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HighTower Advisors Linked to $1.4 Billion Ponzi Scheme

David P. Meyer, Esq.

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 Ponzi scheme.

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.