Tech Firm Heavily Promoted by Raymond James under Fire for Fraud




By Jim Bleyer

Ubiquiti Networks, a Wall Street darling of St. Petersburg-based Raymond James and Associates, saw its share price tumble last week after an analyst accused the company of major fraud.

Almost concurrently, several law firms opened investigations into Ubiquiti, a company that has been heavily promoted by Raymond James ever since the conpany’s initial public offering in 2011.  Raymond James along with UBS Securities LLC, Deutsche Bank Securities Inc. handled the IPO.

Ubiquiti, a manufacturer of wireless data communication and wireless broadband products,  has been relentlessly touted by Raymond James over its six-year history as a publicly traded company.  The securities firm could very well be named as a co-defendant in what appears to be the imminent filing of multiple lawsuits.

Andrew Left, managing editor of stock research firm Citron, noted some suspiciously impressive metrics from Ubiquiti, including 33.5-percent operating margin and 49.2-percent return on equity, as the basis of his fraud thesis. “Either Robert Pera is the best CEO in networking equipment, or Ubiquiti is committing FRAUD,” Left wrote.

He also pointed out “shady” business partners, lack of domestic cash balances, elevated corporate turnover and an “underbelly of corrupt corporate culture” as evidence of deception at Ubiquiti.

“The holes in their story are expanding daily and it is only time before the SEC launches the formal investigation and Ubiquiti will go down in infamy amongst the many other Wall Street frauds,” Left concluded.

Goldberg Law PC, a national shareholder rights litigation firm, said its investigation focuses on whether Ubiquiti and certain of its officers and/or directors violated federal securities laws.  Cited was the Citron Research report alleging a number of “red flags” suggesting that the Company has been misleading investors by posting significantly higher operating margins than industry peers and comparatively low interest income from an increasing cash position. The report also alleges problems with Ubiquiti’s distribution network, corporate turnover, and corporate culture.

Another litigation law firm, Rosen, declared it is preparing a class action lawsuit to recover losses suffered by Ubiquiti investors. A third law firm, Robbins Arroyo LLP, says it is investigating Ubiquiti’s officers and directors.

Ubiquiti has been involved in 21 federal litigation filings, eleven times as plaintiff.  Raymond James was a co-defendant on three occasions.  The breadth of the current fraud accusations is unparalleled, however.

A Raymond James analyst defended Ubiquiti, calling the perpetration of fraud “unlikely.”  The analyst, Tavis McCourt, said hardware companies can report “lumpy” performances between quarters and that he was “less than thrilled” with Ubuiquit’s recent cash flow.  That’s hardly a ringing endorsement and gives the brokerage outfit wiggle room should it opt for bolting through an escape hatch in order to minimize its liability.

Raymond James, one of the country’s best-known brokerage firms and a model citizen if the Tampa Bay area media is to be believed, has had more than its share of run-ins with the Secutirites and Exchange Commission and disgruntled investors.

In April, the firm was ordered to pay $150 million as part of a settlement for helping a Miami businessman steal $200 million from foreign investors, according to an SEC-appointed trustee.

The settlement ended five pending lawsuits against the St. Pete-based broker-dealer, according to lawyers involved. The investors, who were solicited by Ariel Quiros and William Stenger to invest in a Vermont ski development known as Jay Peak, will receive $125 million and lawyers will divide the other $25 million that Raymond James will pay.

Raymond James paid $17 million in May 2016 to the Financial Industry Regulatory Authority for “widespread failures related to its anti-money laundering programs.” FINRA also suspended the brokerage firm’s anti-money laundering compliance head and fined her $25,000.

The settlement did not make specific reference to the Quiros case or to the Jay Peak ski resort project, but Raymond James has asserted that it has “significantly” enhanced its supervision program, “including considerable investment in its anti-money laundering control infrastructure.”

On another occasion, the SEC found that Raymond James stunk from the head down.

The SEC brought fraud charges against Raymond James specifically stating that former president and Chief Operating Officer J. Stephen Putnam and former branch manager David Ullom—had looked the other way when former broker Dennis Herula scammed investors of approximately $44.5 million between 1999 and 2000.

It is unusual for the SEC to file charges of civil fraud against a firm for the actions of one of the firm’s registered reps.

The SEC alleged that while the branch manager and Raymond James had knowledge in mid-2000 of Herula’s dealings, they didn’t fire him until December 2000. “In your typical case, you have someone who’s stealing money without anybody knowing about it,” said a source with the SEC.

“Here, he’s dealing with Raymond James and Putnam, along with the branch manager. They had concerns about the suspicious nature of activities. They saw Herula sending correspondence on behalf of the firm and didn’t take steps to stop the scheme.”

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