In The News

FORMER WELLS FARGO BROKER BANNED FROM INDUSTRY FOR LIFE
Kathleen Pender
San Francisco Chronicle
May 29, 2014

A longtime Bay Area broker who resigned from Wells Fargo Advisors in January after it launched an investigation into suspicious activity in a customer account has been barred from the brokerage industry for life.

The Financial Industry Regulatory Authority, which regulates brokers and brokerage firms, imposed its harshest sanction on Michael Frew of Hillsborough on Wednesday. He provided misleading information and refused to cooperate with its investigation, started in February, into whether "had accepted loans from customers or converted customer funds" for personal use, the authority said. Frew agreed to disbarment without admitting or denying he violated FINRA rules. Neither the authority nor Wells Fargo would provide details of the investigation.

But investors and an attorney representing them allege that Frew, 66, solicited millions of dollars from friends, family and clients that he said would be used by a real estate developer to rehabilitate properties in areas hit by natural disasters. Some said he promised them interest payments ranging from 10 to 14 percent per year and some received such payments, in one case for 15 years. But when investors stopped receiving payments at various times this year and tried to contact Frew, they were unable to reach him.

"We are still investigating, but we believe this looks like a Ponzi scheme, and there likely was never any investment in these distressed properties," said San Francisco attorney Cary Lapidus.

Lapidus said he has been contacted by more than 30 people who invested in Frew's scheme, and roughly two-thirds of them had accounts with Wells Fargo Advisors, a nonbank affiliate of Wells Fargo & Co. It is the nation's third-largest brokerage firm with 15,145 brokers.

Lapidus said he plans to file an arbitration claim in a few weeks against Wells Fargo Advisors on behalf of certain investors.

His resignation

Wells Fargo Advisors would only say that Frew resigned after it opened an investigation into a customer's attempt to wire money into Frew's bank account at another institution. "The investigation continues and we are working with clients, industry regulators and law enforcement to gather information concerning Mr. Frew's activity outside of accounts at Wells Fargo," the company said last week in a statement.

Even if the investment took place outside the brokerage firm, Lapidus said Frew's Wells Fargo clients looked to him for advice "and this was part of the investment advice he gave them. The fact that it wasn't a Wells Fargo product is irrelevant. If he had recommended a hedge fund that was out outside of Wells Fargo, he has the same duty to recommend suitable investments."

FINRA rules prohibit brokers from "selling away" - or selling securities that are outside their normal business without their firm's knowledge and permission. If a broker sells unapproved securities without the firm's knowledge, the firm might or might not be held responsible depending on whether it had appropriate safeguards and followed up on red flags.

Frew has been a broker since 1975, according to BrokerCheck, the authority's online tool for investigating brokers. In 1988 he joined Prudential Securities, which merged with Wachovia in 2003. Wells Fargo acquired Wachovia in 2009. Over the years, three customers filed complaints against Frew that were settled for $14,500, $28,220 and $102,225, BrokerCheck shows.

Suzanne Geer, 70, of Pacifica said she began investing with Frew in 1998 after her husband died. She was a longtime friend of Frew's wife, Alison Cant.

Frew told Geer he knew a man who wanted to buy and redevelop property devastated in the Oakland hills fire but needed "lots of cash," she said. "I asked who he is. He said, 'Let's just call him Guido.' "

15% interest

The interest rate would be 15 percent per year: Frew would keep 1 percent and Geer would get the rest. "I was very reluctant. I called several people who knew Mike, they all swore by him," she said.

So Geer said she gave Frew everything she had, $178,000. "Every single month my 14 percent check came in like clockwork for years and years and years," she said.

In 2003, Geer sold her condo and Frew persuaded her to add the proceeds to the real estate investment, she said. When she received an inheritance from her mom in 2012, "I was going to do something else. I was uncomfortable with all my eggs in one basket," she said. "But Mike was right there fighting me the whole way. He said, 'Suzi ... you are disabled, you are not able to work, you can't live just on Social Security.' So I added it to the quote Guido fund."

She invested a total of about $370,000 with Frew and admits the steady payout helped her live a comfortable lifestyle. "Then all of a sudden in April the check didn't come in," she said.

On May 3, Geer said she returned a "very strange" voice mail from Frew's wife, who told her, "Mike is gone. 'I said is he dead, Alison?' She said 'No, he has left.' "

Cant allegedly told Geer to call another woman who had invested with Frew and that investor told Geer the money was missing.

Little paperwork

Geer said the only documentation she got from Frew was a promissory note stating terms of the deal. The note gave her the right to put a lien on a house he owns on Quintara Street in San Francisco if he ever defaulted on payments. It also promised to name her as beneficiary of a life insurance policy that would repay her loan if he died.

"I am panicky and about to be homeless," she said.

Geer said Frew told her to never mention the investment to anyone, and she didn't except for a friend, Don Rose, who lived in Washington state. He ended up investing about $230,000 with Frew, according to his ex-wife Elizabeth Rose, who inherited the investment when Rose died in 2008.

Elizabeth Rose, 74, thought she also was getting 14 percent a year, her only income other than Social Security. But her May payment didn't come in. The last time she called Frew, "He didn't call back. That made me suspicious," she said.

Frew's brother-in-law George Cant of Sonoma County said Frew approached him late last year. "He knew I had some money in a savings account and said he was investing with a guy who went all over the world and worked in disaster areas rehabbing abandoned properties and reselling them," said Cant, 70.

In early December, Cant wired $50,000 from his Wells Fargo bank account to Frew's account with Citibank.

He expected to get $500 a month, and he did for four months. The last one was April 7.

"Somewhat to my embarrassment, we trusted this man. He is married to my sister," he said. "This is a seismic shock to the family."

Geer, Rose and George Cant do not have brokerage accounts with Wells Fargo Advisors.

Neither Frew nor his wife responded to phone calls or a knock on the door of the home they rent in Hillsborough.

Police, maybe FBI

Geer said she filed a report with the Pacifica Police Department. Department spokesman Joe Spanheimer said he could not release the report because it is being forwarded to the San Mateo County district attorney's office.

Lapidus said one of his clients who invested with Frew received a letter from a victim specialist with the FBI referencing "High Yield Securities Fraud." The letter stated: "This case is currently under investigation by the FBI." FBI spokesman Peter Lee would not confirm whether an investigation is under way.

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