August 22, 2016

Two Investors File Securities Arbitration Claim Against Santander Securities Over Puerto Rico Municipal Bonds

Two investors, seeking to recover the investment losses they sustained in Puerto Rico municipal bonds, are pursuing a FINRA arbitration claim against Santander Securities LLC. According to the case, the Puerto Rican investors are claiming breach of fiduciary duty, violation of common law fraud, negligent supervision, and the unsuitable investment of their money in the Puerto Rico Public Finance Corporation RFDG Commonwealth Appropriation Series A Bond. Santander Securities is a Banco Santander (SAN) subsidiary.

These investors are among the thousands seeking to recover the money they lost in Puerto Rico bonds and Puerto Rico closed-end bonds after brokerage firms, such as Santander Securities, Banco Popular, and UBS Puerto Rico (UBS-PR) recommended that they invest in these securities. Many investors were never equipped to handle the risks involved in Puerto Rico bonds yet their broker encouraged them to invest, ignoring suitability rules and often misrepresenting the investment.

Last October, Santander agreed to pay $6.4 million to settle allegations related to Puerto Rico bonds, including $4.3 million in restitution to clients in the U.S. territory, as well as a $2 million fine. FINRA, which announced the settlement, said the brokerage unit would repurchase the Puerto Rico bonds from a group of customers that were still holding them. The self-regulatory organization had pursued an enforcement action against Santander Securities because of the way the firm’s brokers sold and bought the bonds during a more than three-year period beginning in 2010.

For many investors, Puerto Rico bonds seemed like a good investment because of the tax benefits they offered, along with a yield that was higher than comparable bonds that were issued by U.S. cities and states. Unfortunately, when the price of the Puerto Rico municipal bonds dropped in 2013, many investors sustained huge losses.

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August 20, 2016

CFTC and FINRA File Charges Against Deutsche Bank Over Swap Data and Information Transmitted Over Squawk Boxes

The U.S. Commodity Futures Trading Commission has filed a civil case against Deutsche Bank AG (DB). According to the regulator, for five days the firm, which is a provisionally registered Swap Dealer, did not report any swap data for a number of asset classes, turned in untimely and unfinished swap information, failed to supervise the staff responsible for the reporting of the swap data, and had an inadequate Business and Continuity and Disaster Recovery Plan.

The bank’s swap data reporting system had suffered a System Outage. The CFTC said that the swap data reported prior to and after the outage showed that there had been ongoing problems with specific data fields and their integrity. As a result, the market data issued to the public was affected. Some of it purportedly continues to be affected to this day. The CFTC said that a reason for the System Outage and the reporting problems is that Deutsche Bank lacked an adequate Business Continuity and Disaster Recovery Plan or another supervisory system that was equally satisfactory.

Earlier this month, the Financial Industry Regulatory Authority fined Deutsche Bank $12.5M for substantive supervisory failures involving trading-related information and research that the firm had issued to employees over internal speakers, also referred to as squawk boxes. The self-regulatory organization said that even though there were red flags related to this matter, Deutsche Bank neglected to set up supervision that was adequate over both the access that registered representatives had to the “squawk,” or “hoots,” which is the information issue through the squawk boxes, and the communication of this data to customers.

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August 19, 2016

Mortgage Company President Charged With Defrauding Ginnie Mae

U.S. prosecutors are charging Robert Pena with fraud. Pena, who is the founder and president of Mortgage Security— a mortgage company that is no longer in operation—was indicted on wire fraud and conspiracy charges.

Court documents state that Mortgage Security was contracted with the Government National Mortgage Association, also known as Ginnie Mae. Its job was to pool eligible residential mortgage loans and sell mortgage bonds that were backed by Ginnie Mae to investors. Mortgage Security also was supposed service the loans, including collecting payments plus interest from the borrower ( in addition to loan payoffs) and putting the money in accounts that Ginnie Mae held in trust. The funds were to eventually go to investors.

