The SEC charged a former registered representative of a broker-dealer with fraud for engaging in an $8 million investment scam. The SEC Office of Investor Education and Advocacy and the Division of Enforcement Retail Strategy Task Force released an Investor Alert warning investors of the signs associated with similar fraudulent broker activity.

In a Complaint filed in the U.S. District Court for the Eastern District of New York, the SEC alleged that Steven Pagartanis ("defendant"), a former registered representative of Lombard Securities Incorporated, solicited and sold securities using "false and misleading statements" and misused investor funds in a Ponzi-like scheme. According to the Complaint, the defendant promised investors with whom he had a longstanding relationship that their investments would be safe. The Complaint alleges that the defendant: (i) guaranteed monthly interest payments, (ii) told investors to send their payments to a separate company that the defendant owned and (iii) never invested any of the money raised.

The SEC also asserted that the defendant created fictitious account statements, thereby deceiving investors into believing that (i) they owned stock in a land development company and (ii) their monthly payments were from their investments. The SEC accused the defendant of using the investments to enrich himself.

The SEC issued an Investor Alert warning investors of brokers that may be offering investments that are not approved for sale through the brokers' firms. The Investor Alert urges investors to be mindful of suspicious activity relating to their brokers, such as:

  • requests to transfer money to any person or to a different firm;
  • attempts to sell investments without any paperwork on the investments;
  • account statements from the firm that do not show the investments or deposits made by the broker; and
  • account statements that are not from the firm.

Commentary / Steven Lofchie

For broker-dealers, the issue this enforcement action raises is whether there is more that they should do to watch for employer misconduct or educate their own customers against salesperson misconduct. For example, should broker-dealers periodically send their customers a notice akin to the SEC's investor alert warning against making payments other than directly to the broker-dealer itself?

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