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Advisers in hot water for $21M Ponzi scheme, insider trading and more

A planner accused of operating a $21 million Ponzi scheme was sentenced to seven years in prison. An ex-broker pleaded guilty to taking clients' funds for years following his suspension from the industry. And an NBA legend is on standby to testify against his former advisers, whom he accuses of swindling him out of millions.

These are just some of the most high profile disputes between celebrities and advisers, federal prosecutors and ex-brokers.

Scroll through to learn more about why these advisers are in hot water with authorities.

A planner accused of operating a $21 million Ponzi scheme was sentenced to seven years in prison. An ex-broker pleaded guilty to taking clients' funds for years following his suspension from the industry. And an NBA legend is on standby to testify against his former advisers, whom he accuses of swindling him out of millions.

These are just some of the most high profile disputes between celebrities and advisers, federal prosecutors and ex-brokers.

Click through to learn more about why these advisers are in hot water with authorities.
Client's insider trading tips land ex-broker in prison
A client's hot stock tips on pharmaceutical deals netted his adviser and himself tens of thousands of dollars ― and the attention of regulators.

Now the adviser has been sentenced to six months in prison for an insider trading scheme that extended over eight years, according to the U.S. Attorney's office for the Southern District of New York. Judge Laura Swain also ordered Hobson, 48, to forfeit over $385,000 and sentenced him to an additional two years of supervised release.

Hobson, a former Oppenheimer & Co. broker, previously pleaded guilty in October.

"I believe it was a fair sentence," says his attorney, Michael Barrows, who is with the Law Offices of Anthony A. Capetola in Williston Park, New York.

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FBI headquarters
For $21M Ponzi scheme, ex-adviser gets 7 years in prison
A federal judge sentenced an ex-wirehouse adviser to seven years in prison for orchestrating a $21 million dollar Ponzi scheme which ensnared more than 100 clients, according to the U.S. Attorney's Office for Rhode Island.

Patrick Churchville, 48, had pleaded guilty in August to five counts of wire fraud and one count of tax fraud, according to authorities.

Among other misconduct, he was accused of using about $2.5 million of client funds to purchase a waterfront home for himself in Barrington, Rhode Island, a town on the eastern shore of Narragansett Bay, authorities say.

Chief Judge William Smith issued the punishment on March 16. Earlier this month, the SEC also barred Churchville from the industry.

Churchville's attorney, Mike Lepizzera, says his client was himself the victim of a Ponzi scheme, and that he only began using investor funds to pay back other clients upon discovering that the original assets were lost.

"In the end, don't get me wrong, it's a significant sentence, but it's a much lighter sentence than the government's original theory of the case," the attorney says.

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Johnny Depp at the 2008 Academy Awards
What's eating Johnny Depp's finances? Ex-advisers blame 'irresponsible' spending
Johnny Depp sank himself into debt through "his own irresponsible and profligate spending," according to his former financial advisers.

The star actor from "Pirates of the Caribbean" and "Edward Scissorhands" is accusing his onetime planners of fraud and negligence in a $25 million lawsuit filed earlier this year in Los Angeles Superior Court. The former advisers, Joel and Rob Mandel, brothers operating as the Management Group, however, filed a countersuit this week alleging the actor caused his own problems.

"Johnny Depp alone was solely responsible for his extravagant spending," said Michael Kump, an attorney representing the advisers. "Over 17 years, the Management Group did everything possible to protect the actor from himself."

Depp often spent more than $2 million per month despite warnings from his advisers that he was living beyond his means, according to the countersuit. The actor has accused the advisers of a breach of fiduciary duty and other negligent practices leading to debts over $40 million.

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Secret referral scheme lands adviser in hot water with SEC
A former adviser was barred from the industry and fined over $575,000 as part of a settlement of an SEC fraud investigation, officials said.

Essex Financial Services founder John W. Rafal agreed to admit wrongdoing in connection with a secret referral scheme involving an elderly widow with assets over $100 million, the SEC announced.

SEC investigators said Rafal, 66, disguised nearly $50,000 in payments to a lawyer for the widow as fees for legal services rather than disclosing it to her, as required under the law, according to the agency. He made the payments between early 2011 and April 2013, investigators said.

Rafal pleaded guilty in December to obstructing the proceedings of a federal agency. His agreement with federal prosecutors, which is subject to a judge’s approval, calls for four months of home confinement, four months of probation and a $4,000 fine.

“Mr. Rafal is gratified to put this matter, which has been pending for several years, behind him,” his attorney, John Sylvia of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, said in a statement. “No client lost any money as a result of Mr. Rafal’s actions and Mr. Rafal is looking forward to opening a new chapter in his professional life.”

