April 21, 2016

Texas-Based Linn Energy Extends Deadline for Exchanging LINE Units for LNCO Shares

Linn Energy (LINE) says that its unit holders have until April 25 to exchange their units for LinnCo shares. According to SeekingAlpha.com, the Texas-based company is making the deal to avoid CODI (cancellation of debt income).

As it stands, Linn Energy has suspended its distribution and is making interest payments on its unsecured debt just in time before its 30-day grace period to make the payments ends in order to avoid a default. According to Nasdaq.com, the energy player paid interest of $60M on senior debt. At some point, Linn Energy may have to file for bankruptcy.

This month, Zach Investment Research downgraded Linn Energy shares from a buy rating to a hold one. It sent investors a research report with this new information. Stifel Nicolaus (SF) also lowered shares of the oil and gas company from a hold rating to a sell one in February. In March, Robert Baird lowered its target price on Linn Energy shares and established a neutral rating for the company in its research note. In December, Barclays (BARC) reaffirmed its hold rating of the shares. Ladenburg Thalmann downgraded Linn Energy from neutral to a sell rating and Citigroup (C) did the same in its research note.

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April 20, 2016

Indiana Investment Adviser Sentenced for Bilking Older and Disabled Clients of Over $680K

Cindy L. Lampkins is sentenced to five years behind bars. The Bloomington, Indiana investment adviser stole over $680,000 in retirement money from elderly investors and disabled clients. Lampkins was convicted on count of money laundering and one count of wire fraud.

Lampkins was the VP of Kern Financial Group, which offers financial and insurance services. The investment firm belongs to her and her father.

According to investigators, between 2/10 and 11/13, Lampkins persuaded clients to pay Kern Financial Group for nonexistent products. The Internal Revenue conducted a probe, as did state police, who discovered that Lampkins lied to clients, gave them doctored financial statements, and concealed her actions from them. Investors thought their money was going into annuities with high interest rates or to buy a product that would cover funeral costs in the future.

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April 19, 2016

Former UBS Puerto Rico Employees Brought $25M Lawsuit Against the Firm

Over the last two years, more than 1,000 investors have sued UBS Puerto Rico (UBS-PR) in FINRA arbitration or other forums over mounting losses from the collapse of the Puerto Rico bond market. However, investors are not the only ones suing UBS-PR over its sale of risky bonds. Siblings Jorge and Teresa Bravo have sued UBS for $10 million in FINRA arbitration along with UBS-PR customers.

The Bravos, both ex-senior VPs at the brokerage firm, said management fooled not just customers but also UBS employees. They said they were coerced and threatened into selling Puerto Rico close-end bond funds and they were mistreated before being forced out.

Along with the Bravos, seven former UBS Puerto Rico employees have filed claims against UBS-PR seeking $25 million from their former employer. That group of former UBS-PR brokers claim UBS management made misleading statements to them, as well as customers, about the closed-end mutual funds. The brokers also said management pressured brokers at the firm to sell these Puerto Rico securities. News of the seven former brokers’ lawsuit broke last year around the time that Reuters disclosed the existence of a UBS letter noting that the collateral value of closed-end funds would be reduced to zero—an indication of their riskiness.

At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico bond fraud lawyers have been working with investors to recoup their money. Too many investors lost much of the money they invested with UBS-PR and other brokerage firms on the island when these securities began to fail three years ago. Our securities lawyers on the island and the U.S. mainland are representing clients who have FINRA arbitration claims.

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April 18, 2016

Commodity Trading Cases: Galileo Trading Fined Over $1.6M, Trader Ordered to Pay More than $141K for Aiding and Abetting Fraud, and Criminal Defendant Must Pay Over $4.7M in Restitution

Galileo Trading to Pay Penalties and Restitution to Settle Commodity Futures Fraud Charges
The U.S. Commodity Futures Trading Commission is filing fraud charges against Nathan Schleifer and his Galileo Trading LLC. Schleifer and his firm are accused of fraudulently soliciting customers to get them to trade commodity futures and for making a number of false statements and material representations to the National Futures Association about their trading practices.

