Customer Complaints Against Wedbush Securities
Our law office is interested in speaking to customers of Wedbush Securities who have complaints regarding the handling of their accounts. We have experience representing investors who have been the victim of financial mismanagement, negligence or fraud. If you or someone you know has a complaint regarding Wedbush Securities, please call us at 212-203-9300 for a free and confidential consultation.
Complaint: Wedbush Financial Advisor Involved in Ponzi Scheme
Former Los Angeles-based Wedbush broker Bambi Holzer sold customers unsuitably speculative and illiquid securities in what turned out to be a Ponzi scheme, according to the Financial Industry Regulatory Authority’s findings and a 2013 report by Reuters. Holzer, whose clients included Hollywood luminaries like actress Julia Louis-Dreyfus, reportedly lied to the firm about her customers’ net worth in order to sell them preferred shares of Provident Royalties LLC, a private placement eventually exposed as a massive Ponzi scheme.
Purportedly a company raising money to “acquire sub-surface mineral rights,” Provident Royalties pitched investors on the assurance they would receive annual returns of 18%, while specifying in a private placement memorandum that it was “suitable only for persons of substantial financial means” with no liquidity needs and who could “afford the entire loss of their investment.” In 2009 the Securities and Exchange Commission charged Provident Royalties with fraud, alleging it commingled assets and investors’ funds. The company filed for Chapter 11 bankruptcy that same year, rendering Holzer’s clients’ investments in it “worthless.”
According to FINRA’s allegations, Holzer had “knowledge of the risks” when she began recommending her customers invest in Provident in 2008. Under Wedbush’s selling agreement with Provident, the firm received an 8% commission for each transaction as well as a “due diligence fee of one percent of the total investment, of which [Wedbush] paid Holzer 100 percent of the commission.” While reviewing her recommendations of Provident investments for several customers, the firm imposed certain suitability requirements that some of Holzer’s customers did not meet, and which she “protested” were “too restrictive.” One of the requirements was that each potential investor had to sign a disclosure document listing their total and liquid net worth. Holzer allegedly directed her staff to insert those figures for her proposed customers and submitted them to Wedbush’s supervisory staff, which she was “aware” would rely on the documents as they considered approving the transactions.
FINRA’s findings state that Holzer knew Provident was unsuitable for several customers she recommended invest in it, and that she even falsely reflected some customers’ net worth on the disclosure documents. These clients included an 86-year-old widow whom Holzer recommended invest $150,000 in Provident even though she knew it was not suitable for the woman, who depended on the account for income; an “unemployed, divorced homemaker with three minor children” for whom Holzer “submitted or caused to be submitted” a disclosure documented that falsely inflated his net worth; a 44-year-old widow who depended on her accounts for income, and for whom Holzer also “submitted or caused to be submitted” a disclosure document that falsely overstated her net worth; and a married couple to whom she recommended risky and illiquid investments, including Provident 8, despite their conservative investment goals and low risk tolerance.
As a result of these findings, FINRA barred Holzer from association with any member firm. Her FINRA records show dozens of customer complaints against her that resulted in settlements or arbitration awards for the customer. One 2010 complaint that specifically named Wedbush Securities as a respondent, alleging elder abuse and negligence connected to Provident Royalties investments, resulted in an award of more than $207,000 to the customer. Another 2010 complaint naming Wedbush and Holzer resulted in a total award of more than $1.4 million.
FINRA: Wedbush Ignored Signs of Broker’s Pump-and-Dump Scheme
Wedbush Securities “ignored numerous red flags” and failed to supervise a representative engaging in a pump-and-dump scheme, according to a 2019 Securities and Exchange Commission order. The representative in question was Timary Delorme, whose “manipulative trading activity of penny stocks” continued over many years, in part because the firm lacked a “clear process” for dealing with signs of manipulative trading.
According to the SEC, from 2008 to 2014 Delorme participated in her scheme with a financial professional named Izak Zirk Engelbrecht, who later pleaded guilty to securities fraud and was sentenced to 151 months in prison. As the federal charges against Engelbrecht described, he created publicly traded shell companies and “kickbacks” to brokers who recommended their clients purchase their penny stocks; however, the companies had “minimal business activity and little revenue with no profit,” with their income generated by Engelbrecht’s sales of their shares. Delorme, according to the SEC, either purchased penny stocks or encouraged her clients to buy them “in exchange for undisclosed compensation.” She also allegedly undertook manipulative “pump-and-dump” trading activities.
As Delorme went about her scheme, the SEC alleged, Wedbush received certain signs of her conduct. In one instance, her supervisors reviewed “an email outlining he role in fraudulent transactions involving penny stocks.” In another, they received copies of FINRA arbitration claims filed by her customers. In a third, they learned that FINRA was probing her penny stock activities. In a fourth, they learned of another FINRA probe into “the allegations underlying the customer complaints.” In spite of all of this, the firm allowed her to continue transacting securities business and recommending investments to her clients, which in turn allowed her to continue serving “as an accomplice with Engelbrecht’s scheme.”
The SEC ultimately hit Wedbush with a censure and a $250,000 fine over its failure to supervise Delorme’s manipulative trading. As one of its enforcement chiefs said in a statement, “Wedbush abandoned important responsibilities to its customers by looking the other way in the face of mounting evidence of manipulative conduct. After we filed our claim, Wedbush made significant changes aimed at reforming its practices to detect and report misconduct within its ranks.”