May 22, 2015

Nationwide to Pay $8M Over Variable Annuity Pricing Violations

Nationwide Life Insurance Co. has ben ordered to pay an $8 million penalty to the U.S. Securities and Exchange Commission for purposely delaying variable annuity and life insurance policy orders and that this led to company’s failure to price these orders in a timely manner.

From 1995 to 2011 clients placed thousands of orders to Nationwide for variable insurance contracts and underlying mutual funds through First Class mail at an Ohio post office box. However, even though the majority of the mail was ready for Nationwide to pick up early in the morning, the company’s couriers were purportedly told to not collect the mail until after 4pm.

The SEC said that this violates the Investment Company Act of 1940’s Rule 22c-1, which mandates that a company price orders made prior to 4p at that day’s price while orders after 4 pm are to be priced at the next day’s price. The insurer is accused of going to the post office and stressing the need for variable contract mail to be delivered late. Certain couriers even purposely delayed when they’d arrive at the carrier’s home office by stopping to purchase food or get gas. Meantime, said the SEC, Nationwide managed to pick up and deliver mail for other its business units without such delays.

Our variable annuity fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are committed to the financial recovery of our clients. Contact us today.

Read the SEC Order (PDF)

Variable Annuities: What You Should Know, SEC.gov


More Blog Posts:
Nomura & Royal Bank of Scotland Must Pay $806M in Mortgage-Backed Securities Case, Institutional Investor Securities Blog, May 18, 2015
Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

May 20, 2015

UBS Must Pay Investor $1M for Puerto Rico Bond Fund Portfolio

A Financial Industry Regulatory Authority Panel (“FINRA”) has ordered UBS Financial Services Inc. of Puerto Rico and UBS Wealth Management (collectively “UBS”) to pay a client from Puerto Rico $1 million to repurchase the Puerto Rico portfolio of proprietary bond funds sold to him and many other Puerto Rico investors. According to the Panel’s decision, Mr. Burgos Rosado, a senior investor at age 66, lost $737,000 in the beleaguered closed-end funds.

He had opened his account with UBS in 2011 and invested the money he made from running a bodega for years. After Puerto Rico municipal bonds failed in 2013, the original $1.1 million he invested had fallen in value to less than $4,000. Just in September of that year, when news that the bond funds were failing en masse, Burgos Rosado reportedly approached UBS because his balance had dropped some $200,000. He was encourage to stay with his portfolio.

The FINRA panel noted that while investors typically assume their account’s risks after they’ve been given sufficient notice of the risks, the arbitrators did not think this applied in the case of Burgos Rosado, who does not speak fluent English and was clearly relying on the recommendation of his UBS advisor. Even after Burgos Rosado asked for documents in Spanish, the brokerage-firm reportedly issued his monthly statements and other information in English.

In their ruling, the FINRA arbitration panel described Burgos Rosado as a “conservative investor” who lived frugally, saving his income and profits from his business opportunities. Pointing out that his account was “over-concentrated,” the panel said that municipal the bonds were “clearly unsuitable” for an investor such as Mr. Burgos Rosado. The panelists also criticized UBS’ sales practices for the Puerto Rico closed-end funds, noting that UBS pressured its brokers to sell the funds and make sure that clients stayed invested.

The Panel ultimately ordered UBS to repurchase the closed-end funds from Mr. Burgos Rosado at full price minus roughly half of the interest Mr. Burgos Rosado received while he held the funds. In reaction to the award, UBS issued its own statement saying that it does not agree with the award for Burgos Rosado, and that it does not believe other panels will follow the decision.

However, the arbitration ruling in Burgos Rosado’s favor comes just days after another FINRA panel ordered UBS to pay a different investor $200,000 for her losses in the same group of Puerto Rico closed-end funds. In that case, UBS argued that the Claimant, Yolanda Bauza, only lost $8,000, because of investment income she received before the funds failed two years ago. The panel disagreed, awarding damages much closer to the trading losses from the bond funds.