The SEC said that from at least ’99 – ’14, Schleifer and his firm fraudulently obtained at least $2.8M from a number of people for supposed trading in a pooled investment in commodity futures. The Commission claims that Galileo and Schleifer misrepresented to pool participants that they’d had previous success trading in futures. They also purportedly claimed that they were making a lot of money for these pool participants when in reality there were substantial losses.

Schleifer is accused of falsely claiming that he was a skilled money manager. He guaranteed investors minimum returns and told them their money was safe. When at least one individual tried to take money out, Schleifer said he lost the funds during a flash crash in May. Later, he admitted that he lost all of the investor’s money years ago.

CFTC Permanently Bans Trader from Registering with the CFTC
The CFTC has settled charges against Brian Hinman for aiding and abetting a commodity pool fraud involving a number of Texas-based entities owned by Kevin G. White and for the fraudulent solicitation of participants to get involved in Revelation Forex Fund, a foreign currency exchange pool. It was in 2013 that the CFTC filed a federal court action against White and his KGW Capital Management, LLC and RFF GP, LLC. They were ordered to pay $3,365,888 in restitution and a civil penalty of over $4.1M. White is now serving prison time for mail fraud.

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April 18, 2016

Bancorp-UBS Trial over $2.1B of Mortgage-Backed Securities Begins

UBS (UBS) is on trial in Manhattan federal court. According to Reuters, the civil case was brought by UBS Bancorp (USB) for three trusts. The trusts claim that in their contract with the Swiss banking giant, UBS agreed that the mortgages backing the securities would satisfy certain standards. However, they contend, when it became clear the mortgages were faulty, UBS would not repurchase them. Now, the trusts want back the $2.1B that they lost.

UBS’s legal defense team argued that the lawyers of the trust are assessing the loans from the perspective of “hindsight bias.” They want U.S. District Judge Kevin Catel to evaluate whether when the loans were considered defective at the time that they were issued in 2006 and 2007.

According to the lawsuit, over 17,000 loans were pooled into three trusts, which issued securities granting investors the right to borrower-made payments. The problem was, contend the plaintiffs, over 9,600 of the loans were defective, primarily because of borrower fraud or because they did not meet underwriting requirements. The trusts believe that UBS did not properly vet the loans, which it obtained through shady lenders that would go on to fail.

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April 16, 2016

SEC Cases: Litigation Marketing Company Accused of Defrauding Retirees, NY Town Officials Hide Money Problems from Municipal Bond Investors, and Ski Resort is Tied to Fraudulent E-B Five Offerings

Elder Financial Fraud: LA Based-Company Accused of Bilking Retirees and Others
The Securities and Exchange Commission is charging PLCMGMT LLC, also known as Prometheus Law or PLC, and co-founders David Aldrich and James Catipay of bilking retirees and other investors. The two men are accused of raising $11.7M by telling investors that their money would go toward bringing together plaintiffs for class action cases and other lawsuits. Investors were promised substantial returns of 100% to 300% from any settlements. PLC is a litigation marketing company based in Los Angeles.

The SEC contends that only $4.3M of the money was used to find prospective plaintiffs and not much revenue was made from any settlements reached. Instead, Aldrich and Catipay took $5.6M to cover their own expenses. The two men downplayed the risks involved and did not disclose that their business model was “unrealistic.” Instead, PLC and its founders claimed that investments were secure and guaranteed when they were actually very speculative and high risk, especially as not all potential plaintiffs typically qualify to become actual plaintiffs. Compound this factor with the reality that winning any lawsuit is never a guarantee.

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are here to help older investors recoup their losses.

Officials of Ramapo, NY Accused of Hiding Financial Woes from Muni Bond Investors
The SEC is accusing the New York town of Ramapo, its local development corporation, and four town officials of fraud. The Commission claims that the officials committed fraud to hide the financial stress caused by the $60M spent on constructing a baseball stadium, as well as the decline in sales and property tax revenues. The four individuals allegedly cooked the books of Ramapo’s main operating fund to make it seem as if it held positive balances of up to $4.2 million over a six-year period when actually the balance deficit at one point reached close to $14M.

