Erez Law recently filed a FINRA arbitration against Western International Securities. The customers allege that Dawn Bennett (CRD #1567051) and later Bradley Mascho (CRD #2039720), who were registered representatives of Western International Securities, caused them to suffer significant losses to their irreplaceable retirement savings.
The retired Pennsylvania couple was a longtime customer of Bennett, dating back to the late 1990s. The customers, who were inexperienced investors and not interested in high-risk investments or strategies, turned to Bennett to help invest the proceeds from a 401k rollover, funds which represented the overwhelming majority of the customers irreplaceable retirement savings. The customers worked with Bennett while she was employed by Legg Mason Wood Walker, Inc., Royal Alliance Associates, Inc. and then Western International Securities.
To the detriment of the client, Bennett and Western International Securities recklessly mismanaged the clients’ irreplaceable retirement savings between 2012 and November 2015, gambling on precious metals investments and shorting the financial markets. Not only did Bennett prevent the customers from participating in the greatest bull market in a generation, but she actually implemented a strategy designed to use the customers’ irreplaceable retirement savings to bet against the financial markets, causing the clients to suffer significant losses.
It is alleged that Bennett recommended the clients invest in, among many others:
- ProShares Short Dow30 Exchange Traded Fund, designed to return -1x the return of the Dow Jones Industrial Average, a basket of 30 large US companies and is a barometer for the stock market. Whatever gains the Dow enjoyed, the Short Dow ETF suffered the same percentage loss on a given day.
- ProShares Short QQQ ETF, designed to return -1x the return of the Nasdaq 100 Index, a basket of 100 of the largest non-financial US companies listed on the Nasdaq stock market. Whatever gains the Nasdaq 100 enjoyed, the Short QQQ ETF suffered the same percentage loss on a given day.
The “short” ETFs Bennett purchased in DENNIS’ retirement accounts are designed to hedge against the market, and to be held for one trading session (i.e. day trading). By holding these short ETFs for longer periods of time, investors may realize even greater losses. In fact, by holding these investments for longer periods of time, investors may lose money on their investment, even where the underlying market index has moved in a favorable direction during the same time period. There was no reasonable basis for the customers to short the market over a period of several years. Bennett’s strategy was to hold these short ETFs, often for months at a time, and was inherently unsuitable.
Erez Law alleges that Bennett failed to adequately disclose to the customers the risks associated with the investments she recommended and purchased. In fact, Bennett routinely failed to obtain the customers’ required prior authorization before executing transactions, and therefore these transactions were unauthorized. In addition, Bennett recommended an unsuitable concentration in precious metals investments, which was not consistent with the customers’ objectives and risk tolerance.
Furthermore, it is alleged that Bennett’s irrational and poorly constructed strategy precluded the customers from investing his irreplaceable retirement savings in a legitimate and suitable portfolio that would have appreciated significantly during the same time period. For example, the customers’ IRA declined by 57% between September 2012 and November 2015, but during that same time period the NASDAQ increased by more than 66% and the S&P 500 index increased by 48%. Unfortunately for the customers, Bennett’s reckless investment strategy precluded them from participating in these gains.
In late 2015, the customers were notified that Bennett was no longer employed with Western International Securities, and that Mascho would be taking over as the new financial advisor. Unbeknownst to the customers, Bennett was fired by Western International Securities in November 2017, after she was caught illicitly selling promissory notes to her Western International Securities customers. Mascho failed to recommend the customers liquidate the unsuitable investments or otherwise diversify the investment portfolio and instead recommended the customers continue with the same strategy of excessively concentrating his irreplaceable retirement savings in precious metals investments.
In January 2018, the customers were informed that Mascho was no longer employed with Western International Securities.
The customers have suffered significant losses to the irreplaceable retirement savings as a result of Bennett and Western International Securities’ fraud, supervisory failures and other misconduct.
In February 2018, Western International Securities was sanctioned by FINRA and ordered to pay more than $646,000 in fines and restitution for, amongst other things, failing to conduct adequate due diligence and failing to adequately supervise its employees in connection with the sale of the same or similar non-traditional ETFs at issue in this case.
