The receiver appointed to handle the fallout from one of the largest Ponzi schemes in Minnesota history has filed suit in federal court in Minneapolis against NRP Financial Inc. for its failure to supervise a registered broker who participated in the fraud that bilked investors out of $150 million.
NRP was a registered broker-dealer with offices throughout the United States and a member of the Financial Industry Regulatory Authority (FINRA). The firm was acquired by LPL Investment Holdings Inc. about 18 months ago, according to report from Investment News. An LPL spokesman stated in the report that his firm did not assume any NRP liabilities in connection with the purchase.
Most of the funds for the Ponzi scheme — described as “a complete and total fraud” in the complaint — were transferred from the Oxford Private Client Group LLC, which functioned as the Minneapolis branch office for NRP.
The complaint was filed by Carlson Caspers Vandenburgh & Lindquist attorney R.J. Zayed in his capacity as the court-appointed receiver for Oxford and related entities. Many of the victims of the scheme were Oxford clients.
FINRA Public Disclosure Records
Jason Bo-Alan Beckman, a principal of Oxford and a registered representative for NRP from November 2005 through February 2008, was criminally charged in July with eight felony counts, including aiding and abetting wire fraud, aiding and abetting money laundering and conspiracy to commit mail and wire fraud, according to FINRA public disclosure records.
Beckman was in league with Trevor Cook, the principal architect of the Ponzi scheme, who is serving a 25-year prison sentence for his role, according to the complaint. Cook, Beckman and their cohorts promised clients a guaranteed return from what they sold as an ingenious program involving foreign currency arbitrage. The program was sold as a way to garner high returns – the conspirators claimed 10 percent to 12 percent — with little or no risk.
As a key participant in the Ponzi scheme, Beckman used his position as a registered representative of NRP to get clients to move their funds from Oxford’s legitimate investments into the currency trading program.
When Beckman was able to convince clients to move their money, he earned kickbacks which he hid from the investors. He also concealed the fact that he had an ownership interest in the company that was the purported investment manager for the currency program. Beckman also pilfered $7.8 million from Oxford accounts for his own use, the complaint said.
Zayed alleged in the complaint that NRP pursued a course of willful disregard or conscious ignorance of evidence they should have had or that was available to them. Specifically: NRP failed to put procedures in place to properly oversee Beckman and its branch office; failed to investigate the bona fides of instructions to transfer Oxford investor funds to corporate shell entities; and executed transfers of client funds to the shell entities without any proof that the entities were actually related to the currency trading program.
NRP also approved the use of marketing materials that traded on its own reputation, even though the firm knew or should have known that these materials contained false and misleading statements, the complaint said.
Had NRP met it legal duty to supervise Beckman, it would have prevented the transfers of client funds from Oxford to the Ponzi scheme, thereby preserving Oxford’s ability to earn commissions and fees on those funds and protecting Oxford from millions of dollars in liability.
According to the complaint, NRP also substantially assisted the Ponzi scheme in a manner that went beyond willful disregard and conscious avoidance of the evidence of Beckman’s wrongdoing. NRP also “controlled the faucet” that gave the Ponzi scheme its cash flow. Beckman needed NRP’s assistance to transfer money from the Oxford securities accounts.
The receiver alleged that all NRP needed to do — and what the law required it to do — was refuse to allow the transfers until Beckman proved the legitimacy of the transactions. NRP did not do this, even though the high fixed returns with little or no risk to principal promised by the scheme were suspicious on their face and funds were improperly commingled.
“A minimal investigation by NRP would have uncovered the entire Ponzi scheme and turned off the flow of cash forever. Instead, NRP permitted the [Oxford] accounts in their custody to gush forth a flow of tens of millions of dollars into the Ponzi scheme,” the complaint said.
The foreseeable consequence of NRP’s decision to let Beckman operate unchecked was severe economic damages to Oxford and its related entities, such that the firms were unable to meet their obligations to investors, causing the investors general harm, the complaint said.
Seven Counts of Fraud
The complaint includes seven counts, including breach of fiduciary duty, aiding and abetting breach of fiduciary duty, aiding and abetting fraud, and negligence. Oxford and the other receivership entities are seeking recovery of damages suffered as a direct and proximate result of NRP’s actions and omissions, the complaint said. The amount of damages is to be proved at trial.
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