Ferris Baker Watts said yesterday that two traders will be allowed to return to work while the brokerage and federal officials probe trades on behalf of a former client accused of stealing millions of dollars from investors.
The two are among six top executives and traders in Baltimore and Hunt Valley who either resigned or were placed on leave in the months after the company's outside counsel and federal investigators began looking into the trading activity.
Institutional traders John Belgrade and Mark LaVerghetta, who will return to work this week, helped process trades for a Cleveland man whom the Securities and Exchange Commission says took in $50 million from investors and diverted some of it to make inappropriate stock trades through accounts at Ferris and elsewhere.
At least $28 million is missing in what the SEC contends started as a Ponzi scheme.
Ferris, a conservative brokerage and investment bank with deep Baltimore roots, has confirmed that both the SEC and Justice Department are investigating the firm's role in the matter, which dates back several years and ensnared more than 100 investors located mostly in Ohio.
Ferris has said neither it nor its clients lost money.
Legal and industry experts say the dual investigations will leave Ferris clients jittery and disrupt management at the firm for potentially months to come. The investigation preceded the early retirement of Ted Urban, the firm's executive vice president and general counsel, and resignation of Horace Usry, former director of institutional sales. Both had been put on leave prior to their departures.
Louis Akers Jr., director of the firm's private client group, and Patrick Vaughan, director of retail sales, remain on voluntary paid leave and are cooperating with the investigation, said Robin Oegerle, a Ferris spokeswoman. It is common for outside counsel to ask individuals whose work may be under scrutiny to take temporary leave while the investigation plays out.
Oegerle declined to say whether Belgrade and LaVerghetta were paid during their leaves. She indicated both had cooperated with the company's internal probe before being invited to return.
"Ferris Baker Watts' internal investigation was completed as far as these two gentlemen were concerned, and we have invited them back and they have accepted," Oegerle said.
Legal experts say the firm probably would not bring the traders back if it thought federal investigators would uncover wrongdoing on their part. Firms under federal scrutiny typically go out of their way to show regulators that they are taking a hard line against employees who might have done something wrong, they said.
"If the internal investigation has convinced the company that they didn't do anything worth firing them over and they've been invited back, then that's a good sign for them and it's probably a good sign for the company," said Charles Ross, a white-collar defense lawyer in New York who has defended compliance officers, fund managers and brokers in securities cases.
The investigation at Ferris is looking at the firm's ties to David A. Dadante, the Cleveland man the SEC says operated his IPOF fund as a Ponzi scheme. An SEC complaint says Dadante promised investors high returns that never materialized. Some of the money was diverted for Dadante's personal use, while the rest was put into an "undisclosed high-risk investment strategy."
Dadante diverted millions of dollars to amass a nearly 35 percent stake in Innotrac Corp., a lightly traded Duluth, Ga., company that fulfills orders for companies that sell merchandise over the Internet. A large number of the shares were purchased through Stephen J. Glantz, a Ferris broker who left the company in 2005. Glantz, who denies any wrongdoing, has said that while he was the broker of record for the IPOF account, Dadante's trades often went straight to Ferris' trading desk.
Much of what remains of the IPOF fund is invested in Innotrac stock frozen in accounts at Ferris and elsewhere, according to a court-appointed receiver who is charged with disbursing the funds.