Two notorious independent registered representatives who violated securities laws are hanging on to life in the financial advice industry, reinventing themselves as investment “teachers” or “wealth coaches.”
The two former reps, Frank Bluestein and Jeffrey Forrest, sold, respectively, a Ponzi scheme and a risky hedge fund that wiped out tens of millions of dollars of client money during the credit crisis. Mr. Bluestein was at the center of the $250 million “Ed May” Ponzi scheme, while Mr. Forrest sold close to $40 million of a faulty hedge fund that invested in high-risk and subprime-mortgage investments.
In response to a Securities and Exchange Commission complaint, a U.S. magistrate last Thursday recommended barring Mr. Bluestein, who already is suspended, for his role in selling $74 million of phony Ed May securities to 800 investors.
PAYING DISGORGEMENTS
Mr. Bluestein admitted to the SEC that the Ed May securities he sold were unregistered and that he received commissions and referral fees for selling the phony securities. As part of the magistrate’s recommendation, Mr. Bluestein has been ordered to pay disgorgements of those commissions and interest totaling $4.4 million.
Mr. Bluestein is also widely blamed for the collapse of GunnAllen Financial Inc., one of the fastest-growing independent broker-dealers of the past decade. He was a broker at the firm, which collapsed under legal costs in 2010.
Mr. Bluestein has 137 pending and final customer disputes on his Finra BrokerCheck report, which is a startling 219 pages. The length of a BrokerCheck report for a broker with no marks on his or her record can be seven or eight pages.
The Financial Industry Regulatory Authority Inc. and the SEC barred Mr. Forrest in 2009 after his clients in the hedge fund were wiped out.
Mr. Bluestein couldn’t be reached for comment.
His attorney, David Foster, didn’t return calls seeking comment.
Mr. Forrest did not respond to messages left last week at his firm, Core Financial Group.
It is impossible to know whether Mr. Bluestein and Mr. Forrest are outliers or the vanguard of a new career path for disgraced stockbrokers. No one tracks the number of brokers or investment advisers who are no longer licensed to sell securities and then set themselves up as “investment coaches” to keep working in the investment advice business.
Once a broker is no longer registered with Finra, the regulator effectively loses jurisdiction over the individual.
But barred brokers with disreputable histories often find it hard to give up the potential easy money of selling investment strategies or products. A long-standing criticism of the process of “barring” investment advisers is that they wind up selling insurance, an industry that has been criticized for having lower sales practice standards than the securities business.
Mr. Forrest, for example, still has a license to sell insurance in California.
Both Mr. Bluestein and Mr. Forrest enjoy telling their stories by posting videos on YouTube.
Mr. Bluestein is connected to several trading websites. One of them, pivotaltradingconcepts.com, charges $1,250 for a half-year membership to its “chat room.”
Mr. Bluestein pops up briefly in a YouTube video from 2011 featuring his son, Nathan, who is heard in a voiceover for a slide presentation about the ins and outs of trading futures. Nathan Bluestein says that he and his father are helping investors make wise decisions about futures and options.
“We are teachers,” he says.
“I’m a successful trader; Frank’s a successful trader. We want to teach those things to you,” Nathan Bluestein says.
Frank Bluestein, however, illustrates the fine line between giving advice and teaching. Interrupting his son’s presentation, Mr. Bluestein discusses a moment during which he decided to make a trade based on a news event that could cause market volatility.
“I went back to my computer and ran to tell all our members,” he says.
“I said, “Look, if you’re not nuts, get in this trade. You’ve got plenty of time, the market hasn’t opened,’” Frank Bluestein says. “Trading futures is just another option.”
Mr. Forrest posted a video of himself last April speaking to a group of people. He calls himself a “wealth coach” in the video’s description.
On another website, Mr. Forrest describes himself as “Your Safe Money for Life Coach.”
“I have not heard of this outside of isolated instances — and rare ones at that,” said John Cronin, securities director of Vermont’s Department of Financial Regulation. “I especially have not heard the term “investment coaches.’”
In the video, Mr. Forrest explains the pain he felt on learning in August 2007 that his clients had lost millions.
Mr. Forrest said he contemplated suicide but decided to persevere.
“I LOST EVERYTHING’
“Myself and the SEC chased the bad guys for three months, only to discover they had no money, no income, no assets and no insurance,” he said in the video.
Through arbitrations, “directly and indirectly, I helped my clients recover 70% of that which they lost,” Mr. Forrest said. “The bad news is, I lost everything.”
Mr. Forrest’s claim that he helped clients is balderdash, according to an attorney who sued Mr. Forrest’s broker-dealer in a series of Finra arbitrations.
In the arbitration, Mr. Forrest was “cross-examined as an adverse witness,” said Phil Aidikoff, a partner at Aidikoff Uhl & Bakhtiari. “The notion that he participated in getting his clients’ money back is laughable and a bit delusional.”
The industry must do everything in its power to keep these bad players out of the business once they get barred. Banned brokers who claim that they are teachers or coaches are demonstrating anew the absurd lengths to which they will go to stay in the game.