You hear about it all too often. Your neighbors tell you about schemes they heard about run by “those guys” or unnamed friends to make lots of easy money. Sometimes it a boast at a party or social event about making millions by evading taxes or calling something it is not and just submitting a few forms to the government and receiving money or tax credits. Sometimes it is just a clever and creative application of lawful ideas, but sometimes not. Sometimes it is too clever, too easy, too good to be true or legal. Witness Bernie Madoff and his Ponzi scheme.

What can you do when it seems like the scheme involves cheating or defrauding the government? Ordinarily, many people simply applaud, seeing the government as a common enemy to be fought. But think about it. If someone else is cheating the government by paying less or obtaining funds fraudulently, aren’t they forcing you to pay more or receive less by cheating?

If you think you have uncovered a scam against the government, you can help stop the fraud and help yourself by contacting a lawyer qualified in false claim actions on behalf of the government.

The legal concept of a false claims action comes from civil war days. Government supplier’s bilked the government by selling shoddy clothing and rotten food products. Abraham Lincoln knew that this practice was rampant and yet the government was unable to police it themselves. So, the false claims act was created to induce private individuals who witnessed or knew of fraud against the government to not only report it but do something about it by filing a lawsuit FOR the government. Such a lawsuit is in the name of the person taking the action who has uncovered the fraud (the relator or person who relates or informs of the fraud) and the US Government.

False claim cases are filed under seal so only the government’s attorneys can review it initially. The government has a period of time to consider taking up the case and pursuing it along with the relator as a kind of partner. If the government does not take the case, the relator can still pursue it without the government.

If successful, the relator can be awarded up to 30% of the ultimate recovery! In other words, if the government collects $1 million in overpayments the relator (whistleblower) may get up to $300,000 of that money.

Former President Harry Truman championed the private attorney general, the “Qui Tam” relator, to help clean up military contracting. Today the false claim law is used to fight all kinds of fraud against taxpayers including mortgage fraud and Medicare overbilling.

The types of fraud practiced against the government are endless. Military contractors charge more for less, using euphemisms like cost over runs. Medical product suppliers double bill for services or worse, charge for unnecessary medical procedures or services that were not even delivered. General contractors use low grade cement and charge top of the line price.

The fraud perpetrated by others ends up costing you more in taxes. So, what to do when you know about fraud against the government? Cheer? NO WAY! Take action. Call an experienced fraud lawyer.

As Chevy Chase (Ty) said to Danny when it was revealed Judge Smails was cheating in the immortal golf match in CaddyShack, “nobody likes a tattle tale, except me”, and of course the government. Just remember, letting someone cheat the government is the same as letting someone cheat you. So why not do everyone some good, including you, and at least see if something can be done. Become a private attorney general for your country. If your information is accurate, you may even get paid for your civic duty.

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Attorney Joe Bird and his team of false claim act lawyers at Mahany & Ertl are joined by the federal government in one of the largest fraud cases in the country - a $2.4 billion fraud case against Allied Home Mortgage. The government says that Allied’s noncompliance with HUD regulations cost taxpayers hundreds of millions of dollars and left many people with homes they cannot afford.

For more information about false claim cases, contact attorney Brian Mahany at (414) 704-6731 (email: brian@mahanyertl.com) or attorney Joe Bird at jbird@mahanyertl.com. All calls are held in strict confidence.

Mahany & Ertl - America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Legal services available in many jurisdictions.

Health care fraud costs the government and taxpayers billions of dollars. It is anything but a victimless crime. Fraud means higher insurance premiums causing some people to go without medical care. Because the federal government funds much of health care, taxes also go up when Medicare money is used to pay false claims. Earlier this week, a federal jury convicted one fraudster of submitting over $2 million in false claims to Medicare.

On February 2nd, the jury convicted Detroit area resident Tariq Mahmud of one count of conspiracy to commit health care fraud and six counts of actual health care fraud. He faces up to 70 years in prison when sentenced later this year.