Bennett was registered with Western International Securities, Inc. in Washington, DC from 2009 to 2015 when she was “permitted to resign” regarding, “Firm decision following discovery of promissory notes with firm customers by registered representative’s company without disclosure to the firm.” Bennett was the founder and owner of Defendant DJB Holdings, LLC, a Washington D.C.- based retail sports apparel business, and a former radio host of “Financial Myth Busting with Dawn Bennett.”
In August 2017, The Securities and Exchange Commission (SEC) charged Bennett with running a Ponzi Scheme. The SEC alleged that between December 2014 and July 2017, Bennett raised more than $20 million from at least 46 investors through the unregistered offering of DJBennett convertible and promissory notes, by making materially false and misleading statements and omissions concerning, among other things, DJBennett’s financial condition and operating performance, the risks associated with the investment, and the intended use of investor proceeds.
Bennett had lost a significant portion of her financial advisory clientele and her company DJBennett was not profitable. Additionally, it is alleged that Bennett accumulated a variety of personal financial obligations, but she continued to spend considerable sums to fund her extravagant lifestyle. To finance her company DJBennett, Bennett allegedly targeted elderly and financially unsophisticated investors by materially misrepresenting the company’s profitability and by claiming the company had the resources to pay annual rates of return as high as 15%. Bennett told investors that the funds would be used for corporate purposes, however it is alleged that she used the proceeds for a variety of improper purposes, including payments to earlier investors in the nature of Ponzi scheme, to service debt, and a variety of luxuries, such as jewelry, high-end clothing, mystics, and a $500,000 annual lease for a luxury suite at AT&T Stadium in Dallas. She also lied about DJBennett’s extensive liabilities and the risks associated with the investment.
The SEC also alleges that Bennett employed a variety of other fraudulent devices to further the scheme and to avoid detection. “Among other things, Bennett lied to Broker Dealer 1 and a regulator about her ongoing note sales; fraudulently obtained several loans by submitting fabricated brokerage statements that inflated her net worth and then used the proceeds, in part, to make interest and redemption payments; and replaced previously sold convertible notes with nine-month promissory notes in an apparent attempt to have the promissory notes deemed loans.”
Pending civil charges include felony bank fraud, felony false statements in relation to loan and credit application, and felony wire fraud.
In March 2017, a former client of Bennett won a $1 million FINRA arbitration regarding the client’s investment in the SPDR Gold Shares exchange traded fund. The former client alleged the following causes of action: breach of the general duties of reasonable care, honesty and disclosure; recommending unsuitable investments in violation of Fla. Stat. §517.301; common law fraud; breach of fiduciary duty; failure to supervise; and negligence. The panel found that Bennett and Western International Securities, Inc. were liable for recommending unsuitable investments and failure to supervise and were ordered to pay to the claimant the sum of $763,740 in compensatory damages plus interest, as well as $26,620.00 in expert witness fees, a $375 claim filing fee, and $252,034.00 in attorneys’ fees.
In November 2016, “Bennett was named a respondent in a FINRA complaint alleging that she has failed to provide information and documentation requested by FINRA in an investigation involving potentially serious violations, such as conversion, fraud, and private securities transactions. The complaint alleges that on four separate occasions, Bennett failed to appear and provide testimony requested by FINRA.” This investigation is currently pending.
In September 2015, The U.S. Securities and Exchange Commission (SEC) barred Bennett and sanctioned her to pay $600,000 in civil and administrative penalties and fees and $556,102 in disgorgement. According to the statement, the SEC investigation found that between 2009 and February 2011, Bennett “made material misstatements and omissions regarding assets that were purportedly ‘managed’ for investors and regarding investment returns for the purpose of retaining existing customers and attracting new customers.” Additionally, Bennett and Western International Securities, Inc. “made additional misstatements in an effort to obstruct the investigation and to ‘cover up’ their prior fraud.” It is alleged that Bennett and Western International Securities, Inc. overstated their managed assets by at least $1.5 billion, to inflate their “profile and prestige” to a local radio station, a national financial ranking service, and in other advertisements and communication with prospective clients. The claim also alleges that Bennett touted her “firm’s highly profitable investment returns” that placed Western International Securities, Inc. in the “top 1%” of firms worldwide; however, she did not disclose that the returns were of a model portfolio and not of actual customer returns. The investigation allegedly found that Bennett and Western International Securities, Inc. falsely claimed to have given advice regarding $1.5 billion in corporate assets.