The Puerto Rico bond fraud claims of Burgos Rosado and Bauza are just two of the hundreds of FINRA arbitration claims still pending against UBS, Banco Popular, Banco Santander (SAN), and other brokerage firms for selling the securities to investors for whom they were inappropriate and too risky. Many of these investors were retirees.

Some of these funds lost up to almost two-thirds of their value between 2011 and 2013 and now investors are trying to recoup their losses. UBS, in particular, has come under fire for its sales practices and misrepresentations and omissions concerning the risks of the bond funds and Puerto Rico debt.

Earlier this year, a recording of former UBS Puerto Rico chairman Miguel Ferrer surfaced in which he can be heard telling brokers after they expressed misgivings about the bond funds that they needed to sell more funds or risk losing their jobs. Investors were even allegedly encouraged by UBS brokers to borrow funds through lines of credit so they could invest even more money in the bond funds.

Our Puerto Rico municipal bond fraud lawyers are working for investors in the U.S. and in the Commonwealth to recoup their losses in Puerto Rico debt and other investments. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.


UBS must buy back investor's Puerto Rico bond funds for $1 million, Business Insider/Reuters, May 19, 2015

UBS ordered to pay investor $1 million as Puerto Rico claims roll in, Investment News, May 20, 2015

UBS Ordered to Pay Retired Investor $200,000 For Puerto Rico Bond Fund Losses, Stockbroker Fraud Blog, May 14, 2015

May 18, 2015

U.S. Supreme Court Rules on 401K Lawsuit, Gives Investors More Protections

The nation’s highest court has just made it easier for workers to sue their 401k plans for charging excessive fees for investments. The case is Tibble v. Edison International, and the U.S. Supreme Court ruled unanimously for the ex-workers of Edison International.

The plaintiffs contended that the plan fiduciaries’ decision to choose six retail-class mutual funds (out of the forty selected for the retirement plan) was based on the higher fees that these funds charged, compared to institutional class funds that were also allegedly available to investors. Under the Employee Retirement Income Security Act (ERISA), retirement plans that are sponsored by an employer have a fiduciary obligation to choose investments that are appropriate and remove any that cease to meet the criteria set up in the investment policy statement.

Five years ago, the U.S. District Court for the Central District of California awarded the plaintiffs a $370,732 judgment over damages involving the high fees in three of the retail share class funds at issue. The claims against the other three funds are the ones that went to the 9th U.S. Circuit Court of Appeals and now the Supreme Court.

This court essentially found that it is the job of plan fiduciaries to regularly assess retirement plan investments and get rid of imprudent ones. The justices said that this duty separate from a trustee’s obligation to be prudent when choosing the investments for a plan.

The case raised questions over ERISA’s six-year statute of limitations for breach of fiduciary duty and whether this protects fiduciaries that kept imprudent investments in the plans even if they were added over six years ago. Tibble was filed in 2007. The holding of the Supreme Court broadens how much time investors have to file this type of case because it determined that the six-year statute didn’t start running right when the investments were bought.

The court has sent the lawsuit back down to the 9th circuit, which will determine how to calculate that deadline. The appeals court will also decide how frequently and intensely fiduciaries must go over their plans’ investments in order to fulfill their monitoring obligations. It was the 9th circuit that threw out TIbble because it was filed after the six-year statute.

Our stockbroker fraud law firm has helped thousands of investors recoup their losses. We would like to offer you a free case evaluation. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Tibble v. Edison International

Employee Retirement Income Security Act

May 16, 2015

Financial Fraud Headlines: “The Financial Coach” to Pay $3.6M in Restitution to Investors, SEC Charges Father and Son with Insider Trading, and Massachusetts Accuses Investment Firm of Elder Financial Fraud

"The Financial Coach" Pleads Guilty to Wire Fraud
Bryan C. Binkholder, also known as the “The Financial Coach,” will serve nine years in prison for bilking clients. Binkholder used books, a talk show, and YouTube videos to market his “hard money lending” program.

According to prosecutors, he touted himself as serving real estate developers that wanted to flip houses but he only made limited number of loans. Instead, he used investors’ funds to pay for his personal spending, give his wife a salary, and pay interest to other investors.

