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February 28, 2007

U.S. Bankruptcy Court Says Bear Stearns Must Pay More Than $125 Million for Collapsed Hedge Fund Fiasco

Bear Stearns Securities Corp. is being ordered to pay over $125 million to a bankruptcy trustee because of Manhattan Investment Fund, a collapsed hedge fund used by hedge fund principal Michael Berger to run a large scale fraudulent investment scam. The ruling was issued on February 15 by the U.S. Bankruptcy Court for the Southern District of New York.

Berger, who was a fugitive and a convicted felon, had created and used the fund through his company, Manhattan Capital Management Inc., to engage in fraud—an action that led to a number of regulatory and criminal actions. The SEC had even filed a securities fraud complaint against MCM, Berger, and Manhattan Investment Fund in January 2000, even obtaining an asset freeze. Two months later, Helen Gredd, the fund’s receiver, filed for Chapter 11 bankruptcy on the fund’s behalf.

According to the court, the fund made 18 transfers, worth approximately $141.4 million in total, in the year before filing for bankruptcy. Funds were transferred from Bank of Bermuda to a Bear Stearns-maintained account with Citibank. The funds were then transferred to a Bear Stearns account and used for securities trading.

Bear Stearns had put the fund on “closing only” status in January 2000-which meant that no new positions could be opened, until existing positions were closed out, and no money could be withdrawn. After Berger confessed to fraud, Bear Stearns closed out any remaining short positions in the account, using money in the accounting to complete the process.

In acting as the fund's main broker, said Judge Borton Lifland last January, Bear Stearns had facilitated short-selling activities over the last several months of the fund's operations. Lifland granted the motion by the trustee for summary judgment in her efforts to recover $141.4 million in margin payments that were deposited into Manhattan Investment Fund’s account at Bear Stearns. Lifland says that Bear Stearns clearly was “on inquiry notice of Berger's fraud" before the fund's collapse” and neglected to act diligently and in a timely fashion. Lifland also says that Bear Stearns made about $2.4 million in revenues for services to the fund.

Because Bear Stearns had complied with the trustee’s request to wire $16,288,846.46, which was what remained in the fund’s account, to the fund’s bank account with Chase Manhattan, the final judgment earlier this month was directed that amount, which Bear Stearns had given back to the trustee prior to litigation be subtracted from the $141 million amount so that there would be no double recovery.

Shepherd Smith and Edwards represents clients who have been the victim of securities fraud. To schedule a free consultation, contact Shepherd Smith and Edwards today. We have offices in New York, Phoenix, San Francisco, Chicago, Dallas, New Orleans, Houston, and Mexico City.

Related Web Resources:

Bear Stearns

Hedge Funds, Hedge World

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February 27, 2007

Former Prudential and E.F. Hutton Exec. Weighing Problems at Current Firm.

Apparently unscathed by scandals at his former firms, 67 year old George Ball serves as Chairman of Sanders Morris Harris Group, Inc., a Houston based investment bank and wealth management firm.

Ball served as the No. 2 executive at E.F. Hutton & Co. Inc. from 1980 to 1982. Three years after he left, the now-defunct New York firm pleaded guilty to 2,000 counts of mail and wire fraud in a check-kiting scheme that occurred during Ball's tenure.

Ball left Hutton to become chairman of Prudential Bache Securities. That firm thereafter became involved with what some have called “the biggest swindle in Wall Street History.” Regulators charged the company with defrauding hundreds of thousands of customers by misstating risks involved in investment partnerships. Prudential paid restitution and penalties totaling $2 billion - the costliest settlement ever for a brokerage firm - and was forced to resolve thousands of civil claims by investors for its role in these investments.

Nevertheless, Ball soon resurfaced as the chairman of Sanders Morris. Although that firm has struggled and is one of few U.S. brokerage firms where profits and its stock price fell last year, it has grown to more than 500 employees, including advisors and investment bankers.

In an industry where reputation is not necessarily an impediment, Mr. Ball has survived. “Ball was never tagged personally with any of the problems that befell Hutton or Prudential, and he has a lot of friends, so he’s still plenty viable in the business,” said Richard Lipstein, a principal of a New York based executive recruiting firm.

While Ball insists that others are responsible for the events which sunk his former firms, Sanders Morris has also found itself in trouble with regulators. Last year, the NASD warned that it plans to discipline the firm for a variety of violations, including improper commission payments to a hedge fund manager. A spokesman described the regulatory matter as “routine” - which is apparently true.

