asking for an administrative fine and restitution for the victims.

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Massachusetts Regulators Halt Million Dollar Real Estate Investment Scheme

The Massachusetts Securities Division has charged an Illinois man for selling unregistered securities to Massachusetts investors totaling nearly $1 million for various real estate ventures. The regulators claim that Glenn Mueller orchestrated a real estate investment scheme involving the sales of unregistered promissory notes on behalf of various companies that he owned.

The administrative complaint claims that for more than 40 years Mueller and Northridge Holdings Ltd built up a “monumental and byzantine” investment empire consisting of at least 32 interwoven real estate development corporations and limited partnerships. Mueller owns 100 percent of the stocks in Northridge, a property management company operating out of Illinois.

“To date, Northridge has taken in at least $47 million of investor funds through unregistered promissory notes nationwide and additional funds through unregistered limited partnerships,” the complaint states. Similar complaints were also brought in New Hampshire, Illinois, and New Jersey.

“This case is a good example of the importance of checking that any investments you are considering are being sold by registered dealers or agents,” said Secretary of the Commonwealth William Galvin. “I encourage all Massachusetts investors to contact my office before making a purchase, to be sure that they are dealing with a legitimate investment opportunity.”

The promissory notes, referred to by these companies as “CD alternatives,” were not registered as an issuance of securities, nor were they insured by the Federal Deposit Insurance Corporation. Products sold as part of the scheme were marketed to at least six Massachusetts investors by “finders” paid commissions by Mueller’s company. Massachusetts residents have invested a combined total of $926,000 in the scheme.

By employing a team of finders to seek out investors in exchange for commissions, the complaint states that Mueller and Northridge acted as de facto broker-dealers, despite the fact that neither has ever been registered in any state or with the Securities and Exchange Commission.

The state regulators are seeking an administrative fine, disgorgement of all profits, and restitution payments to investors for all losses. They are also seeking an order requiring Mueller and Northridge to cease and desist and a bar from registering in Massachusetts.

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Massachusetts Charges Adviser Over Failed Medical Marijuana Scheme

The Massachusetts Securities Division has charged Frederick V. McDonald Jr., a Massachusetts investment adviser representative, for his alleged role in a failed medical marijuana scheme.

McDonald oversaw the solicitation of millions of dollars from more than 100 investors in order to fund various medical marijuana ventures, although no licenses were acquired in Massachusetts and no dispensary was opened.

The complaint alleges that McDonald took advantage of his advisory relationship with at least one client in order to pursue side marijuana projects, while hiding important information from investors. Regulators claim that he provided only minimal information about the various marijuana ventures, while using his position of trust to access investor funds to support his own projects.

McDonald serves as the CEO of US Advisory Group Inc. and allegedly funded several of his ventures through one high net-worth client who has lost more than $3 million. The regulators claim that investors collectively lost more than $8 million and saw no returns on their investments.

“McDonald failed to educate himself regarding the unique and complex licensing process in Massachusetts, which resulted in the distribution of offering documents that failed to adequately disclose to investors the risks or difficulties the investment could face,” the complaint says.

McDonald and his partners planned to open a medical marijuana dispensary, but the complaint alleges that lack of transparency and communication led to funding issues. He and his partners jointly raised money for the venture, but when his partners began to dispute existing agreements, the relationship collapsed, and they subsequently failed to obtain a lease or license.

It is further alleged that McDonald and his partners deliberately hid the identity of one individual who acted as an agent and fundraiser for the potential dispensary, since the discovery of their criminal record could have led to denial of a license.

“McDonald’s free-wheeling practices included cutting corners at every opportunity and lying to his own business partners and investors to cover his own mistakes,” the complaint states.

McDonald is accused of failing to disclose key risk factors in the cannabis industry, withholding information about his own conflicting interests in the investments he was recommending, concealing crucial information from the investors, and breaching his fiduciary duty to his client.

Also charged in the complaint are McDonald’s various companies and corporations, including US Advisory Group, Commonwealth Pain Management Connections LLC, and Kettle Black of MA LLC.

Massachusetts is seeking censure, an order permanently barring McDonald and US Advisory Group from registration in Massachusetts, disgorgement of profits, requirement that respondents make offers of rescission and provide restitution to compensate investors, and an administrative fine.

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Massachusetts Charges Two Advisers for Making Unsuitable Energy Investments

The Massachusetts Securities Division has charged two investment adviser representatives and their firm for allegedly overconcentrating more than 250 client accounts in what it deems as unsuitable energy investments.

James G. Daly and Michael J. O’Keeffe are charged with violating their fiduciary duties to their investors, a majority of whom were Massachusetts residents. The complaint alleges that Daly and O’Keeffe, who formed Oakdale Wealth Management LLP in 2006, chose to invest nearly all of their firm’s clients in high risk energy investments.

