November 18, 2014

Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed

Puerto Rico’s Electrical Power Authority, also known as PREPA, is experiencing a surge in overdue accounts. According to a report from an FTI Consulting subsidiary, since 2012, the U.S. territory’s electrical authority has seen a 219% increase in the number of company and residential accounts that are at least 120 days late in making their payments. The report was generated as part of an agreement with the creditors, which retain more than $9 billion of the electrical utility company’s debt.

By September 2014, late balances owed to PREPA not just among businesses and residents, but also by government entities had hit $1.75 billion. At least $708.6 million were payments that were late by a minimum of four months.

Puerto Rico’s governmental entities owe about $758 million, with certain public corporations unable to even pay their electricity bills and refusing to agree to payment plans to get their accounts current. The FTI report recommends that Prepa put into place an amnesty period for clients that are delinquent, retain a collection agency, increase late fees and charges for reconnection, and push for timely payments.

Prepa is getting ready to unveil a plan early next year to restructure its $8.6 billion of debt. Its debt has been issued a junk rating by credit rating agencies.

Meantime, Puerto Rico is talking to four bond insurers to get at least part of up to $2.9 billion in bonds insured. These are bonds the financially beleaguered Commonwealth wants to put out later this year. The bond issues would let the territory access a deeper capital pool in the municipal bond market than the small hedge funds that purchased $3.5 billion of its debt earlier this year.

Puerto Rico is also seeking to refinance a $2.2 billion loan that the Government Development Bank made to its Highways and Transportation Authority to try and improve its poor financial health and give the territory more time to reverse its failing economy. To make the sale, the island has to pass laws that would increase an oil tax that could allow it to back the bonds.

Puerto Rico Bond Fraud
Puerto Rico’s muni bonds are the focus of hundreds of FINRA arbitration claims, with many investors complaining that they sustained huge losses because they were sold investments that were too risky for what they could afford.

Brokers for UBS (UBS), Banco Santander (BNC), and Banco Popular are among those identified as having made inappropriate recommendations to customers. A number of investors lost everything.

At Shepherd Smith Edwards and Kantas LTD LLP, our Puerto Rico muni bond fraud lawyers represent investors with FINRA arbitration claims that are seeking to recover their money. Contact our securities fraud law firm today to request your free case consultation.

Puerto Rico Electric Utility’s Late Accounts Surge 219% From ’12, Bloomberg, November 17, 2014

Read the FTI Capital Advisors Report

Puerto Rico's PREPA urged to get tough on $1.8 bln owed, Reuters, November 17, 2014

PREPA


More Blog Posts:
Investors File Close to $1B of Puerto Rico Bond Fraud Claims against UBS, Stockbroker Fraud Blog, October 9, 2014

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts, Institutional Investor Securities Blog, November 13, 2014

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


November 17, 2014

SEC Wants $602M Fund Set Up for Victims of SAC Capital’s Insider Trading

The U.S. Securities and Exchange Commission is asking a district judge to authorize a fair fund to pay back people shareholders who didn't participate in an insider trading scam involving shares of Wyeth LLC and Elan Corp. PLC. The regulator is seeking to reimburse people who traded the stocks over a seven-day period in July 2008, which is the week when SAC Capital Advisors LP liquidated a $700 million position in both companies because of illicit tips obtained by former fund manager Mathew Martoma. The SEC is suggesting that the $602 million it collected from SAC Capital over the matter should be used to repay the shareholders.


SAC Capital, now known as Asset Management LP, had agreed to pay $1.8 billion to settle a criminal indictment for the insider trading allegations. Of that money, $616 million was a penalty to the SEC over related charges. However, not all SEC commissioners are on board with the regulator’s fair fund recommendation. Commissioners Michael Piwowar and Daniel Gallagher have expressed their dissent.

Meantime, Martoma has just lost a bid to stay out of jail while he appeals his conviction. Martoma was sentenced to nine years behind bars after he was found guilty of three counts of conspiracy and securities fraud.

