Former GunnAllen, Questar broker charged with fraud in Ponzi scheme
The Securities and Exchange Commission last week charged Frank Bluestein with fraud for allegedly being the single-largest salesperson in a $250 million Ponzi scheme that collapsed in August 2007.
The Securities and Exchange Commission last week charged Frank Bluestein with fraud for allegedly being the single-largest salesperson in a $250 million Ponzi scheme that collapsed in August 2007.
According to the SEC’s complaint, from 2002 to 2007, he was responsible for soliciting about 800 investors who invested $74 million in the scheme, which allegedly was operated by Edward May and his company, E-M Management Co. LLC.
In November 2007, the SEC charged Mr. May and his firm in connection with the scheme, which allegedly centered on phony Las Vegas casino and resort telecommunications deals.
Mr. Bluestein was affiliated with Questar Capital Corp. from 2000 to 2005 and then moved to GunnAllen, where he was an affiliated representative until October 2007, a few months after the Ponzi scheme collapsed, triggering a number of investor arbitration complaints against both firms.
The SEC complaint, however, mentions neither firm, saying that he “did not sell the E-M securities” through a broker-dealer and that the offerings didn’t appear on client statements. However, the firms through which Mr. Bluestein worked “provided the E-M offerings with an aura of legitimacy, and engendered trust from potential investors.”
He “lured elderly investors into refinancing the mortgages on their homes,” the SEC alleged, and he conducted numerous seminars to find new investors. At the seminars, which were often held in California and Michigan, Mr. Bluestein would often ask attendees who already invested in the E-M offering if they had “received their Ed May checks?” or “How do you like those Ed Mays?”
Mr. Bluestein allegedly told investors that the investments were low-risk, and Mr. May coordinated contracts with hotels for the installation of equipment such as televisions and gaming consoles. Mr. Bluestein’s due diligence for the deals was shoddy and incomplete, according to the SEC complaint.
He also misled investors about the compensation he received from the offerings, the SEC charged. On top of the $1.4 million in disclosed compensation, Mr. Bluestein allegedly received $2.4 million in commissions from Mr. May and E-M Management.
David Levine, executive vice president at GunnAllen, said that the SEC’s charges against Mr. Bluestein were “positive. We think the regulators are on the right track.
“The SEC did not vindicate or validate GunnAllen in any way,” Mr. Levine said. “But the SEC’s action against [Mr. Bluestein] backs up GunnAllen’s assertion” of the past two years that he “hid and perpetrated a scheme designed to circumvent all reasonable” supervision, he added.
“The SEC’s complaint notes that Bluestein did not sell E-M securities through us, nor did the sales cross our books and records,” said Questar spokeswoman Emily Porter, adding that the firm was never involved in the sale of E-M offerings.
David Foster, Mr. Bluestein’s attorney, didn’t return a call seeking comment.
E-mail Bruce Kelly at [email protected] and Sara Hansard at [email protected].
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