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March 30, 2007

SEC Charges Two Former In-House Enron Attorneys With Violating Securities Laws

The U.S. Securities and Exchange Commission filed a complaint on Wednesday against Rex Rogers, the former associate general counsel at Enron, and Jordan Mintz, the former general counsel for Enron’s finance group, with civil violations of securities laws because of omitting or fudging regulatory filing disclosures.

The SEC alleges that Mintz engaged in fraud by arranging the murky disclosure of Enron’s repurchasing of a power plant in Brazil from an LJM partnership that was run by former Enron finance chief Andrew Fastow. The SEC claims that Mintz knew that LJM had bought the plant with the understanding that it would sell it back to Enron and that this wiped out the sale’s legitimacy.

Mintz is also accused of delaying the closure of the resale for a number of months until after Fastow had sold his interest in LJM Partnerships so that Enron wouldn’t have to reveal that the deal was done with an Enron officer. Rogers is also being charged with not disclosing all the details of this deal.

The Commission also says that Rogers did not properly or fully disclose to investors the information that former Enron chairperson Ken Lay had resold over $86 million in Enron stock to Enron in 2000 and 2001 to pay back company loans. Rogers allegedly was the person who supervised the content of Enron’s SEC filings.

Enron’s Board had given Lay permission to acquire from Enron up to $4 million on more than one occasion and pay those loans back with company stock. Lay paid back $16 million in stock in 2000 and over $70 million in shares in 2001. At this time, Enron was falling into bankruptcy.

Although stock sales back to the company were supposed to be disclosed, Rogers approved a proxy statement saying only that Lay’s $4 million credit line was fully paid. The SEC says that each sale involving Lay should have been disclosed.

During his conspiracy and fraud trial last year, Lay testified that Rogers had advised him regarding these disclosures. Lay passed away last July, less than two months after being found guilty of fraud and conspiracy on multiple counts.

According to former Enron prosecutor John Hueston, the Enron board was shocked when they found out about the sales.

The SEC says that the attorneys used their legal expertise to “aid and abet” the massive fraud by Enron. Lawyers for both men say that their clients are not guilty of the alleged violations.

The SEC is seeking, as punishment, prohibition against serving as an officer in a publicly traded company, as well as fines. If convicted, the Texas Bar Association could also impose penalties on the two men.

If you are a victim of investor fraud and you have lost your investment as a result, please contact the law firm of Shepherd Smith and Edwards. We have helped thousands of investors in cities across the United States, including Dallas, New York, San Francisco, Chicago, Phoenix, and New Orleans, recover their losses. Contact Shepherd Smith and Edwards for your free consultation.

SEC goes after lawyers, Chron.com, March 29, 2007

Related Resources:

SEC Charges Two Former Enron In-House Lawyers With Securities Fraud And Related Violations, SEC.gov, March 28, 2007

The Enron Trials, An Enron Chronology, USA Today, January 30, 2006

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Posted In: Enron , SEC Enforcement

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March 29, 2007

U.S. Senator Durbin Wonders Whether Smaller Budget Can Satisfy the Commodity Futures Trading Commission’s Urgent Needs

At a hearing discussing the budgetary needs of the Commodity Futures Trading Commission, Senator Richard Durbin voiced concerns that President Bush’s 2008 budget request for the CFTC would not be enough to meet the regulatory agency’s key needs to allow it to function effectively. Durbin, the chairman of the Senate Appropriations Financial Services and General Government Subcommittee, also said that he was worried that staffing problems and older computer systems at the CFTC could negatively affect is ability to supervise the surging derivates industry.

At the hearing, Durbin addressed CFTC Chairman Richard Jeffrey, telling him that he had observed agency’s problems with developing technology to keep up with market changes and its struggles with staffing levels. Durbin said that he believed the agency needed the right tools to enforce the laws.

Jeffrey has complained that agency’s staff size had dropped over the past several years and its computers had become out of date, even as trade volume has increased. He said the $116 million request by President Bush—18 million more than what Congress had allotted to the agency for fiscal year 2007—would help “modestly increase our capabilities in certain areas,” but that this amount of financial support needed to be seen as a beginning, not the end attempt, to addressing certain problems the agency had been experiencing.

