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Tuesday, February 26, 2008

Did broker pray with, bilk clients?

Monday, February 25, 2008

In the past decade, the case shows losses of almost $20 million.

MCCLATCHY NEWSPAPERS

MIAMI — With a prayer shawl draped over his shoulders, stockbroker Gary Jay Gross cradled the Torah at the Chabad of Boca Raton — praying with worshippers and recruiting them as investors.

One was the rabbi. Another was an elderly widow. Another was a Holocaust survivor who met the broker at a Jewish scholarship dinner.

For their trust, the charismatic stockbroker promised to watch over their retirement accounts — persuading congregation members and others to funnel their money into the brokerage where he worked.

For years, Gross convinced clients he was honoring his pledges — in some cases, boasting double-digit returns on their investments.

But what the elderly clients say they didn’t know: The self-styled investment guru was wiping out their accounts in risky, highly volatile securities — losing millions — while racking up huge commissions for himself, according to arbitration complaints.

Along the way, investors say, he falsified reports to cover his tracks and hide the losses.

The FBI has just begun an investigation into a case that shows losses nearing $20 million in the past decade — the numbers rising with more clients emerging, according to arbitration claims.

Some clients have put their homes up for sale; others are seeking help from bankruptcy lawyers.

“I was suicidal when I found out,” said Sheila Kramer, 72, of Deerfield Beach, Fla., who lost $1 million.

The investigation is a case study of a state regulatory system unable to stop a troubled broker who left a trail of red flags.

Years before the latest wave of complaints, the Florida Division of Securities was warned about Gross — with numerous investors stepping forward — but no disciplinary action was taken, The Miami Herald found.

To this day, Gross has one of the longest records of complaints in the nation.

A Miami Herald analysis of nearly 600,000 stockbrokers found that he had more complaints against him than 99.9 percent of all brokers.

Nearly 100 of his former clients at Boca Raton’s Axiom Capital Management — including actor Henry “The Fonz” Winkler of TV’s Happy Days — are now his creditors.

“I had such faith,” said widow Carol Hoffer, 75, who entrusted her entire savings to Gross before her husband died. “I thought Gary was such a templegoer that he would be honest in his dealings.”

Gross has tried to distance himself from the scandal, resigning in January from the Boca Raton brokerage where he worked for five years. He has not been charged with any crimes.

The firm has paid nearly $3.8 million to some of the former investors.

For now, Gross, 56, says he doesn’t want to talk about the investigation. “These clients had investments that went down,” he said. “It’s that simple.”

But lawyers and investors say that it’s not that simple, that for years he parlayed his position as a member of an established synagogue to meet new customers — and later betrayed them.

Nearly a dozen investors said they trusted Gross, in part because of the devotion he showed to Orthodox Judaism, promoting himself as mishpoche: part of the family. Sometimes, he would wear his prayer shawl to the office, literally cloaking himself in Yiddishkeit.

That wasn’t the only thing that impressed his clients. Gross showed all the signs of success: expensive clothes; a Jaguar XJ; a home and country club membership at the Boca Raton Polo Club.

And he was eager to share with his clients, buying them show tickets and taking them to fancy restaurants, according to interviews.

From hundreds of court and arbitration records, a snapshot of Gross’ career emerges: A business graduate of Hofstra University, he owned dry cleaners before obtaining a broker’s license in November 1993 — shortly before filing for his first bankruptcy.

His first job was with Smith Barney in Boca Raton, and eventually he moved to Raymond James in 1996.

The following year, customers began to accuse him of sinking their money into unsuitable securities — not in keeping with investment objectives. But in each case, the brokerage denied the claims.

Gross moved to his third brokerage, CIBC World Markets Corp., in 1998, incurring new complaints — allegations of unsuitable investments — with his employer making several settlements.

But it wasn’t until he moved to UBS Financial Services in 2000 that the first big wave of complaints began — with investors claiming much bigger losses, records show.

With complaints mounting, Gross was allowed to resign from the brokerage “for conduct inconsistent with firm policies and standard business practices,” industry records state.

But it wasn’t so easy to move to his next firm. When he reapplied with the state to work at Axiom — a standard requirement — regulators began an inquiry.

Numerous investors were interviewed and hundreds of documents inspected by the state, but no actions were taken — even though lawyers for a half-dozen investors managed to settle more than $1 million in claims with UBS.

Instead of stopping Gross, the state agreed in 2003 to allow him to continue selling stocks. But regulators required him to be placed under “heightened supervision” — a form of self-monitoring in which the brokerage takes responsibility for a broker’s actions.

However, the supervising broker put in charge of Gross, David V. Siegel, had troubles of his own.

In the late 1990s, Siegel was censured, fined and suspended by out-of-state regulators for charging consumers unfair prices, records show. The day his supervisory duties began, he was in personal bankruptcy.

The state’s decision to allow Gross to continue as a broker proved costly.

Over the next four years, dozens of Axiom customers — some recruited at the synagogue — claimed they lost millions of dollars in personal investments turned over to Gross, in some cases their life savings.

At least 23 customers alleging a host of misdeeds — including fraud, mispresentation, excessive trading, and falsifying statements — lost at least $10 million, according to industry records.

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