Sanders Morris also faces exposure to claims by investors unhappy with the performance of a 2005 private placement for a company at which two Sanders Morris managing directors served as directors. Sanders Morris has warned that the costs of defending itself in these regulatory and civil matters could be significant.

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Posted In: Broker-Dealers , Sanders Mundy Harris Group

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February 26, 2007

Morgan Stanley and LVMH Settle Analyst Defamation Suit

The international financial services firm of Morgan Stanley and French luxury goods leader LVMH announced an out-of-court settlement of a lengthy legal dispute over allegations that Morgan Stanley issued financial analysis reports which were biased against LVMH.

The settlement, with terms not disclosed, ends nearly five years of legal proceedings in French courts over the potential conflicts of interest between equity analysts and investment banking activities of financial services firms. The case marked the first time the French judiciary was asked to decide potential conflicts of interest of financial analysts at investment banking firms.

The dispute began in 2002, when LVMH accused Morgan Stanley of publishing biased analyst reports and sought 100 million euros ($131.4 million) in damages. In 2004, the Paris Commercial Court heard arguments that the Morgan Stanley analyst report had skewed its analysis of LVMH in order to aid an investment banking client of Morgan Stanley, the Italian luxury goods holding company Gucci. The Court then ordered damages of 30 million euros ($39.4 million) to be paid to LVMH by Morgan Stanley.

Morgan Stanley paid that award but appealed the decision. On appeal, a Paris Appeals Court partially overturned the commercial court's ruling in June of 2006. However, the appellate court upheld the commercial court's defamation finding against Morgan Stanley, while overturning the previous finding of bias in the investment bank's equity research concerning LVMH. When the parties disputed the meaning of the outcome of the appeal, the appelate court appointed an expert to review damages linked to the dispute. The expert analysis was slated for presentation to the appeals court by April 1, but now it will be shelved, according to a joint statement issued by the two companies.

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February 26, 2007

Why Regulators Have A Hard Time Charging Executives At Prominent Securities Firms

A recent investigation by the Senate regarding the handling of Morgan Stanley CEO John Mack in regards to an insider trading investigation sheds light on why regulators are never able to “nail” senior level executives at major securities firms.

Former SEC attorney Gary Aguirre alleges that he was let go after insisting that he interview John Mack in 2005. Mack, at the time, was about to become Morgan Stanley’s chief executive. According to Aguirre, his superiors were hesitant to challenge the soon-to-be head honcho, and the SEC dropped the insider trading case, which also involved Pequot Capital Management Inc., due to insufficient evidence last year.

SEC branch chief Robert Hanson, Aguirre’s former boss, has told the Senate that he knew that lawyers representing Mack would likely contact Hanson’s superiors. Hanson says he would not have minded going up against Mack, but that more preparation and work had been needed to keep Hanson’s superiors in the loop—although, apparently, SEC officials already knew what was going on.

Aguirre has told the Senate Committee that documents he had subpoenaed from Morgan Stanley were sent directly by the firm’s attorney to Linda Thomsen, the SEC enforcement head, instead of him.

According to SEC market surveillance branch chief Eric Ribelin, Hanson told him that the SEC would have to be careful with the way they dealt with Mack’s testimony because he was a prominent person. Ribelin says his proposal to ask Mack “a couple of questions” were met with no response by Hanson.

At least three of Aguirre’s former SEC colleagues, including Surveillance Unit Chief Joseph Cella, have agreed that interviewing Mack should have occurred sooner instead of later.

Mack was interviewed in 2006 after Aguirre was let go and when the statute of limitations for pressing charges against him had passed.

At Shepherd Smith and Edwards, our attorneys and other staff members have a combined 100 years of experience in the securities industry and securities regulation. Our legal team is committed to helping investors anywhere in the United States recover losses resulting from actions by firms and their stockbrokers that are not in compliance with the laws. Contact Shepherd Smith and Edwards today for your free consultation.

Related Web Resource:

Securities and Exchange Commission

SEC Clears John Mack, CFO.com, Dec 1, 2006

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February 23, 2007

Few Brokerages Disclose “Shelf Space” Agreement Details

The SEC is considering whether to change a rule that could require brokers to reveal whether they have “shelf-space” programs, which treats certain fund companies preferentially in exchange for payment by the fund. Its first point-of-sale disclosure rule had pushed for brokerage firms to reveal the actual amount that they received from fund companies that take part in shelf-space programs. Most brokerage firms, however, are still not abiding by this standard, usually only disclosing the amount that they receive from an agreement without naming the fund company involved.