Prosecutors say that Mahmud controlled a company called Comprehensive Rehab Services. His company supposedly provided physical and occupational therapy to patients near Dearborn, Michigan. Instead, prosecutors say that Mahmud submitted phony claims to Medicare. In many instances, Medicare was billed for services that the patient never received. At trial, the evidence revealed that many of the physical therapists never even met the patients and that patients were sometimes given drugs or cash kickbacks for use of their names.

If you think cases like this are rare, unfortunately you are wrong. They occur everyday across the United States. Health care fraud is so rampant that the federal government created a special health care task force called HEAT (Health Care Fraud and Prevention Action Team). Since its inception just 5 years ago, the team has charged 1160 people in just 9 districts with bilking the government out of almost $3 billion in tax dollars.

HEAT is a joint task force made up of investigators from the U.S. Department of Health and Human Services and the Department of Justice. Assistance on criminal prosecutions is often provided by the FBI. Whereas HEAT tries to stop fraud by prosecuting offenders, many more offenders are stopped by false claim cases filed by whistleblowers.

Prosecutors can’t stop and arrest every person involved in health care fraud but there are things that ordinary citizens can do. Many healthcare fraud cases are uncovered by concerned health care providers. No one likes to see fraud and waste and often the people closest to the fraud become whistleblowers. Patients, billing clerks, medical assistants and sometimes even doctors are the ones who first alert authorities to these scams.

In addition to the satisfaction that comes from doing the right thing, whistleblowers are entitled to a percentage of the money recovered by the government if their tip leads to a successful false claims action. The government offers the awards to provide incentives for people to come forward and report these crimes.

Not only is health care fraud bad for America’s economy, sometimes its down right dangerous! In a recent case, a hospital physician charged that a cardiac care group was performing unnecessary cardiac stent procedures simply to bill Medicare and private insurance companies.

If you know of health care fraud, give us a call. All inquiries are strictly confidential. The fraud recovery lawyers at Mahany & Ertl can evaluate your case and let you know if we can help put an end to the fraud and help you collect money under the false claims act. Currently, we are prosecuting the largest false claims act case in the nation against a mortgage company - a $2.4 billion claim against Allied Home Mortgage. Large or small, we want to hear about your case.

For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) / brian@mahanyertl.com or attorney Joe Bird at jbird@mahanyertl.com. All calls are held in strict confidence.

Mahany & Ertl - America’s Fraud Lawyers.  Offices in Milwaukee, Detroit, Portland (Maine) & Minneapolis. Services available in most jurisdictions.

by Joe Bird

Like many of you, at Mahany & Ertl we routinely encounter bullies and trash talkers. So often in the world of fraud, those who protest and threaten the loudest are the biggest frauds and bullies. As in the Wizard of Oz, they just need a determined canine of modest proportions to pull aside the curtain and reveal what they truly are.

Case in point. Many readers know of our saga with Allied Mortgage and our battles for many aggrieved employees, primarily branch managers and loan officers. We have done our best and shed our blood for our clients as we struggle down the long hallway towards the curtain, anxious to pull it aside. Recently, one of our comrades succeeded in revealing just a glimpse of what is on the other side of the curtain.

Jonny Fowler was an executive VP for Allied for years. He suffered. He finally freed himself, but found himself on the receiving end of a lawsuit from Allied and Jim Hodge. It was full of loud accusations and scandalous claims. A courageous attorney by the name of Paul Matula, in Texas, defended him. This past November, after a long battle, Paul pulled aside the curtain just a bit. When the judge refused to seal the case from public scrutiny and refused to empty the courtroom to give Allied quarter to continue its baseless attacks, Allied simply dismissed the case, revealing the small creature behind the curtain for an instant.

Millions of dollars were spent on attorneys instead of paying the legitimate claims of employees for wages and costs and claims for mortgage fraud. In the end, it was just for the sport of the man behind the curtain.

At Mahany & Ertl we are not afraid to pull on the curtain of fraud and reveal what is behind it. We fight for the chance to do so. We also applaud the efforts of Paul Matula for his client and for revealing what is behind Allied’s curtain.