“This case is an example of how a one-size-fits-all approach to investors can be harmful,” said William Galvin, secretary of the Commonwealth. “Advisers need to be acting in the best interests of their clients, particularly when their clients are reaching retirement age and cannot afford to take risks with their hard-earned savings.”

The complaint alleges that despite warnings about the potential volatility of the energy sector, Daly, who handled most of the investment advisory business, opted to overconcentrate nearly every client in energy investments, regardless of age, risk tolerance, and net worth. In many cases, more than 30 percent of the client’s portfolio was made up of energy-related investments.

O’Keeffe, who acted as Daly’s compliance officer, is accused of failing to perform any meaningful review of Daly’s actions, though Oakdale’s own policies and procedures stated that it would tailor investment decisions based on each client’s risk tolerance. The regulators claim that this led to significant losses for their clients, including those with low risk tolerance.

“Oakdale clients lost millions of dollars of assets as a result of substantial losses in their energy-based investments. Hard working investors, such as retired police officers, bus drivers, and construction workers, lost a significant portion of their retirement savings,” the complaint states.

The Securities Division is seeking to have Daly and O’Keeffe fined, censured, and to have Daly permanently barred from registration in Massachusetts. The regulators are also asking that the respondents be required to disgorge all profits from the alleged wrongdoing and to provide restitution to Massachusetts investors for their losses.

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Massachusetts Charges Former Commonwealth Adviser with Allegedly Stealing from Retiree

The Massachusetts Securities Division has charged a former investment adviser who allegedly withdrew nearly $100,000 from a client’s accounts over a 13-year period.

Bruce Colin Worthington is charged with fraudulently misappropriating the investment funds of a retiree and using those funds for personal use. Worthington was affiliated with Founders Financial Securities for roughly five years, and before that, he spent approximately 14 years with Commonwealth Financial Network.

According to the administrative complaint, Worthington began diverting funds in 2006 from the accounts of a client who was preparing for retirement. The regulators claim that he concealed his scheme by providing his client with falsified documents that showed the diverted funds had generated substantial returns.

“The allegations laid out in our complaint are very serious,” Galvin said. “In addition to doing everything we can to try to get this investor’s money back, my office will be referring this matter to federal law enforcement.”

Though Worthington’s previous employer, Commonwealth Financial, terminated his employment in 2013 over concerns about his credit history, he never notified his client of his termination. Further, Worthington failed to notify the client that he was subsequently employed by Founders Financial Securities for nearly four years, the complaint states.

Founders Financial terminated its relationship with Worthington in September 2018 after concerns arose about his receipt and disposition of customer funds prior to his association with the firm.

According to the complaint, Worthington employed stalling tactics to convince his client that the funds were not yet available for withdrawal when the investor began preparing for retirement. Eventually, the complaint states, he stopped responding to inquiries from the investor, who has not been able to contact Worthington since April 2018.

Worthington failed to appear before the Massachusetts Securities Division when commanded by subpoena in December 2018. The state regulators are seeking restitution, censure, a cease and desist order, an administrative fine, and an order permanently barring Worthington from registering as an investment adviser representative or broker-dealer agent in Massachusetts.

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Massachusetts Fines United Planners and its Former Broker Over Alleged $1 Million Fraud

The Massachusetts Securities Division has fined United Planners Financial Services and one of its former brokers, Thomas T. Riquier, who allegedly orchestrated a complex real estate scheme and defrauded investors and other clients out of at least $1 million over a 26-year period.

Last year, state regulators charged Riquier with violating state securities laws, while United Planners was charged with failure to supervise its agent.

The original complaint alleged that Riquier solicited money from mainly elderly investors to purchase investment property that would be sold for a profit, but in reality, the investments were used to purchase property he already owned.

As of the filing of the complaint last February, the property had not provided any returns on the money invested, the regulators noted. The complaint further alleged that Riquier solicited more than $800,000 in private loans from his clients, in violation of state and federal laws.

“Unfortunately, this scheme went on for so long before it was brought to my office’s attention that many of the original investors and clients have died,” said William Galvin, Secretary of the Commonwealth. “It was my primary goal to ensure that the remaining elderly investors, who had not seen a penny returned on their now 27-year-old investment, receive restitution.”

Riquier and United Planners agreed to jointly make offers of rescission and restitution to investors. Riquier will also be censured, permanently barred from registering with the Massachusetts Securities Division and the Securities and Exchange Commission, and will pay a fine of $50,000.

United Planners must pay a fine of $100,000 and hire an independent consultant to assist in overhauling its supervisory procedures.

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