A top brokerage executive affiliated with a unit of Allianz Life Insurance Company of North America bought shares of unregistered investments created by Edward May, who was charged last month by the Securities and Exchange Commission with a massive $250 million fraud that victimized as many as 1,200 investors.
The executive who purchased the allegedly bogus shares, Jason Kavanaugh, is senior vice president of mergers and acquisitions with Questar Capital Corp., which Golden Valley, Minn.-based Allianz Life acquired in 2005.
At the time, Mr. Kavanaugh was a partner and director of marketing for the firm.
Brokerage executives typically are required to maintain all of their own personal securities accounts at their firm or report all outside transactions for compliance purposes.
Mr. Kavanaugh paid $57,000 in November 2006 to buy “two units” of ATL Project One LLC, which was offered by E-M Management Co. LLC., according to a copy of a check from Mr. Kavanaugh that was supplied to
InvestmentNews.
Mr. May and E-M Management, which was based in Lake Orion, Mich., offered phony deals to investors in the form of shares in bogus Las Vegas casino and resort telecommunications transactions, according to the SEC
(InvestmentNews, Nov. 26) .
The FBI is also investigating Mr. May
(InvestmentNews, Oct. 22).
“At an absolute minimum, it's extremely rare to see something like this take place," said Andrew Stoltmann, a plaintiff's attorney and partner in Stoltmann Law Offices PC in Chicago, of Mr. Kavanaugh's investment.
"It isn't good for the brokerage firms for someone this high up to be involved," said Mr. Stoltmann, who spoke last week with two investors in Edward May investments about potential claims. “It doesn’t pass the smell test and won’t play well in front of arbitrators.”
Questar, also based in Golden Valley, merged last year with US Allianz Securities. The combined firm has more than 1,000 affiliated reps and advisers.
Questar Capital and Mr. May have a direct link: A broker formerly affiliated with Questar, Frank Bluestein, sold some of the phony investments and is under investigation by the Michigan Office of Financial and Insurance Services
(InvestmentNews, Oct. 15) .
Mr. Bluestein was affiliated with Questar from January 2000 to March 2005, according to records filed with the Financial Industry Regulatory Authority Inc. of New York and Washington. He then joined GunnAllen FInancial Inc. of Tampa, from which he resigned in October.
“Frank Bluestein left Questar Capital Corp. more than two and half years ago, in April 2005,” Juli Wall, an Allianz Life spokeswoman, wrote in an e-mail.
“The transaction in question apparently occurred in November of 2006, more than a year and half after Bluestein left Questar Capital Corp.”
"The purchase of an unregistered security is not, in and of itself, wrong," she wrote. "Beyond that, it is our policy that we do not comment upon the personal investments of our employees."
For the full report, see the upcoming Dec. 17 issue of InvestmentNews.