Even though many brokerage firms are informing investors about any “shelf space” agreements they have with specific mutual funds, most of them are still not disclosing the terms of these agreements. Although brokers are not directly paid by the agreement, a shelf space deal can indirectly influence the sale. For example, according to Merrill Lynch & Co. Inc., funds that do “not enter into [shelf space] arrangements ... are generally not offered to clients.”

Shelf space agreements can vary, although most of the bigger firms receive anywhere from 0.05% to 0.25% of sales or assets. Brokerage firms claim this money supports education, sales, and technology.

An example of the kinds of agreements that exist is the deal between Edward Jones and some of its mutual fund companies. Edward Jones, which paid regulators $75 million for allegedly not making adequate disclosures, is one of the firms that now discloses what it collects each time:

· American Funds pays 0.03% of assets
· Federal Investors Inc. of Pittsburgh pays 0.25% on existing assets and new sales

Legal liability has compelled dealers to reveal some of the conflicts involving shelf space fees, information, and transactions, which used to take place under the table.

The SEC reached a settlement with Smith Barney regarding shelf space payments in 2005, after accusing the firm of not providing enough information regarding the “magnitude of revenue sharing payments” with their disclosures.

Mutual funds that the SEC has gone after include MFS Investments, Putnam Investments, Pimco Funds, and Franklin Templeton Distributors Inc.

Although securities regulators have created law and regulations to protect investors, incidents will occur when these laws are disregarded and investors will experience losses as a result. In order to recover what they’ve lost, an investor must file a claim. Having an experienced attorney represent you in this matter will increase the chances of recovery.

Shepherd Smith and Edwards can help you file your recovery claim. Our attorneys have the experience to represent you against brokerage firms, whether negotiating a settlement during securities arbitration or in court. Contact Shepherd, Smith, and Edwards, and your first consultation is free.

Brokerages slow to reveal sales pact details, Investment News, February 19, 2007

Related Web Resources:

Attorney General Lockyer Files Major Securities Fraud Lawsuit Against Edward Jones:
Documents Detail How Secret Mutual Fund Payments Conflicted With Investors' Interests, Office of the Attorney General, State of California, December 20, 2004

U.S. Securities and Exchange Commission

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Posted In: Edward D. Jones , Merrill Lynch , SEC Enforcement

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February 22, 2007

Raymond James Financial Services Is Fined $2.75 million By NASD

NASD says that it is fining Raymond James Financial Services $2.75 million for not adequately supervising more than 1,000 producing sales managers across the U.S between 2002 to 2004. NASD also permanently barred one of RJFS’s branch managers, Donna Vogt, for making unsuitable recommendations to retirement age and elderly customers regarding variable annuity purchases and mutual funds. Some of these transactions were deemed unsuitable because of their over-concentration in aggressive growth funds. She is also accused of making misleading statements when corresponding with customers, treating them as if they belonged to the same group regardless of financial status, age, objectives, and investment experience.

NASD says the St. Petersburg firm neglected to notice sales practice abuses because of its deficient supervisory system. Producing branch managers had to be their own supervisors—opening and approving new accounts, approving their own sales transactions, and checking their correspondence. Because of this, RJFS’s system for supervision was not in compliance with securities regulations and rules.

NASD also claims that RJFS does not have a proper system set up to properly oversee variable annuity sales. Only three exception reports have been used to screen variable annuity purchases, and transactions were not screened for suitability based on yearly income, net worth of the customer, concentration of variable annuity holdings as part of net worth, or investment experience. As a result, unsuitable recommendations by Vogt went unnoticed.

NASD says the firm did not review annuity sub-account transaction recommendations by its branch managers because there was no system in place. Certain records and books, as well as a system for recording these transactions, were not maintained either, and NASD says that there were deficiencies in the firm’s branch audit program.

Although RJFS and Vogt have consented to NASD’s findings, they have not denied or admitted the charges.

If you are investor and you want to get more information regarding any NASD-registered brokerage or brokerage firm, you can use the NASD’s BrokerChecker, free of charge.

