We are a law firm dedicated to recovering investment losses in ponzi schemes through FINRA arbitration claims and lawsuits.  While most financial advisors at firms like Merrill Lynch, Wells Fargo, Linsco LPL and Morgan Stanley are honest and ethical, a small percentage of brokers in the securities industry engage in criminal conduct.  Fortunately for investors, the brokerage firms are often financially responsible for the acts of their agents in the ponzi scam. 

There are many permutations of the ponzi fraud run by financial advisors.  We have prosecuted on behalf of our ponzi victim clients in FINRA arbitration lawsuits ponzi schemes related to real estate investments, oil and gas wells, cattle ranches and other similar scams.  In many of the cases, the clients turn their money over and the funds don't get invested in anything but rather go directly into the financial advisors pocket.  These are criminal conversion claims.     

Selling away cases are another type of ponzi scheme.  The Texas Securities Commissioner recently declared selling away as the "number one problem" investors face. The results are often catastrophic for investors who have fallen prey to a selling away ponzi scam. Fortunately, often times, these losses can be recovered against the brokerage firm or bank through FINRA securities arbitration lawsuits.

Background...a stockbroker sells an investment product (ranging from a stock, bond, viatcial, private placement, mutual fund, oil and gas partnership or even a CD) that is not approved for sale by the investment firm. In other words, selling away describes instances where a broker sells securities outside of the firm with which he or she is associated. Many times, the advisors actions make it a ponzi scam.  As described by the NASD (now called FINRA), “[these] transactions present serious regulatory concerns because securities may be sold to public investors without the benefits of any supervision or oversight by a member firm and perhaps without adequate attention to various regulatory protections such as due diligence investigations and suitability determinations.”

In many cases, the investment is either a highly risky stock (or some other investment) that the broker is being paid under the table to sell by the stock promoter, or it is an entirely fictional investment. In some cases, investors may be misled into believing that the associated person’s firm has analyzed the investment being offered and “stands behind” the product and transaction when in fact the firm may be totally unaware of the person’s participation in the transaction.

The regulatory basis for selling away ponzi scheme cases is found in FINRA Rule 3030 and FINRA Rule 3040. Rule 3030 provides that a brokerage firm adviser may not engage in any outside business activity unless he has provided prompt written notice to his or her brokerage firm. Rule 3040 provides that a brokerage firm adviser must not engage in private securities transactions (that is, selling away) and states the procedures that a brokerage firm must follow to approve of such investments.

Unfortunately financial advisors at brokerage firms and banks often utilize their position of trust to fund a pure ponzi scheme or a hybrid version of it.  Sometimes the advisor believes an underlying investment actually exists.  Other times, the funds are taken and go directly towards financing the lifestyle of the stockbroker and the funds are converted directly.  

Stoltmann Law Offices has represented dozens of investors in FINRA arbitration actions and lawsuits against brokerage firms and brokers where the advisor does something like place an advertisement promising extraordinary returns on an investment – for example 20% for a 30 day contract. The precise mechanism for this incredible return can be attributed to anything that sounds good but is not specific: "global currency arbitrage", "oil deal", "hedge futures trading", "High Yield Investment Programs", Offshore investment", or something similar.  Sometimes the investments exist.  Other times they don't.        

Fortunately for victims of a ponzi scheme, many times the brokerage firm, bank or insurance company who employ the scam artist will be responsible for the actions of their agents.  Brokerage firms have an absolute legal obligation under the law to supervise their financial advisors and guard against ponzi schemes.  In virtually every ponzi scheme we have prosecuted for our clients, there were multiple supervisory red flags that should have alerted the brokerage firm or bank to the advisors fraudulent actions. Often, brokerage firms ignore highly egregious and obvious red flags of the ponzi scheme.  Part of the reason is because the brokerage firm hopes the problem will disappear or investors won't come forward to complain. Most common is the brokerage firm often has young and inexperienced employees working in compliance as the ones charged with preventing ponzi schemes from occurring.  Compliance and supervision departments at brokerage firms are non-profitable divisions and therefore receive little in the way of a budget.  This lack of diligence in supervision is the number one reason why advisors feel emboldened to engage in a fraudulent ponzi scheme. 

Traditional ponzi schemes and selling away scams are unfortunately very common. There are dozens of FINRA arbitration lawsuits each and every year against stockbrokers and brokerage firms. Brokers have sold away at virtually every major brokerage firm in the last 15 years. These include stockbrokers at UBS Painewebber, Merrill Lynch, Citigroup Smith Barney, Raymond James, ING, Wachovia, John Hancock, Linsco Private Ledger (LPL), Piper Jaffray, Stifel Nicolaus, Edward Jones, AG Edwards, Gunn Allen, Morgan Stanley, Robert Baird, Southwest Securities, Webbush Morgan, Wells Fargo, Ameriprise, Lehman Brothers, JP Turner, Securities America, AIG SunAmerica, Allianz, JP Morgan Chase. Due to the commonness of ponzi schemes, brokerage firms are charged with the supervisory obligation to prevent them.  Usually, brokerage firms claiming they simply weren't aware of the ponzi scheme hold little to no weight with regulators, arbitrators or judges of juries.   

Brokerage firms in defending these sorts of claims in FINRA arbitration lawsuits typically argue they reasonably supervised the financial advisor and they had no idea of the fraudulent conduct. Fortunately, losses sustained in selling away cases are often recoverable against the brokerage firm whose broker or advisor sold the investment through FINRA arbitration. These are typically very good claims for investors.