He is accused of getting the confidential data from doctors involved in a clinic trial of an Alzheimer’s drug that both Wyeth and Elan were developing. Estimated ill-gotten gains in the insider trading scheme is about $275 million.

The illegal trades occurred between 2006 and 2008. SAC took most of the gains. Several other SAC capital employees also were convicted for insider trading.

At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers are here to help investors. Over the years, we have helped thousands of clients, including institutional investors and individual investors, recoup their fraud losses.

SEC Has SAC Capital Idea: Give Insider Fines to Victims, Bloomberg, November 15, 2014

Casting Doubt on Appeal, Court Rejects Bail for Ex-SAC Capital Trader, The New York Times, November 12, 2014


More Blog Posts:
Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg, Stockbroker Fraud Blog, November 13, 2014

Detroit Suburb Charged with Muni Bond Fraud
, Institutional Investor Securities Blog, November 6, 2014

Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

November 13, 2014

Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg

According to Bloomberg.com, sources are telling them that Citigroup (C) and Bank of America (BAC) are selling soured U.S. mortgages to satisfy the demand from investment firms that are raising the prices. For example, say the individuals who asked not to be named, Bank of America recently placed approximately $1 billion of beleaguered debt, including nonperforming loans. Meantime, Citigroup purportedly sold around $1 billion of re-performing and nonperforming mortgages.

Lenders are reportedly selling more defaulted mortgages to avoid the cost of holding the debt. Meantime, private-equity firms and hedge funds are trying to make money off of increasing home values. The number of firms looking to acquire debt that has soured is growing.

According to some critics, that housing regulators and other agencies have recently announced rulings that would decrease credit and lending standard for home mortgages is a sign that the government is making the kinds of errors that led to the 2008 housing crisis. With housing giants Freddie Mac (FMCC) and Fannie Mae (FNMA), handing over the majority of their earning to the Treasury Department, government-sponsored enterprises are now lacking the capital buffer they would need in the event there are losses. If the economy gets into trouble again, it may be up to taxpayers once more to bail these GSEs out. It was the U.S. Treasury that helped save Freddie and Fannie with $180 million as the government seized them, placing both under conservatorship.

Last month, the Federal Housing Finance Agency announced that even though sellers of certain asset-backed securities have to keep a minimum of 5% of the asset’s credit risks, securities backed by qualified residential mortgages are exempt from this requirement.

Our mortgage-backed securities fraud lawyers are here to help investors recoup their losses.

Bank of America, Citigroup Said to Sell Soured Home Loans
, Bloomberg, November 12, 2014

Feds to Back Risky Home Loans Again
, The Washington Free Beacon, November 10, 2014


More Blog Posts:
Detroit Suburb Charged with Muni Bond Fraud, Institutional Investor Securities Blog, November 6, 2014

Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

November 11, 2014

Survey by FINRA Shows Investors Want More Regulatory Protections

According to a Financial Industry Regulatory Authority-released survey of investors, 92% of participants believe that there needs to be a regulatory “cop” to protect investors. 94% said that regulators should use the latest technology and tools on the job. The survey is intended to evaluate how investors feel about regulatory protections.

1,000 investors participated in the survey. Overall, said the self-regulatory organization, investors were in strong agreement that regulation and investor protections are key. The majority of investors also said that it is important that regulators detect when customers are sold unsuitable securities, if brokers are making trades to their benefit rather than that of investors, and when firms are taking risks that could hurt customers. 74% of those surveyed said they are in support of additional regulatory protections against broker misconduct.

The Survey was conducted over several days last month. Respondents came from a nationally distributed online panel. They had to meet certain criteria: U.S. citizen, at least 21 years of age, with primary or shared responsibility in their home for investment choices, and at least $10,000 in securities investments.

