Richard Finger Fraud – Victims plot strategy
Fraud victims plot legal strategies for recovery
Puget Sound Business Journal by Kelly Gilblom, Staff Writer
Date: Friday, December 16, 2011, 3:00am PST
In the wake of a $7 million financial fraud discovered in Kirkland this September, victims of securities broker Richard Finger have hired attorneys and are turning to arbitration and insurance to recover some of their lost investments.
These defrauded investors include not just mom-and-pop outfits but a wealthy Kirkland family with numerous businesses — a family that has hired a prominent attorney. Their strategy to recover lost funds could lay out a possible path for other victims of financial crimes as they struggle to overcome major obstacles to recouping their losses.
The majority of the $7 million in assets lost belonged to Finger’s mother-in-law and father-in-law, Brenda and Elling Halvorson, according to lawyers and information in Finger’s charging documents. Their investment with Finger represented only a fraction of their net worth.
The Halvorsons own a number of businesses, according to information from the Washington Secretary of State. One of the most well-known of their entities is Papillon Helicopters, a company that offers helicopter, airplane and bus tours of the Grand Canyon and Las Vegas. Papillon, established in 1965, has more than 600 employees and a fleet of 48 helicopters and six airplanes, according to information on its website.
The Finger story is familiar: At least 10 victims — family and friends — lost sums of money ranging from less than $100,000 to more than $1 million, according to a criminal indictment against Finger. He lost client money through risky trading, the indictment said, and then covered it up by sending out doctored statements. Finger pled guilty to wire fraud last month in U.S. District Court in Seattle, and admitted he had stolen client funds and forged account statements.
Financial fraud cases are usually complex and time-consuming, making experienced, knowledgeable litigators crucial. That means victims, who are sometimes personally bankrupted by the crime, must find a way to outmatch brokerages that usually have deep pockets, and top tier legal teams.
The Halvorsons are working with various Seattle lawyers and preparing claims to enter arbitration with the Financial Industry Regulatory Authority (FINRA), according to two lawyers working with other victims of Finger’s fraud.
The FINRA arbitration, which takes the place of civil lawsuits in cases involving securities brokerages, will target an array of entities Finger did business with, including his former employer, and clearing brokerages that executed trades on behalf of Finger’s clients.
Additionally, victims are vying for a slice of a $500,000 insurance policy that protects investors of failed brokerages. The insurer, a quasi-governmental organization called Securities Investor Protection Corp. (SIPC), was created by Congress in 1970 to quickly release money to clients who have money invested with a brokerage firm that becomes bankrupt or otherwise insolvent.
The Halvorsons did not respond to multiple requests for comment for this story. The prominent attorney they have hired, Michael Gossler, of Seattle firm Montgomery Purdue Blankinship & Austin, did not respond to several requests for interviews.
Even though Finger pled guilty, the hurdles for investors who lost money in the fraud are high, according to attorneys.
For one, the Securities and Exchange Commission (SEC), which has sued Finger in a civil suit in U.S. District Court in Seattle, does not normally collaborate with financial fraud victims. The SEC must declare Finger’s former company, Black Diamond Securities, insolvent, or the investors cannot access the SIPC insurance money, according to legal experts.
“The SEC has to refer to Black Diamond as an insolvent firm for us to get SIPC,” said John Tollefsen, a Lynnwood-based lawyer for Finger victim Jon-Michael Smith>. “I don’t know why they haven’t done it for Black Diamond.”
He added: “The SEC doesn’t cooperate with victims … When we call them up and say: ‘Hey, we’re the attorneys for the victims. Are you going to refer to SIPIC, when and why?’ They just say: ‘We don’t comment on pending investigations.’”
John Mitchell , a San Francisco-based trial attorney for the SEC in the Finger case, said: “We have a civil enforcement mandate which requires we enforce the securities laws; however, we are not allowed to share information with private attorneys for their own use.”
Mitchell said the SEC is seeking monetary damages against Finger and Black Diamond that would be used to pay victims. He said he wasn’t sure how much could be recovered but said Finger’s guilty plea agreement in the criminal case could help the SEC’s civil efforts.
“Any recovery we make depends on what the court awards,” he said. “We don’t have an estimate or prediction.”
In arbitration, victims face daunting statistics when it comes to recouping money lost to financial fraud. According to Tollefsen, the success rate of FINRA arbitration, which investors agree to when they wire money to a brokerage, is only about 50 percent.
“There’s all kinds of factors (that affect that success rate),” said Tollefsen. “Many of (the victims) in those cases at FINRA have no lawyers. People are disadvantaged when they go to trial against a broker-dealer lawyer (if they have no legal representation).”
The charges against Finger say most investors believed their money was held largely in cash and what was invested was being done so in a very “conservative” manner.
However, according to the Department of Justice indictment, Finger “embarked on a high-frequency, high-risk options trading strategy that generated spectacular trading losses for his customers and huge commissions for himself.”
Charging documents said: “In order to conceal the trading losses and his personal enrichment from his customers — mainly friends and family — Finger sent them doctored account statements which inflated their account balances and understated the commissions Finger had charged them.”
Finger said in a statement that he acted alone. According to a plea deal filed in U.S. District Court, prosecutors will recommend he serve six and a half years in prison, out of a potential sentence of 20 years. Finger is scheduled to be sentenced in February 2012.
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Kelly Gilblom covers banking & finance, wealth management for the Puget Sound Business Journal.