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The fraud lawyers at Mahany & Ertl handle a wide variety of fraud cases. From complex federal false claims acts to accounting malpractice, Ponzi schemes and investment fraud, our asset recovery team is ready to fight for you. For more information on what we do, contact attorney Brian Mahany at (414) 704-6731 or by email at brian@mahanyertl.com. All inquiries are confidential. The author Joe Bird can also be contacted at jbird@mahanyertl.com

Mahany & Ertl - America’s Fraud Lawyers.  Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Services available in many jurisdictions.

Our blog post also generated calls from senior management at Marcus Evans. Not threatening calls but a sincere invitation to attend one of their events and form our own judgment.  Hopefully I can clear our schedule to attend their March event. While there may some unhappy workers - or former workers - at the company, the real question is the value of the product they deliver.

Often when we post a negative story we receive threats of lawsuits, cease and desist letters or nasty emails. Those tactics simply don’t work - if anything, they convince us that we were right in our initial assessment. The call from Marcus Evans inviting me to their upcoming Florida event was therefore a pleasant surprise. This isn’t going to be some one on one meeting with company PR folks but a chance to observe what they do and speak to participants. I am impressed.

Since the company was sincere in its invitation, I will attend and post my honest feedback.

Stay  tuned for another update in March.

Over the years I have met many people in the sovereign citizen movement. These are folks who don’t believe in the tax laws of the United States. Most are quite intelligent and have done much research before they decide not to pay federal income tax. Although all of these folks can cite cases and statutes, the end result is usually the same. Prison.

The latest sovereign citizen headed for prison is Timothy Garrison of Mt. Vernon, Washington. He was sentenced earlier this week to 42 months in federal prison. Prosecutors say he assisted others in filing false tax returns. If that isn’t bad enough, he was a also accused of being a felon in possession of a firearm (Garrison has a prior felony fraud conviction) and for filing false tax liens against law enforcement officers.

There are many people who identify with the sovereign movement. The common thread is a strong distrust of government. Most members of the movement continue to pay taxes, however, although begrudgingly. Those that stop filing taxes, or worse… those that encourage others not to do so or antagonize cops and courts always wind up getting caught.

Like it or not, under our scheme of government the courts are the final arbiters of the law. Although there are dozens of theories floating around the Internet on why the tax system and the IRS is illegal, the courts have the final say.  We have watched many brilliant legal scholars get marched off to jail thinking they were smarter than the IRS. Unfortunately for them, the courts have heard the arguments before and have universally rejected them.

Occasionally a sovereign citizen will get acquitted by a jury but that doesn’t mean the court has sanctioned their version of the law. The Tax Division of the U.S. Department of Justice boasts a near perfect conviction rate. While they do lose cases, the losses are few and far between. We have participated in some of those victories for taxpayers but most soverigns who elect to go to trial lose.

The tax freedom movement loves to boast about the stories of their victories. Little is said about the thousands who lose and head to jail each year, however. At sentencing U.S. District Judge Ricardo S. Martinez said, “You are free to believe anything. You are free to question authority. What you don’t have is the ability to break the law and not suffer the consequences.”

Sometimes the IRS can be beat but those who trumpet their success on the Internet, who help others avoid taxes and who actively attack the system can surely expect a swift and fierce reaction.

Immediately after Garrison’s sentencing, justice and IRS officials wasted no time in issuing press releases.

“When Americans go to a tax professional, they do not expect to receive faulty tax guidance from someone with a personal agenda,” said Kenneth J. Hines, the IRS special agent in charge of the Pacific Northwest. “Anyone who willfully breaks the tax laws, or uses others in an attempt to undermine the tax system, will be prosecuted to the fullest extent of the law.” Hines is serious; prosecutors have charged 6 people in western Washington state with ties to the tax freedom movement.

