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According to the Financial Industry Regulatory Authority (FINRA), former Aegis Capital Corporation (Aegis) stockbroker Malcolm Segal, of Langhorne, Pennsylvania and Boynton Beach, Florida, is under investigation for a Pennsylvania-based customer complaint alleging that $225,000 was transferred from his account without his authorization. According to FINRA records, “Mr. Segal failed to cooperate with an internal investigation into a customer complaint alleging that in December 2013, Mr. Segal, on an unauthorized basis, transferred monies via wire from the client’s account.” Malcolm Segal was discharged by Aegis on July 28, 2014.

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This arbitration arises from a series of unsuitable recommendations by a Merrill Lynch financial advisor for the Claimant to purchase and hold overconcentrated, leveraged Puerto Rico bonds in a Merrill Lynch account. As a result of Merrill Lynch and its employee, the Claimant suffered substantial investment losses.

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Melville, New York-based Brookville Capital Partners LLC (Brookville Capital) and the firm’s president, Anthony F. Lodati, were named in a Financial Industry Regulatory Authority (FINRA) complaint alleging that the firm and Mr. Lodati defrauded investors in connection with a private placement offering. According to the complaint, Brookville Capital and Mr. Lodati solicited customers to invest in a private placement offering that failed to disclose material facts about an individual involved in the offering. Anthony Lodati allegedly learned that the individual, who had effected transactions on behalf of the private placement, had been fined by the Securities and Exchange Commission (SEC) for securities fraud and had been convicted of a felony by the state of Florida. The FINRA complaint alleges that Mr. Lodati failed to inform any of the potential investors of the individual’s involvement. Moreover, the private placement memorandum (PPM) allegedly made no mention of the individual or of his regulatory or criminal background.

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Last week, Craig L. Josephberg, a Meyers Associates, LP stockbroker, was arrested for engaging in a penny stock fraud scheme involving many securities including CodeSmart Holdings, Cubed, Inc., StarStream Entertainment, Inc. and The Staffing Group, LTD. He was indicted along with A.J. Discala, Marc E. Wexler, Kyleen Cane, Victor Azrak and Ira Schapiro for allegedly defrauding investors and potential investors in several public companies. The scheme in which Mr. Josephberg allegedly participated was “built on lies, deceit and manipulated trading activity to defraud the securities markets and investing public,” according to the US Attorney’s office for the Eastern District of New York. Mr. Joesphberg’s alleged “pump and dump” scheme included false and misleading press releases and SEC filings, stock market manipulation techniques such as “wash trades,” “matched trades,” “marking the close,” and unauthorized trading for clients who entrusted the stockbrokers with their life savings. As in all such schemes, the price of the various public corporations climbs for no real reason and then falls from the sky with the investors holding worthless stock. Mr. Josephberg’s clients were allegedly on the dumping side of the scheme. According to the FBI, some of the victims had no idea that the stock was being purchased in their accounts by the stockbrokers. The fraudulent scheme purportedly took place in 2013 and this year.

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This arbitration arises out of a Santander stockbroker’s unsuitable investment decision with regard to the Claimants’ Santander investment account which was reinvested and overconcentrated in Puerto Rico, resulting in the Claimants suffering substantial monetary losses.

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Last week, Matthew A. Bell, a former WFG Investments, Inc. stockbroker was arrested for engaging in a penny stock fraud scheme involving many securities, including CodeSmart Holdings, Cubed, Inc., StarStream Entertainment, Inc. and The Staffing Group, LTD. He was indicted along with A.J. Discala, Marc E. Wexler, Kyleen Cane, Victor Azrak and Ira Schapiro for allegedly defrauding investors and potential investors in the 4 public companies. The alleged scheme was “built on lies, deceit and manipulated trading activity to defraud the securities markets and investing public,” according to the US Attorney’s office for the Eastern District of New York. The defendants alleged “pump and dump” scheme included false and misleading press releases and SEC filings, stock market manipulation techniques such as “wash trades,” “matched trades,” “marking the close,” and unauthorized trading for clients who it entrusted the stockbrokers with their life savings. As in all such schemes, the price of the various public corporations climbs for no real reason and then falls from the sky with the investors holding worthless stock. According to the FBI, some of Mr. Bell’s victims had no idea that the stock was being purchased in their accounts by the stockbroker.