In addition to the case above, Bennett has been the subject of 14 customer complaints between 1995 and 2017, one of which was denied, according to her CRD report:
- December 2017. “Unsuitability; Elder Abuse.” The customer is seeking $600,000 in damages and the case is currently pending.
- November 2016. “Unsuitable recommendations.” The customer is seeking $100,000 in damages and the case is currently pending.
- August 2016. “Unsuitability.” The customer is seeking $274,000 in damages and the case is currently pending.
- July 2016. “Unsuitability.” The customer is seeking $100,000 in damages and the case is currently pending.
- May 2016. “Misrepresentation & Unsuitability.” The customer is seeking $100,000 in damages and the case is currently pending.
- February 2016. “Unsuitability.” The customer is seeking $99,999 in damages and the case is currently pending.
- January 2016. “Unsuitability.” The customer is seeking $499,999 in damages and the case is currently pending.
- July 2015. “Claimants alleges a lack of diversification in portfolio during the period Nov 2010 through May 2014.” The customer sought $16,944 in damages and the case was settled for $15,801.15.
- March 2015. “Misrepresentation.” The case was settled for $65,500.
- February 2014. “breach of the general duties of reasonable care, honesty and disclosure; recommending unsuitable investments in violation of Fla. Stat. Section 517.301; common law fraud; breach of fiduciary duty; negligence.” The client was awarded $850,000 in damages.
- March 2013. “Following a relationship over fifteen years, client, a non-practicing attorney, filed a claim alleging that, despite her approval on all transactions in her accounts during the period 2006-2012, certain transactions violated a duty owed to her. The records show the client authorized the transactions in the non-discretionary accounts. We believe the allegations are without merit and deny the claim in its entirety.” The client sought $1,625,760 in damages and was granted $100,000.
- February 2013. “Despite their financial sophistication and wealth of experience, clients, who authorized all trades before they were entered, allege breach of various duties arising from “Unsuitable” transactions from 2010-2012, a period that was five years after they began their relationship. Because the allegations are without merit and are brought in bad faith, we intend to seek a dismissal of the arbitration and the awarding of all legal and arbitration related fees.” The client sought $1,935,230 in damages and was granted $200,000 in damages.
- June 1995. “Client alleges the margin trading account’s record of realized profit & loss was misrepresented; the nature of stocks held for investment purposes in the trading account was misrepresented; that the margin account was excessively trading; and that the maintenance of the margin account was unsuitable given the magnitude of losses and suffered therein. client seeking damages in the amount of $1,151,715.” The case was settled for $450,000.
Mascho was registered with Western International Securities, Inc. in Frederick, Maryland from 2009 to December 2017, when he was terminated regarding the Securities and Exchange Commission (SEC) investigation regarding, “Violations of Section 5(a) and (c), Section 17(a) of Securities Act of 1933, Section 10(b) and 10b-5 of the Securities Exchange Act of 1934.”
In January 2018, FINRA barred Mascho after he consented to the sanction and to the entry of findings that he refused to appear for a FINRA-requested on-the-record testimony during an investigation into his potential serious violations, including fraud, undisclosed outside business activities, and private securities transactions.
The SEC alleges that Bennett and Mascho employed a variety of other fraudulent devices to further the scheme and to avoid detection, including circumventing security systems, obtaining fraudulent loans to meet investor demands for interest and redemption payments, and directing investors to execute new short-term promissory notes (and backdating the note to the original investment date) as part of a misguided effort to place their activities outside the jurisdiction of the antifraud provisions of the federal securities laws.
Pending civil charges include conspiracy to commit securities fraud, securities fraud; aiding and abetting; and wire fraud conspiracy.
In addition to the case above, Mascho has been the subject of one customer complaint, according to his CRD report:
- March 2015. “Unsuitable recommendations.” The customer sought $305,000 in damages and the case was settled for $137,500.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.