Investors Win $3 Million from Indie Firm where Ponzi Schemer Once Worked
A divided Finra arbitration panel in New York ordered independent broker-dealer Spire Securities and two executives to pay $3 million to investors for allegedly failing to supervise a now-imprisoned investment advisor who pled guilty to a $21 million Ponzi scheme.Investors initially sought $22.3 million plus fees and interest from the firm, its chief executive David Blisk and its chief chief compliance officer Suzanne McKeown in two claims filed in 2016 and 2017. The claims were consolidated, and after 36 hearing sessions that ran from October 2018 through this April, the 24 investors reduced their claims to $12.6 million, according to Thursday’s award decision.
Albert Rizzo, one of the three arbitrators, dissented from awarding money because claimants “did not demonstrate entitlement as to the relief requested,” according to the award document.
The three arbitrators unanimously denied Spire’s request to expunge the charges from the firm and its executives’ Central Registration Depository records.
“This is a fantastic award,” said plaintiffs’ attorney Adam Gana, who represented the investors. “The broker-dealer and its officers failed to supervise the conduct and fraud of one of its brokers through his investment advisory services, and is being held responsible.”
He was referring to Patrick Churchville, who pled guilty in 2017 to wire fraud and tax evasion and is now serving a seven-year prison term for orchestrating a $21-million Ponzi scheme through sale of private funds sponsored by Clearpath Wealth Management, his Rhode Island registered investment advisor.
“We think the award is outrageous and inappropriate,” said Blisk, noting that the majority arbitrators appeared to ignore the firm’s claims that the Ponzi scheme began after Churchville left Spire in 2011. “We can’t supervise after somebody leaves us, and we don’t have to be fraud investigators.”
Only eight of Churchville’s investors who brought claims were Spire clients, and they made money by investing solely in Treasury strips, according to Blisk.
Gana asserted that some clients lost millions of dollars while Churchville was affiliated with the independent broker-dealer.
Spire is considering all its options, including asking a court to vacate the award because the two arbitrators incorrectly interpreted the responsibility of “control persons” at broker-dealers, said Blisk. He also is trying to contact the court-appointed receiver for investors to discuss whether ClearPath investors’ assets are being inappropriately distributed.
“We were kind of the last man standing, and the lawyers found a group of people to come after us,” he said. “Most of them had never heard of Spire Securities, and there’s a lot of merit to Mr. Rizzo’s decision.”
The Securities and Exchange Commission barred Churchville in 2017 from affiliating with any broker-dealer or investment advisory firm. Investors in privately issued ClearPath funds lost at least $11 million from his fraudulent scheme, according to the regulator.
Blisk said the SEC did not investigate Spire.
Churchville is serving a seven-year prison term.
Prior to his 18-month affiliation with Spire that ended in February 2011, the Rhode Island advisor worked at four full-service broker-dealers. He first registered in 1992 at Oppenheimer & Co., and subsequently worked at UBS PaineWebber, Wachovia Securities and Morgan Stanley before going independent, according to his BrokerCheck history.
Churchville has no disclosures of customer or regulatory complaints prior to 2013. The single customer complaint, which is pending, alleges that the advisor violated his fiduciary duty by shorting Treasury bonds “contrary to her stated investment objectives” and seeks $200,000, according to BrokerCheck.