Personal Finance

Brokers are banned or suspended in fallout from $1.2 billion Ponzi scheme

By April 18, 2019 No Comments

An alleged $1.2 billion Ponzi scheme that collapsed more than two years ago has resulted in some advisors losing their jobs.

In a Ponzi scheme, money from one set of investors is used to pay earlier investors.

With Woodbridge, investors were promised a 5% to 10% annual return from investing in promissory notes issued by the firm, records show. The notes, which regulators say were unregistered securities, were pitched as low-risk and conservative.

The recently sanctioned brokers were each accused of violating FINRA rules that required them to get their broker-dealer’s approval before engaging in private securities transactions — which the Woodbridge notes were considered.

In one of the latest cases, Floyd Powell of Albertville, Alabama, sold $3.49 million in Woodbridge promissory notes to 13 investors, netting him more than $103,000 in commissions, according to FINRA, which oversees the brokerage industry.

Powell was a registered representative with MSI Financial Services (formerly known as MetLife Securities) for 25 years until leaving in March 2017 for MML Investor Services, which fired him in February 2018.

Without admitting or denying the findings that he didn’t get prior approval for selling the promissory notes, Powell agreed to be permanently banned from the securities industry. Powell did not respond to calls from CNBC seeking comment.

Another broker also was barred after selling $2.7 million of Woodbridge notes, which delivered $109,900 in commissions.

Michael Rappa of Roseville, California, agreed to the ban while neither admitting nor denying guilt to the findings. He did not respond to a CNBC request for comment.

Rappa had been a registered representative with Foresters Equity Services of San Diego, which has since shut down.

A spokesman for that broker-dealer’s Canada-based owner, Foresters Financial, declined to comment due to ongoing litigation related to the matter. The spokesman also said the company closed its broker-dealer arm as part of a shift to focus on its core life insurance business.

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Meanwhile, a broker lost his job and was suspended for a month. Kirk Bertsch of Spearfish, South Dakota, allegedly sold a $50,0000 Woodbridge note to an investor, netting him $1,500 in commission, according to FINRA. He invested $240,000 of his own money as well, FINRA documents show.

While Bertsch’s suspension was lifted in mid-March, he remains unaffiliated with any registered firm.

His previous broker-dealer, Farmers Financial Solutions of Westlake Village, California, fired him in August 2018 for allegations related to the promissory notes, FINRA said. South Dakota state regulators also fined him $5,000 and banned him from selling securities in the state again.

Without admitting or denying the findings, Bertsch agreed to the FINRA suspension. He did not respond to a request from CNBC for comment.

Another broker also was suspended for failing to get prior approval to sell private securities. Thomas Edward Sova of Baton Rouge, Louisiana, sold $250,000 in Woodbridge notes to three investors, netting him $5,000 in commission, according to FINRA documents.

Along with a five-month suspension that ends in mid-July, Sova was fined $5,000 and ordered to pay back the commission he earned. His attorney declined to comment.

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