Reporting your investment loss to the NASD won’t necessarily help you recoup your investment. Shepherd Smith and Edwards, however, can help you. Our attorneys have helped thousands of Americans recover their investment losses in the securities industry, with our clients collectively recouping millions of dollars because of our legal assistance in mediation, litigation, negotiations, and arbitration. Contact Shepherd Smith and Edwards today, and your initial consultation is free.

NASD Fines Raymond James Financial Services, Inc. $2.75 Million for Lax Supervision of Producing Branch Managers, NASD, February 21, 2007

Raymond James Fined in Lack of Oversight, New York Times, February 22, 2007

Related Web Resources:

Raymond James Financial

NASD

NASD BrokerChecker

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February 20, 2007

Recent Actions By The SEC Brings Up The Question: Is It On The Side of Individual Shareholders Or Does It Protect Accountants And Corporate Executives?

Securities and Exchange Committee Chairman Christopher Cox could lose the confidence of investors, and quite possibly, Congress, if he and the other appointed commissioners continue to pursue their chosen path of action.

The SEC has taken steps to reduce the chances of lawsuits being filed against auditing firms, corporations, and their executives, says the New York Times. The commission filed an amicus brief with the Supreme Court last week. In the brief, the SEC argued for an interpretation of the Private Securities Litigation Reform Act of 1995 that would make it more difficult for shareholder fraud suits to be successfully litigated.

While an appeals court has said that investors only have to show that “a reasonable person” could infer from the accusations (if proven true) that the executives named in a fraud suit acted with the intent to commit fraud, the SEC’s interpretation wants there to be evidence that there was a “high likelihood” of a defendant meaning to break the law.

It is the SEC’s main purpose to protect shareholders and maintain the financial markets’ integrity. Yet, actions such as this one indicate that the SEC is favoring top executives and corporations instead. One wonders if these steps are intended for the purpose of creating policies that are important to the Bush Administration, as well as the current lineup of SEC commissioners, in the event that a Democrat becomes the next U.S. president in 2008.

It also appears that the SEC is trying to protect big accounting firms from large lawsuits filed by companies and investors. Because there are just four major accounting companies, SEC officers appear to be worried that losing a huge lawsuit could lead to one of the big accounting firms shutting down—which would not necessarily be good for the accounting industry or for auditing practices. While this is an important concern, the SEC has to find a way to help the accounting firms stay in operation while protecting shareholders.

At Shepherd Smith and Edwards, we are committed to helping investors recover their losses in investment fraud cases. Merely filing a report with the SEC will not help you recover what’s been wrongfully taken from you. Over the years, we have helped thousands of investment clients recoup their losses by filing lawsuits on their behalf. Contact Shepherd Smith and Edwards today, and your initial consultation with us is free.

The SEC's Allegiance is Put in Doubt, Investment News, February 19, 2007

Related Web Resource:

Securities and Exchange Commission

SEC Biography: Chairman Christopher Cox

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February 16, 2007

Merrill Lynch Settles Class Action Lawsuits With Mutual Fund Investors Regarding Analyst Research And Internet Companies

Financial management and advisory company Merrill Lynch has settled three class action lawsuits involving 400 investors who claim that the company gave them misleading analyst information regarding Internet companies. The investors are buyers of mutual funds, and they will get about $40 million—6.25% of the original $645 million they had first requested in 2002. The damage amount that will be paid, however, is at the “higher end of the range of reasonableness of recovery in class actions securities litigation,” according to Southern District of New York Judge John F. Keenan who approved the settlement agreement He also says that the class has had an “overwhelmingly positive reaction” to the settlement that was reached.

The three lawsuits are among several class actions that Merrill Lynch has had to deal with since 2002, ever since New York’s then-Attorney General Eliot Spitzer investigated an alleged scheme by Merrill Lynch’s research division to publish misleading or bogus analysis regarding Internet stocks to increase investment banking business. The class action settlements reached earlier this month are the first ones to be approved in connection with the alleged wrongdoing.

Merrill Lynch paid the government $100 million over its alleged actions in 2002. Back then, the company also said it would immediately enact important reforms to further protect its securities research analysts from being influenced unnecessarily by investment banking.