If you have intentionally failed to file or pay taxes, give us a call.  (All inquiries are confidential and covered by the attorney client privilege.) We can help you come into compliance and avoid prosecution. If you are already charged or under investigation, we can help as well.

The tax lawyers at Mahany & Ertl have been involved in some of the largest tax trials in the U.S. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com.

Mahany & Ertl - America’s Tax Lawyers.  Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Tax services available nationwide.

The IRS and U.S. Department of Justice show no sign of letting up in their quest to ferret out U.S. taxpayers with unreported offshore accounts. Earlier this week Justice officials unsealed an indictment against a former San Diego tax attorney and two of his clients for alleging hiding millions in unreported Swiss bank accounts.

According to the indictment, Christopher Rusch was charged with conspiracy to defraud the United States treasury. His crime? Prosecutors say he helped clients open unreported accounts at UBS bank in Switzerland. To facilitate the tax fraud and avoid detection, they say Rusch created numerous nominee entities in Switzerland, Panama and St. Kitts & Nevis; entities that he also controlled. Nominee entities are often used to disguise the true ownership of assets.

In addition to the conspiracy charges, the prosecutors also accused Rusch of filing false tax returns and failing to file Reports of Foreign Bank and Financial Accounts, also known as FBARs.

According to a government press release, Rusch was arrested in Miami after being deported from Panama. Although Panama does not have an extradition treaty with the U.S. for tax crimes, the IRS frequently seeks an indictment for conspiracy to defraud the government which is grounds for extradition in most countries.

How did Rusch get caught? A careful reading of the indictment suggests that the government had help from Swiss bankers involved with the accounts, one of whom was a long term friend of Rusch.

In the last 3 years, over 30,000 taxpayers have come forward and reported owning offshore bank and financial accounts. In many of those cases, IRS auditors and criminal investigators interviewed the taxpayers to learn the names of anyone involved in the transactions including Swiss bankers, accountants and lawyers. When faced with possible indictment, many of the foreign intermediaries disclose the names of their former and present U.S. clients in exchange for immunity or a promise of leniency. We suspect that is how Rusch was discovered.

Obviously, an indictment is only an accusation. Rusch and his codefendants are innocent until proven guilty. As of this writing, Rusch has not yet had a bail hearing. Prior to his deportation from Panama and subsequent arrest in Miami, Rusch practiced civil and criminal tax law.

Opening a bank account in a foreign country is not illegal. The IRS requires taxpayers to report those accounts yearly, however, and to pay tax on any income derived from the accounts such as dividends or interest. Experts believe there are hundreds of thousands of U.S. taxpayers with unreported accounts. Many people such as foreign born Americans, dual nationals and Americans living overseas simply do not know of the law. Others such as Rusch are charged with intentionally trying to hide money.

Innocent or not, failure to report an offshore account carries huge penalties - up to 50% of the high balance each year the account remains unreported. Willful violation are also criminal.

If you have an unreported foreign bank account, contact a tax attorney immediately. The IRS is presently offering an amnesty program that will allow most people to avoid any risk of jail and could save tens of thousands of dollars in penalties. Conventional voluntary disclosure remedies are also available. Time is limited however as amnesty is only available if you get to the IRS first.

The tax lawyers at Mahany & Ertl have helped many people with a wide variety of offshore tax reporting matters. FBARs, voluntary disclosures, the Offshore Voluntary Disclosure Program (tax amnesty) and the new Foreign Account Tax Compliance Act (FATCA) - we can help.

For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com. All calls are kept in strict confidence.

Mahany & Ertl - America’s Tax Lawyers. Offices in Wisconsin, Michigan, Maine & Minnesota. Tax services available in most locations.

by Brian Mahany

Our 5th amendment privilege against self - incrimination is a basic fundamental right guaranteed by the Constitution. Americans can trace this protection from government abuse of authority all the way back to 1215 and the Magna Carta. Think of growing up watching TV shows and movies where the cops tell the bad guy that he “has the right to remain silent”. Many of us think that our Constitutional rights are absolute - unfortunately, our right against self-incrimination doesn’t always apply in case involving hidden offshore accounts.