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Jail sentence for suspended ex-adviser for misappropriating $1M from clients
Although suspended from the industry in 2006, an adviser continued soliciting funds from clients for years afterwards — netting over $1 million which he used to partly pay for his personal expenses, authorities say.

Ex-adviser Daniel Spiranac, who got the funds from 11 clients, pleaded guilty to securities fraud in December in Colorado state court, according to court documents.

Spiranac was an industry veteran, having started his financial services career in 1982 for firms including Allmerica Investments and Westwind Investment Services. He had no client complaints listed on his FINRA BrokerCheck record.

But in 2006 Spiranac was suspended by Colorado's securities regulator for five years for failing to disclose material facts about investments to clients, per BrokerCheck.

Despite his suspension, he again solicited funds from investors to buy equity in Dharma Partners, a company he controlled, and to purchase promissory notes, authorities say. Between 2009 and 2013, he convinced clients to invest over $1 million in funds, promising them returns of up to 15%.

Neither Spiranac nor his attorney could be reached for immediate comment.

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NBA legend Tim Duncan may testify against ex-adviser
NBA legend Tim Duncan accused his former financial adviser, Charles Augustus Banks IV, of defrauding him out of $7.5 million. Banks, in turn, called the champion power forward's complaints about him "naïve and immature."

Now a jury may hear directly from the recently retired pro to see who they believe.

Duncan, who played for the San Antonio Spurs for almost 20 years, is prepared to testify against his former longtime adviser in federal court, if prosecutors ask him to do so, according to J. Tullos Wells, the Spurs general counsel, who is representing Duncan. The government, which levied wire fraud charges against Banks, recently increased the number of charges to four from two.

The NBA champion accuses Banks, now best known as a wine entrepreneur, of bilking him out of the cash he invested in Gameday Entertainment, a sports merchandising company run by Banks, in the case filed in district court in San Antonio, Texas.

That $7.5 million investment is one of many that Duncan says he made in Banks' ventures and it’s just a portion of a total $26 million that Duncan lost with his former adviser, the ex-NBA player's legal team says.

Attempts to reach Banks for comment were unsuccessful.

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FINRA bars adviser over $15M in unauthorized stock trades
An adviser was barred after FINRA accused him of scrubbing thousands of dollars out of his client’s account by trading Colgate-Palmolive stock without her permission.

Craig David Dima of K.C. Ward Financial cost the 73-year-old retiree $575,000 in charges and lost dividend payments by selling then buying back shares in her longtime employer, according to the regulator. Dima neither admitted nor denied the charges but consented to FINRA’s findings and accepted a permanent ban under a settlement this week.

The former Ronkonkoma, New York, broker carried out 82 unauthorized trades of Colgate stock worth $15 million between June 2010 and August 2015, according to FINRA investigators. He blamed the trades on a “computer glitch,” the regulator said.

Representatives for K.C. Ward did not respond to a phone call seeking comment.

Joan Hon, a lawyer who represented Dima in the proceeding, declined to comment on the particulars of the case. She did not make him available for an interview, and efforts to reach Dima directly were not successful.

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FBI office in Miami Bloomberg News
Adviser forged client’s signature, stole $900k, says FBI
An adviser forged his client’s signature on checks he lifted from her home as part of a five-year fraud scheme netting nearly $1 million, according to the FBI.

“You know, it starts out small,” ex-Forum Financial Management partner William P. Carlson Jr. allegedly told the company’s compliance officer after he was caught. “You think you are going to pay it back.”

Carlson admitted to the thefts under questioning by his company and FBI white-collar crime agents, according to a federal complaint filed in February in the Northern District of Illinois. Forum has paid the client back for her losses, the firm said in a statement.

The SEC charged Carlson, 53, in a parallel civil action with cheating his client out of at least $911,000 through 41 secret withdrawals from her account. His Chicago-area RIA firm fired Carlson and alerted the agency after finding out about the theft, according to the firm.

“Naturally, we were dismayed to learn that one of our advisers was taking money from a client without that client’s knowledge or permission,” the company said in a statement sent by Chief Compliance Officer Brian Savage, who is also a partner in the firm.

“We apologized and immediately reimbursed all funds to the affected client, including advisory fees as well as any interest and gains this individual would have made on their investments," the statement continues. "We are also conducting a review of our client accounts and, at this time, the incident appears to be isolated to one affected client.”

The firm says it is cooperating with the investigation.

Efforts to reach Carlson or any attorney representing him were not successful. He made his initial appearance in Chicago district court earlier this week, walking free on bond, according to a spokesman for the U.S. Attorney’s Office.

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Adviser to plead guilty to 'cherry-picking' investments in $1.3M scheme
A former adviser has agreed to plead guilty to bilking at least 30 clients out of $1.3 million by sticking them with losing investments and keeping the winners for himself, according to the Department of Justice.