Acts of reform included:

· Severing the compensation connection between analysts and investment banking.
· Barring investment banking from providing input regarding analysts’ compensation.
· Setting up a monitor to make sure that the agreement is followed.
· Establishing a new investment review committee to make sure that all research recommendations meet strict standards and are independent from the analysts and investment banking.
· Reveal in research reports whether it has received or will receive compensation from a covered company over the last 12-month period.
· Issue a statement of contrition and acknowledge that it failed to address conflicts of interest.

Shepherd Smith and Edwards is one of the leading law firms that is committed to helping investors recover their losses due to the wrongful or negligent actions of stockbrokers and their firms. If you are an investor who feels you have been a victim of fraud or negligence on Wall Street, contact Shepherd Smith and Edwards to schedule your free consultation.

Merrill Lynch and Mutual Funds Settle Suits Over Internet Companies, New York Law Journal, February 2, 2007

Spitzer, Merrill Lynch Reach Unprecedented Agreement To Reform Investment Practices, Office of the New York State Attorney General, May 21, 2002

Related Web Resource:

Read Judge Keenan's Decision (PDF)

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Posted In: Class Action Lawsuits , Merrill Lynch

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February 14, 2007

NASD Warns Seniors About Selling Life Insurance Policies For Cash

The NASD has issued an Investor Alert warning senior citizens regarding the risks that come with selling their life insurance policies for “senior settlements” or “life settlements”— transactions that are paid in cash.

In its alert, the NASD says that while life insurance policies can be liquidated for cash, the costs that come with receiving a life settlement can be high, while negatively affecting a person’s finances. In addition, it is not easy to know whether or not a person is getting a fair rate for his or her policy. Factors to consider when thinking about whether or not to sell a life insurance policy include evaluating transaction costs, the financial effect of the sale, and the price to be received for the settlement. The NASD warns that it doesn’t have jurisdiction over all life settlements—only those connected to variable policies. It therefore cannot deal with any complaints involving other kinds of life settlements.

What Is a Life Settlement and How Does It Work?
A life settlement lets a person sell their life insurance policy to an entity, usually called a life settlement provider or a life settlement company, which purchases them in cash. These entities either resell the policies or keep them until they mature and their net death benefits can be collected. The payment received by a seller can vary, depending upon the policy’s terms and conditions, as well as the seller’s health and age. Usually the payment made will be less than the net death benefit but greater than the policy’s cash surrender value. The buyer of your policy will also usually agree to pay the remaining policy premiums until your death. The trade off is that they get your death benefit when you pass away.

What To Consider When Deciding Whether To Sell Your Life Insurance Policy

· The kind of life insurance coverage you can get to replace the policy that you would sell
· Exploring other options for replacing your current life insurance policy besides a life settlement
· Whether it might benefit you to keep your current policy and modify the terms and conditions that you have agreed to
· Ensuring that you are getting the best price for your life insurance policy
· Finding out whether receiving the cash payment might negatively impact your finances (For example, if you received public aid, you may not be eligible to participate in a specific program if you sell your insurance policy and receive a certain amount of cash for it.)

Shepherd Smith and Edwards is committed to helping people who have been the victims of securities fraud. We have offices that are conveniently located in Chicago, Dallas, New York, San Francisco, New Orleans, Houston, Mexico City, and Houston, and we represent clients throughout the U.S. and abroad. Contact Shepherd Smith and Edwards to schedule your free consultation.

Seniors Beware: What You Should Know About Life Settlements, NASD, February 8, 2007

NASD sounds alarm on 'senior settlements', Investment News, February 8, 2007

Related Web Resource:
Life Insurance Options, Nolo.com

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Posted In: Senior Investors

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February 13, 2007

According to NASD, Banc of America Investment Services Inc. Agrees To Pay $3 Million For Failing To Comply With Anti-Money Laundering Requirements

Banc of America Investment Services (BAI) Inc. says that it will pay $3 million in disciplinary charges for its alleged violation of anti-money laundering (AM) requirements.

The NASD says that BAI failed to acquire customer information for a number of high-risk accounts. It is also accusing BAI of failing to communicate sufficiently with its parent bank to make sure that BAI’S independent SAR (suspicious activity report) filing obligations were fulfilled. In addition, the NASD says that BAI did not properly investigate or pursue certain red flags, especially when its own clearing company had made repeated requests for additional information pertaining to certain account holders.

The NASD claims that BAI did not get the mandated additional information from customers who had 34 accounts involving trust and private investment corporations that were affiliated with one family and domiciled in the Isle of Man. The offshore accounts, collectively containing assets worth $79 Million to $93 Million, participated in multimillion-dollar wire transfers internationally.

