HighTower Advisors LLC of Chicago and one of its brokers, Curtis Lyman,
have been hit by two lawsuits in Florida state court (and at least one
FINRA arbitration case) over the sale of private notes in a feeder fund
which has been exposed as a
Mr. Lyman, an adviser based in Palm Beach, Florida, sold promissory notes
to his clients issued by Banyon 1030-32 LLC. Capital raised through the
Banyon notes was then routed to disbarred Florida lawyer Scott Rothstein.
Banyon was supposedly investing the capital in structured legal settlements
through Mr. Rothstein. Banyon defaulted on the notes in November when
the $1.4 billion Ponzi scheme collapsed.
Mr. Rothstein pleaded guilty in January to running the scheme. He is currently
in jail awaiting sentencing. Mr. Rothstein faces up to 100 years in prison
for running the scheme that sold nonexistent legal settlements.
The lawsuits allege that Mr. Lyman and HighTower failed to conduct due
diligence into Banyon. Plaintiffs claim that Mr. Lyman sold the notes
as low-risk, safe, and secure investments.
This is just another example of
private placement deals gone wrong. Broker-dealers across the country are facing increasing
scrutiny from regulators and investors over their role in offering private
placements. Recent, high-profile collapses of private placement offerings
such as Provident Royalties and Medical Capital Holdings (both of which
were exposed as Ponzi schemes) have provoked substantial litigation over
broker-dealers’ due diligence into the companies behind the offerings.