SEC says phony adviser is ripping off members of the military
April 22, 2015 by Bruce Kelly
Phony financial advisers are always extremely dangerous. For investors, they pose tremendous risk, due to their creation of potentially fraudulent schemes that will destroy clients’ savings and wealth. For financial advisers, a fraudster in their town can damage the reputations and standings of industry professionals — and also potentially harm neighbors and clients.
In the past, I’ve written about adroit phonies that use meaningless titles such as “wealth coach” after they get bounced from the securities industry just so they can stay in the money game. I’ve also focused on an an adviser with a suspended securities license who continued to appear on a radio show and talk about investments.
Those cases were egregious, but the latest pretend adviser to emerge, Leroy Brown Jr., may win a grand prize for lying, in large part because of his focus on members of the military.
According to a complaint filed by the Securities and Exchange Commission this month, Mr. Brown, who resides in Killeen, Texas, home to the giant Fort Hood military installation, since January 2014 has been soliciting current and former members of the U.S. armed forces to invest their money with him and his company, LB Stocks and Trades Advice. He is a veteran and was in the Army for 12 years, from 2001 to July 2013, according to the SEC.
Mr. Brown, 32, has engaged in fraud and created a fraudulent scheme “to lure current and former U.S. military personnel and others into investing with him and his firm,” according to the complaint. He has made, and continues to make, numerous misrepresentations and highly dubious claims, according to the SEC, both about his background in the financial services industry and the services his company now offers to the public. For example, Mr. Brown asserts that his firm is registered with the SEC and the Financial Industry Regulatory Authority Inc. and that he personally holds all securities licenses.
He and his businesses are not registered with any regulatory body at the state or federal level — no how, no way, according to the SEC complaint. And Mr. Brown does not hold any securities licenses, the SEC says.
Mr. Brown and LB Stocks “fabricate a false air of legitimacy and success by making numerous misrepresentations to investors about LB Stocks’ purported services and business relationships,” according to the complaint.
On LB Stocks’ website, Mr. Brown and the company stated that LB Stocks’ “investment recommendations are provided by representatives from LB Securities LLC, a broker-dealer member of Finra,” according to the complaint. The company’s “portfolio management services are provided by LB Capital Management LLC, an investment adviser registered with the SEC.”
“These representations about LB Securities and LB Capital are patently false,” the SEC complaint alleges. “Neither company is registered with Finra or the SEC in any capacity. In fact there is no evidence that these companies even exist, as {Mr.} Brown and LB Stocks simply copied these statements directly from the FAQ page of E*TRADE’s website — changing E*TRADE Securities and E*TRADE Capital Management to LB Securities and LB Capital Management, respectively.”
On top of misrepresenting his and his firm’s professional status in the securities industry, Mr. Brown has been allegedly making wild claims about the returns he can generate for clients. He “solicits investors to purchase $1,000 membership certificates in LB Stocks to participate in the company’s purported investments in undeveloped real estate that {Mr.} Brown guarantees will double or triple the investors’ investment,” according to the complaint.
After receiving money from clients, he then siphoned it off into his own personal bank accounts, according to the SEC.
Starting in the first quarter of 2014, Mr. Brown “began receiving substantial deposits of funds into his personal brokerage account,” according to the complaint. “These deposits show that {Mr.} Brown received funds from investors who intended to invest in, or with, LB Stocks. Ultimately, {Mr.} Brown transferred nearly all of these funds from his personal brokerage account to his personal bank accounts.”
The SEC’s complaint does not state the amount of money clients have handed over to Mr. Brown in the last 16 months. The SEC attorney who filed the claim, B. David Fraser, did not return calls seeking details. Mr. Brown could not be reached for comment. Messages to his firm, LB Stocks, could not be left because the voice mailbox was full.
This type of alleged conduct is reprehensible, of course, and Mr. Brown’s focus on members of the military, in which he served, is particularly loathsome.
However, with interest rates at record lows and stock market volatility increasing, it’s likely that investors will listen to the siren song of false financial advisers that promise easy riches.
Financial advisers know the good guys from the bad in their towns and could do more to identify such phonies, but are sometimes reluctant to step up and call Finra or a state regulator for fear of getting involved or putting a target on their backs.
Doing anything that would halt the operations of false financial advisers, however, outweighs such concerns. In other words, if you spot a phony, make the call.