The NASD says that, under terrorist financing and anti-money laundering laws, firms are supposed to take the appropriate steps to address high risks related to customers and transactions. When the 34 accounts were opened in 2003, the NASD says that even though BAI had set up AML procedures for high-risk customer accounts, such as asking for additional information (i.e., the names of the beneficial owners) before conducting major transactions for the accounts, BAI did not ask for the names of the beneficial owners of the 34 accounts, nor did it restrict these accounts’ activities from August 2003 to October 2004. As a result, the NASD says that BAI let the accounts “engage in large wire transactions,” and did not obtain the names even after a BAI attorney, a BAI risk committee, and BAI’s clearing firm insisted that the names needed to be secured.

Individuals at BAI were overheard worrying that if they asked for the names of the beneficial owners, the account holders might move the accounts elsewhere. The NASD is accusing BAI of not having a proper compliance program set up to report suspicious transactions.

At Shepherd, Smith, and Edwards, our lawyers and legal staff collectively have over 100 years of experience working in securities regulation and the securities industry. A number of our attorneys have served as compliance directors and vice presidents of brokerage firms. Our law firm is dedicated to helping U.S. investors, as well as international investors, recover losses they have incurred because of the inappropriate or illegal actions of stockbrokers or their firms. Contact Shepherd, Smith, and Edwards today for your free consultation.

NASD Fines Firm $3M for AML Violations, CCH Wallstreet, February 1, 2007

NASD Fines Banc of America Investment Services, Inc. $3 Million for Failing to Comply With Anti-Money Laundering Rules in Connection With High Risk Accounts, NASD Press Room, January 29, 2007

Related Web Resources:

Banc of America Investment Services Inc.

Anti-Money Laundering Requirements (PDF)

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February 9, 2007

Securities Officials In Massachusetts File Charges Against Bulldog Investors And Principal, Phillip Goldstein

The Massachusetts Division of Securities has filed an administrative complaint against Bulldog Investors General Partnership and the company’s principal, Phillip Goldstein. Bulldog Investors and Goldstein, as well as other individuals and firms, are being charged with offering unregistered securities for the purpose of selling them in Massachusetts.

The securities officials claim that the hedge funds allegedly failed to restrict prospective investors from accessing general advertising and offering content on their web site. The securities division says that while hedge fund offerings do not have to be registered with the Massachusetts Division of Securities, there are SEC guidelines for making private offerings online. This includes making sure that private offerings are password-protected so that only the potential investors that the issuer has assessed as sophisticated enough or properly accredited can view the materials. According to the complaint, Bulldog did not control access to the information, which “constitutes an unregistered, non-exempt public offering of securities in Massachusetts.”

Goldstein allegedly told the division that anyone who agreed to view the offering content online had to agree that the information was not a solicitation. The complaint however, claims that , "A disclaimer such as the one on the Bulldog web site does not constitute an appropriate or adequate control over a publicly accessible Web site that displays advertising and/or offering materials for securities."

Goldstein is is the co-founder of Bulldog Investors and the president of Kimball & Winthrop. He is also the man who was successful in filing a legal challege against the SEC’s rule mandating that hedge fund advisors must register with an agency.

Other parties named in the complaint include Full Value Partners Limited Partnership, Opportunity Partners Limited Partnership, Kimball & Winthrop Inc., Opportunity Income Plus Fund Limited Partnership, Spar Advisors LLC, Full Advisors LLC, Bulldog Investors Co-founder and Principal Steven Samuels, and Bulldog Investors principals Rajeev Das and Andrew Dakos.

The complaint says that securities officials want the parties that are named to make sure that their offerings are in compliance with the law. They are also seeking an administrative fine, as well as a cease-and-desist order.

Shepherd, Smith, and Edwards is committed to representing investors who have been the victims of unsuitable investments, unauthorized transactions, and other wrongful acts. If you are one of these investors, you are entitled to certain legal remedies, and we are here to help you. To schedule a free consultation, contact Shepherd, Smith, and Edwards today.

