By Richard Burnett, Orlando Sentinel
Twice widowed and working two jobs to make ends meet, Doreen Abreu placed her nest egg with Orlando broker Gurudeo “Buddy” Persaud in early 2010. Barely a year later, the money was gone.
Now Abreu has sued Money Concepts Capital Corp., the Palm Beach Gardens brokerage that employed Persaud, accusing the firm of negligence and holding it liable for her losses of nearly $170,000.
Lawyers for the Daytona Beach woman filed her complaint with the Financial Industry Regulatory Authority in early August. It is just the latest in a series of suits that accuse Persaud of operating a Ponzi scheme to bilk investors of more than $1 million through an Orlando company, White Elephant Trading Co., that he was operating on the side.
Persaud denies the fraud allegations, but in a recent court filing he acknowledges using an investment strategy based in part on astrology.
Abreu’s complaint blames Money Concepts for letting Persaud, once the head of the brokerage’s Orlando office, get away with the scheme alleged in her suit, accusing the firm of “recklessly” overlooking evidence from public records and other sources of Persaud’s links to White Elephant.
“Money Concepts knew or should have known of Persaud’s affiliation with this outside business activity, and taken steps to find out what it entailed,” the suit alleges. “If Money Concepts had taken these steps and done basic due diligence and investigation in connection with supervising Persaud, [Doreen Abreu’s] … losses could have been avoided.”
The complaint seeks an arbitration judgment against Money Concepts from the Financial Industry Regulatory Authority, the securities industry’s self-policing organization, also known as FINRA.
But a lawyer for Money Concepts said recently the brokerage had no knowledge of Persaud’s actions and no reason to suspect him of any wrongdoing. When his unapproved outside work with White Elephant came to the firm’s attention last year, it immediately reported him to financial regulators, the lawyer said.
“Money Concepts had no involvement at all with this very, very unfortunate situation,” said Kathy M. Klock, a West Palm Beach lawyer. “The investigation into Mr. Persaud’s actions indicated that Money Concepts was not involved. But it is not surprising the investor has attempted to sue the brokerage; I’m sure Mr. Persaud has no money left at all.”
Investors do have the legal standing to claim that a brokerage shares the blame for wrongdoing by one of its brokers, said Stuart R. Cohn, a securities-law professor at the University of Florida.
“There are SEC provisions that say when an employee is engaged in securities-law violations, the controlling firm might be equally liable for failing to adequately supervise them,” he said. “In this case, we need to know more facts, since the activity was done outside the context of the brokerage firm. The question would be: What did the brokerage know or what should it have known?”
The U.S. Securities and Exchange Commission sued Persaud in June, accusing him of having lured clients with guarantees of “risk-free” investments and lucrative returns, only to misappropriate their funds and send them false account statements to conceal the money’s disappearance. That suit, filed in federal court in Orlando, also alleges that Persaud lost hundreds of thousands of dollars from trades based on “lunar cycles” and their supposed effect on financial markets.
In court documents filed Aug. 10, Persaud denied the SEC’s allegations of fraud. However, he did acknowledge secretly raising money from investors through White Elephant while still employed by Money Concepts.
In a series of mixed responses to the allegations in the SEC suit, Persaud also admits using some clients’ funds for personal or family expenses, though to what extent is not clear. He also admits misleading investors about their holdings and hiding the trading losses that he incurred, in part, with a trading strategy based on lunar cycles and “gravitational pull.”
But Persaud insists there was no intent to commit fraud; it was simply a matter of investments going sour. “If there are any damages,” his Aug. 10 filing states, blame them on “acts or omissions of third parties over whom … [Persaud] had no authority or control.”