Jeffrey attributed employee retirement, attrition, and paying for pay parity as reasons for the staff decrease. The CFTC is required to pay staff the same as other federal financial oversight agencies but is now only paying 70-75% of what peer agencies pay their staffers. He also pointed out that the agency’s trade practices and market oversight—two of three critical surveillance technology systems—could become “antiquated.” He said that $17 million of the budget request will be allotted to technology upgrades, but that this would not be enough to modernize current systems.

CFTC figures say that the agency had 546 staffers overseeing trading volume of 500 million contracts each year in 2000. The volume had grown five times in 2006 to about 2.5 billion contracts ($5 trillion in trading each day) but staffing levels had decreased to 498. Staffing is expected to decrease further in 2007, while contract volume is expected to grow to $3 billion.

Durbin pointed out that although CFTC staffing levels continued to go down in the last 10 years, the number of employees at the SEC had grown by more than 70% during the same time period.

Shepherd Smith and Edwards is a law firm committed to helping investors recuperate the investment losses they have incurred because of the unacceptable actions of stockbrokers and their firms. If you are one of these investors, please contact Shepherd Smith and Edwards today and we will provide you with a free consultation. We have helped thousands of investors recover their losses.

Related Web Resources:

Concern grows over budget for CFTC regulation, MSNBC.com, March 11, 2007

Commodity Futures Trading Commission

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March 28, 2007

Enron Litigation Continues With Actions by Stockholders and Regulators of Accounts.

As class actions against investment firms face dismissal, attorneys for investors plan to go forward with claims for individual shareholders against those same firms. After the U. S. Court of Appeals for the Fifth Circuit decided that cases in Houston against Merrill Lynch and other investment banking firms could not go forward as class actions, the door was left open for victims of Enron stock fraud to file their own claims in court or arbitration against these investment firms.

The class actions stopped the clock for filing individual claims against the defendants until appeals are completed. Also, through the class actions substantial information was learned regarding the role of these investment firms in the Enron debacle.

Meanwhile, that same Court of Appeals affirmed a district court's order allowing Texas accounting regulators to gain access to confidential discovery material in the Enron Corp. shareholder litigation (Newby v. Enron Corp., 5th Cir., No. 05-20462, 3/16/06). The massive amounts of discovery material related to the Enron litigation led to a stipulation by parties that discovery be housed on a Web site. The district court overseeing the litigation issued a confidentiality order covering the deposition transcripts and other material, barring disclosure except to parties, their counsel, witnesses, a depository administrator, a court-appointed mediator, and a few others.

The board, which licenses and disciplines CPAs in the state, sought permissive intervention in the Enron litigation as a way of gaining access to materials protected by the district court order. It sought the materials as part of its investigation of suspected audit failures that may have contributed to Enron's collapse and bankruptcy and potential misconduct by CPAs licensed in Texas. The district court then allowed access by the accountants' board and the appelate court upheld that order.

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Posted In: Class Action Lawsuits , Enron , Investor Fraud , Merrill Lynch

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March 27, 2007

Goldman Sachs Affiliate Agrees To Pay $2 Million in Fines and Penalties Over Short-Sale Scheme Charges by NYSER and the SEC

NYSE Regulation Inc. and the Securities and Exchange Commission say that a clearing affiliate and prime broker of Goldman Sachs Group will pay $2 million in fines and penalties over its alleged role in an illegal short-sale trading scheme that was executed by Goldman Sachs customers through their accounts with the brokerage. Goldman Sachs Execution and Clearing, LP has not admitted to or denied any wrongdoing by agreeing to the censure. They are, however, agreeing to cease and desist from future violations.

The SEC charges that firm customers unlawfully sold securities short right before public offerings of the companies’ securities. It is accusing Goldman of violating the rules that mandate that brokers must mark sales short or long, while restricting stock loans on long sales. Both NYSER and SEC say that if Goldman had proper procedures in place, it would have discovered via its own records this illegal activity by its customers. Two Goldman customers have already settled SEC charges connected to their alleged participation in these activities.

