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Haselkorn & Thibaut, a national investment fraud law firm, is currently investigating David Crane and Centaurus Financial, Inc for broker and investment fraud.  Centaurus Financial is headquartered in Anaheim, CA and conducts business nationwide through 650 or more financial advisors handling over $10 billion in customer assets.

Centaurus Financial is alleged to have bad sales practices relating to structured notes, steepener notes, variable rate CDs and other long-term, illiquid securities. Common product names include:

    • Structured CDs;
    • Market-Linked CDs;
    • Leverage Callable CMS Curve Linked Notes;
    • Callable Quarterly CMS Spread-Linked Notes;
    • Callable Variable Rate Range Accrual CDs;
    • Callable Interest Rate Spread CDs;
    • Senior Callable CMS Steepener Notes; and
    • Callable CMS Spread Notes.
  • Structured Notes and Steepener Notes are complex investment products that pay variable interest rates and often are sold with long-term maturity dates.  An investor who may need or want to sell the investment prior to maturity may be required to accept a significant principal loss.  The lack of liquidity in these investments is often a material issue that is not fully understood by retail investors.
  • Some Financial Advisors market the Structured Notes and Steepener Notes as traditional fixed income (or “bond-like”) securities. In reality, many Structured Notes and Steepener Notes pay an initial “teaser” interest rate in the first year or two, and from year three until maturity the interest rate payable is determined by a complex formula based on a relationship between multiple market indices.
  • Structured Products such as these do not trade on an exchange and are generally not liquid investments.
  • In the current interest rate environment, retail investors who may have purchased these securities investments over the last few years may be experiencing significant principal decline and/or in some cases an adjustment in the interest rate payable that is very low or near zero.
  • Some of these investments carry 10-15 year maturities, which leaves retail investors to hold non-income producing investments until maturity, or forces them to sell into a market is currently reflecting a principal or capital loss of 30%-50%.
  • In some cases these investments were sold improperly to elderly clients or retirees along with other illiquid or unsuitable securities, who believed they were purchasing bonds or CDs from a financial advisor. These customers did not understand the complexities of the investment products, nor did they understand the complex formulas or relationships between various market indices.  Perhaps more significantly, these material facts were never properly disclosed and explained to them when the investments were being recommended.
  • As these investments are now outside of the original “teaser” rate, interest income streams are re-setting at near zero income and investors are finding themselves stuck holding long-term investments paying zero income, and the market for these investments is illiquid and reflecting a substantial principal loss for investors who have no choice but to sell those investments.
  • In some cases these investments with long-term maturities were sold to investors in their retirement or near retirement and based on age or health issues, the maturity dates exceeded their life expectancy, further adding to the unsuitable nature of the recommendations.
  • Structured Product investments like these often generate a higher than average commission level for the broker-dealer firm and financial advisor, often in the 3% range.

Pursuant to securities laws, and industry rules including FINRA rules, firms such as Centaurus Financial are responsible for supervising the activities of financial advisors, and Centaurus Financial may be liable to customers for their investment losses relating to some of these investment recommendations.

 

Centaurus Financial Investigation – Additional Background on Structured Note Products

The problem in general is that these investments are often sold as “bonds” or “bond-like” investment opportunities.  In reality these are really not bonds or even bond-like, they are complex structured products that go by a variety of different names, some specifically mentioned above, and more generally often referred to as:

– steepener notes

– adjustable rate market notes

– spread linked notes

– structured notes

Securities regulators have said it is improper to sell these investments as fixed income securities or by comparing them to bonds, nevertheless that seems to be the nature of the representations upon which many investors end up purchasing these products.  Structured products often produce inferior risk/return profiles compared to ordinary debt (fixed income) or equity investments.

Most investors lack the ability to understand the merits and risks of complex structured products.  For investors who really are looking for fixed income, bonds, or bond-like investments where their capital invested is relatively safe and there is an income stream, these structured product investments are generally not in line with the risk profile of an unsuitable complex structured product that is difficult to understand or comprehend.  For example, even for investors who understand the overall concept of a structured product, the reality is that some products involve two different bond yield curves and/or a stock market index in order to be able to compute how much (if any) interest will be paid.  In fact, after some short-term teaser rates that are often used to help sell the product initially a number of these complex structured products that were sold as seeming safe, bond-like investments surprise investors who find out the maturity dates are long-term and the income stream is re-setting to near zero (or in some cases a zero rate).  With long-term maturity and zero interest income, these investments can be disasterous for unsuspecting investors.

Adding further confusion for investors is the fact that some broker-dealer firms list these complex structured products on the investor’s monthly account statements under the “fixed-income” section of the statement.  Many investors lack any meaningful way to assess the risks or the distinct and speculative nature of complex structured product investments.