Binkholder’s financial scam took place from about 2008 to 2013. He pleaded guilty to four counts of wire fraud and must pay over $3.6 million in restitution.

Father & Son Charged in $1.1M Insider Trading Scam
The U.S. Securities and Exchange Commission is charging Sean R. Stewart and his father Robert with running an insider trading scam. Sean, who is a managing director at a renowned investment bank, purportedly tipped his father about upcoming mergers and acquisitions involving clients of two investment banks where he has worked. Robert, a technology company CFO and a certified public accountant, made trades based on these tips that were related to at least half a dozen acquisition and merger announcements. They made some $1.1 million in illegal profits over four years.

Meantime, the U.S. Attorney’s Office for the Southern District of New York has filed a parallel action against them.

Massachusetts Regulator Charges Firm With Illegal Security Sales to the Elderly
Massachusetts Secretary of State William F. Galvin’s office has charged Charles Nilosek and his investment firm Positions Benefit with illegally selling escurites to elderly investors. Both Nilosek and his firm acted as unregistered investment advisers when they sold $4 million of securities that were not registered to more than 140 state residents.

Galvin accused Nilosek and the firm of engaging in “bait-and-swtich” tactics to get investors to buy risky commercial mortgage securities. Position Benefits is accused of selling shares of these securities to retirees, as well as people getting ready to retire, and making it seem as if these investments came with a guaranteed return, which they did not.

Also, the SEC ordered Woodbridge Structured Funding LLC, which made the securities sold by Position Benefits, to pay a penalty of $250,000 for its involvement. The California company has consented to pay back the investors.

Even when regulators bring claims and prosecutors file criminal charges against fraudsters, you should still have an experience securities lawyer representing you to pursue the compensation you are owed. Our investment adviser law firm represents investors throughout the United States. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

The Financial Coach’ gets 9 years in prison for fraud, BizJournals, May 15, 2015

Secretary Galvin Charges Plymouth Man and Firm for Acting as Unregistered Investment Advisers, Orders California Funds to Offer Refunds and Pay a Civil Penalty for Selling Unregistered Mortgage Loans (PDFs)

Read the SEC Complaint against the Stewarts (PDF)

May 15, 2015

FINRA Gets Tough With Its Sanctions Against Brokers For Suitability Violations

The Financial Industry Regulatory Authority has decided to take tougher actions against brokers who violate suitability standards. The regulator is recommending that the National Adjudicatory Council, which oversees disciplinary proceedings, raise its suggested suspensions for brokers who make unsuitable recommendations from one year to two years. FINRA wants brokers who commit fraud be potentially barred and offending firms face potential expulsion.

FINRA’s revisions to its Sanctions Guidelines are to go into effect right away. They exist to protect investors from brokers who don’t comply with the suitability rule. The rule states that brokers can sell products that are to their benefit as long as these products also are in alignment with helping investors meet their investment goals.

Despite the changes, InvestmentNews reports, there are those who think that FINRA’s proposed sanctions are insufficient and, also, that there may be negative consequences for investors. For example, defendants facing two-year suspensions might opt to fight cases against them rather than settle because of the tougher penalty.

FINRA’s modifications to its Sanctions Guidelines come a month after the Securities and Exchange Commission’s Investor Advisory Committee recommended that regulators join forces to create a database that would conduct background checks on brokers and advisors. This would make it easier for investors to look into the history of financial professionals before allowing them to handle their money. The committee called on the SEC to get self-regulatory organizations, federal regulator, and state regulators to develop this online resource.

The panel said that it felt that elder investors could benefit especially, as they remain a favorite target of financial fraudsters. According to a MetLife study, in 2010 the annual losses from financial elder abuse were at least $2.9 billion. Experts say that the real number is much higher because many incidents are not reported.

Our FINRA arbitration lawyers are here to help investors recover their securities fraud losses.