According to InvestmentNews, Securities and Exchange Commission Chairman Mary Jo White is preparing to disclose what she thinks is the best way for the regulator to enhance investment-advice standards for brokers. At the yearly Securities Industry and Financial Markets Association meeting this week, White said that the SEC has not yet decided on whether to enhance the standard of care.

It’s been over four years now that the SEC has been debating on whether to propose a rule that would create a uniform fiduciary duty for retail investment advice. Such a rule would obligate brokers to act in their clients’ best interests—much like the fiduciary duty of investment advisers to their clients.

The Dodd-Frank Act gave the Commission the authority to put forth new regulation about fiduciary duty. The opposition by two of its commission members to such a rule is just one of the reasons the regulator has not yet acted on this authority. There are five members on the SEC Commission.

Meantime, SIFMA, at the same conference where White spoke, has voiced its opposition to the re-release of a proposed Department of Labor regulation that would extend fiduciary duties to advisers who sell individual retirement accounts. The DOL has said the rule would protect investors from advisers that had conflicts of interest.

However, ex-SIFMA chairman Jim Rosenthal said that the rule would only let IRAs be held in managed accounts that charge investors fees according to assets under management, while curtailing having them offered in brokerage accounts that charge investors on a per trade transaction basis. He believes this will keep brokers from servicing accounts that are small.

Our broker fraud lawyers and investment adviser fraud attorneys are her to help investors recoup their financial losses.


FINRA Investor Survey Reveals Strong Support for Additional Regulatory Protections, FINRA, November 6, 2014

The Survey (PDF)

SEC Chair Mary Jo White close to revealing her position on fiduciary duty, Investment News, November 10, 2014

U.S. Department of Labor

More Blog Posts:
SEC Files Charges in Massachusetts Pump-And-Dump Scam, International Microcap Fraud, and Issues Investor Alert, Stockbroker Fraud Blog, November 7, 2014


BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources, Stockbroker Fraud Blog, November 4, 2014

Detroit Suburb Charged with Muni Bond Fraud, Institutional Investor Securities Blog, November 6, 2014

November 10, 2014

Two Former Merrill Lynch Brokers Contend with Unauthorized Trading Claims

According to the Financial Industry Regulatory Authority (FINRA), Ameriprise Financial (AMP) broker Lorene Fairbanks, formerly with Merrill Lynch. Pierce, Fenner & Smith Incorporated, was recently sanctioned over allegations that she effected over 57 discretionary transactions for several customers without getting the required written authorization from the clients or the approval of the firm. Fairbanks also allegedly mismarked over 50 order tickets, noting them as “unsolicited” when they were “solicited” orders. Brokers are not allowed to exercise discretionary authority in a client account without written authorization.

The Ohio broker was registered with Merrill Lynch from 8/06 to 3/12. The firm fired Fairbanks in February 2012 for purportedly taking discretion in client accounts and mismarking customer orders. She has been associated with Ameriprise since June 2012. There also have reportedly been other customer complaints accusing Fairbanks of excessive trading and unsuitable trading.

Also sanctioned by FINRA for allegations of unauthorized trading is George Zaki, another ex-Merrill Lynch broker. The self-regulatory organization contends that Zaki implemented or executed about 3,600 trades in some 80 accounts without written customer authorization between 6/10 and 8/12.

Zaki was let go by Merrill Lynch in October 2012. The firm said the termination was because of conduct related to exercising discretion in client accounts that were not discretionary. FINRA rules prohibits a registered representative from exercising discretionary power in the account of a customer without that client’s prior written permission and firm acceptance of the account.

After Zaki was terminated from Merrill Lynch, he was registered with Barclays (BARC) Capital Inc. until earlier this year.

Our broker fraud lawyers represent investors in the U.S., as well as those headquartered abroad with claims against brokerage firms in the country.

