Two Ferris Baker Watts executives have taken voluntary paid leave while federal regulators probe the firm's trades on behalf of a client who allegedly bilked investors out of tens of millions of dollars.
The Baltimore investment firm said Louis Akers Jr., director of Ferris Baker's private client group, and Patrick Vaughan, director of retail sales, have stepped aside while the company's outside counsel investigates the matter. The firm said neither it nor its clients lost money as a result of the trading activity.
The executives' decision is the latest fallout from a federal probe of an investment fund set up by David A. Dadante, a Cleveland man who, according to a Securities and Exchange Commission lawsuit, took in about $50 million from investors.
Dadante diverted some of the funds for his own use and to amass a 35 percent stake in Innotrac, an order processing firm near Atlanta, according to the lawsuit. Some of the trades in Innotrac were placed through Stephen J. Glantz, a Ferris Baker broker who left the company in 2005.
Robin Oegerle, a Ferris Baker spokeswoman, confirmed that the SEC and the Justice Department are investigating the trading activity. The company said Akers and Vaughan temporarily stepped aside while the firm's outside counsel probes what role -- if any -- the executives played in overseeing the trades.
Marc Powers, a New York securities lawyer and former SEC enforcement official, said firms often bring in outside counsel to show clients and regulators they are serious about getting an independent assessment of any improprieties.
He said it's also common for outside counsel to ask top officials who may be close to the inquiry to step aside while the investigation proceeds.
"It doesn't necessarily reflect any form of wrongdoing by these individuals," Powers said.
"At the same time, it would highlight some of the areas in the organization where the inquiry is focused," Powers said.
The company stressed that neither executive has been asked to resign and that it hopes both will return once the investigation is complete.
"This arose from a trading problem in the Cleveland office several levels below Mr. Vaughan," said Neil Eggleston, Vaughan's lawyer. "We hope we will be able to work this out with the firm quickly."
Ty Cobb, Akers' lawyer, said: "At the end of this investigation, I do not anticipate Mr. Akers being punished in any way by the SEC or associated in any regard with wrongdoing."
Gary Marino, formerly manager of Ferris' Baltimore office, has stepped in as acting director of retail sales while Vaughan is on leave, Oegerle said.
Dadante and his IPOF fund cheated more than 100 investors out of tens of millions of dollars, according to a civil complaint the SEC filed in April in federal court in Ohio.
While promising investors low risk and big profits, Dadante instead "misappropriated investor funds for his own use, operated IPOF as a Ponzi scheme and pursued an undisclosed high-risk investment strategy," the SEC alleged.
At the center of the scheme was an attempt to make profits through day trading, or taking large positions in publicly traded stocks and then unloading them on the same day, the SEC said.
Dadante claimed that IPOF Fund had gains of 26 percent and 32 percent in its first two years. But over a six-year period ending in 2005, the gains never materialized. Ultimately some $28 million went missing, according to The Plain Dealer, a newspaper in Cleveland.
The Justice Department has launched a criminal investigation, said Dadante's criminal lawyer, Mark Stanton. Stanton declined to comment on the case because no criminal charges have been filed.
Ferris was one of several brokers processing huge purchases of Innotrac stock by Dadante and his fund, said Mark Dottore, the court-appointed receiver for what remains of IPOF. Dottore said he speaks to Ferris officials frequently. "They've been extremely cooperative," he said.
Glantz, the broker, denied impropriety. Although he technically handled the Dadante account, others at Ferris frequently processed the fund manager's stock transactions, he said.
"I was the broker of record, but his orders went straight to the trading desk," Glantz said in an interview.
Glantz left Ferris in December 2005 to work for Sanders Morris Harris, a brokerage in Houston.
"I left totally voluntarily," Glantz said. "The firm actually offered me more money to stay."
He said he is on temporary medical leave from Sanders, which Sanders Chairman George Ball confirmed. Ball said he was unaware of the investigation at Ferris.
Other than to identify him as a broker linked to the IPOF business, Ferris declined to comment on Glantz or his statements.