Portfolio Advisors Charged With Securities Fraud

Kerri Lynn Wassermann, of New York, New York, president of FINRA registered broker-dealer, Portfolio Advisors Alliance, LLC, was charged by the Securities and Exchange Commission (SEC) in a Complaint alleging that as president of a placement agency, he furnished investors with documents that he knew were misrepresented in the solicitation of securities transactions. Securities and Exchange Commission v. American Growth Funding II, LLC, et al., Civil Action No. 16-cv-00828 (S.D.N.Y. Feb. 3, 2016).

According to the Complaint, American Growth Funding II LLC (AGF), a lending company, accumulated an estimated $8,600,000.00 in funds from investors between March of 2011 and December of 2013 for purposes of generating business loans. Yet, AGF II allegedly omitted information from investors about the risk of investors’ not being able to earn the twelve percent return on their investments that had been promised to them by AGF II and AGF II’s owner, Ralph Johnson. Particularly, Johnson facilitated the transmission of AGF II’s account statements for investors, concealing that investors were in no position to be repaid due to the inability of AGF II to collect loans on a loan receivable asset that had diminished substantially in value.

Moreover, Johnson and AGF apparently represented through two private placements that the company’s financial statements had been audited yearly and would be subject to continued audits – a statement the SEC alleged to be false because it was not until 2014 that AFG II’s financials had been audited. Additionally, AGF II’s offering documents reportedly misrepresented the status of the company’s managerial staff by asserting that two individuals and Johnson comprised the firm’s Board of Managers, when there was no agreement in place for managerial duties to be taken up by the two individuals.

The Complaint alleged that Portfolio Advisors served as AGF II’s placement agent, wherein the Portfolio Advisors Alliance’s owner, Howard Allen, and president, Wasserman, had knowledge regarding the inaccuracies in AGF II’s offering documents. Critically, Wasserman was allegedly informed of the inaccurate AGF II offering statements, yet he failed to task registered representatives with notifying investors about the lack of audits or false statements contained within the private placement memorandums. Moreover, the Complaint alleged that Wasserman failed to take any steps to prevent the private placement memorandums from being utilized by registered representatives, causing misleading documents to continue to be disseminated to prospective investors for solicitation of AGF II securities sales.

The SEC alleged that Allen, Johnson, Portfolio Advisors Alliance, LLC, and AGF II engaged in conduct violative of Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5, as well as Securities Act of 1933 Section 17(a); Wasserman and Allen were liable as control persons according to Securities Exchange Act Section 20(a) for aiding and abetting Portfolio Advisors Alliance’s violations of Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5, and Securities Act Sections 17(a); and Wasserman was liable for aiding and abetting the violations of Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5, and Securities Act Section 17(a) committed by Portfolio Advisors Alliance, AGF II, Allen and Johnson.

FINRA Public Disclosure confirms that on September 7, 2016, a customer filed an investment related arbitration claim involving Wasserman’s conduct, wherein the customer requested $383,500.00 in damages supported by allegations including breach of contract, common law fraud, federal securities law violations, breach of fiduciary duty, unsuitability, and failure to supervise the customer’s private placement transactions.

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