SEC Panel Calls for Universal Background Check Database, Financial Planning

Sanctions Guidelines, FINRA

National Adjudicatory Council, FINRA


More Blog Posts:

RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales, Stockbroker Fraud Blog, April 30, 2015

FINRA and SEC Unveil Report on Senior Investors, Cite Concerns About Unsuitable Recommendations, Stockbroker Fraud Blog, April 27, 2015

FINRA Panel Orders Morgan Stanley Unit to Pay Banamex Unit $4.5M Over Alleged Unauthorized Third Party Loans, Institutional Investor Securities Blog, August 15, 2014

May 14, 2015

UBS Ordered to Pay Retired Investor $200,000 For Puerto Rico Bond Fund Losses

A Financial Industry Regulatory Authority (“FINRA”) panel has ordered UBS Financial Services, Inc. and UBS Financial Services of Puerto Rico (collectively “UBS”) to pay an investor $200,000 for losses she sustained by investing in UBS’s Puerto Rico closed-end bond funds. This is the first known ruling from a FINRA arbitration panel in the hundreds of municipal bond fraud lawsuits filed by investors over the last few years.

The investor, Yolanda Bauza, invested money she obtained in a car accident settlement. In her Puerto Rico bond fraud case, Bauza alleged misrepresentations, securities fraud, and other wrongdoing. In addition to the $200,000 award, the arbitrators denied the firm’s request to remove information about the case from the public records of David Lugo and Carlos Gonzalez, two of the brokers who advised Bauza.

According to Sam Edwards, a partner with Shepherd, Smith, Edwards & Kantas, who is representing a number of Puerto Rico bond fund investors, “We are very pleased that FINRA’s arbitrators recognized what those of us representing the many thousands of investors in Puerto Rico and abroad have known for almost two years: UBS’s Puerto Rico bond funds were highly conflicted, very risky and completely misrepresented to investors. They were suitable for almost no investors. As a result, those who invested in these bond funds, like Ms. Bauza, should be fairly compensated.”

The slew of Puerto Rico bond cases, which come in the wake of a number of funds losing up to two-thirds of their value between 2011 and 2013, have been weighing on UBS. This is the first award. In addition to UBS’s woes with the bond funds and local Puerto Rico bonds, the territory is now contending with $73 billion in debt, which, it is estimated, Puerto Rico cannot afford to repay.

Investors, including those who should have never invested in the municipal bonds because their portfolios were never equipped to handle the risks and had no need for tax-free income, have sustained huge losses. UBS Puerto Rico brokers, in particular, have been singled out for the way they made inappropriate investment recommendations to customers, including using loans against the bond funds to buy more funds.

Specifically, some investors have complained that UBS Puerto Rico brokers, including David Lugo, convinced them to borrow money so they could invest even more cash in the bond funds. Many of these investors are retirees, like Ms. Bauza, who have lost their entire savings because they followed UBS’ advice.

In 2012, the U.S. Securities and Exchange Commission filed charges against UBS. It accused the firm of concealing that there was a liquidity crisis, making misleading statements to investors, and hiding control of the secondary market for nearly two dozen proprietary closed-end funds. The regulator also filed charges against ex-chief executive Miguel A. Ferrer and capital markets head Carlos J. Ortiz. Without denying or agreeing to the charges, UBS settled with the SEC for $26.6 million.

In Puerto Rico and the U.S., Shepherd Smith Edwards and Kantas, LTD LLP is helping investor pursue their municipal bond fraud claims in arbitration. Please contact our Puerto Rico bond fraud attorneys today so we can help you explore your legal options. We also represent clients who purchased these municipal bonds through Banco Santander (SAN), Banco Popular, and other brokerage firms.

UBS must pay $200,000 to Puerto Rico fund investor, Reuters, May 13, 2015


More Blog Posts:
Puerto Rico’s General Obligation Rating is Downgraded to CCC+, Stockbroker Fraud Blog, April 28, 2015

Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15, 2013

Killeen Man Accused of Texas Securities Fraud Targeting Military, Stockbroker Fraud Blog, April 23, 2015

May 11, 2015

Texas-Based Retirement Planning Firm Accused of Making False Claims to Investors About Life Settlements

The Securities and Exchange Commission is charging Novus Financial and principals Brady J. Speers and Christopher A. Novinger with making false claims about life settlements. The regulator filed its claim in the U.S. District Court for the Northern District of Texas.

