Erez Law Files Claim Against USCA Securities LLC for Eros International Losses

USCA Securities LLC

Erez Law recently filed a FINRA arbitration against USCA Securities LLC related to recommendations by Patrick Mendenhall (CRD #1068809), who is the founder and CEO of USCA Securities LLC in Houston, Texas. The complaint alleges that USCA Securities LLC actions have caused the Erez Law clients damages in excess of $5,000,000.

The Erez Law client alleges the following in the newly filed FINRA claim:

Erez Law alleges that elderly retirees entrusted their irreplaceable retirement savings to the broker and USCA Securities LLC. The Erez Law client was of advanced age and interested in investments that would preserve capital and generate a modest degree of dividend income without undue risk. The client placed a high degree of trust and confidence in USCA Securities LLC and the client Mendenhall. 

According to the claim, USCA Securities LLC and the broker recommended a highly speculative and unsuitable investment strategy of dangerously concentrating the Petersons’ retirement savings in a speculative stock, Eros International, which is an Indian media company involved in films, television and media content. The complaint alleges that the broker induced the client to invest in Eros International by representing to the client that Eros International stock was undervalued and that Eros International represented a tremendous investment opportunity. The broker allegedly further represented to the client that he gained interest in the stock through a client of his that was very close friends with an officer of Eros International. 

According to the claim, the broker represented to the client that he was personally investing his own funds in Eros International. Based on the broker’s recommendations and representations, the client made his first investment in Eros International in February 2016—around the time of his retirement.

The broker’s alleged recommendation to dangerously overconcentrate the clients’ irreplaceable retirement savings in a single speculative stock was reckless, unsuitable and, quite simply, indefensible. Furthermore, it is alleged that the broker magnified the already significant risks associated with his dangerously concentrated strategy by recommending the excessive and unsuitable use of leverage and options trading.

The complaint alleges that Patrick Mendenhall also recommended that the client use leverage to add to his already dangerously concentrated investment in Eros. The broker allegedly represented to the client that the margin loan he recommended would incur very low interest charges of approximately 1%, that the interest charges were “very low” and assured the client “don’t worry about it.” By December 2019, the broker’s unsuitable recommendations caused the clients’ margin balance to balloon to nearly $1.5 million.

According to the claim, the broker’s leveraged and concentrated investment strategy only served to magnify the already significant level of risk to which the the clients were unknowingly exposed. It is alleged that the broker’s strategy of combining the excessive and unsuitable use of leverage in an account that was already dangerously concentrated in a single speculative and high-risk stock was reckless, unsuitable, and was not in the clients’ best interests. It is alleged that the broker failed to adequately disclose the extreme level of risk attendant to his concentrated and leveraged strategy.

Erez Law alleges that the broker also recommended the unsuitable use of options trading in connection with Eros International. The broker recommended the clients engage in selling puts, selling calls and buying calls in Eros International. The client had very limited knowledge and experience trading options. Unsurprisingly, the broker recommended the specific option contracts to buy and sell, the strike price and the number of contracts. Regrettably, the client again succumbed to the broker’s recommendations. 

It is alleged that the broker recommended that the client purchase additional shares, even when the stock price declined, in order to reduce his cost basis. Naturally, those additional purchases only increased the the clients’ overall risk exposure with respect to Eros International. The client again followed the broker’s investment recommendations. 

The complaint alleges that the broker misled the client by, amongst other things, minimizing the significance of the financial issues plaguing Eros International and assuring the client that Eros International was viable. When the client asked the broker whether he should sell his Eros International shares, the broker allegedly recommended the client continue to hold his Eros International shares and advised the client against selling. The broker allegedly assured the client that Eros International stock “has nowhere to go but up.”

In July 2020, U.S. film studio STX Entertainment (STX) merged with Eros and formed Eros STX Global Corporation (“Eros STX Global”). In February 2022, Eros STX Global implemented a one-for-twenty reverse split. In April 2022, the merger was no longer feasible and STX was separated from Eros STX Global and the remaining entity was renamed Eros Media World plc (“Eros Media World”). Throughout this period, it is alleged that the broker represented to the client that he was not selling his own shares of Eros International and recommended that the client also continue to hold his Eros International shares. By July 2022, Eros Media World stock was trading at approximately $2.30 per share, after the one-for-twenty reverse split. In other words, Eros International’s shares were worth just $0.115 per share after accounting for the one-for-twenty reverse split. 

The brokers’ reckless investment strategy allegedly caused the clients to suffer devastating losses. The client sold the majority of his Eros World Media shares and realized staggering losses.

The complaint alleges that had the clients’ capital invested in Eros International been invested in suitable investments, then the clients’ would have earned a significant return on their capital. 

Patrick Mendenhall Investigation

He has been the subject of three customer complaints, dating from 2000 to 2023, one of which was denied, according to his CRD report. The most recent complaint was regarding: 

October 2023. “Client is an experienced investor with an estimated net worth of over $6.5 million who actively monitored and participated in investment decisions in his accounts. Client complains of losses and missed opportunity related to specific investments that go back five years, but overall his accounts were profitable while at USCA. One security the client complains about was initially recommended by USCA, but the client continued to make unsolicited purchases when the security’s price had already started to decline. The client also makes claims related to missed opportunity in another stock that was sold as part of an agreed upon covered call strategy but later increased in price.” The customer sought $3.5 million in damages, and the complaint was denied.

October 2019. “Plaintiff makes various legal claims related to recommendations to purchase and hold a particular security. The specific security and activity dates are not specified.” The customer sought $1,000,000 in damages, and the case was settled for $200,000.

How to File a Claim Against Patrick Mendenhall

Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If you 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.

"*" indicates required fields

Please do not include any confidential or sensitive information in this form. Submitting this form does not create an attorney-client relationship.

Author: Jeffrey Erez

The founder of Erez Law, Jeffrey Erez, focuses exclusively on securities arbitration and litigation. Mr. Erez passionately believes in representing aggrieved investors and obtaining justice for his clients through litigation.