Massachusetts charges Bulldog Investors, Investment News, January 31, 2007

Secretary Galvin Charges Phillip Goldstein and Bulldog Investors for unregistered securities offering, Securities Division, January 31, 2007

Related Web Resource:

Goldstein v. Securities and Exchange Comm'n, No. 04-1434, DC Circuit, June 23, 2006

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February 8, 2007

MBIA Inc. Will Pay $75 Million To Settle SEC Securities Fraud Charges

One of the largest municipal bond insurers in the country has agreed to pay $75 million to settle securities fraud charges. The charges were brought against MBIA Inc. by the SEC, the New York State Insurance Department, and NY Attorney General Andrew M. Cuomo.

In agreeing to pay the charge fees, the New York-based firm is not denying or admitting guilt. MBIA will pay $1 in disgorgement and a $50 million penalty—based on its agreement wit the SEC—the total will be put in a Fair Fund for investors. MBIA will also abide by a cease-and-desist order, as well as work with an independent consultant to look at specific transactions that MBIA took part in.

The firm will also pay $10 million in disgorgement fees to investors and $15 million in penalties to satisfy its agreements with the NY entities. It will also restate all earnings from 1998-2004.

According to government regulators, MBIA orchestrated a fraudulent, $170 million transaction in 1998 to cover up its first big loss that it experienced when Allegheny Health, Education and Research Foundation, a Pennsylvania hospital chain, defaulted on $256 million worth of bonds that the MBIA had agreed to guarantee. The SEC says that MBIA made it seem that it had bought reinsurance contracts, rather than let it be known that it had suffered such a big loss.

According to prosecutors, MBIA actually borrowed $170 million from three reinsurers and agreed in secret to pay each of them back, with interest. To make sure that MBIA’s accountants wouldn’t notice this unusual activity and so that they would approve these transactions, the reinsurers were given contracts that were intentionally written so that it was not clear whether they would have to pay out. In reality, the reinsurers and MBIA knew that they would be asked to pay, and this would make the $170 million that the MBIA had borrowed ineligible for reinsurance accounting.

To pay the $170 million back to the three reinsurance companies, MBIA formed other reinsurance agreements worth hundreds of millions of dollars in future MBIA business. These were low risk agreements and all of the other reinsurers were reimbursed. MBIA also made a secret side deal with one reinsurer by verbally agreeing to re-assume nearly all of the risk on future business. This left the reinsurer with practically no risk and all premiums. The loan as “reinsurance income” for its $170 million loss was therefore fraudulent because there was no risk transferred to the reinsurer. The bond insurer company is also accused of misrepresenting its loss estimate to auditors and overstating its net income by about 25%, turning its loss into a profit.

Following an internal investigation that discovered the oral agreement with the reinsurer, MBA reinstated $70 million of reinsurance proceeds as a loan in March 2005. The remaining $100 million was restated in November that year.

Shepherd, Smith, and Edwards represents clients who have been the victim of securities fraud. Our team of experienced attorneys are committed to helping investors across the U.S. recover losses that were caused by the inappropriate behavior of stockbrokers or their firms. By contacting us online, you are entitled to a free consultation. Contact Shepherd, Smith, and Edwards today.

Bond insurer to pay $15M penalty to N.Y., $60M in restitution, The Business Review, January 29, 2007

Related Web Resources:

MBIA

The SEC's Civil Complaint

The SEC's Administrative Complaint

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February 5, 2007

Arbitration Panel Concludes that Former Gemstar CEO Must Pay Company $93.6 Million

A panel of arbitrators has found that the former chairman and CEO of Gemstar-TV Guide International Inc. breached warranties and representations that he made to the company. The arbitration panel is ordering Henry Yuen to pay $93.6 million in fees, damages, and back pay to Gemstar. According to the panel, Gemstar was within legal bounds to fire Yuen in April 2003, because of his misconduct relating to a corporate and management restructuring that took place in 2002. The panel also decided that Yuen is not entitled to the $39.9 million dollars he says that the company owes him because he was displaced as CEO and chairman due to the restructuring.

The ruling by the arbitration panel has rejected all of Yuen’s wrongful termination-related claims. This includes approximately $6.9 million in attorney’s fees that were given to the former CEO, some $6.1 million in salary paid to the former CEO since he was let go, and, for breaches of warranties and representation, approximately $80.6 million in damages. The panel also decided that it agrees with Gemstar’s claim that the Patent Rights Agreement between Yuen and the company will stay effective until 2010.