However, contends the indictment, starting in 2011, Pena allegedly started moving the funds that borrowers sent to Mortgage Security into secret accounts without Ginnie Mae’s knowledge. He purportedly used the money for business and personal expenses, eventually taking close to $3M. He allegedly tried to conceal his scam through false reports that he issued to Ginnie Mae regarding the loans. Ginnie Mae wound up having to pay investors because it had guaranteed their investments.

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August 17, 2016

Securities Fraud News: Hedge Fund Manager Accused of Securities Fraud Involving Payoffs to the Terminally Ill, SEC Halts Trading in Neruomama Shares, and Commodity Pool Fraud Leads to More than $10M in Penalties and Restitution

Investment Advisor Firm Accused of Paying Off Terminally Ill Patients to Commit Fraud
The SEC has filed fraud charges against Donald Lathen and his Eden Arc Capital Management. Lathen is accused of recruiting at least 60 individuals who had less than six months to live and agreeing to pay them $10K each for the use of their names on joint brokerage accounts. When one of these individuals would die, he would allegedly redeem the investments by falsely representing that he and the terminally individual person were joint account holders.

Lathen recruited the terminally ill patients through contacts he had at hospices and nursing homes. In reality, it was Lathen’s hedge fund that owned the option investments.

As a result, of the purported omissions and misrepresentations, issuers paid over $100M in early redemptions. Lathen is accused of violating the custody rule by not properly putting the securities and money from the hedge fund in an account under the name of the fund or in one that held only client money and securities.


SEC Stops Trading in Neromamam Ltd.
The SEC has stopped the trading of Neuromama Ltd. (NERO) shares. The shares trade on the mostly unregulated over-the-counter markets and the regulator is concerned about transactions that may be “potentially manipulative, as well as other red flags that have purportedly been cropping up for years.

Neruomama’s paper value went up times four to $35B this year despite not much volume. The company’s shares went up by four times to $56/share. (On January 15, ’14, its value was $4.73B.)

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August 16, 2016

UBS to Pay $250K For Not Waiving Mutual Fund Fees

The Financial Industry Regulatory Authority said that a UBS Group AG (UBS) unit will pay $250K to resolve charges accusing it of not waiving certain fees for mutual fund customers that were eligible for the reduction. FINRA said that the broker-dealer overcharged customers $277,636 to invest in mutual funds. The failure to wave these fees purportedly took place from 9/09 to 6/13.

The self-regulatory organization cited alleged supervisory failures. According to the settlement notice, UBS depended largely on its registered representatives to identify when sales charge waivers were warranted and identifying them. These waivers were linked to the reinstatement rights that let investors get around having to pay front-end sales charges.

Under these rights, individual investors are generally allowed to reinvest money made from selling class A mutual fund shares in the same fund family or the same fund without having to pay fees at the front end. They are given 90-120 days to reinvest for the waiver to be applicable.

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August 12, 2016

Texas Securities Fraud: State Fines The Investment Center and A Local Man Is Accused of Bilking Investors

A New Jersey financial firm must pay $50,000 in Texas for allegedly not properly supervising one its brokers who loaded up too many energy stocks in his clients’ accounts. The Investment Center Inc. has been reprimanded by the Texas State Securities Board, which also imposed the fine.

It was an investor that brought the Texas securities case against the securities dealer and one of its ex-brokers. According to the state regulator’s consent order, between ’10 and ’14, some clients at The Investment Center held 95% of total investible assets in energy sector equities. The recommended securities were typically low-priced and publicly traded. There were purportedly periods when some clients’ accounts were invested in just one company instead of holding investments in different energy companies at the same time. Also, said the state regulator, with certain clients, their equity positions were 100% concentrated in the energy sector.

The Texas State Securities Board said that clients that could not sustain a lot of risk were among those affected by this broker’s investment choices.

Although the former financial representative’s actions in investing so much of his clients’ money in concentrated equity positions raised red flags when some of these accounts dropped in value, The Investment Center purportedly failed to act on the warning signs. The firm has since paid the investor who filed the Texas securities fraud complaint $98,000.