Last summer, the United States Circuit Court of Appeals for the 9th Circuit ruled that the “Required Records” doctrine may supersede the 5th Amendment Constitutional guarantees in offshore tax cases. The decision is a huge blow to Americans with unreported or secret offshore accounts.

In the case captioned, “In Re Grand Jury Investigation M.H.,” the IRS was investigating an individual (”M.H.”) who was thought to have an unreported Swiss bank account at UBS. When IRS agents couldn’t get the information voluntarily from M.H., they issued a Grand Jury subpoena and commanded him to testify and supply documents. His lawyers argued that forcing him to testify or produce the records would force him to incriminate himself.

If he answered truthfully and admitted that he maintained an unreported foreign bank account, such an admission would be direct evidence of a felony. (It is a felony to fail to file an FBAR or Report of Foreign Bank and Financial Account annually with the IRS.)  On the other hand, if he lied about the account he could be charged with perjury. In most instances, someone faced with such a dilemma would simply refuse to answer the question on 5th amendment grounds. The court, however, sided with prosecutors and said he must answer.

Under the “required records” doctrine, when certain conditions are met, records required to be maintained by law fall outside the scope of the privilege against self incrimination.

The Fifth Amendment to the United States Constitution states that “[n]o person . . . shall be compelled in any criminal case to be a witness against himself.” Since that time, however, the Supreme Court has carved out exceptions for records that were “voluntarily created” or from voluntary participation in a regulated activity. This exception is known as the “required records” exception.

If this sounds a bit confusing, it is. Let’s look at the analysis applied by the court in M.H.’s case.

If a required document is voluntarily created and kept, compelling its disclosure does not implicate the privilege against self-incrimination. When documents are required to be kept and then produced, they are arguably compelled. If the analysis stopped here, M.H. would not have to produce the offshore bank records.  By law, Americans with offshore banks accounts are required to keep and maintain certain records.  Compelling the production of the records would require M.H. to incriminate himself. Unfortunately for MH, the analysis does not end there.

The 9th Circuit next looked to see if the records were required because of M.H.’s “voluntary participation in a regulated activity.” In M.H.’s case, although foreign bank records are required to be maintained, M.H.’s decision to move his money offshore was voluntary.  Obviously, the “voluntary participation in a regulated activity” creates a very slippery slope for courts. One could easily fashion an argument that prosecutors can compel almost any type of documents using this rationale.

The 9th Circuit attempts in its opinion to safeguard “against the exception swallowing the rule” but we remain skeptical. Without a bright line test, prosecutors can seek to compel defendants to produce documents even though the production of those documents are self incriminating.

While the decision has broad public policy implications, this post is limited to offshore accounts. If you have an unreported offshore account, a grand jury may be able to compel you to produce records about the account - records that can be used to against you in a subsequent criminal proceeding.

Many people with unreported offshore accounts are simply ignorant of the complex reporting requirements.  A few may have acted intentionally and are actively trying to hide money from Uncle Sam and the IRS. Fortunately, there is presently an amnesty program that can keep you out of jail and avoid huge civil penalties. The program, called the Offshore Voluntary Disclosure Program or OVDP, replaces a similar IRS initiative from last year called OVDI.  Both programs allow taxpayers to avoid audit, pay reduced penalties and avoid criminal prosecution.

If you have an unreported foreign financial or bank account, now is the time to come forward. The government has been playing hardball for the last several years and shows no sign of slowing down in its enforcement efforts. Maintaining an offshore account is completely legal if you comply with the government’s rules.  Those rules generally require filing FBARs and this year, also require compliance with the Foreign Account Tax Compliance Act or FATCA. (For more information on these requirements, simply search the term FATCA or FBAR in our blog search engine.)

The tax lawyers at Mahany & Ertl have helped many taxpayers comply with IRS offshore reporting requirements. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com.  All calls are kept in strict confidence and covered by the attorney client privilege.