The regulator said that since the town guaranteed the stadium bonds that Ramapo Local Development Corp. (RLDC) had issued, an operating revenue shortfall at the corporation was concealed and investors were not apprised that the town would likely have to subsidize bond payments, which would cause the general fund to lose even more money.

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April 15, 2016

Broker Violations & FINRA: PNC Investments to Pay $225K for Overcharging for Mutual Funds and Stifel Nicolaus is Fined $750K For Not Following Reserve Requirements

The Financial Industry Regulatory Authority has announced that PNC Investments will pay nearly $225K in restitution for charging retirement clients too much for mutual fund investments. According to the regulator, the brokerage firm did not apply waivers for investors in certain Class A share mutual funds even though there was a waiver for front-end charges for eligible customers.

Instead, said FINRA, PNC Investments sold Class A shares customers with a front-end load or other shares that had a back-end load and higher fees and expenses, some of which were charged on an ongoing basis. Because of this, certain customers were charged excessive fees and paid them.

FINRA said that PNC Investments charged 121 customer accounts in excess of $191,740 for mutual funds—although the actual amount, with interest, was closer to $224,750. PNC will pay restitution to eligible investors.

The brokerage firm self-reported the overcharges after reviewing its own conduct last year to assess whether it was issuing the sales waiver to those that were eligible. FINRA said that the broker-dealer experienced lapses in supervision, did not keep up written policies and procedures that were adequate, and failed to help advisers assess when to waive the sales charges.

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April 14, 2016

Elm Tree Investment Advisors Founder, COO Charged in $17M Ponzi Scam

In Manhattan, prosecutors are charging Fred Elm, the founder of Elm Tree Investment Advisors LLC, and Ahmed Naqvi, its COO, of running a $17M Ponzi scam that allegedly bilked over 50 investors. According to the government, the two men falsely claimed they had access to pre-initial public offerings and that their funds would be placed in privately held companies, such as Uber Technologies and Twitter Inc.

Manhattan U.S. Attorney Preet Bharara said that only $7.1M of the $17M was actually invested and investor funds were mixed together in one account. Elm is accused of spending millions of these dollars in expensive purchases, including high-end cars and a nearly $2 million home.

Investors were told that Elm and Naqvi would receive a 2 % management fee and 20% of any profit made. Unfortunately, there never was any profit. $5.2M of new investors’ funds was used to pay earlier investors, which is typical of a Ponzi scam. The two men are accused of making misrepresentations that were fictitious to hide their scheme from investors.

Elm and Naqvi are charged with wire fraud, securities fraud, and conspiracy.

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April 13, 2016

Broker Michael Donnelly Gets Prison Time for Elder Financial Fraud

Michael Donnelly, formerly the president of Coastal Investment Advisors Inc. and its brokerage firm, has been sentenced to 99-months behind bars. Donnelly pleaded guilty to securities fraud and wire fraud that involved stealing money from older investors and unsophisticated investors.

From ’07 through the middle of ’14, Donnelly, a Florida broker, bilked clients and used the funds for his own expenses, including rent, private school tuition for his kids, golf club memberships, and car payments.

He gave investors bogus trade confirmations and account statements to keep the fraud going and claimed that their investments were doing well. In addition to his time in prison, Donnelly is permanently barred from the industry, has to pay $1.99M in restitution, and will serve three years of supervised release. Last year, the Securities and Exchange Commission filed civil charges against Donnelly.

In other senior fraud news, the Financial Industry Regulatory Authority announced that since launching its Securities Helpline for Seniors last year, customers have received back over $1.25m because of calls about possible elder fraud. Already, the hotline has answered 4,000 phone calls from people of all ages.

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April 9, 2016

Hedge Funds Sue Puerto Rico’s Government Development Bank Over Assets

Problems continue to plague Puerto Rico as its financial situation continues to deteriorate. Just recently, as things have worsened for the U.S. territory, a number of hedge funds have asked the United States District Court in San Juan, Puerto Rico to freeze the assets of the Commonwealth’s Government Development Bank (“GDB”). The hedge funds, who are large owners of Puerto Rican debt, are accusing the bank of insolvency and spending its remaining money to help support other sectors of the island’s beleaguered government.