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August 10, 2016

SEC Charges Ex-Philadelphia Eagles Football Player With $10M Fraud

Merrill Roberts Jr., an ex-Philadelphia Eagles football player, is charged with financial fraud. According to the Securities and Exchange Commission, Robertson bilked investors in a $10M scam.

The SEC claims that Robertson, Sherman Vaughn Jr. and their Cavalier Union Investments LLC promised investors they would invest in diversified holdings. Instead, they took nearly $6M of investors’ money to cover their own spending and pay earlier investors. Expenditures purportedly included cars, luxury items, spa visits, family vacations, and educational expenses.

The two men are accused of claiming that the unregistered debt securities they were selling were safe and would generate up to 20%. They also purportedly told people that experienced invest advisers were running Cavalier’s investment funds when there were no advisers or funds.

The investment firm, said the SEC was “functionally insolvent” soon after it was set up, yet the defendants allegedly concealed this from prospective investors and depended on the latter’s money to stay in business. The government said that Cavalier only invested in restaurants and all of them failed.

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August 5, 2016

Securities Headlines: FINRA Wants Ex- Merrill Lynch Adviser to Pay Monetary Sanctions Over Misleading Recommendations, Four Life Insurers Must Pay $3.4M Related to Death Benefits, and JPMorgan Settles with Indiana Over Proprietary Products for $95OK

Ex-Merrill Lynch Adviser Accused of Misleading Clients with IRAs
Landon L. Williams, and ex-Merrill Lynch adviser who is no longer registered with the Financial Industry Regulatory Authority, is accused of misleading five of the firm’s clients by giving them inaccurate information when issuing recommendations for investments. All of the clients had individual retirement accounts. At the time, Williams served as a Merrill Lynch Edge Advisory Center adviser for a year until August 2014.

Merrill Edge customers have less than $250K in accounts. Instead of working with one broker, they work with a team of advisers.

In its complaint, FINRA note a couple of examples, including when Williams allegedly told one customer that the yearly operation cost of a fund was 1.113% when, in fact, it was 1.28%. He purportedly informed one client that she would be able to make up her front-end sales charges in three years even though his notes related to that fund said that she would make them up in seven years.

FINRA is seeking monetary sanctions.


Life Insurance Companies Settle with U.S. States Over Unclaimed Death Benefits
Securian Financial Group Inc., Hartford Financial Services Group, Standard Insurance Co., and Great American Insurance Group have reached a $3.4M settlement with the state insurance departments of North Dakota, Florida, California, Pennsylvania, and New Hampshire. The deal is related to the payment of unclaimed death benefits.

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August 3, 2016

Securities Fraud: Unregistered Representatives Bilk Investors of Over $5M & Go Shopping, Broker to Go to Prison Over $131M Market Manipulation Scam, and an Illinois Man is Convicted in $20M Scheme

SEC Files Fraud Charges Against Unregistered Representatives in $5M Fraud
The U.S. Securities and Exchange Commission has obtained an asset freeze against Matthew White, Daniel Merandi, and Rodney Zehner for alleged financial fraud. The three men are not registered to sell investments. They are accused of raising over $5M from investors and spending the money on expensive shopping expeditions.

According to the SEC, Merandi, White, and Zehner fraudulently issued $1B in unsecured corporate bonds using their shell company. They said the funds would go toward developing a resort. Although they never raised enough money to begin the project, they took $5.6M that they did raise from investors and went shopping at Gucci, Prada, Saks Fifth Avenue, Versace, and Louis Vuitton. The men allegedly conducted bogus transactions to raise the bond’s price even though the securities were expired and had no value.

The Commission is accusing Merandi, White, Zehner, and their companies of violating the Securities Act of 1933’s Section 17(a) antifraud provision, the Exchange Act of 1934’s Section 10(b), and Rule10b-5. It wants permanent injunctions, penalties, and disgorgement.


Broker Pleads Guilty to Fraud Involving $131M Market Manipulation Scam
Registered broker Naveed Khan has pleaded guilty to securities fraud. Khan faces up to 20 years behind bars for his involvement in a $131M pump-and-dump scam that involved the market manipulation of ForceField Energy Inc. (FNRG).

Between 1/09 and 4/15, the defendant and others sought to bilk ForceField investors. The fraudsters are accused of using nominees to sell and buy the LED company’s stock without notifying current investors and potential ones, orchestrating trading to make it seem as if the public was interested in ForceField’s stock, and hiding payments made to brokerage firms and stock promoters. These broker-dealers purportedly marketed and sold the stock under the guise of being independent.

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August 1, 2016

FINRA Files Securities Fraud Charges Against NY Broker For Churning Accounts of Blind, 77-Year-Old Widow

The Financial Industry Regulatory Authority has filed a securities fraud case against Hank Mark Werner. The self-regulatory organization is accusing the New York broker of churning the account of a 77-year old widow who is blind, and engaging in unsuitable and excessive trading involving her account. FINRA claims that Werner charged the elderly customer over 243K in commissions while he churned her accounts for over three years and caused her to sustain about $184K in losses.

According to FINRA, Werner, who had been the broker of the elderly widow’s husband since 1995, until he passed away four years ago, started aggressively trading her accounts after he died. The SRO claims that Werner did this to earn excessive commissions.

From 10/12 to 10/15, Werner placed more than 700 trades in over 200 securities while charging the elderly customer commission or a markup on every sale and purchase. Because she was seriously debilitated, blind, and needed in-home care, the woman was totally dependent on Werner to let her know how her account was doing.

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July 29, 2016

Puerto Rico Likely To Default on Bond Payments Due on August 1

On August 1, the U.S. Commonwealth of Puerto Rico and its agencies will owe roughly $346 million in bond payments. This latest deadline comes one month after the U.S. Territory defaulted on nearly $1 billion of bond payments that were due on July 1. According to Bloomberg, here is what is due:

· The Puerto Rico Sales Tax Financing Corp. (often called “COFINAs”) owes about $256 million of principal plus interest in COFINAs. S & P Global Ratings has said that the bond trustee has the money to pay the debt that is due next week. COFINAs are paid back from the Commonwealths’ sales tax. This local agency has $15.2 billion of outstanding debt.

· Every month, the territory owes $13.9M of interest, which Puerto Rico has not defaulted on yet.

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July 27, 2016

SEC Stops $5M Fraud, Ex-Investment Adviser Faces Criminal Charges, Another Pleads Guilty, and a Broker is Barred for Bilking Elderly Customer Through Variable Annuities

SEC Wins Asset Freeze Against Two Ex-Brokers in Alleged $5M Fraud
The Securities and Exchange Commission has obtained an asset freeze from a court to stop the alleged ongoing fraud by ex-brokers Douglas Albert Dyer and James Hugh Brennan III. They are accused of raising over $5M from investors and improperly using their money. Both men have disciplinary histories.

According to the Commission, since 2008 Dyer and Brennan had sold purported shares in several companies to over 240 investors but did not register the stock. They allegedly moved this money into their personal accounts or to their wives’ accounts. They also purportedly did not disclose that Brennan was banned from the brokerage industry or that Dyer had been fined and suspended for unrelated unauthorized transactions involving customer accounts.

Also named in the SEC case is Broad Street Ventures, which is Brennan and Dyer’s company. Their wives are relief defendants. The regulator wants ill-gotten gains, interest, penalties, and permanent injunctions.

Ex-Investment Adviser Faces Criminal Charges for Allegedly Stealing Over $5.1M from Clients
Bradley Smegal is charged with securities fraud. The ex-Washington State investment advisor is accused of stealing over $5.1M from at least 14 clients.

Prosecutors say that between 8/07 and 1/13 Smegal persuaded clients to invest with entities that he said “guaranteed” specific return rates and were “conservative.” According to court documents, he failed to disclose he had a stake in the investments, and he moved $825,00K of the funds into his own account.

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