 

FINRA Arbitration: How to Recover an Investment Loss

Centaurus Financial Advisors:

  • Ricky (Rick) Mantei previously with J.P. Turner & Co. is now employed by Centaurus Financial, Inc. in Lexington, SC. The Financial Industry Regulatory Authority (FINRA) filed an enforcement proceeding against Mr. Mantei alleging that he “circumvented the supervisory system of J.P. Turner & Co. on three occasions over a 5-month period” involving the sales of structured CDs to clients.  In addition to the FINRA regulatory disclosure, Mr. Mantei’s FINRA Brokercheck reflects 12 customer dispute disclosures including allegations of failure to supervise, negligence, breach of fiduciary duty, potential fraudulent activity, unsuitable investments, etc.
  • Cindy Cheillini (Cindy Porto) previously with J.P. Turner & Co. (2010-2015) now employed by Centaurus Financial, Inc. in Lexington, SC since 2015. The Financial Industry Regulatory Authority (FINRA) Brokercheck reflects 27 customer dispute disclosures including allegations of negligence, breach of fiduciary duty, potential fraudulent activity, misrepresentation, unsuitable investments, etc.
  • Kathy Nishnic (Katherine Martinson) previously with J.P. Turner & Co. (2010-2015) now employed by Centaurus Financial, Inc. in Lexington, SC since 2015. The Financial Industry Regulatory Authority (FINRA) Brokercheck reflects 7 customer dispute disclosures including allegations of mismanagement, breach of fiduciary duty, misrepresentation, unsuitable investments, etc.
  • Dana Matthew Hawkins (Matthew Hawkins) previously with J.P. Turner & Co. (2011-2015) now employed by Centaurus Financial, Inc. in Lexington, SC since 2015. The Financial Industry Regulatory Authority (FINRA) Brokercheck reflects 7 customer dispute disclosures including allegations of breach of fiduciary duty, misrepresentation, unsuitable investments, speculative and illiquid investments, etc.
  • John William Marshall, Jr. (John Marshall) previously with J.P. Turner & Co. (2010-2015) now employed by Centaurus Financial, Inc. in Lexington, SC since 2015. The Financial Industry Regulatory Authority (FINRA) Brokecheck reflects 2 customer dispute disclosures including allegations of breach of fiduciary duty, misrepresentation, unsuitable investments, etc.
  • Carol Holm (Carol Butler) employed by Centaurus Financial, Inc. in Blackfoot, Idaho since 2006. The Financial Industry Regulatory Authority (FINRA) Brokercheck reflects 20 customer dispute disclosures including allegations of breach of fiduciary duty, negligence, unsuitable investments, etc.
  • Marc F. Korsch employed by Centaurus Financial, Inc. in Sarasota, FL since 2014, and previously employed by Trustmont Financial Group (2011-2014). The Financial Industry Regulatory Authority (FINRA) Brokercheck reflects 3 customer dispute disclosures, 1 criminal disclosure, and 1 financial-related disclosure.
  • Donnie Ingram (Don Ingram) employed by Centaurus Financial, Inc. in Winter Haven, FL since 2016, and previously with Investors Capital Corp. (1997-2016). The Financial Industry Regulatory Authority (FINRA) Brokercheck reflects 9 customer dispute disclosures including allegations of concentration and unsuitable investments including REITs, etc.
  • Byron Martinsen employed by Centaurus Financial, Inc. in Kings Park, NY since 1999. The Financial Industry Regulatory Authority (FINRA) Brokercheck reflects 10 disclosures including 8 customer dispute disclosures that involve allegations of breach of fiduciary duty, negligence, unsuitable investments, misrepresentation, omissions, fraud, issues relating to non-traded REITs, etc.  FINRA Brokercheck disclosures also include an auto repossession issue and an employment discharge issue by a former employer.
  • William Dobbs employed by Centaurus Financial, Inc. in Roseville, CA since 2009. The Financial Industry Regulatory Authority (FINRA) Brokercheck reflects 11 disclosures.  5 customer dispute disclosures include allegations of false information, misadvised, fraud, misinformed, negligence, etc.  Other disclosures refer to a tax lien issue and a discharge issue with a former employer.
  • Ralph Quintana employed by Centaurus Financial, Inc. in Upland, CA since 2013. The Financial Industry Regulatory Authority (FINRA) Brokercheck reflects 6 disclosures including 5 customer dispute disclosures including allegations of breach of duty, misrepresentation, marketing fraud, unsuitable investments, etc.  An employment disclosure references a resignation from a prior employer after receiving notice that firm was terminating him based on concerns related to variable annuity sales practices.
  • Larry Templin is currently barred from the industry as a result of an Acceptance, Waiver and Consent dated 10/11/18 where he did not admit or deny the allegations made by the Financial Industry Regulatory Authority (FINRA) regulators. Prior to that event he had been employed by Centaurus Financial, Inc. in Temple, TX from 2006 to 2018.  The FINRA Brokercheck reflects an employment discharge related to a bank fraud issue.