SEC Chairman Christopher Cox told the U.S. Chamber of Commerce on the day of this announcement that the commission and its senior staff members are very concerned about abusive naked short-selling. He admitted that Regulation SHO had not properly addressed these issues and that the commission will now eliminate the regulation’s grandfather provision. Cox said that naked short-selling was connected to settlement and clearance systems and that the SEC would use technology to further deal with this issue. He said the action against Goldman was important.

The SEC says that customers used the firm’s REDI System (the automated trading system for broker dealers and their direct market-access) to make sell orders, which Goldman then executed as long sales. Customers, however, had sold the securities short and did not have the securities upon the settlement date. Goldman then delivered borrowed and proprietary securities to brokers so that the buyers could settle the customers “long sales.” Both NYSER and the SEC are in agreement that Goldman was unreasonable to rely on the customers’ representations that the offered securities belonged to them.

SEC Enforcement Director Linda Chatman Thomsen says that brokers are not allowed to ignore obvious discrepancies of illegal trading by its customers even though the latter now has direct market access platforms that let brokers execute bigger volumes of trade more efficiently and rapidly for customers. The SEC says that brokers are mandated to investigate a customer’s trading activities if significant disparities indicate that a customer may be lying to a broker about its representations.

NYSER Executive Vice President of Enforcement Susan Merrill says that blind reliance on customer representations that a sale is long when securities are being sold is not appropriate if a firm sees evidence of short selling.

The SEC says that since March 2000, patterns of trading by the customers and Goldman’s own records indicated that the customers were selling securities short and violating the 1934 Securities Exchange Act Rule 105 and Rule 10a-1(a). Goldman’s records, according to the SEC, also indicate that customers covered their short positions with securities they bought in follow-on and secondary offerings after the sales. The SEC says that Goldman could have noticed these trading disparities if they had the proper procedures in place to do so. NYSER says Goldman neglected to reasonably supervise its business activities.

Over the years, Shepherd Smith and Edwards has represented thousands of investors who have lost investments because of the inappropriate actions of stockbrokers and their firms. Contact Shepherd, Smith, and Edwards for your free consultation.

Related Web Resources:
SEC Administrative Order (PDF)

Goldman Sachs Execution and Clearing

Securities Exchange Act of 1934

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Posted In: Financial Firms , Goldman Sachs , SEC Enforcement , Securities Fraud

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March 22, 2007

New Regulations, Filed By The Massachusetts Securities Division, Define Credentials Standards For Advisors To Senior Investors

William Francis Galvin, the Massachusetts Secretary of the Commonwealth, says that his office has set up new standards for advisers using credentials implying that they are experts when it comes to senior investors.

According to Galvin, the state of Massachusetts is charging two Massachusetts annuity salesmen with using unethical and dishonest practices when marketing annuities to seniors: Michael Mark Delmonico and John Christopher Huck.

Delmonico is accused of presenting himself as an unbiased and objective financial advisor to seniors, but allegedly was actually trying to sell high-commission annuities that were often not suitable for senior investors. He has denied the charges. Also charged in the complaint was Workman Securities Corp. and company officials Robert Vollbrecht and Paul Maxa for failing to properly supervise Delmonico.

Huck, charged in a separate administrative action, is accused of providing “financial counseling” to senior citizens via financial workshops. Huck was allegedly also just trying to sell annuities and other kinds of insurance products.

Galvin said that complaint shows how the use of senior credentials can be misleading, causing confusion and harm to seniors—this is the reason why new regulations were needed. He called the misuse of the title “senior financial adviser” a disturbing trend promoted by individuals who targeted seniors.

Investment adviser representatives and broker-dealer agents were among groups noted for individuals known to misuse these credentials. The securities division cited an example where a “purported senior specialist” would use such designations to make it seem like he or she were acting as an independent adviser but that the person was actually trying to promote a specific product for sale.

The new rules will be published on March 23, 2007 in the Massachusetts Register.

Shepherd Smith and Edwards represents senior investors and other investors who have sustained investment losses because of the inappropriate actions of advisers, brokers, investment firms, and others. Contact Shepherd Smith and Edwards today for your free consultation.