According to the SEC’s complaint, from ’12 – ’14, the retirement planning firm and its principals sold about $4.3 million in life settlement interests to 26 investors. Speers and Novinger are accused of describing the investments as secure and safe. Both were purportedly willing to manipulate the financial data of investors to make the sale happen.

The Commission also claims that the firm, Novinger, and Speers used a net worth calculator that was bogus. This allowed a number of prospective investors to improperly qualify to buy the interests. In one instance, the non-homestead assets of one couple were falsely inflated to $1.5 million from $263K because of the calculator.

The investors were also supposedly told that the interests were safe like CDs, guaranteed, and federally insured. However, as David Peavler, SEC Associate Director of the agency’s Forth Worth Regional Office, pointed out, life settlements are never free of risk, guaranteed, or federally insured.

The SEC also is charging Speers Financial Group LLC and ICAN Investment Group for acting as unregistered brokerage firms. The Commission wants injunctive relief, financial penalties, and the return of ill-gotten gains plus interest.

Our Texas securities fraud law firm is here to help investors recoup their losses. If you sustained losses from life settlement fraud that you suspect may be a result of broker negligence or wrongdoing, please contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Read the complaint (PDF)


More Blog Posts:
Killeen Man Accused of Texas Securities Fraud Targeting Military, Stockbroker Fraud Blog, April 23, 2015

Texas Securities Scam Allegedly Bilked Investors of $4.4M, Stockbroker Fraud Blog, April 18, 2015

Another Institutional Investor Fraud Lawsuit Accuses American Realty Capital Properties Of Violating Securities Laws, Institutional Investor Securities Blog, January 26, 2015

May 7, 2015

Florida Microcap Co. Accused of Bilking Over 400 Investors of More than $11M

The Securities and Exchange Commission is suing eCareer Holdings Inc. and its executives for fraud. According to the regulator, the online staffing company bilked over 400 investors of $11 million when it miserpresented the company and sold shares that were unregistered. Also accused of fraud are three boiler room brokers who tried to conceal that they were barred from the industry.

According to the SEC's microcap fraud case, investors were bilked in cold calls that were made through a boiler room run by Frederick Birks, Dean A. Esposito, and Joseph DeVito. The three of them and their sales agents were hired by eCareer CEO Joseph J. Azzata.

Investors were told their funds would go toward working capital to develop the company’s online job staffing business. Instead, approximately 30% of their money went toward outrageous fees to the agents and brokers.

The financial scam purportedly began in August 2010. Also, Azzata is accused of diverting $650,000 to cover his own expenses.

In corporate filings the payments were wrongly characterized as having been paid to third parties for advisory and consulting services. The filings and offering materials misrepresented that eCareer shares would only be sold to investors who were accredited. In truth, the stock was promoted and sold to people, including very elderly seniors, who did not fit the criteria for investors that are “accredited.”

Also, the three brokers were already barred from acting as a dealer or broker or taking part in any kind of penny stock offering. This means they were not allowed to make money from selling eCareer stock.

It was in 2008 that the SEC filed a civil action against the men in connection to the sale of stocks in Weida Communications Inc. and SCL Ventures. The regulator said that they sold about $3 million of SCL Ventures to about 68 investors in 2004. At the time they were not registered with the Commission or associated with a registered dealer or broker. They were paid commissions of up to 20% for the stock sales.

Also, beginning in 2008, Birks and Esposito purportedly manipulated the market price for the common stock of Weida Communications, which was the successor company to SCL Ventures. About 16 investors paid at least $9.2 million of shares that were practically worthless. At the time, the three men were registered representatives with GlobalVest Group. They also received undisclosed commissions of up to 20% for the sales. Trading in Weida securities was suspended in April 2005. Now, the three men are accused of getting around these restrictions by signing agreements with Azzata that categorized their payments as finder and advisory fees.

Contact Shepherd Smith Edwards and Kantas, LTD LLP. We can help you determine whether you have grounds for a securities fraud case.