Mahany & Ertl - America’s Tax Lawyers.  Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California (tax only). Services nationwide.

A recent Reuters article sheds light on how Sir Allen Stanford was able to avoid detection and arrest for well over a decade. When finally arrested in 2009, Stanford was believed to have presided over one of the largest Ponzi schemes ever - $7 billion in misappropriated funds. Unlike the Madoff case where much of the money will be recovered and distributed to victims, Stanford’s victims are likely to see very little. Now, published reports say lawyers and law enforcement officers may have helped him hide his criminal empire.

According to the Reuters article, the feds suspected as early as 1997 that Stanford was operating a Ponzi scheme. How come, then, it took 12 years before he was arrested? During that time, prosecutors say he defrauded 30,000 investors from 113 different countries. Although Bernie Madoff’s Ponzi scheme was the largest in terms of dollars taken, Stanford has the dubious “honor” of having the most victims.

Particularly troubling are allegations that Stanford was assisted by well known securities attorney Thomas Sjoblom.  According to published reports, Sjoblom is a former SEC enforcement division attorney with many ties inside the agency. Reuters says that the Justice Department has been investigating him for possible obstruction of justice, witness tampering and conspiracy for his actions in trying to derail the SEC’s investigation of Stanford.

Sjoblom has not charged yet, although  one news article says that he offered to testify against Stanford in return for immunity. Apparently the Justice Department rejected that offer meaning that he could still be the target of an investigation.

There has long been a revolving door between securities regulators and the private sector. Many SEC lawyers leave government service and immediately take high paying legal jobs defending the folks they once regulated. While there are rules to prevent government regulators from immediately representing the some companies and individuals they once investigated, nothing prevents these same former regulators from exploiting their contacts within the agency they just left.

In addition to Sjoblom’s potential problems with Stanford, another SEC employee is in trouble to over the Stanford debacle. Spencer Barasch, former enforcement chief of San Antonio’s SEC branch, agreed to pay a $50,000 fine for violating federal ethics regulations. The government says that he took a job with Stanford shortly after leaving the SEC. Particularly troubling are the allegations that he 3 times vetoed requests by SEC examiners to audit Stanford.  Any one of those vetoes may have caused billions in losses to investors.

Whether or not Sjoblom is charged with any criminal wrongdoing remains to be seen. One thing is clear, however.  The revolving door between the regulators and those they regulate causes a crisis in confidence within the agency and public. There needs to be increased post employment disclosure and tighter limitations on what former enforcement regulators can do once they leave government service.

As we have seen in both Stanford and Madoff, waiting for the SEC to take action could take years. If you believe you are the victim of fraud, act quickly. Very often, the first in line are the only ones to get paid 100 cents on the dollar for their losses.

The securities fraud lawyers at Mahany & Ertl have helped many victims of investment fraud and Ponzi schemes get back their hard earned money. If you are the victim of any type of fraud, contact us immediately. All calls are held in strict confidence.

For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com.

Mahany & Ertl - America’s Fraud Lawyers.  Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Legal services available in most jurisdictions.

Morgan Keegan has been around since 1969. With 300 offices and 3000 employees, it certainly is one of the more established regional brokerage firms.  Unfortunately, even well established firms sometimes employ “bad apples.” Morgan Keegan is no exception. Earlier this month, an arbitration panel of the Financial Industry Regulatory Authority (FINRA) ruled against the firm in a case brought by a customer and the customer’s 401(k) profit sharing plan. The claims involved investments in several RMK funds including RMK Select High Income Fund and RMK Select Intermediate Bond Fund.

The customer, Richard Fornell, claimed Morgan Keegan violated the ERISA statute and accused the brokerage firm of fraud, breach of fiduciary duty, negligence and breach of contract. After a full hearing, the arbitration panel found for the customer on most counts of the complaint and awarded almost $200,000 in damages.