The plaintiffs in the case include Claren Road Asset Management and Brigade Capital Management. The hedge funds reportedly hold about $3.75 billion of the bank’s debt.

In their lawsuit, the hedge funds said that the GDB has not provided the financial data that creditors have requested. They want the Court to prohibit additional cash transfers except for those that are necessary. The hedge funds do not want public entities, municipalities, and other depositors to be able to take their money out.

The plaintiffs expressed concern that should the GDB run out of funds, a lot of essential services may have to stop and creditors would sustain significant losses. The GDB has a debt payment due on May 1 of about $422 million. In response to the hedge funds’ case, GDB President Melba Acosta-Febo claimed that the accusations made in the complaint are “erroneous” and allegations that the GDB knowingly kept back financial information in order to preference deposits over bondholders are “wholly false.”

The hedge funds believe that GDB kept giving loans even while knowing these loans would likely not be repaid.

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April 8, 2016

$12M Ponzi Scam May Be Connected to Possible NYPD Corruption, Reports Newsweek

According to a law enforcement source that spoke to Newsweek, there may be a connection with a $12 million Ponzi scam involving restaurateur Hamlet Peralta and an investigation that the FBI is conducting into allegations of corruption at the NYPD. Peralta, who is the purported mastermind of the alleged scheme, has been arrested.

According to a federal indictment, investors thought they were investing in Peralta’s wholesale liquor business. Instead, he used $700K of their funds on liquor and over $11 million to pay earlier investors, purchase spa treatments and cover his other expenses. Peralta purportedly lied when he told investors that he was the owner of the West 125th Street Liquors. (The business belongs to his sister.) One investor gave Peralta over $3.5M.

Peralta is charged with wire fraud. At least 12 investors were allegedly bilked. Peralta is said to have promised them regular interest rate returns that he claimed would come from profits made by his business. Instead, he misappropriated the money.

Now, Newsweek is saying that the liquor scam may be tied to the FBI's NYPD probe. The FBI is reportedly looking into whether senior members of the police department received gifts in exchange for favors from two businessmen who invested with Peralta.

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April 6, 2016

Securities Fraud: Ex-SWS Financial Services Broker Faces Improper Trading Charges, Ex-Fox Commentator Settles Penny Stock Scam Case, and Former Investment Adviser Gets 7-Years in Prison

FINRA Accuses Ex-Broker of Unsuitable Trading Involving Mutual Funds
David Randall Lockey, a former broker, is facing Financial Industry Regulatory Authority charges for allegedly engaging in improper trading of customer accounts while associated with SWS Financial Services Inc. He is no longer with that firm, now called the Hilltop Securities Independent Network. According to the regulator, Lockey took part in “unsuitable short-term trading and switching” involving unit investment trusts and mutual funds in four accounts between ’12 and ’14.

Lockey purportedly made about $75,730 for himself and the firm while engaging in improper trading. Meantime, three of the four customers whose accounts he used sustained losses of $15,699. The fourth customer made a gain of almost $5,000.

FINRA said Lockey has not been registered with any broker-dealer since 2014.

Ex-TV Commentator Settles Penny Stock Fraud Charges with the SEC
The U.S. Securities and Exchange Commission is charging former FOX commentator Tobin Smith with fraud. According to the regulator, Smith, who is also a market analyst, and his NBT Group fraudulently promoted a penny stock to investors.

The SEC said that both Smith and his firm received payments to prepare and distribute e-mails, articles, blogs, and other communication promoting IceWEB Inc. stock. They purportedly failed to fully disclose they were receiving the compensation.

The investors were not made aware of that part of what Smith and NBT were paid was linked to a sustained rise in the data storage company’s share price. The Commission said that marketing materials the investors received included misleading and false statements put there to artificially up the share price and trading volume of IceWEB stock. For example, payment for promotional efforts was $300K and IceWEB stock. NBT could also make over $250K if marketing campaigns proved successful.

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