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John Warren DuBrule, a former Orlando, Florida registered principal employed by Altamonte Springs, Florida-based Merrimac Corporate Securities, Inc., submitted an Offer of Settlement in which he consented to, but did not admit to or deny, the entry of the Financial Industry Regulatory Authority’s (FINRA) findings that he engaged in securities fraud by knowingly causing the distribution of summary quarterly statements that contained false information about the valuation of a hedge fund in willful violation of industry rules and regulations. FINRA found that Mr. DuBrule allegedly inflated the value of the fund’s assets on its quarterly statements by including the face value and promised interest of defaulted promissory notes as assets of the fund. FINRA found that the quarterly statements falsely inflated the value of investors’ interests in the fund. Further, that the summary quarterly statements contained false and misleading statements that the fund utilized the services of an independent firm to prepare statements and tax reports, and that they were prepared in accordance with generally accepted accounting principles (GAAP). According to FINRA, Mr. DuBrule allegedly failed to disclose that the valuation of the fund was also based on defaulted and cancelled promissory notes. Mr. DuBrule allegedly misappropriated investor funds by withdrawing the funds despite knowing that the promissory notes had been cancelled and the fund’s value had decreased substantially. Mr. DuBrule allegedly made materially false and misleading statements and omissions to customers to entice them to invest $3.8 million into the fund. Consequently, John DuBrule was barred from association with any FINRA member in any capacity.

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The Securities and Exchange Commission (SEC) has charged hedge fund advisory firm Weston Capital Asset Management LLC (Weston Capital), of West Palm Beach, FL, and its founder and president, Albert Hallac, for allegedly shifting money from one investment to another without informing investors and investing contrary to the hedge fund’s stated investment strategy. The SEC complaint states that Albert Hallac, with the assistance of Weston Capital’s former general counsel Keith Wellner, allegedly drained over $17 million from a hedge fund they managed, Wimbledon Fund SPC Class TT Segregated Portfolio (TT Portfolio) and transferred the funds to Swartz IP Services Group, Inc. (Swartz IP), a consulting and investment firm.

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Salomon Whitney LLC of Farmingdale, New York consented to, but did not admit to or deny, the described sanctions and to the entry of the Financial Industry Regulatory Authority’s (FINRA) findings that it failed to establish a supervisory system with regard to the sale of non-traditional exchange-traded funds (ETFs), including leveraged, inverse and inverse-leveraged ETFs. FINRA’s findings stated that despite the risks involved with holding non-traditional ETFs for longer time periods, numerous Moloney Securities customers held the ETFs for extended periods. Some even allegedly held the ETFs for several months. FINRA found that Moloney Securities failed to adequately train its registered representatives and supervisors with respect to the features, characteristics, and the risks involved with non-traditional ETFs, especially the risks associated with longer-term holds of the ETFs. According to FINRA, Salomon Whitney made unsuitable ETF recommendations and failed to conduct an adequate suitability analysis of the non-traditional ETFs before offering them to its customers. Consequently, Salomon Whitney was censured and fined $30,000.

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Ricky Eugene Bell, a former Fayetteville, North Carolina-based registered representative with Cape Fear Securities, Inc., was named a respondent in a Financial Industry Regulatory Authority (FINRA) complaint alleging that he solicited firm customers to invest in an outside “lending program.” Mr. Bell allegedly offered the investment opportunity to his “select customers and closest friends,” according to the FINRA complaint. The complaint alleges that Mr. Bell received a total of approximately $247,500 from customer investments and that he also borrowed approximately $19,650 from firm customers without permission or firm approval.

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