Related Web Resources:

Secretary Galvin Charges Two Agents and a Broker-Dealer with Dishonest and Unethical Marketing to Seniors, Securities Division (Administrative Complaints)

Discussions of reasons for, and objectives of, proposed regulation regarding use of senior designations (PDF)

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Posted In: Senior Investors

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March 21, 2007

More Good News for Morgan Stanley! Record Earnings, a Jury Verdict Overturned and a Slap on the Wrist by Regulators.

Morgan Stanley shared in the earnings boom for Wall Street Firms as it reported earnings for its latest quarter of $2.56 Billion, a 29% increase over a year ago.

The investment giant is also celebrating a victory in the Florida courts, having convinced an appeals court to throw out an $1.58 Billion jury award against it for its mis-handling of a 1998 merger between Coleman Company with Sunbeam Corporation.

Morgan Stanley had faced an uphill fight in that case because it failed to honor a court order to produce e-mails sought by lawyers for the plaintiffs. Frustrated by the delays, Palm Beach County trial judge Elizabeth Maass issued a ruling that the Morgan Stanley and Sunbeam conspired to defraud the plaintiff and presented the case to the jury to establish the damages. Morgan Stanley had in 2005 set aside $360 million of reserves for the case expecting the jury verdict to be reduced. That will presumably will then be added to the firm's current earnings.

Meanwhile, Morgan Stanley had been ordered to pay a mere $15 million to resolve a U.S. Securities and Exchange Commission probe into its destruction of e-mails thwarting investigations. Thus, while the judge’s decision to sanction Morgan Stanley for its failure to produce e-mails would have cost that firm approximately a month of pre-tax profits, the SEC’s “wrist slap” merely cost Morgan Stanley about 2 hours of pre-tax profit.

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March 20, 2007

Appeals Court Shoots Down Enron Stock Victims, But Leaves Door Open to Law Suits and Arbitration Claims.

A Houston Federal Court was set to begin tiral on class actions filed on behalf of investors against several fiancial firms that allegedly assisted Enron to defraud shareholders. However, a Federal Court of Appeals, with most of its judges selected by the Bush-Cheney administration, stepped in to overturn the class action status of these Enron shareholders.

Several cases had been filed for Enron shareholders against Merrill Lynch, Credit Suisse, Royal Bank of Canada, Toronto-Dominion Bank, Barclays and the Royal Bank based upon the involovement of those fiancial institutions in actions by Enron management which misled investors about the finances at Enron and ultimately led to that firm's demise.

Attorneys for the Enron victims say they will request the U. S. Supreme Court reverse this decision, but observers point out that the balance of power in the High Court has also been altered by Bush-Cheney appointees. Observers also remind the public that, prior to Enron's demise, officials of that firm were involved in establishing energy policy for the Bush-Cheney administration. Notes of such discussions have never been produced to Congress.

However, today's decision does not necessarily end claims against Merrill Lynch and the other financial firms for their involvement in Enron's fiancial woes. These cases have kept the door open for Enron shareholders who act quickly to engage a law firm to file independent claims against the financial institutions based on the allegations asserted in the class actions.

Shepherd, Smith and Edwards, LLP (SSE) is a Houston based law firm which handles claims for investors nationwide against financial firms. Over the past two decades, SSE has represented thousands of investors and recovered millions of dollars from fianncial firms.

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Posted In: Merrill Lynch

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March 20, 2007

Banc of America Securities LLC to Settle SEC Charges By Paying $26 Million In Penalties and Disgorgement

To settle administrative charges made by the Securities and Exchange Commission, Banc of America Securities LLC has agreed to paying $26 million in penalties and disgorgement. The SEC says that BAS did not safeguard upcoming research reports and submitted ones that were fraudulent to companies. Without denying or admitting the charges, BAS has agreed to a cease-and-desist order against future violations and to being censured, as well as other remedial measures. It will also work with an independent consultant to assess its internal controls and prevent nonpublic information about forthcoming researched from being misused again.

The SEC says that there was a “breakdown” in internal controls that had been put in place at BAS to stop the firm and its employees from misusing research reports that were forthcoming between January 1999 and December 2001. Because of this breakdown, traders and salespersons at BAS allegedly found out about research changes that were forthcoming, such as downgrades and upgrades.

