Wny Investment Firm Sued For Involvement In Ponzi Scheme

Attorney General Spitzer today announced a lawsuit against a prominent Western New York insurance and brokerage firm for its involvement in an investment scheme that swindled hundreds of consumers.

Justin Financial Services (JFS) of Depew, and its operators, Alan Justin, Sr. and his sons, Todd J. Justin and Alan J. Justin, Jr., were served with a lawsuit seeking at least $12.5 million in restitution for investors, plus significant civil penalties, and a court order barring the participants from the securities industry.

The lawsuit also brought civil claims against affiliated firms, Goldome Capital Management (GCM) and Financial Network Investment Corporation, and twelve other individuals for fraudulently selling securities of ETS Payphones, Inc. (ETS) of Lithia, Georgia.

"The financial services industry has been trusted to look after the financial interests of its customers and therefore needs to be held to the highest standards," Spitzer said. "The participants in this scheme - which took the life savings of vulnerable and inexperienced elderly investors - need to be held accountable for their actions."

According to Spitzer's complaint, JFS and its affiliate, GCM, were motivated by the prospect of extraordinary sales commissions to target seniors with limited financial means and little investment experience for investment in high risk ventures involving the sale of ETS's pay telephones. The investment opportunity turned out to be nothing more than a ponzi scheme.

The lawsuit, filed in State Supreme Court in Erie County, alleges that JFS brokers pressured elderly investors into liquidating their CDs, annuities and IRAs, sometimes at significant penalty, with promises of "risk-free," 14 percent returns.

In addition to misrepresenting the investment as risk-free, the brokers made significant false claims about ETS's profitability. The lawsuit alleges that JFS recklessly disregarded the interests of its investors, who relied on the brokers' judgment due to long-standing investment relationships, by failing to adequately analyze and investigate ETS's profit claims.

Spitzer's investigation determined that ETS was, in fact, a pyramid that depended on monies raised through continuous sales to new investors, rather than operating income, in order to make monthly payments to owners.

Also a defendant in the lawsuit is Financial Network Investment Corp. (FNIC)- a Torrance, California broker-dealer firm owned by Aetna Retirement Systems - through which those of the defendants with licenses to sell securities were registered. Spitzer's office alleged that FNIC could have halted the scam by adequately supervising the JFS brokers it had registered. According to the legal papers, FNIC was aware of numerous problems at JFS, its Western New York branch, including:

  • the branch manager, Alan Justin, Jr., along with JFS, had been fined by the State for committing numerous violations of the Insurance Law;

  • the only broker with experience in selling securities, Jay Gianni, had been terminated from his last position for selling an unsuitable investment;

  • the other brokers had no experience in financial investments before working for FNIC (brokers included a former waitress, a car salesman, a waste management worker and an electrician); and

  • an extreme drop-off in sales of legitimate FNIC financial products by the defendants.

In December 2001, Spitzer's office entered into an agreement with California-based National Planning Corp. (NPC) which agreed to pay $5.9 million to 365 investors in this scam. JFS brokers registered through NPC after resigning from FNIC.

In total, it is estimated that, nationally, some 18,000 individuals invested approximately $300 million in ETS before the company filed for bankruptcy reorganization in federal court in Georgia in November 2000.

Spitzer's office is suing the securities and insurance companies and the brokers involved in this scam under the Martin Act, which governs the offer and sale of securities, commodities and other investment vehicles in and from New York State. The lawsuit also alleges that the defendants violated a state law that calls for increased civil penalties for fraudulent acts perpetrated against elderly persons, causing them to suffer loss of residence, income or property set aside for retirement or other assets essential to the health or welfare of the elderly.

Individuals interested in filing a complaint against Justin Financial Services, Goldome Capital Management, Financial Network Investment Corporation or any of the brokers are encouraged to contact the Attorney General's consumer help line at (800) 771-7755.

This case is being handled by Assistant Attorney General Dennis Rosen and Senior Investigator Peter Eiss of the Buffalo Regional Office.

The parties named in the lawsuit include a number of individual brokers and firms paying commissions to insurance agents and securities brokers, including:

COMPANY NAMEADDRESSDESCRIPTIONINVOLVEMENT IN THE
ETS PONZI SCHEME
Financial Network
Investment Corp.
2780 Skypark Dr.
Suite 300
Torrence, CA 90505
Securities broker-dealer located in Torrance, CaliforniaApril 1998 - May 14, 1999, company under which broker defendants were registered to sell securities
Justin Financial Services3260 Walden Avenue
Depew, NY
Local company that sells insurance and investment productsIts sales people sold ETS
Goldome Capital Management3260 Walden Avenue
Depew, NY
Corporation whose sole purpose became investment sale of ETSCompany under which brokers received commissions for sales of ETS investments
NAMEADDRESSDESCRIPTIONCONTRACTSAMOUNTS
Justin, Todd J.27 Quail Run Lane
Lancaster, NY
Registered insurance agent
GCM - Vice President, shareholder, salesperson
138 contracts$4,395,600
Justin, Alan Sr.25 Stonehenge Dr.
Lancaster, NY
GCM - President, shareholder
JFS - officer, shareholder
  
Justin, Alan Jr.41 Hillside Parkway
Lancaster, NY
Registered under FNIC for securities sales
Licensed insurance agent
FNIC - branch manager, responsible for brokers' compliance with securities laws
JFS - officer, shareholder
  
Justin, Eric J.13 Quail Run Lane
Lancaster, NY
Registered under FNIC for securities sales
Licensed insurance agent
91 contracts$1,491,700
Justin, Patrick J.360 Park Club Lane
Williamsville, NY
Registered under FNIC for securities sales
Licensed insurance agent
JFS - sales agent
GCM - sales agent
91 contracts$1,784,650
Gianni, Jay J.18 Hillside Parkway
Lancaster, NY
Registered under FNIC for securities sales
Licensed insurance agent
JFS - sales agent
GCM - sales agent
225 contracts$6,695,800
Gianni, Mary Beth18 Hillside Parkway
Lancaster, NY
Gianni Financial Services - secretary (wife of Jay Gianni)  
Sada, David M.304 Wayside Drive
Cheektowaga, NY
Registered under FNIC for securities sales
Licensed insurance agent
JFS - sales agent
GCM - sales agent
77 contracts$1,243,500
Sada, Michelle304 Wayside Drive
Cheektowaga, NY
wife of David Sada  
Coughlin, Yun C.109 Norris Avenue
Lancaster, NY
Registered under FNIC for securities sales
Licensed insurance agent
JFS - sales agent
GCM - sales agent
31 contracts$ 838,250
Mueller, Ronald H.1849 Staley Road
Grand Island, NY
Registered under FNIC for securities sales
Licensed insurance agent
JFS - sales agent
GCM - sales agent
35 contracts$ 819,000
Jung, Thomas J.46 Stevenson Street
Buffalo, NY
Licensed insurance agent
JFS - sales agent
GCM - sales agent
66 contracts$1,437,250
Marciniak, Brian89 West Avenue
Buffalo, NY
Licensed insurance agent
FS - sales agent
CM - sales agent
33 contracts$ 474,950
Schemm, William86-75 Rockwood Road
Boston, NY
GCM - sales agent12 contracts$ 252,000M
Crystal, Michael3944 Allendale Pkwy
Blasdell, NY
GCM - sales agent18 contracts$ 350,000

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