BrokerCheck, FINRA


More Blog Posts:
FINRA May Expel Ex-Broker For $6M Hedge Fund, Stockbroker Fraud Blog, July 15, 2014

SEC Stops Fraudulent Bond Offering by Chicago Suburb, Institutional Investor Securities Blog, June 25, 2014

AIG Advisor Group, Securities America, LPL Financial, Cambridge, And Even Schorsch’s Broker-Dealer Stops Selling His REITs, Institutional Investor Securities Blog, November 7, 2014

November 7, 2014

SEC Files Charges in Massachusetts Pump-And-Dump Scam, International Microcap Fraud, and Issues Investor Alert

The U.S. Securities and Exchange Commission has filed charges against California Attorney Richard Weed, Coleman Flaherty, and Thomas Brazil. The regulator contends that Weed facilitated a pump and dump scam involving CitySide Tickets Inc. stock that allowed Flaherty and Brazil to get millions of supposedly unrestricted shares.

Investors were barraged with a misleading and false promotional campaign presenting CitySide Tickets as a company in the verge of expansion and success. As the stock price went up, Flaherty and Brazil sold their shares to investors, causing the two of them to make about $3 million in illicit proceeds. Weed purportedly was well compensated for the role that he played.

The Commission charges the three men with violating federal securities laws’ antifraud provisions and related rules. The agency wants disgorgement of ill-gotten gains, interest, penalties, permanent injunctions against further violations, and penny stock bars. Meantime, the U.S. Attorney’s Office for the District of Massachusetts has filed a parallel criminal case against Flaherty, Brazil, and Weed.

Also this week, the SEC charged two people with running an international microcap fraud scheme involving shares in a coal mining company. Bruce D. Strebinger and Brent Howard Chapman are accused of setting up multi-million dollar campaign to promote the stock, getting rid of their shares, and moving the money they made via accounts that were offshore. The Commission says that it was after Strebinger helped to make a merger between Americas Energy Company-AECo and another company that he and Chapman obtained over 5% of the common stock. They did not, however, publicly disclose that they had an ownership stake.

Their pump-and-dump scam purportedly involved offshore corporations, foreign financial institutions, and foreign accounts. Strebinger and Chapman reportedly made over $17 million.

It was just last week that the SEC and the Financial Industry Regulatory Authority issued an alert warning investors that certain penny stocks that are being promoted as ventures with great potential are actually dormant shell companies. The agencies said that to avoid such scams, they recommend that investors:


· Look into whether a company was previously dormant and then revived. You can do this by checking the SEC’s EDGAR database to see when the last periodic report was filed.

· Watch out for the letter “Q” at the end of a stock symbol, which is an indicator that the company had previously filed for bankruptcy.

· Find out where the company’s stock trades. If it doesn’t trade on a registered national securities exchange then consider this a red flag.

· Look out for frequent changes to the name of a company or its business focus.

· Look out for huge reverse splits.

Read the SEC Complaint Against Weed, Brazil, and Flaherty (PDF)

Investor Alert: Dormant Shell Companies – How to Protect Your Portfolio from Fraud, Investor.gov

SEC Charges Two Canadian Citizens With Penny Stock Fraud Involving Tennessee Coal Mining Company, SEC, November 3, 2014


More Blog Posts:

Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources, Stockbroker Fraud Blog, November 4, 2014

Detroit Suburb Charged with Muni Bond Fraud, Institutional Investor Securities Blog, November 6, 2014

November 5, 2014

Texas Pension Fund Sues Tesco For Securities Fraud

According to the Irving Firemen’s Relief and Retirement Fund, Tesco PLC and its directors misled investors, purportedly causing the Texas pension fund to buy the company’s stock at prices that were artificially inflated. Because of this, says the fund, it sustained substantial losses when Tesco announced in September that it had overstated profits because of accounting irregularities.

The supermarket chain’s shares plunged after it disclosed that certain income was booked prior to being earned and costs were identified after they were incurred. Last month, Tesco said that it had overstated profits by $422 million.

The Irving pension fund wants to get class action status. It wants to represent Tescho shareholders who bought the company’s American depository receipts, representing one ordinary share each, between February 2 and September 22, 2014. In its securities fraud case, the Texas fund contended that Tesco purposely deceived the public.