The SEC claims that BAS had no effective or clear procedures and policies that could allow it to control or manage this kind of information. Because of this, BAS allegedly traded prior to the research reports being issued. The firm is also accused of not taking care of specific conflicts of interest, which compromised the integrity and independence of its analysts. These conflict allegedly led to misleading research reports being published and given to TelCom Semiconductor Inc., Intel Corp, and E-Stamp Corp.

SEC Enforcement Director Linda Thomsen says that the Commission is committed to plugging improper information leaks on Wall Street and that the action against BAS made it apparent that firms need to have proper safeguards on nonpublic information. SEC Associate Enforcement Director Antonia Chion said that firm policies “must be implemented and enforced.”

The $26 million will be placed in a Fair Fund account for BAS customers.

In 2004, the SEC had issued BAS a censure and ordered the firm to pay $10 million for taking part in dilatory tactics and failing to produce documents.

Although the SEC has the authority to censure and take action against the different brokerage firms and their employees for inappropriate or illegal actions, the Commission cannot help investors recoup their losses. Shepherd Smith and Edwards represents investors throughout the United States that have been the victims of investor fraud. We have helped thousands of investors recover their losses. Contact Shepherd Smith and Edwards and ask for a free consultation.

Securities and Exchange Commission

Bank of America

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March 15, 2007

In Hi-Tech Market Manipulation Case By Unknown Traders, Securities and Exchange Commission Freezes $3 Million To Protect Brokerage Firms

On March 6, 2007, The U.S. District Court for the District of Columbia froze $3 million in an account under the name of a Latvian bank. The SEC said unknown traders used the money last year for a “hi-tech market manipulation scheme”. According to the Commission, the action is the largest freeze secured for an intrusion-related market manipulation scheme.

The SEC says that the assets had been placed in an omnibus brokerage account at Pinnacle Capital Markets LLC. The unidentified account owners are based in Russia, the British Virgin Islands, Latvia, and Lithuania—but the account was under the name of JSC Parex Bank, a Latvian bank that the SEC has named as a relief defendant in the SEC action.

The Commission says that unknown traders hacked into investor accounts at online brokerages, sold off clients’ existing positions, and used the money they made to bid up the market for specific stocks that they wanted to manipulate. These traders made at least $732,000 with their alleged pump-and-dump scheme, costing brokerage firms about $2 million.

An investor alert has been posted online by the SEC’s Office of Investor Education and Assistance. The SEC Web site is also providing tips to help investors avoid becoming victims of online intrusion. It is interesting to see the difference between how the SEC acts to protect brokerage firms and what it will do for investors.

When nearly $ 2 Million was lost in more than 40 accounts at brokerage firms including Charles Schwab, E*Trade, Fidelity, Merrill Lynch, Scottrade, TD Ameritrade and Vanguard, the Securities and Exchange Commission came quickly to their rescue! Observers remark that such a rapid response by the SEC almost never occurs when the assets of investors are at risk. (The SEC was created decades ago with the central purpose of protecting investors).

This is why it is important to retain the services of an attorney to help you recover your losses, if you are an investor who has been a victim of investor fraud. Shepherd Smith and Edwards has helped many investors who have lost their money from pump-and-dump schemes and other kinds of market manipulation scams. Your first consultation is free if you contact us online.

Related Web Resources:
SEC Obtains Order Freezing $3 Million in Proceeds of Suspected Foreign-Based Account Intrusion Scheme, SEC.gov, March 7, 2007

Securities and Exchange Commission v. One or More Unknown Traders in the Common Stock of Certain Issuers, Defendants, and JSC Parex Bank, Relief Defendant, Civil Action No. 1:07-CV-00431 (D.D.C.), SEC Litigation Release No. 2003, SEC.gov, March 7, 2007

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Posted In: SEC Enforcement

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March 14, 2007

NYSE Regulation Fines Swiss American Securities Inc. and UBS Securities, LLC For Violations

NYSE Regulation says it has ordered Swiss American Securities Inc. (a unit of Credit Suisse Group) and UBS Securities LLC to pay fines for a number of securities violations.