Like many other recent cases involving large broker dealers, Morgan Keegan’s conduct in the case was anything but stellar.  The brokerage industry has long sold the public and law makers on the concept of arbitration to settle disputes. Brokerage firms typically require customers to give up their right to a jury trial and submit disputes to arbitration.  They claim arbitrations are less costly and quicker than the average lawsuit.

Accepting that premise for the moment, prior to losing at trial, Morgan Keegan asked not only that Fornell’s complaint be dismissed but also asked for $197,000 in legal fees and $40,000 in costs! Talk about a chilling effect, what customer would ever want to file an arbitration if they thought they might have to pay a quarter of a million dollars in legal fees to some silk stocking law firm?

Luckily, the arbitration panel tossed Morgan Keegan’s claim for legal fees.

What should customers do? For one, do a little investigation and see how their brokerage firm treats customers who have a dispute. Going after customers for legal fees is bad business. Especially when the brokerage firm was found to be at fault.

Since the arbitration was decided earlier this month, broker dealer giant Raymond James announced it was planning on purchasing Morgan Keegan for $930 million. Let’s hope Raymond James is a much better in how it treats its customers.

The story here isn’t about the dispute over the handling of Fornell’s 401(k) account (although fraud or breach of fiduciary duty allegations are always particularly troubling), it’s about the bully tactics of a huge brokerage firm and their “BigLaw” counsel when a customer dared to make a complaint.

David versus Goliath. Luckily David won this battle.

If you have lost your money to an investment adviser, stockbroker or other financial professional and believe you were misled or cheated, contact us. Our investment fraud and asset recovery lawyers have helped many victims of fraud get back their hard earned money. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com

Mahany & Ertl - America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. Services available in most jurisdictions.

Walter Schlaepper (a/k/a Phil Scott) has been a broker with Merrill Lynch since he received his general securities license back in 1984. Apparently he has built quite a book of business. Along the way, however, he picked up some complaints. One of those complaints was from former Boston Red Sox world series winner Doug Mirabelli.

Last week an arbitration panel appointed by the Financial Industry Regulatory Authority (FINRA) awarded Mirabelli over $800,000 plus interest plus almost $400,000 in attorney’s fees after Mirabelli accused Merrill Lynch and Scott of misrepresentation, negligence, breach of fiduciary duty and inappropriate investment advice.  That a stockbroker sometimes loses a case is not newsworthy. What is of interest, however, is that this is the second huge case lost by Scott and Merrill Lynch doesn’t think it should pay.

Although most industry watchdogs give FINRA high marks for their arbitration process, customers like Mirabelli don’t usually have a choice in how they must pursue a claim. Invariably, brokerage firms insert an arbitration clause in all new customer agreements meaning that you and  I are forced to ask FINRA to settle any disputes we may have with our broker. We can’t sue and arbitration awards are usually final. In other words, the customer gives up his right to have a jury hear the case and gives up the right to appeal the decision.

Brokerage firm developed the arbitration system and usually there is one industry representative on the three person panels that hear the case. Over 99% of all brokerage firms require customers to arbitrate their claims. Why then should Merrill not pay if they don’t like the decision? Good question, especially since they  were the ones who wanted arbitration.

Scott was accused of misrepresentation once before in another million dollar case back in 2010. In that dispute, a different FINRA arbitration panel awarded Scott’s then customer $880,000. Merrill Lynch’s response back then? Once again they said they did nothing wrong. In that case, they attempted to not pay and vacate the award!

It’s too early to tell what they will do this time but once again they are making similar noises according to a published report.

Most brokerage firms quickly pay any award against them. Refusal to pay an award could mean the stockbroker and brokerage firm could lose their license. A court has authority to convert the award into a judgment as well giving the customer additional collection remedies.

Hopefully Merrill Lynch will do the right thing an honor the award. Refusing to pay sends the wrong message to the investing public and does nothing to inspire confidence in Merrill Lynch.

If you have lost money because of a misrepresentation or poor advice, you may have a claim against your broker or investment adviser. In many instances, stockbroker fraud cases are handled on a contingent fee basis.

For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.om

Mahany & Ertl - America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota.