January 2007 :: Stock Broker Fraud Blog

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January 30, 2007

Co-Founders of Hedge Fund, HMC International, To Pay More Than $4.5 Million In SEC Fraud Charges

The co-founders of HMC International LLC, Bret Grebow and Robert Massimi, have agreed to pay over $4.5 million to settle SEC fraud charges. They also agreed to a permanent injunction. They are now barred from associating with any investment advisers.

The Securities and Exchange Commission filed the action against the hedge fund owners in the U.S. District Court for the Southern District of New York. According to the SEC, the HMC allegedly used a day trading strategy to invest in stocks on the New York Stock Exchange and on NASDAQ. The SEC is also accusing Massimi, HMC’s CEO, of misrepresentation, both regarding the hedge fund’s risk level, strategy, and performance, as well as his degree of involvement in managing the hedge fund. The SEC also alleges that for the majority of the time that HMC was in operation, its principal was not invested to benefit its investors.

Grebow was HMC’s sole trader, and both he and Massimi are accused of preparing and sending out false statements that let investors believe their funds were garnering positive results. They also allegedly misappropriated the fund’s assets and engaged in fraud and deceit.

Massimi has agreed to pay $1,266,168 in disgorgement fees, a $120,000 civil penalty, and $69,984 in prejudgment interest. Grebow agreed to pay $517,595.77 in prejudgment interest, $2,467,472 in disgorgement, and $120,000 in civil penalty.

In agreeing to pay the fine, however, none of the defendants and respondents admitted or denied any wrongdoing. Also as part of the settlement, relief defendant Jaime Massimi agreed to give up a brokerage account that was wrongfully placed in her name.

At Shepherd, Smith, and Edwards, Our experienced team of attorneys is devoted to representing investors nationwide and helping them recover losses that were caused by the inappropriate actions of stockbrokers and their firms. We offer a free consultation if you contact us through the Internet. Contact Shepherd, Smith, and Edwards today.

Related Web Resources:

SEC Settles Action Against Hedge Fund, HMC International, LLC, and Its Principals, Robert M. Massimi and Bret A. Grebow, SEC.gov

Hedge Fund, Hedgefund.net

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Posted In: SEC Enforcement

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January 29, 2007

Securities and Exchange Commission Approves Improvements To The NASD’s Code of Arbitration Procedure

The SEC (Securities and Exchange Commission) says that it has approved a number of improvements made by the National Association of Securities Dealers to their Code of Arbitration Procedure. The newly approved Code describes best practices and offers additional guidance to arbitrators and parties regarding the NASD Dispute Resolution forum.

Included among these changes are the reorganization of the Code into a more user friendly and logical manner, and the simplifying of the Code's language. The Code is also now divided into three sections: The Industry Code, The Customer Code, and the Mediation Code. This separation of the code into three parts is intended to remove any confusion regarding which part applies to which disputes. The rules are now ordered in the sequence of a typical arbitration to make each rule easier to find. In addition, parties involved in disputes must either produce documents requested during the discovery process or formally object to producing them. Uniform procedures for filing, responding to, and making decision regarding motions in arbitrations can also be found in the new Code.

While the Mediation Code became effective on January 20, 2006, the Industry and Customer Codes won’t become effective until April 2007. These new Codes will affect claims that are filed on or after the April 2007 date, claims that have already been filed but do not already have a list of arbitrators, and claims where a new list of arbitrators still needs to be generated.

NASD DR President Linda Fienberg says the changes are intended to make the dispute resolution process as “transparent, fair, and efficient for investors and others who use the forum."

In addition, the Code includes a new roster of public arbitrators who are qualified to serve as chairpersons in investor-related cases. In cases requiring three arbitrators, the parties involved will be given three lists, each with eight names of potential arbitrators: a public chair-qualified arbitrator list, a public arbitrator list, and a non-public arbitrator list. The parties involved will be able to cross out four names from each list and rank the other names in order of preference. In cases requiring a single arbitrator—usually the claims in these type of cases are no more than $50,000—the parties involved will be able to choose from a list of public chair-qualified arbitrators. For arbitrations between industry players only, there will be a non-public chairperson list for these types of disputes.

Lists of arbitrators from the NASD roster will be selected randomly by its new MATRICS (Mediation and Arbitration Tracking Retrieval Interactive Case System) technology platform. This is intended to give all qualified arbitrators an opportunity to be on an arbitration list.

The three codes are available online at the NASD's web site.

Shepherd, Smith, and Edwards has represented thousands of clients across the United States who have been the victims of commission churning, misrepresentations, unauthorized transactions, unsuitable investments, excessive mark-ups, botched transfers, and other issues involving investor fraud. To schedule a free consultation with one of our attorneys, contact Shepherd, Smith, and Edwards today.

Related Web Resource:

Code of Arbitration Procedure, NASD

Securities and Exchange Commission

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Posted In: NASD Enforcement

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January 24, 2007

SEC Says Broker-Dealers Are Not Following Supervisory Procedures

Mary Ann Gadziala, an associate director of the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations, says that broker-dealers often do not follow written supervisory procedures.

Speaking to an audience on broker-dealer regulation at the ALI-ABA conference on January 11, Gadziala says that this finding often comes up during examinations. She also said that although firms may have good written procedures, the practices were not necessarily consistent, but that she was reluctant to recommend the outsourcing of the creation of these written procedures that tended to be standardized—and that these procedures were not in compliance with the law if they did not cover the firm’s actual business activities.

Gadziala commented that she thought centralized or automated surveillance, rather than manual monitoring processes, should be used by high-volume firms. She did, however, say that the SEC has been working to develop manual (as opposed to electronic) monitoring for branch office supervision, procedures and staffers, and the suitability of products that were sold to clients.

Gadziala noted that there are over 172,000 broker-dealer branch offices in the US and that the supervision at these branches offered certain challenges. She noted that many branches were in remote areas, had staffers with disciplinary problems, and that the supervisors there were often independent contractors rather than employees. She says that the SEC is recommending that firms create specific roles and responsibilities at these branches, monitor outside business activities procedures, centralize electronic supervision, conduct surprise inspections, and screen employees for any wrongdoing.

Other areas of concern for the SEC were the suitability of certain investments, such as structured transactions and hedge funds, as well as risk management, which Gadziala says needs to reflect the changing business environment. Terror cyber attacks were one problem that she encouraged firms to watch out for.

With law offices across the country, including Chicago, Dallas, New York, Houston, and Phoenix, Shepherd, Smith, and Edwards has represented thousands of U.S. investors in recovering their losses in the securities industry as a result of broker misconduct, including churning, unsuitability, overconcentration, misrepresentation, and omissions. Contact Shepherd, Smith, and Edwards to schedule a free consultation.

Related Web Resources:

ALI-ABA Broker-Dealer Regulation Brochure (PDF)

U.S. Securities and Exchange Commission

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Posted In: Broker-Dealers

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January 23, 2007

American Association for Justice Asks SEC To Publicly Disclose Relationship To Merrill Lynch

The AAJ (American Association for Justice) is asking Securities and Exchange Commission Chairman Chris Cox and General Counsel Brian Cartwright to address media reports that the SEC thought about supporting Merrill Lynch & Company during attempts by Enron shareholders to hold Enron banks accountable. The AAJ wants the SEC to publicly disclose the extent of its connections to Merrill Lynch.

On January 12, 2007, the AAJ turned in to the SEC a Freedom of Information Act request. The AAJ wants the SEC to disclose if, how, and when they communicated with Merrill Lynch regarding Enron and whether Counsel Cartwright and Chairman Cox have recused themselves from the Enron case because they had both once worked for the law firm (Latham and Watkins) representing Merrill Lynch. Also, the Center for Responsive Politics is reporting that Latham & Watkins was Chairman Cox’s largest contributor while he served in the U.S. Congress. The law firm reportedly contributed $124,594 on two separate occasions.

At least 30 states are supporting the Enron shareholders who have filed lawsuits against investment banks that are accused of taking part in accounting fraud because of the Enron scandal. Merrill Lynch is one of these banks.

Attorneys for the investment bank recently requested that the SEC file a brief supporting the firm in front of the U.S. Fifth Circuit Court of Appeals in New Orleans. According to an AP reporter, the SEC considered the request, although it had won tens of millions of dollars from Citigroup Inc., Merrill Lynch, and JP Morgan Chase & Co. because of their participation in the Enron Scandal in 2003.

According to AAJ Chief Executive Officer Jon Haber, "In light of the troubling reports that the SEC, at the request of a major Wall Street bank involved in the Enron scandal, considered interceding in a way that could harm shareholders, the public has a right to know if the fox is guarding the hen house. This is just the latest in a series of audacious moves by some in corporate America to roll back the Enron reforms and avoid accountability.''

Shepherd, Smith, and Edwards is dedicated to assisting investors nationwide to recover losses caused by inappropriate actions of stockbrokers and their firms. For more information, contact Shepherd, Smith, and Edwards today.

Related Web Resources:

Merrill Lynch

American Association for Justice

U.S. Securities and Exchange Commission

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Posted In: J P Morgan - Chase , Merrill Lynch , SEC , Smith Barney - Citigroup

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January 19, 2007

Former Putnam CEO Agrees To Pay $75,000 In SEC Charges

Lawrence Lasser, the former CEO of Putnam LLC, has agreed to pay $75,000 to settle SEC charges that he neglected to make sure the company carried out its fiduciary duties.

The Securities and Exchange Commission issued the following statement on January 9, the day that Lasser agreed to pay the settlement fee. According to the SEC, Lasser “did not ensure that Putnam fulfilled its fiduciary duty to disclose adequately to the Putnam Funds' board of trustees the use of fund brokerage commissions to pay for 'shelf space' arrangements or potential conflicts of interest created by this use."

By agreeing to pay the settlement fine, however, Lasser is not admitting or denying the SEC’s charges against him.

According to the SEC, Putnam directed brokerage commissions that were on the company's Funds’ portfolio transactions to go to broker-dealers in exchange for “shelf space” (meaning added exposure at the brokerage), from at least January 2000 through November 2003. According to the SEC, Putnam’s Funds’ distributor—Putnam Retail Management Ltd. Partnership—made agreements with over 80 broker-dealers that these broker-dealers were to promote the sale of Putnam funds. The Securities and Exchange Commission alleges that about 20 of these firms were paid cash, while over 60 of them earned brokerage commissions from their Putnam Funds transactions.

The SEC also claims that “Because PRM and Putnam were under common control, the entire Putnam organization benefited from the use of fund assets to defray such expenses. However, Putnam did not adequately disclose this conflict of interest to the Putnam board."

Lasser is alleged to have known about this conflict of interest, and according to the SEC, he did not tell the Putnam board.

In addition to paying the fine, Putnam’s former CEO has also agreed to cease and desist when it comes to certain violations of the 1940 Investment Advisers Act.

In 2005, Putnam Investment Management paid $40 million in SEC fraud charges for allegedly failing to adequately disclose the fact that it had shelf space deals with broker dealers.

Shepherd, Smith, and Edwards is committed to helping clients who have been the victim of broker misconduct recover the money they have lost. Contact Shepherd, Smith, and Edwards today.

Related Web Resources:

Former Putnam CEO settles charges with SEC, Investment Executive.com, January 9, 2007

Mutual Fund Manager Putnam Pays $40 Million Fine To Settle SEC Enforcement Action, SEC.gov

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Posted In: Mutual Funds

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January 18, 2007

JP Morgan Chase Reports Strong Profits For 4th Quarter From Investment Banking Growth And The Sale Of Their Trust Unit

JP Morgan Chase & Co. is reporting a 68% increase from the sale of their corporate trust unit, as well as strong investment growth. Credit quality became weaker, however. This suggests that the investment bank's individual and commercial clients, like with many major banks, had a more difficult time paying their bills.

JP Morgan Chase is the third largest bank in the U.S. For its 4th quarter, the bank reported a net income of $4.53 billion, up $2.7 billion from the previous year. Revenue was $16.05 billion. According to analysts, 2007 is looking “modestly better than expected” for JP Morgan Chase.

Meanwhile, Wells Fargo & Co, the fifth largest bank in the country, reported a 13% rise in fourth quarter earnings. Credit losses for Wells Fargo also grew.

According to JP Morgan Chase’s CEO Jamie Dimon, "All of our six businesses have been getting stronger almost every quarter," he said. He also said that the integration of the bank branches JP Morgan Chase had acquired from Bank of New York was going well. The branches were traded for JP Morgan Chase’s corporate trust unit. Dimon did warn, however, that there would be losses in the coming quarters as well as higher loan delinquencies.

In the investment bank’s retail financial services, net income decreased from $803 million to $718 million. These figures were attributed to acquiring Bank of New York’s consumer business, a mortgage loan portfolio loss, and the sale of their insurance business last July.

Card services for JP Morgan Chase rose to $719 million from $302 million during the 4th quarter in 2005. JP Morgan Chase’s reported net income for 2006 was $14.44 billion. Annual net income in 2005 was $8.48 billion.

Despite the discovery of unprecedented fraud on Wall Street, brokerage firms continue to earn unbelievable – even unconscionable profits! Self-regulators are shrinking their role (as the National Association of Securities Dealers and New York Stock Exchange merge their regulatory units), and the Securities and Exchange Commission appears to be losing its regulatory power over financial advisors as well as over the sale of insurance policies and annuities which are nothing more than mutual funds with an “insurance wrapper”. Meanwhile, unregulated “hedge funds” flourish with little or no oversight. The bottom line is: “On Wall Street, Crime Pays!”

If you believe that you have been the victim of broker misconduct, Shepherd, Smith, and Edwards would like to help you. Don't let broker misconduct go unpunished. Contact Shepherd, Smith, and Edwards today.

Related Web Resource:

JP Morgan Chase Tops Forecasts, CNN.com, January 17, 2007

JP Morgan Chase

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Posted In: Broker Fraud , J P Morgan - Chase

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January 17, 2007

In Alleged $194 Million Scam, Florida Hedge Fund Operators Of KL Financial Group Face Fraud And Other Criminal Charges

In Florida, three people were charged with fraud and other criminal offenses in connection with a scam that allegedly lost almost $195 million of investors’ money.

Jung (John) Bae Kim, his brother Yung Kim, and brother Won Sok Lee were named as the defendants in a 35-count indictment that was unsealed in the U.S. District Court for the Southern District of Florida. While John Kim has been arrested, the other two men are still fugitives.

Charges in the indictment include money laundering, multiple counts of mail and wire fraud, conspiracy to commit mail and wire fraud, and conspiracy to commit money laundering. KL Group LLC, KL Triangulum Management LLC, and KL Florida LLC, the three hedge fund-adviser companies owned and operated by the three defendants, were also named in the indictment. The charges against the three companies were related to the alleged investment fraud conspiracy only.

The criminal indictment says that the defendants organized a “massive” investment fraud by using hedge funds that were under the KL Group umbrella. From 2000-2005, Some 250 clients are said to have invested approximately $194 million in the alleged scheme. According to the indictment, the bulk of this money was allegedly lost by the defendants, who are accused of spending the funds on their personal use and trading operations.

John Kim is also accused, in the indictment, of setting up “opulent” offices with an ocean view in West Palm Beach, Florida. These offices are said to have housed high-end furniture, computer equipment, flat screen televisions, and other equipment used to furnish an impressive trading area. Potential investors would be toured through the office, where they would see employees supposedly using Kim’s proprietary system to participate in day trading activities. The defendants allegedly told clients that Kim made a nearly $20 million profit in one day by taking short and long positions in a single stock.

The reality was that the KL Financial Group’s funds were continuing to lose millions of dollars. The group would pay old investors back by using the new investors’ funds. Kim and the two defendants are also accused of using counterfeit documents, which included false information on investment returns. The documents were allegedly used to mislead investors, lawyers, and their accountants.

The charges against the three men are among the latest in a number of federal enforcement actions against lead defendant John Kim and his companies. The SEC filed a civil action to shut down KL Group in 2005, and last March, Kim agreed to settle the charges through sanctions.

The law firm of Shepherd, Smith, and Edwards represents investors who have been a victim of fraud. If you feel you may be a victim of Wall Street fraud or negligence, contact Shepherd, Smith, and Edwards at 1-800-259-9010.

Related Web Resources:

KL Financial's top traders indicted on fraud charges, Miamiherald.com, January 11, 2007

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January 11, 2007

In $1 Billion Viatical Scheme Connected To Mutual Benefits Corp., A Doctor From South Florida Pleads Guilty

Clark Mitchell, a South Florida physician, has pleaded guilty to two criminal counts related to a $1 billion viatical sales scheme connected to death benefits company Mutual Benefits Corp. The company has been shut down by state and federal authorities.

In a plea agreement announced at the U.S. District Court for the Southern District of Florida, Mitchell pleaded guilty to one count of conspiracy to commit health care fraud and one count of securities fraud.

The South Florida physician faces a 10-year prison sentence—to be determined in March. He is being ordered to pay a fine of more than $5 million. Also as part of the plea agreement, Mitchell will be responsible for some $367 million in restitution to Mutual Benefits Corp. investors, as well as over $500,000 in health care fraud restitution.

Mitchell says he was connected with MBC’s health care fraud conspiracy while he served as the medical director of a South Florida AIDS clinic.

MBC sales agents are said to have persuaded investors to buy interests in viatial and life settlements. Agents did this by misrepresenting the security and safety of these investments. MBC Sales agents would also tell potential investors that a licensed, independent physician would assess the insured’s health condition to determine life expectancy. The agents included this information in marketing materials.

MBC principals would give the independent physicians lower life expectancy figures for thousands of policies and order the doctors to use them in their assessments. MBC then sent investors affidavits and letter that falsely verified the completion of the review by the physician. Mitchell was one of these physicians, and he admits to signing over 5,000 of these affidavits and letters.

He also has admitted to falsely stating that AIDS patients had been given more complicated care than the clinic where he was director had actually provided, and Mitchell says he was involved in inflating Medicare bills by over $500,000.

At Shepherd, Smith, and Edwards our attorneys and staff have more than 100 years of collective past experience in securities regulation and/or in the securities industry. We make it our priority to help people who have been the victims of securities fraud recover the money they have lost. Contact us online at Shepherd, Smith, and Edwards to schedule a free consultation.

Doctor pleads guilty to taking part in $1 billion Mutual Benefits fraud, Sun-sentinel.com, December 28, 2007

Related Web Resource:

Mutual Benefits Corp. Fraud, mbcfraud.com

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January 10, 2007

NASD Accuses Morgan Stanley Of Failing To Hand Over Emails And Blaming 9/11

The NASD says that securities giant Morgan Stanley lied when it said that millions of key email messages requested by plaintiffs and investigators in numerous proceedings against the company had been destroyed during the September 11 terrorist attack in 2001.

According to NASD head of enforcement and executive vice president James Shorris, thousands of cases were affected by this deliberate lie. "The firm made the claim they didn't know the e-mail was restored, but everyone who came back to work on Sept. 17
turned on their computer, and the e-mail was there."

The allegations were brought forth by the NASD late December in a disciplinary complaint. Pending an NASD hearing, remedies could include censure, a fine, disgorgement of gains associated with violations, a suspension or bar from securities industries, and payment of restitution.

While Morgan Stanley has not responded to the complaint, it has told the media that it did not interfered in anyway whatsoever with the NASD’s review and that the September 11 attacks on the World Trade Center did in fact destroy its archives and email servers. Morgan Stanley must file its challenge to the complaint soon. The securities firm is entitled to file pretrial motions and conduct discovery.

In 2005, Morgan Stanley was ordered to pay a $1.5 billion judgment for neglecting to hand over backups of digital documents (Coleman Holdings Inc. v. Morgan Stanley & Co., No. CA 03-5045 AI). Last year, Morgan Stanley agreed to pay the U.S. Securities and Exchange Commission $15 million to settle claims that email mishandling had taken place.

Because of the issues related to electronic discovery spoliation, many companies are now creating detailed inventories of their digital files in the event that they are faced with a preservation order or a lawsuit. The Federal Rules of Civil Procedure has added new amendments to clarify preservation issues.

As Shepherd, Smith, and Edwards, Our experienced team is devoted only to assisting investors nationwide to recover losses caused by inappropriate actions of stockbrokers and their firms. Contact Shepherd, Smith, and Edwards to schedule a free consultation.

More Trouble for Morgan Stanley, ABA.net, January 5, 2007

Related Web Resources:

Federal Rules of Civil Procedure, Cornell Law School

Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co. Inc., 2005 Extra LEXIS 94 (Fla. Cir. Ct. Mar. 23, 2005), Case Summaries, Lexis-Nexis

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Posted In: Morgan Stanley , NASD Enforcement

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January 9, 2007

Hampton Porter Investment Bankers's Stockbrokers, Convicted For Securities Fraud In Pump-And-Dump Scheme, To Be Sentenced This Year

In California, four stockbrokers who were convicted for securities fraud and conspiracy because of their roles in a “pump-and-dump” scheme that cost investors over $5 million will be sentenced this year.

According to the U.S. Attorney's Office, the four men worked for Hampton Porter Investment Bankers LLC, a San Diego-based company that failed to disclose the company’s financial interests in certain stocks when it sold these particular stocks to clients.

Hampton Porter allegedly held sales meetings where co-owner John Laurienti and former Hampton Porter retail manager James Green pressured brokers to sell “house stocks.” Brokers who sold these stocks were paid “special incentive” compensation that customers didn’t know about. Hampton Porter also had a “no net-sales” policy that prevented customers from selling their house stocks’ shares because brokers delayed or failed to make sell orders. Brokers from Hampton Porter also engaged in cross-trading, which consists of selling one client’s shares to another client.

The four people found guilty by the jury in the U.S. District Court for the Central District of California are:

- Bryan Laurienti, 50, of Peoria, Arizona
- Donald Samaria, 37, of San Diego
- Curtiss Parker, 45, of La Jolla
- David Montesano, 39, of Winchester, California

These four men could be sentenced to up to 20 years in prison. The Justice Department says that the men used high-pressure sales tactics and made false statements to customers so that they would buy the “house stocks.” Laurienti, Samaria, Parker, and Montesano are also accused of unauthorized trading. "As the price of the house stocks rose, Hampton Porter owners sold their holdings and realized significant profits."

Michael Losse, a fifth defendant, was acquitted. A sixth defendant, Adam Gilman, had pleaded guilty to securities fraud in 2003 and was sentenced to an 18-month prison term.

The U.S. Securities and Exchange Commission offers the following information about Pump-And-Dump Schemes:

"Pump-and-dump" schemes, also known as "hype and dump manipulation," involve the touting of a company's stock (typically microcap companies) through false and misleading statements to the marketplace. After pumping the stock, fraudsters make huge profits by selling their cheap stock into the market.

Pump-and-dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down, or a telemarketer will call using the same sort of pitch. Often the promoters will claim to have "inside" information about an impending development or to use an "infallible" combination of economic and stock market data to pick stocks. In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is "pumped" up by the buying frenzy they create. Once these fraudsters "dump" their shares and stop hyping the stock, the price typically falls, and investors lose their money.

At Shepherd, Smith, and Edwards, we make it our primary responsibility to help people who have been the victims of securities fraud and broker misconduct recover their money. Collectively, our clients have recovered millions of dollars through our assistance in negotiations, mediation, arbitration and litigation. Your first consultation with us is free, so contact Shepherd, Smith, and Edwards today.

Jury Convicts Four Stockbrokers Involved in Pump-And-Dump Scheme Operated in San Diego, USdoj.gov, December 7, 2006

Pump and Dump Schemes, SEC.gov

Related Web Resource:

Eight Former Employees of Defunct Brokerage Firm Hampton Porter Investment Bankers are Indicted by Federal Grand Jury, Shepherd, Smith, and Edwards

Beware of 'pump-and-dump' stocks, MSN.com

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January 4, 2007

N.Y. Attorney General’s Office Sues UBS Financial Services, Inc.

The New York Attorney General’s Office is suing UBS Financial Services, Inc. for defrauding thousands of its customers. The lawsuit provides detailed information about a scheme where UBS moved clients from regular brokerage accounts to UBS’s “InsightOne” brokerage program, even though these investors were actually not well-suited for the program. UBS is a leading brokerage firm in the United States.

With InsightOne, brokerage customers had to pay an asset-based fee instead of a per-transaction commission. Asset-based fees, however, are not appropriate for investors who hardly ever trade securities or hold no-load mutual funds, a large amount of cash, or similar assets. UBS is being accused of falsely promoting InsightOne as being a brokerage program that offers personalized advice and other types of financial planning services.

Instead of discouraging investors who were inappropriate for InsightOne from joining the program, the N.Y. Attorney General’s Office says that UBS:

· Used false and misleading promises to persuade investors who were not right for InsightOne to join the program.
· Generated conflict of interest for its brokers who were encouraged to enroll and keep unsuitable investors in InsightOne. Financial incentives were offered for enrolling these investors.
· Encouraged UBS brokers to churn their clients’ InsightOne accounts in order to keep innapropriate investors in the program. This means that brokers were asked to take part in trading for the purposes of surpassing the minimum trading requirement.

The NY Attorney General’s Office has provided correspondence from USB brokers acknowledging that their actions were wrong and asking UBS to consider their mandates.

Because of UBS’s fraudulent behavior, investors who enrolled in InsightOne have had to pay tens of millions of dollars more in additional InsightOne fees than they would have had to pay in traditional brokerage account commissions, including:

· A 91-year old client paid UBS over $35,000 for just four trades over a two year period. That’s $33,000 more than she would have paid if she had a traditional brokerage account.
· One InsightOne client paid about $24,000 in fees for just one transaction in 2003.
· A retiree who had a yearly income of $11,000 and $56,000 in her InsightOne account had to pay a $1250 fee fin 2003 for trading just twice that year. That’s 10% more than her yearly income.
· An 83-year-old investor paid $4,300 per trade for four trades over a three year period. This amount was nearly 8% of her yearly income.
· A farming couple paid over $23,000 per trade for two trades over a three year period. This was $46,000 more than they would have paid if they had enrolled in a traditional account instead of InsightOne.

Filed in December 2006 in the New York Supreme Court in Manhattan, the Attorney General’s civil lawsuit is charging UBS with violating state anti-fraud laws, breaches of fiduciary duty, and common fraud law. They Attorney General’s complaint is seeking disgorgement, injunctive relief, damages, and restitution from UBS.

At Shepherd, Smith, and Edwards, it is our job to help investors who have lost their savings and retirement when their brokerage accounts were mishandled to recover their losses. Our attorneys and staff have more than 100 years of collective past experience in securities regulation and/or in the securities industry. We offer a free consultation to potential clients who contact us online. Send us an email today.

State Lawsuit Alleges Fraud In UBS Brokerage Accounts, NY Attorney General's Office, December 12, 2006

Related Web Resources:

UBS Complaint and Summons (PDF)

UBS Financial Services Inc.

InsightOne

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Posted In: Investor Fraud , UBS

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January 3, 2007

NASD Arbitration Panel Says Ameriprise’s Securities America Must Pay Retired American Airline Pilots Up To $9.3 Million

An arbitration panel for the NASD says that Ameriprise’s Securities America must pay up to $9.3 million to three retired American Airlines pilots who are accusing a broker of spending their retirement savings on mutual funds that had high fees and trading costs. A spin off from American Express Co., Amerprise Financial offers clients financial planning and advice. Securities America is an Ameriprise Financial Inc. subsidiary.