The regulatory arm of the New York Stock Exchange says UBS Securities is being fined $95,000 for canceling or entering limit-on-close and market-on-close orders in a number of securities after relevant cut-off times. These violations happened between June 2005 and February 2006. Other violations were also cited as reasons for the fine.

Swiss American Securities was fined $100,000 because it failed to maintain control or possession of all excess and fully paid margin securities that it held for customer accounts (in 2004 and 2005), as well as other violations.

Both UBS Securities and Swiss American Securities have not admitted or denied the accusations. They have, however, agreed to censures and to paying the fines.

NYSE regulation also disciplined 15 people for violating federal securities regulations and exchange rules involving sales practice violations, misappropriation, and failure to reveal prior criminal records.

Also called an at-the-close order, a market-on-close order is a market order that must occur as close as possible to the end of the exchange day.

A limit-on-close order is an order to sell or buy shares near the market close but only if the closing price is better than the limit price. This type of order expands on the market-on-close order in that it adds a limit condition that puts a minimum on the selling price and a maximum on the entry price.

Although securities regulators are there to oversee the securities industry and issue suspensions and fines, investors have to file a claim to recover any losses. If you are investor who has lost money from an investment because of inappropriate actions by members of the securities industry, you are more like to obtain a recovery if you hire an attorney to represent you.

Shepherd Smith and Edwards has helped thousands of investors recover their losses. Call Shepherd, Smith, and Edwards today to schedule a free consultation.

Related Web Resources:

NYSE Regulation

UBS

Swiss American Securities Inc.

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March 12, 2007

The SEC And The U.S. Attorney’s Office File Separate Criminal And Civil Actions In Major Insider Trading Schemes Involving Confidential Information From UBS Securities And Morgan Stanley

The U.S. Attorney’s Office announced the unsealing of criminal actions against a dozen individuals for allegedly stealing and trading on inside information from Morgan Stanley and UBS Securities, LLC, two Wall Street brokerage firms. The SEC also filed charges against these individuals in a separate civil case.

Former Morgan Stanley attorney Randi Collotta and former UBS Securities LLC executive Mitchell Guttenberg are two of the individuals out of more than a dozen people being charged by the U.S. Attorney’s Office for two bribery schemes and two insider trading schemes. Participants made over $8 million in illegal trading profits. U.S. Attorney Michael Garcia says all of the criminal defendants are in custody. Four of them have pleaded guilty.

Garcia said that the defendants violated the trust that had been given to them, made money illegally, and took extensive measures to hide their alleged illegal actions. Concealment measures included secret meetings, paying cash kickbacks, and communicating in code using disposable cell phone.

The SEC says that they have charged 3 entities and 11 individuals—the alleged misconduct earning the defendants over $15 million in illegal trading profits from thousands of trades. The SEC called the case "one of the most pervasive Wall Street insider trading rings since the days of Ivan Boesky and Dennis Levine." Lawyers, registered representatives, hedge fund portfolio manages, and compliance personnel are among those charged in the SEC case.

Morgan Stanley says that they are angered that a former employee allegedly stole certain confidential information, which was used in the alleged insider trading scheme. The firm has promised to cooperate fully with authorities.

According to the US Attorney’s Office, Morgan Stanley attorney Randi Collotta allegedly provided the non-public information about upcoming acquisitions and mergers to her husband Christopher and to longtime friend Marc Jurman. Jurman traded on the confidential information and offered the same information to Robert Babcock, a former Bear Stearns & Co registered representative, who also traded using the information, then passing it on to Erik Franklin (a Wall Street trader) and Ken Okada (also a former registered Bear Stearns & Co. representative). Profits were in the hundreds of thousands of dollars. Franklin, Jurman, Babcock, and David Glass, who ran the Jasper Capital LLC trading firm, have all pleaded guilty—Franklin to conspiracy, bribery and securities fraud, and Jurman, Babcock, and Glass to conspiracy and securities fraud. The other criminal defendants face securities fraud, conspiracy, making false statements, and commercial bribery charges.