IFRRF is for retired firefighters. The pension fund is funded through the Texas city of Irving, its participants’ contributions, and investment earnings.

Meantime, a report from an independent probe by Deloitte into the accounting overstatement will be sent to regulators. Even U.K.’s Financial Conduct Authority has said it would look into the matter.

Shepherd Smith Edwards and Kantas LTD LLP represents investors who are the victim of securities fraud to get their money back. Our Texas securities lawyers represent individual investors and institutional investors.

Irving pension fund sues Tesco for fraud
, Pensions and Investments, October 24, 2014

Irving (Texas) Firemen’s Relief and Retirement Fund

Tesco Gets More Bad News as Pension Fund Sues in U.S., Bloomberg, October 4, 2014


More Blog Posts:

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

SEC Adds Children and Spouses of Texas Wyly Brothers to Securities Fraud Case Following $187M Verdict, Stockbroker Fraud Blog, October 28, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

November 4, 2014

BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources

According to sources, an announcement is expected this week regarding the sale of UBS Puerto Rico’s (UBS-PR) mutual funds operations to BlackRock Asset Management (BLK). The move, say sources, is part of the Swiss giant’s strategy to exit the island.

To date, investors have filed nearly $1 billion in securities arbitration claims against UBS Puerto Rico alleging fraud and other wrongdoing in the sale of the funds. The broker-dealer recently consented to pay a fine of $5.2 million over fund improprieties. The settlement, reached with the Commonwealth’s Office of the Commissioner of Financial Institutions, included $1.7 million in restitution to 34 local low net-worth residents who had invested in Puerto Rico closed-end bond funds that were sold by UBS.

One investor was not happy with the settlement and some of the terms and individuals involved, which have not been disclosed. He is now suing the regulator. Last week, Martínez-Umpierre asked a local court to order the release of the confidential documents used to arrive at the settlement. He wants to find out how the 34 investors who will be getting restitution were chosen and how much they lost. Investors who have filed Financial Industry Regulatory Authority arbitration claims against UBS are not eligible for compensation either.

Martínez-Umpierre also wants to find out whether his broker was one of the six UBS employees now subject to extra supervision, per the settlement terms. Rafael Blanco-Latorre, who is the Financial Institution’s commissioner, said that disclosing the documents would reveal UBS clients’ financial and personal information. He also pointed out that because his office is not taking action against any of the brokers, their confidentiality should be protected.

This week, UBS was one of 13 firms sanctioned by the SEC over the improper sale of Puerto Rico junk bonds. You can read more about the sanctions imposed and the firms involved here.

It was in the fall of last year when UBS first came under close scrutiny related to investor allegations that the firm’s brokers had misrepresented the risks involved in UBS-PR’s proprietary bond funds, even encouraging many clients to borrow funds so that they could invest more in the funds. Yet even as far back as 2012, UBS Financial Services Inc. of Puerto Rico was already settling allegations related to closed-end mutual funds.

In May of that year, the brokerage firm consented to pay the U.S. Securities and Exchange Commission $26.6 million to resolve allegations that it had bilked customers by concealing its control of the secondary market related to nearly two dozen proprietary, closed-end mutual funds. The firm settled without denying or settling wrongdoing.

In Puerto Rico and the U.S., Shepherd Smith Edwards and Kantas, LTD LLP represents clients who invested in Puerto Rico muni bonds and sustained substantial and unnecessary losses. Contact our UBS Puerto Rico bond fraud lawyers today for your free case consultation.