SEC Halts Microcap Scheme in South Florida, SEC, April 16, 2015

SEC Charges Group of Florida Brokers Stock Manipulation and Other Violations in Connection With Sale of Stock in SCL Ventures And Weida Communications, SEC, February 13, 2008


More Blog Posts:
RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales, Stockbroker Fraud Blog, April 30, 2015

More than $600K Whistleblower Award to Be Issued in SEC’s First Retalitation Case, Institutional Investor Securities Blog, April 30, 2015

City of Los Angeles, CA Sues Wells Fargo for Fraud, Stockbroker Fraud Blog, May 5, 2015

May 5, 2015

City of Los Angeles, CA Sues Wells Fargo for Fraud

The city of Los Angeles has filed a civil complaint against Wells Fargo Bank (WFC). The lawsuit accuses the bank of encouraging employees to take part in conduct that was illegal and fraudulent, including setting up unauthorized accounts for customers, charging them unwarranted fees, and ruining their credit.

The city is looking to get a court order stopping the alleged wrongdoing. It wants penalties for every violation, as well as restitution for customers that were hurt. The case is applicable to residents of Los Angeles County and perhaps even customers outside that area.

According to the complaint, employees purportedly misused the confidential data of customers and neglected to close unauthorized accounts when the latter complained. Certain employees even allegedly raided customer accounts for money to set up additional accounts. When unwarranted fees went unpaid, the bank purportedly put customers into collections because of unauthorized withdrawals and damaging data on their credit cards because of these unwarranted fees.

Such actions, contends the city, occurred because the bank was pressuring employees to generate sales. Customers sustained financial harm as a result, while Wells Fargo made a profit and employees were blamed.

Meantime, the California-based bank has pinned these problems on a few rogue employees, whom it says it fired or disciplined. However, the city of LA believes that Wells Fargo has made minimal efforts at making sure such abuses stop. For example, contends the complaint, when the bank took action against an employee for sales conduct that was unethical, it didn't notify customers of the breach, refund the fees that were owed to them, or offer remedies for other injuries its staff may have caused.

The Los Angeles Times, in 2013, investigated these allegations against Wells Fargo, which is known for cross-selling financial products to customers. The paper's probe echoed similar claims as this lawsuit, with many statements made coming from current and former Wells Fargo employees who worked at different branches.

Bank workers were purportedly coached on how to inflate sales figures. Employees set up duplicate accounts without letting customers know. Pre-approved credit cards were ordered without customer consent. Complaints about the never requested cards were dismissed as having been generate by computer glitch or "mistake," with cards accidentally issued to the wrong person with a similar name as the customer who’d supposedly placed the order. According to employees, Wells Fargo expected staff to sell at least four financial products to the majority of their customers, with some shooting to sell eight per household.

Since the LA Times published its findings from the probe, dozens of Wells Fargo employees and customers have come forward to report similar issues. Complaints are coming in even today.

Shepherd Smith Edwards and Kantas, LTD LLP represents investors in recovering losses they suffered because of securities fraud.

Wells Fargo Accused of Fraudulent Behavior, Taking Advantage of Customers, ABC News, May 5, 2015

Wells Fargo's pressure-cooker sales culture comes at a cost, Los Angeles Times, December 21, 2013


More Blog Posts:
RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales, Stockbroker Fraud Blog, April 30, 2015

FINRA and SEC Unveil Report on Senior Investors, Cite Concerns About Unsuitable Recommendations, Stockbroker Fraud Blog, April 27, 2015

FINRA Fines J.P. Turner, LaSalle St. Securities, and H. Beck For Report Supervision Lapses, Institutional Investor Securities Blog, March 30, 2015

April 30, 2015

RBC Capital Markets Must Pay $1M Fine and $434K Restitution to Customers Over Unsuitable Reverse Convertible Sales

The Financial Industry Regulatory Authority is ordering RBC Capital Market to pay restitution to customers for supervisory failures that allowed for the sale of reverse convertibles that were unsuitable for them. The firm must pay them about $434,000 plus a $1 million fine.

According to the self-regulatory organization, RBC lacked supervisory systems that were reasonably designed to identify transactions that warranted review when the reverse convertibles were sold to customers. This purported inadequacy is s a violation of FINRA’s rules and suitability guidelines.