In an NASD ruling, broker Robert P. Gormly, Jr. and Securities America are both being held liable for $2.4 million in lawyer’s fees and $3.9 million in damages. In addition, Securities America must also pay $3 million in punitive damages.

According to the American Airlines pilots, Gormly (who had been affiliated with Securities America in Texas) had initially purchased products from the American mutual funds group, liquidated the funds between 1998 and 2003, and then directed the pilots’ money into more aggressive Rydex funds that he traded on a nearly daily basis.

This ruling was the second significant arbitration award in 2006 to Ameriprise clients who say that the company’s brokers negatively spent their clients’ retirement funds on inappropriate investments. Just last September, Ameriprise agreed to settle a case by 32 former Exxon Mobile Corp. employees for $16.3 million—$13.8 million in restitution and $2.5 million for failing to properly supervise the broker involved. Ameriprise also agreed to hire a consultant who would review the way the company marketed investment recommendations to retired workers. In its ruling, the NASD said that a broker persuaded Exxon employees to retire early by cashing out company-sponsored investment plans and reinvesting the funds with Securities America. Even though there were investment losses, the broker said he could win the retired investors returns between 11.5% and 18%.

There are two more arbitration claims pending against Gormly and Securities America that were filed by airline pilots. Hearings for one of those cases will begin in January.

The NASD is the largest private-sector regulator of financial services. Every securities firm in the United States must register with the NASD. Over 663,535 stockbrokers and registered representatives and more than 5,100 brokerage firms fall under the NASD’s jurisdiction. Among its many responsibilities, the NASD writes rules governing the behavior of securities companies, examines firms and brokers for compliance, and makes rulings and enforces actions anytime the rules it has created are broken. NASD’s arbitration hearings are the main forum on Wall Street for clients to file their complaints against brokerage firms and stockbrokers.

At Shepherd, Smith, and Edwards, Our primary goal is to represent investors who have lost their savings and retirement when their brokerage accounts were mishandled. Our firm has represented thousands of clients nationwide who were victims of misrepresentations, commission churning, unsuitable investments, unauthorized transactions, execution failures, excessive mark-ups, disappearing funds, botched transfers, web-broker outages, "selling away" from firms, unregistered brokers, unregistered securities, improper margin liquidations, broker bribes, fraudulent research, "boiler room" sales practices, and other wrongful acts. If you would like to speak with one of our attorneys for a free consultation, contact Shepherd, Smith, and Edwards today.

Ameriprise Unit Must Pay Retired Pilots $9.3 Million, Bloomberg.com, December 27, 2006

Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

Co-Founders of Hedge Fund, HMC International, To Pay More Than $4.5 Million In SEC Fraud Charges

Securities and Exchange Commission Approves Improvements To The NASD’s Code of Arbitration Procedure

SEC Says Broker-Dealers Are Not Following Supervisory Procedures

American Association for Justice Asks SEC To Publicly Disclose Relationship To Merrill Lynch

Former Putnam CEO Agrees To Pay $75,000 In SEC Charges

JP Morgan Chase Reports Strong Profits For 4th Quarter From Investment Banking Growth And The Sale Of Their Trust Unit

In Alleged $194 Million Scam, Florida Hedge Fund Operators Of KL Financial Group Face Fraud And Other Criminal Charges

In $1 Billion Viatical Scheme Connected To Mutual Benefits Corp., A Doctor From South Florida Pleads Guilty

NASD Accuses Morgan Stanley Of Failing To Hand Over Emails And Blaming 9/11

Hampton Porter Investment Bankers's Stockbrokers, Convicted For Securities Fraud In Pump-And-Dump Scheme, To Be Sentenced This Year

N.Y. Attorney General’s Office Sues UBS Financial Services, Inc.

NASD Arbitration Panel Says Ameriprise’s Securities America Must Pay Retired American Airline Pilots Up To $9.3 Million

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