The judgment means that Yuen is not allowed to receive any more advancement of legal fees or indemnification for any matters related to his alleged misconduct. The panel also decided that Gemstar has the right to another judgment for costs and attorneys fees. The arbitrators will decide what this amount will be at a future date. In the meantime, Gemstar says it will pursue the amounts awarded to them from Yuen.

A lawsuit filed by the SEC in March last year found Henry Yuen guilty of committing securities fraud and violating the federal securities law’s recordkeeping and reporting requirements. The Securities and Exchange Commission also said that, in an effort to fulfill Wallstreet’s expectations, Yuen inflated revenues by hundreds of millions of dollars and gave false information to company auditors.

The U.S. District Court for the Central District of California ordered the former Gemstar CEO to pay a total of $22.3 million in penalties, interest, and disgorgement fees. He may still face criminal charges for his alleged misbehavior.

An attorney for Yuen says that his client will be appeal the SEC ruling first and then appeal the panel’s findings. Yuen claims that he agreed to resign as CEO and chairman if Gemstar would pay him $30.9 for stepping down. The agreement also absolved the former CEO of any losses caused by his actions. Yuen claims he did not engage in any misconduct while working at Gemstar.

At Shepherd, Smith, and Edwards our team of attorneys and consultants are experienced in dealing with the securities industries. We have represented thousands of clients across the U.S. who have needed our help as a result of financial losses they experienced because of someone else’s misconduct. Contact Shepherd, Smith, and Edwards today to schedule your free consultation.

Related Web Resources:

Gemstar-TV Guide International

Former Chairman and CEO of Gemstar-TV Guide International, Inc. Ordered to Pay Over $22 Million for Role in Accounting Fraud, SEC.gov, May 10, 2006

SEC Sues Three Additional Former Senior Executives of Gemstar-TV Guide For Their Part in Financial Fraud, SEC.gov, January 6, 2004

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February 2, 2007

Securities and Exchange Commission Charges Clarion Management LLP and Its Hedge Fund Manager With Involvement In Alleged Market Timing Scheme

The SEC is charging Clarion Management LLP and its hedge fund manager, John Fife, with allegedly buying variable annuity contracts, with the intention of taking part in market timing in mutual funds on behalf of the hedge fund.

According to the SEC, in their lawsuit filed in the U.S. District Court of the Northern District of Illinois on January 18, Fife and Clarion Management allegedly made hundreds of thousands of dollars in profits at the expense of other shareholders. The Securities and Exchange Commission wants the court to order disgorgement plus prejudgment interest, injunctive relief, and civil penalties.

The SEC claims that Clarion Management and Fife allegedly took part in a fraudulent scheme to buy variable annuity contracts issued by the Lincoln National Life Insurance Company for Clarion Capital LP. The purpose of these purchases was to take part in market timing. The SEC says that Clarion Capital was created to market time international funds through variable annuities and that Clarion Management and Fife engaged in deceptive methods to buy contracts and take part in market timing to benefit Clarion Capital. One example the SEC cited was that of Clarion Management and fife using limited liability companies and trusts as nominee beneficiaries and contract owners to cover up the fact that Clarion Capital had a financial interest in the variable annuity contracts.

The SEC claims that Clarion Management and Fife continued to engaged in these fraudulent actions until Lincoln National noticed what they were doing and imposed specific trading restrictions on them. In response, Clarion Management and Fife made the trusts give up the contracts and tried to disguise the fact that they were buying more variable annuity contracts.

An attorney for Fife and Clarion Management says that they believe the SEC is making its claims because it wants to regulate insurance product sales—in particular, variable life annuities. Fife and Clarion Management are denying the allegations by the SEC.

Shepherd, Smith, and Edwards is a law firm committed to helping investors recover losses that are a result of misconduct by people in the investment industry. To recover their losses, however, investors must file claims for their recovery. Statistics show that investors are more likely to recover their loses if they are represented by an experienced lawyer. Contact Shepherd, Smith, and Edwards to schedule your free consultation.

Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

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Securities Officials In Massachusetts File Charges Against Bulldog Investors And Principal, Phillip Goldstein

MBIA Inc. Will Pay $75 Million To Settle SEC Securities Fraud Charges

Arbitration Panel Concludes that Former Gemstar CEO Must Pay Company $93.6 Million

Securities and Exchange Commission Charges Clarion Management LLP and Its Hedge Fund Manager With Involvement In Alleged Market Timing Scheme

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