Lawsuit seeks documents in Puerto Rico fund settlement with UBS, Reuters, November 3, 2014

SEC Sanctions 13 Firms for Improper Sales of Puerto Rico Junk Bonds, SEC, November 3, 2014


More Blog Posts:
Investors Have Filed Close to $1B of Puerto Rico Bond Fraud Claims against UBS, Stockbroker Fraud Blog, October 29, 2014

UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Puerto Rico Closed-End Mutual Fund Sales, Stockbroker Fraud Blog, October 14, 2014

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

November 3, 2014

SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds

The Securities and Exchange Commission has sanctioned thirteen financial firms, including UBS Financial Services (UBS), Charles Schwab and Co. (SCHW), J.P. Morgan Securities (JPM), and Stifel Nicolaus & Co. (SF), for the improper sales of Puerto Rican junk bonds. A $100,00 minimum denomination had been established in junk bonds of $3.5 billion made by Puerto Rico several months ago. An SEC probe, however, revealed that there had been 66 instances when firms sold the bonds in transactions of under $100,000.

Municipal bond offerings are supposed to have a set minimum denomination that determines the smallest amount that a firm can sell to an investor during a single transaction. Typically, municipal issuers will establish high minimum denominations for junk bonds with a greater default risk. This is done to limit the bonds from ending up in the accounts of investors who may not be able to handle the risks.

The firms and their fines: UBS Financial Services for $56,400, Charles Schwab & Co. for $61,800, Oppenheimer & Co. (OPY) for $61,200, Wedbush Securities Inc. for $67,200, Hapoalim Securities USA for $54,000, TD Ameritrade (AMTD) for $100,800, Interactive Brokers LLC for $56,000, Stifel Nicolaus & Co. (SF) for $60,000, Investment Professionals Inc. for $67,800, Riedl First Securities Co. of Kansas for $130,000, J.P. Morgan Securities for $54,000, National Securities Corporation for $60,000, and Lebenthal & Co. for $54,000.

The firms are accused of violating Rule G-15 of the Municipal Securities Rulemaking Board. The rule sets the minimum denomination requirement. The SEC says that by conducting sales under the minimum denomination, the firms violated the Securities Exchange Act of 1934’s Section 15B(c)(1), which does not allow for any MSRB rule to be violated.

All 13 firms agreed to settle the SEC’s findings without admitting to or denying them. The firms also agreed to be censured. They will review their respective procedures and policies, as well as make the needed changes to ensure appropriate compliance moving forward.

Our Puerto Rico muni bond fraud lawyers represent investors in the Commonwealth and on the mainland. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC Sanctions 13 Firms for Improper Sales of Puerto Rico Junk Bonds, SEC, November 13, 2014

Rule G-15, Municipal Securities Rulemaking Board

Securities Exchange Act of 1934
, Legal Information Institute

More Blog Posts:
Investors Have Filed Close to $1B of Puerto Rico Bond Fraud Claims against UBS, Stockbroker Fraud Blog, October 29, 2014

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

UBS Brokers Are Still Selling Puerto Rico Muni Bonds, Stockbroker Fraud Blog, October 20, 2014

October 30, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm

James “Jeb” Bashaw, the former star financial adviser at LPL Financial (LPLA) from Texas is now registered with International Assets Advisory, a small brokerage firm. LPL Financial fired Bashaw last month over allegations involving selling away. Then, for a while this month, he was with Wunderlich Securities Inc.

Selling away typically involves engaging in private securities transactions sans the required written disclosure or brokerage firm approval. It can also include borrowing from a client, as well as engaging in a transaction that is a potential conflict interest, again without the required disclosure in writing or firm approval.

Responding to the selling away allegations, Bashaw noted that he was “home supervised” and underwent more than a dozen perfect audits while affiliated with LPL. After his firing, Wunderlich took steps to hire Bashaw but there was a delay in transferring his license to the firm. In the end, the broker-dealer and Bashaw reportedly decided not to pursue a working relationship.

In 2011, Bashaw was ranked the number one financial adviser in Texas. He founded a dually registered firm in Houston, which was one of the biggest affiliated LPL practices. He reportedly managed assets of $3.8 billion.

In other LPL Financial news, this week Mark Casady, its chief executive, apologized to shareholders for the time it has taken to resolve the company’s compliance issues. The problems have cost the brokerage firm millions of dollars in settlements, restitution payments, and fines.

