|NEWARK – The New Jersey Bureau of Securities, assisted by the Division of Law, has revoked the broker-dealer agent and investment adviser registrations of Jeffrey Dean Schrader, of Philadelphia, Pennsylvania, due to securities law violations relating to his sale of unregistered securities that were involved in an alleged Ponzi scheme.
Schrader sold unregistered three-year notes offered by Liberty State Benefits of Pennsylvania, Inc. (“LSBPA Notes”) through a Private Placement Memorandum that represented that the capital raised would be used to purchase life insurance policies from third parties, as well as life insurance policy beneficial interests, owned by Irrevocable Life Insurance Trusts. The Bureau of Securities alleged in a separate State Superior Court lawsuit that the more than $10 million raised from the sale of LSBPA Notes was improperly used by Michael William Kwasnik and other defendants to orchestrate a Ponzi scheme that defrauded dozens of investors and to enrich themselves and their families.
“Mr. Schrader allegedly attempted to operate under the radar of the Bureau of Securities by acting as an unregistered agent and selling investment notes that also were not registered. These same notes were used in an alleged Ponzi scheme,” Acting Attorney General John J. Hoffman said. “The Bureau’s action today demonstrates that it will find and identify such behavior and will hold accountable those who violate these laws.”
While Schrader is not alleged to have participated in the Ponzi scheme, he did work with Kwasnik to sell certain of the unregistered securities that were used in Kwasnik’s alleged Ponzi scheme. Schrader has admitted that he received at least $41,000 in commissions from the sale of those securities between approximately April 2009 and December 2009.
“As the investors affected by Michael William Kwasnik’s alleged Ponzi scheme are well aware, the failure to comply with our securities laws puts New Jersey investors at risk of great financial harm,” said Division of Consumer Affairs Acting Director Steve Lee.
Bureau of Securities Chief Laura Posner said, “Schrader’s unauthorized sale of unregistered securities allegedly enabled Michael William Kwasnik and others to raise more than $10 million from unsuspecting investors for their own personal benefit through a Ponzi scheme. The Bureau of Securities will continue to take appropriate enforcement action against any individuals who assist others in similar illegal activities.”
According to the Summary Order revoking his registrations, Schrader’s sale of the LSBPA Notes involved multiple violations of New Jersey’s Uniform Securities Law and regulations.
At the time he sold the LSBPA Notes, Schrader’s registration with the Bureau of Securities authorized him only to sell securities as an agent of a California-based broker-dealer for which he operated a Philadelphia branch office. Nonetheless, Schrader improperly, and without the consent of that firm, sold and received commissions from the sale of the LSBPA Notes.
In making the above findings of fact, Bureau of Securities Chief Posner found that Schrader violated New Jersey securities law by selling securities as an unregistered agent, selling unregistered securities, and engaging in dishonest or unethical practices through this conduct. The Bureau Chief revoked Schrader’s registrations as an agent and investment adviser representative, and ordered Schrader to pay a civil monetary penalty of $75,000.
Schrader may request a hearing before an Administrative Law Judge to dispute the Summary Revocation and Penalty Order by making a written request within 15 days of his receipt of the order. If no hearing is requested, the order will become final and will remain in effect until modified or vacated.
In addition to the Bureau of Securities matter pending against Kwasnik, Kwasnik pleaded guilty in January 2013 to second- and third-degree counts of money laundering, due to actions brought by the Attorney General’s Division of Criminal Justice. The second-degree count related to his misappropriation of funds from a 96-year-old client, who has since died. The third-degree count related to his misappropriation of funds from a couple who received a personal injury settlement in a case handled by Kwasnik’s firm. Kwasnik served five months in jail and currently is serving a five-year term of probation. He was ordered to pay full restitution to the victims, including the estate of the deceased victim, totaling approximately $1.2 million. Schrader was not a defendant in these criminal matters.
Bureau of Securities Investigators Leon Martin and Isaac Reyes conducted this investigation.
Deputy Attorney General Stacy-Ann Davy of the Securities Fraud Prosecution Section in the Division of Law assisted the Bureau in this matter.
The Bureau can be contacted toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at 973-504-3600. The public is encouraged to visit the Bureau’s website at www.njsecurities.gov.