Although RBC had guidelines for selling reverse convertibles, specific criteria were established regarding annual income, investment goals, liquid net worth, and investment experience. Because of this, the firm was unable to detect the sale of 364 reverse convertible transactions by 99 of its registered representatives. The transactions involved 218 accounts and they were not suitable for the account holders. The customers lost at least $1.1 million.

RBC had already paid a number of the customers to settle a related class action securities case. Now, FINRA wants the firm to pay the rest of the customers who were affected.

By settling this case, RBC is not denying or admitting the securities charges. It is, however, consenting to the entry of the SRO’s findings.

Reverse Convertibles
These interest-bearing notes have their repayment of principle tied to how well an underlying asset performs. Depending on the specific terms, an investor could be at risk of losing money if the underlying asset’s value drops under a certain level during the reverse convertible’s term or at maturity. In 2010, FINRA put out a notice specifically telling firms to make sure to conduct a suitability analysis when it comes to selling this type of complex product.

Earlier this month, SEC Commissioner Luis Aguilar said that the regulator is looking to bring more enforcement actions against companies that sell risky structure products and complex securities to retail investors. Examples of complex securities: leveraged and inverse exchange-traded funds, alternative mutual funds, and structured notes.

Our FINRA arbitration law firm handles complex securities claims for retail investors. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

FINRA Orders RBC to Pay Fine and Restitution Totaling More Than $1.4 Million for Unsuitable Sales of Reverse Convertibles, FINRA, April 23, 2015

Read the FINRA letter of acceptance, waiver, and consent
(PDF)


More Blog Posts:
FINRA and SEC Unveil Report on Senior Investors, Cite Concerns About Unsuitable Recommendations, Stockbroker Fraud Blog, April 27, 2015

RBC Wealth Management Unit Ferris Baker Watts to Pay Investors Restitution Over Reverse Convertible Notes Allegations, Says FINRA, Stockbroker Fraud Blog, October 23, 2010

FINRA Fines J.P. Turner, LaSalle St. Securities, and H. Beck For Report Supervision Lapses, Institutional Investor Securities Blog, March 30, 2015

April 29, 2015

Ex-Sonics Special Assistant Accused of $4M Wire Fraud, Ponzi Scam

Steve Gordon, who used to be the special assistant to the Seattle SuperSonics basketball team, has been charged with federal wire fraud. Gordon is accused of using false pretenses to initiate at least $4 million in business deals. The criminal charges come after a 10-month probe by the Federal Bureau of Investigation.

Gordon, who also worked with the Minnesota Timberwolves and the Portland Trail Blazers, is accused of creating a Ponzi scam that involved at least 30 investors. Newer investors’ money was allegedly used to pay earlier investors their promised returns.

The wire fraud count accuses him of using misrepresentations, fraudulent promises and false pretenses, and concealing material facts to solicit money from investors. He also purportedly used his friendship with ex-Microsoft SCEO Steve Ballmer by falsely claiming that the billionaire was his partner and financial backer. However, according to the fraud charges, Ballmer never promised to give Gordon any money.

Gordon is said to have used that relationship and his connections with NBA players to secure partnerships with financial and legal professionals to give him more credibility. During phone calls to potential investors he allegedly had someone pretend to be Ballmer, as well as different government officials who supposedly were involved in overseeing the financial and banking industries.

One investor, ex-Australian basketball player Wayne Carroll, said that he and Knox Basketball, the amateur basketball federation in Australia of which Carroll is executive director, paid Gordon $4,000 monthly for two years as a consultant. Carroll said that Gordon told him Ballmer was ready to invest in big basketball promotion ventures in China and Australia. However, the deal with Ballmer never happened.

Gordon is also accused of telling investors that Ballmer promised to help him establish a multi-million dollar fund and get him a position as a minority owner in the Sonics in the future—both were lies. In 2013, Ballmer cut all ties with Gordon.