Casady’s statement comes a week after parent company LPL Financial Holdings Inc. announced that the broker-dealer expected to incur some $23 million in charges to settle undisclosed regulatory issues. That’s $18 million more than what had been anticipated. Following the announcement, LPL shares dropped 7%.

LPL said the regulatory matters primarily involve LPL Financial’s policies, systems, and procedures. Without going into detail, Casady said that the nature of the issues made it hard to identify or evaluate the “timing or magnitude of their resolution.”

For the last two years, LPL Financial has been contending with regulators over different issues. Earlier this month, regulators in Massachusetts announced that LPL had consented to pay back senior investors $541K for surrender charges from switching variable annuities. In June, LPL Financial was told to pay $820K in restitution and a $2 million fine to Illinois regulators for not properly mantaining books and records that documented 1035 exchanges.

Last year, FINRA fined LPL $7.5 million for close to three dozen system failures involving emails. The firm paid investors in Massachusetts $4.8 million in restitution related to their purchase of nontraded real estate investment trusts.

Our Texas broker fraud lawyers represent investors who wish to recoup their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Ex-LPL Adviser’s Talks With Wunderlich Scuttled, The Wall Street Journal, October 14, 2014

CEO Mark Casady apologizes to LPL Financial shareholders for compliance missteps, Investment News, October 30, 2014


More Blog Posts:
LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches, Stockbroker Fraud Blog, October 15, 2014

Former LPL Financial Broker Must Pay Almost $2 Million For Bilking Clients, Including Elderly Investors, Stockbroker Fraud Blog, August 29, 2014

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

October 29, 2014

Investors File Close to $1B of Puerto Rico Bond Fraud Claims against UBS

In its third-quarter earnings reports this week, UBS noted that claims involving its Puerto Rico closed-end municipal bond funds are reaching close to $1 billion. That is a significant jump from the $600M mark those cases reached during the second quarter of this year, and this shows that the number of cases being filed against UBS continue to grow. According to multiple reports, the investors seeking almost $1 billion in losses are alleging unsuitability, fraud, and misrepresentation.

The third quarter has been a rough one for the Swiss banking giant. Reuters reports that the entity has put aside $1.9 billion for possible legal costs.

In the past year, UBS has been in the spotlight over claims that brokers in UBS's Puerto Rico unit persuaded customers to get involved in the proprietary bond funds even if the funds were not suitable for the investors’ portfolios. Some clients reportedly were even encouraged to borrow so they could invest more.

When the muni bond funds dropped in price last year, many investors sustained huge losses. Additionally, many investors have claimed the funds and the bonds associated with the funds were misrepresented to investors on the island.

In addition to investors,regulators have expressed concern over UBS’s sale of Puerto Rico Bonds and Puerto Rico Bond funds. UBS recently agreed to pay Puerto Rico regulators $5.2 million for bond improprieties. That amount included $1.7 million in restitution to senior investors with low-net-worth who lost money in closed-end funds. However, despite the losses and regulatory scrutiny, UBS said that it intends to keep selling Puerto Rico municipal bonds.

Currently, Puerto Rico is still mired in $73 billion of debt. According to Bloomberg, the island’s lawmakers are developing a plan that would let the Infrastructure Financing Authority, known as PRIFA, sell up to $2.9 billion of bonds backing petroleum taxes to pay back the loans from the Government Development Bank. This would raise the U.S. territory’s petroleum-tax rate to $15.50 a barrel. Earlier this month, Puerto Rico paid $1.2 billion in a short-term financing deal. The notes that were sold come with a general obligation guarantee.

Traditional muni investors have started staying away from Puerto Rico, as have traditional muni funds. In the last six weeks, the Commonwealth’s junk-rated bunds have slumped, with the S&P Municipal Bond Puerto Rico Index dropping 3.25%. The territory recently borrowed $900 million from big banks, including Bank of America (BAC), J.P. Morgan (JPM), and Morgan Stanley (MS). Puerto Rico agreed to almost an 8% interest rate to borrow through the middle of next year, which is a very high rate for such short-term borrowing.