In the UBS scheme, UBS Securities LLC executive Mitchel Guttenberg is accused of selling non-public material on upcoming downgrades and upgrades in securities recommendations that were made by UBS analysts for hundreds of thousands of dollars to Erik Franklin and David Tavdy, two Wall Street traders. The two men worked at different hedge funds and/or brokerage firms and used the information to carry out profitable transactions in various brokerage accounts that they were in charge of. Both men allegedly made more than $4 million each. Tavdy, Franklin, Franklin’s co-worker Mark Lenowitz, Babcock, Glass, and Okada also traded on the UBS information.

Laurence McKeever and Samuel Childs, both former registered representatives of Assent LLC, a broker dealer, face charges of accepting tens of thousands of dollars in bribes to cover up the UBS insider trading scheme that they learned about from Glass. A Banc of America representative, Paul Risoli, faces charges of allocating initial public offerings shares and secondary offerings to Q Capital Investment Partner LP—a hedge fund—in exchange for $10,000 in cash kickbacks. The hedge fund made at least $160,000 by selling shares from these allocations.

The SEC case names nearly all of the criminal defendants, as well as Andrew Srebnik, a former Bear Stearns stockbroker, a day trading firm, and two hedge funds in its civil securities fraud action. DSJ International Resources Ltd., Q Capital, and Jasper Capital are the entity defendants that have been named in the case.

The SEC says that Franklin, Guttenberg, Tavdy, and their tippees illegally made close to $14 million in the UBS scheme. In the Morgan Stanley scheme, Jurman, the Collottas, and their tippees allegedly made over $600,000 in unlawful profits.

The SEC is asking that the court order disgorgement plus prejudgment interest, permanent injunctions, and civil penalties. The investigation is ongoing.

If you are an investor who has lost money because of an insider trading scheme or because of securities fraud, Shepherd Smith and Edwards can help you file a claim to recover your losses. Contact Shepherd Smith and Edwards today for your free consultation.

Related Web Resources:

SEC Accuses Workers at UBS, Morgan Stanley Of Insider Trading, CNBC.com, March 1, 2007

Insider trading still doesn't pay, Marketplace, March 1, 2007

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Posted In: Insider Trading , Morgan Stanley , UBS

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March 8, 2007

SEC Charges Against Two Former Citigroup Officials For Fraudulent Fund Dealings Are Dismissed

Charges by the Securities and Exchange Commission have been dropped against Lewis Daidone and Thomas Jones, two former Ex-Citigroup Officials. The SEC had charged the two men with alleged involvement in a fraud scheme that let Citigroup gain millions of dollars in profits, which should have gone to specific mutual funds.

According to Judge Richard Conway Casey of The U.S. District Court for the Southern District of New York, the SEC’s push for injunctive relief and civil penalties is time-barred. He also said that there is no factual support for the Commission’s disgorgement claim.

The court said that the SEC sought three forms of relief—permanent injunctions, civil penalties, and disgorgement—for one cause of action—aiding and abetting 1940 Investment Advisers Act Section 206 violations. The remedies, according to the judge, are not available. The civil penalties and injunction relief is time-barred (the charges did not meet the 5-year statute of limitations) and the disgorgement request was not supported by enough facts. The SEC filed its suit in 2006, six years after the alleged wrongdoing that took place in 1999.

The SEC says that it is disappointed with the decision. The commission had charged the former Citigroup officials with being principally responsible for the creation of an affiliated transfer agent intended to serve Smith Barney mutual funds at a reduced rate. Instead of handing off the “substantial fee discount” to the mutual funds, however, Citigroup took most of the discounts for itself and garnered tens of millions of dollars in profit at fund shareholders’ expense.

In order to maintain its suit, SEC would have to demonstrate that it is entitled to tolling the limitations period. The SEC says that it is, under the fraudulent concealment doctrine, but the court disagrees, saying that the SEC did not meet the burden of proving that the defendants’ alleged deception was "was unknowable and hence self-concealing. ... To the contrary, evidence in the record suggests that the alleged misrepresentations and omissions at issue were discoverable. ...”
The bid for injunctive relief was said to be untimely for similar reasons. The Court said disgorgement by the two men was also not proven by the Commission and needed to be dismissed.

Shepherd Smith and Edwards is committed to helping people who have been the victims of investment fraud to recoup their losses. We have represented thousands of clients nationwide for nearly 20 years. To schedule a free consultation, contact Shepherd Smith and Edwards today.