Steve Gordon, Sonics special assistant, charged with federal wire fraud, The Seattle Times, April 20, 2015

Ponzi scam, SEC


More Blog Posts:
SEC Sues Ex-New York Giants Cornerback Over Alleged Ponzi Scam, Stockbroker Fraud Blog, April 8, 2015

Ponzi Scams: Madoff Victims to Get $93M, Fraud Lawsuits Name Insurance Brokerage Head in $10M Scheme, Stockbroker Fraud Blog, March 24, 2015

Madoff Ponzi Scam Victims Recover Over $10 Billion, Institutional Investor Securities Blog, December 5, 2014

April 28, 2015

Puerto Rico’s General Obligation Rating is Downgraded to CCC+

Standard & Poor’s (“S&P”) has just downgraded the general obligation rating of Puerto Rico from a rating of B to a rating of CCC +. The ratings agency said the downgrade was because the market access prospects for the U.S. territory have weakened even further and Puerto Rico’s ability to fulfill its financial commitments is becoming more and more linked to the economic and business conditions in the Commonwealth, which are not strong.

The credit rater is also putting the general obligation rating on CreditWatch negative, which means the rating could go even lower into junk bond status and closer to a default. S&P lowered its ratings on the first-lien and second-lien sales tax bonds of the Puerto Rico Sales Tax Financing Corp. from B to CCC + as well. The bonds of the Puerto Rico Employees Retirement System and the Puerto Rico Municipal Finance Agency also received downgrades with a negative outlook.

S&P says that unless the conditions in Puerto Rico get better, the territory won’t be able to sustain its financial commitments. The ratings agency said there was not currently a consensus on key aspects of the 2016 budget and that this could make fiscal pressure and liquidity worse. In a letter from Puerto Rico's Government Development Bank to its governor, there were concerns about liquidity problems unless the government starts tax reform and enacts a budget. S&P stated that if the budget is delayed or flawed there might be an even further ratings downgrades.

Governor Alejandro Garcia Padilla had proposed a VAT initiative that would supposedly reduce tax rates for 800,000 small businesses and persons. The tax would be determined by consumption of certain necessities. Garcia had hoped to increase revenue and deal with Puerto Rico’s public debt with a 16% VAT that would compel manufactures to pay taxes on raw materials, which would be included in the price of a product when sold to retailers. Now, the governor is willing to consider a lower 14% rate that is currently up for debate at Puerto Rico’s House of Representatives.

If approved, this could lead to a rise in the sales tax from 7% to 10% . There would then be a 14% goods-and-services tax next year. Tax breaks would also be provided for lower income persons as early as July of net year. Such changes could generate $900 million in new revenue starting July. More importantly, these changes could allow for a $2.9 billion bond sale to help alleviate the territory’s debt.

Until the issue is resolved, Puerto Rico remains burdened with $73 billion of debt. Investors who sustained major losses from municipal bond funds linked to the island are still trying to recoup their losses. Many of these investors were persuaded by financial firms such as UBS (UBS), Banco Popular, and Banco Santander (SAN) to invest in Puerto Rico municipal bonds, even though they were high risk. When the bonds dropped significantly in value beginning in the Fall of 2013, investors suffered.

The U.S. treasury department has started to increase its involvement in Puerto Rico. High ranking officials have been traveling between the island and Washington DC to offer advice to Commonwealth officials to try assisting with bringing stability to the territory’s financial situation.

In the US and in Puerto Rico, contact our Puerto Rico bond fraud law firm to request your free case consultation.

Treasury Officials Increase Efforts With Finances of Puerto Rico, New York Times, April 13, 2015

Puerto Rico downgraded to CCC+ from B, with negative outlook, by S&P, CNBC, April 27, 2015

Puerto Rico proposes plan to go after commercial tax evaders, spiraling debt, Fox News, March 8, 2015


More Blog Posts:
Former UBS Puerto Rico Executives File a $10M FINRA Arbitration Claim Against the Firm, Stockbroker Fraud Blog, April 15, 2015

Killeen Man Accused of Texas Securities Fraud Targeting Military, Stockbroker Fraud Blog, April 23, 2015

BlackRock Advisors Settles SEC Charges Over Conflict of Interest Disclosures for $12M, Institutional Investor Securities Blog, April 25, 2015