Michael J. Breton, former managing partner at now-defunct Strategic Capital Management, will spend up to three years in jail and provide full restitution to his victims, if a judge approves his plea deal. The criminal case is filed in district court in Massachusetts.

Breton, 52, agreed to plead guilty to securities fraud and to a permanent ban from the industry in separate deals with the SEC and federal prosecutors. He founded the former Boston-area firm in 1999 and ran his scheme from 2010 until last year, the SEC says.

Investigators from the SEC’s market abuse unit detected Breton's fraud through data analysis, according to the regulator.

A lawyer for Breton did not respond to requests for comment.

A woman who answered the phone at Newburg & Co., an accounting firm in Waltham, Massachusetts, where Breton has listed himself as a partner in SEC public disclosures, said no one would be available to comment Thursday. Breton did not return a message left for him there.

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Ex-Morgan Stanley broker stole $5M from clients, prosecutors charge
A former adviser at Morgan Stanley stole $5 million from clients to fund his “lavish lifestyle” that featured flights on private jets and a house outside of Las Vegas, according to the U.S. Attorney’s office.

Barry Connell, 50, who worked in the wirehouse’s New Jersey office, was arrested in Henderson, Nevada, a Las Vegas suburb and criminally charged with wire fraud and aggravated identity theft, according to authorities.

Connell misappropriated clients’ money for his own benefit, authorities charge. From December 2015 to November 2016, Connell conducted more than 100 unauthorized transactions, taking $5 million from five different accounts of a single family, the criminal complaint said. He claimed he had received verbal permission from his clients.

Erica Choi, an assistant federal defender who represented him at an initial appearance in Las Vegas federal court, did not reply to a request for comment.

Amy Gallicchio, a federal defender who will represent him for his trial at the federal court in New York, cannot be reached immediately for comment.

Connell used over $1.6 million of his clients’ money for private jet services alone, according to the transaction records listed in the criminal complaint. He also allegedly spent over $2 million in stolen funds to pay his wife’s credit card, and put down $50,600 for an upfront payment for the rental home in Henderson where he was arrested.

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Former Huntington adviser sentenced to one day in jail for embezzlement
An ex-financial adviser with Huntington National Bank who embezzled more than $265,000 from elderly clients was sentenced today to one day in prison and five years of supervised release, according to federal prosecutors.

Bryan Carnahan pleaded guilty to embezzlement in federal court in October 2015.

Between April 2012 to March 2015, the Hilliard, Ohio-based adviser misappropriated $268,680 from the brokerage accounts of five clients ranging in age from 75 to 94 years old. He diverted the bulk of the money — $230,414 — to the accounts of other clients who posted losses in their municipal bond investments, according to court documents. His grandmother was among the five people he cheated, a federal prosecutor claimed.

Carnahan’s attorney, Dennis Belli of Columbus, Ohio, disputed the total amount of the theft, saying that $51,159 that Carnahan took from his grandmother should not have been included. Belli claimed that Carnahan’s grandmother did not consider herself a victim of her grandson’s activity.

"Bryan recognizes there is no excuse for violating the law, and he offers none in this case," Belli wrote. "He acknowledges his culpability for jeopardizing the mental and financial well-being of his clients. He also recognizes the emotional, psychological, and financial trauma that he has caused his own family."

Carnahan joined Huntington in 1998 and was discharged in March 2015 for his criminal conduct, according to BrokerCheck records.

Seth Seymour, a spokesman for Huntington, declined to comment on Carnahan, but said the bank has zero tolerance for such behavior. “This was an isolated incident, and we cooperated fully with investigators. Customer privacy and security are always our top priority,” the spokesman said.

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FINRA boots ex-Wells Fargo broker for alleged churning in elderly customer's accounts
A former Wells Fargo adviser was kicked out of the industry last week for alleged excessive trading in the brokerage accounts of a 93-year-old customer, according to a FINRA disciplinary filing.

Matthew Maczko, who was based in Oak Brook, Illinois, effectively controlled the customer's four accounts, which had an average aggregate value of $3 million, FINRA claimed.

The regulator rebuked Maczko for elevated levels of trading, which generated more than $582,000 in commissions, $84,270 in fees and approximately $397,000 in trading losses. The trading activity was unsuitable given the customer's age, risk tolerance and income needs, FINRA said.

He allegedly effected over 2,800 transactions in the four accounts from January 2009 to April 2016.

Maczko could not be reached for comment. His attorney, Daniel Donovan of Baltimore law firm Donovan & Rainie, declined to comment. In his settlement with FINRA, Maczko neither admitted nor denied the charges but consented to an entry of FINRA's findings.

Maczko worked for Wells Fargo Advisors from May 2009 to September 2016, when he was discharged, according to BrokerCheck records.

Helen Bow, a spokeswoman for Wells Fargo, declined to comment on the matter.

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