According to TheHill.com, with investor confidence in Puerto Rico declining and the island’s other financial woes, the U.S. Congress may feel compelled to set up a federal oversight board to manage the territory’s fiscal problems. However, the U.S. government previously indicated it would not bail out Puerto Rico or guarantee its debt to save it from a financial crisis.

At Shepherd Smith Edwards and Kantas, our Puerto Rico bond fraud lawyers are representing customers of UBS, Banco Santander (BNC), Banco Popular, and other brokerage firms that sustained losses caused by broker negligence and other misconduct, including the sale of Puerto Rico bonds and bond funds. Please contact our securities fraud law firm today for a free, no obligation consultation about your legal rights.

UBS facing nearly $1 billion in Puerto Rico claims, Investment News, October 28, 2014

Puerto Rico pays heavy price in $1.2 bln note sale, Reuters, October 10, 2015

Puerto Rico Sells $900 Million of Short-Term Notes, The Wall Street Journal, October 10, 2014

Puerto Rico May Raise Petroleum Tax to Back $2.9 Billion of Debt, Bloomberg, October 29, 2014


More Blog Posts:
UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Puerto Rico Closed-End Mutual Fund Sales, Stockbroker Fraud Blog, October 14, 2014

UBS Brokers Are Still Selling Puerto Rico Muni Bonds, Stockbroker Fraud Blog, October 20, 2014

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

October 28, 2014

SEC Adds Children and Spouses of Texas Wyly Brothers to Securities Fraud Case Following $187M Verdict

The U.S. Securities and Exchange Commission has added the children and wives of Texans Charles and Samuel Wily to the fraud case that has already rendered a $187.7M award, plus interest, in its favor. The move would come following Sam Wiley’s decision to file for bankruptcy earlier this month.

Over a dozen relatives are now on the lawsuit, including Caroline Wyly, who is the widow of Charles Wyly. He died in a car crash in 2011. Carolyn also has filed for bankruptcy. Also now included are the children of both Charles and Sam.

Regulators say the family members needed to be added to stop the dissipation of the two men's assets. However, they noted that the relatives possess no legal rights or are traceable to the defendants ill-gotten gains.

The SEC accused the billionaire brothers of setting up a complex system of trusts in the Isle of Man that allowed them to generate $553 million in untaxed profits because of concealed trades in companies under their control. The fraud took place for over ten years.

Sam said the bankruptcy claim was necessary to preserve assets following the ordering of the award. He noted that he had between $100M and $500 in liabilities and assets. He also pointed out that it cost him $100 million in legal fees to deal with both the SEC investigation and an Internal Revenue Service probe. Meantime, the SEC says that the billionaire is just trying to get around the enforcement action.

The Wylys’ attorneys say that Sam and Charles's estate don’t have enough funds to pay the $187.7 million award, especially as with interest the total amount could run from $300 million to $400 million.

In her bankruptcy filing, his widow, Caroline said she has been insolvent since her husband’s passing. Her lawyer noted that Caroline’s income is not enough to maintain the assets of her deceased husband that are now her responsibility.

Ordering an asset freeze on the Wylys’ funds is the expected next step. U.S. District Judge Shira Scheindlin in Manhattan, who presided over the award the brothers have been ordered to pay, is also the judge scheduled to deal with this matter.

Our Texas stockbroker fraud lawyers work with clients throughout the state. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC Adds Wyly Kin to Suit in Bid to Secure $187 Million, Bloomberg, October 28, 2014

Texas investor Sam Wyly files for bankruptcy after losing SEC fraud case, Reuters, October 20, 2014


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Texas’ Wyly Brothers Ordered to pay More than $300M In Fraud Sanctions, Stockbroker Fraud Blog, September 28, 2014

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