Related Web Resources:

Citigroup

U.S. Securities and Exchange Commission

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March 7, 2007

Former UBS Vice President Pleads Guilty To Conspiring With Hedge Fund Operator And Founder Of Capital Management Group To Bilk At Least $2.5 Million From Over 40 Investors

The U.S. Attorney’s Office says that Justin Paperny, a former account vice president at UBS Financial Services, Inc., has pleaded guilty to helping Capital Management Group founder Keith Gilabert bilk at least $2.5 million from investors.

Paperny pled guilty to wire fraud, securities fraud, and conspiracy to commit mail fraud, while admitting that he helped Gilabert fraudulently run GLT Venture Fund. Paperny also said that he lied to investors so that they would invest in the fund, took kickbacks from Gilabert, and conspired with him to mislead investors about the hedge fund’s performance history, the oversight of Capital Management Group by his brokerage firm, and any risks connected to investing in Capital Management Group.

That said, Paperny also says that he informed management at the brokerage firm that GLT had not been adhering to its investment strategy and that authorities at his firm knew of Gilabert’s fraudulent behavior. The investigation is pending. Paperny faces a possible 5-year federal prison term. He has agreed to cooperate with investigators as a condition of his guilty plea.

In 2006, Gilabert pled guilty to conspiracy charges for his role in the scheme. He said that for 4 ½ years (from September 2000 to January 2005), Capital Management Group collected over $7 million from over 40 clients and offered investments in GLT. He said he lost and misappropriated most of these funds.

Last year, the SEC had also filed a lawsuit charging Gilabert and Capital Management Group with offering and selling limited partnerships in GLT, in addition to raising $14.1 million from nearly 40 investors. Investors were told that a portfolio of stocks and options would be established and that GLT could generate average annual returns that ranged from 19% to 36%. Investors were also told that Gilabert and GLT would only receive compensation that was based on performance if the company became profitable. The company lost $7.8 million, with $1.7 million misappropriated for the company and Gilabert’s personal use. $4.6 was misused in new investor funds to pay current investors.

Shepherd Smith and Edwards represents investors who have sustained financial losses because of the inappropriate actions of brokers or their firms. Our law firm offers a free consultation to prospective clients who contact us via e-mail. Contact Shepherd Smith and Edwards today.

Related Web Resource:

Second Broker Enters Guilty Plea in Bogus Fund, The Signal.com, February 27, 2007

SEC Charges Southern California Hedge Fund Manager and His Firm in a Multi-Million Dollar Securities Fraud Scheme, SEC.gov, May 1, 2007

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Posted In: Hedge Funds , UBS

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March 5, 2007

Putnam Retail Management, Scudder Distributors, and AllianceBernstein Investments Say They Will Pay $700,000 Settlement Over NASD Allegations That They Violated Non-Cash Compensation Rules

While neither admitting or denying the charges by NASD, AllianceBernstein Investments Inc. of New York, Scudder Distributors Inc. of Chicago, and Putnam Retail Management Limited Partnership of Boston says they will collectively pay $700,000 to settle allegations that they violated the NASD’s non-cash compensation rules. Charges included the accusations that they improperly provided entertainment at education and training meetings and paid for guest expenses at these events.

Scudder, the distributor of Scudder investment products, said it would pay $425,000 in fines. AllianceBernstein, the distributor of AllianceBernstein LP’s investment products, agreed to pay $100,000, and Putnam, which distributes its own products, said it would pay $175,000.

NASD limits compensations so that point-of-sale incentives won’t affect a broker’s objectivity to find the appropriate investment product for each investor. Non-cash compensations are also limited by NASD, including reimbursements for meals, lodging, and travel expenses related to education and training meetings.

NASD says that from 2001 to 2004, Scudder engaged in three kinds of prohibited non-cash compensations, such as paying for spouses to attend educational events and eat at expensive restaurants, paying for lavish kinds of entertainment at these events, and paying for other activities, such as fishing, golf, and horseback riding.

Putnam, according to NASD, also violated non-cash compensation rules when it paid for transportation and meals for brokers’ guests and spouses at meeting and training meetings and gave away tickets to a Boston Red Sox game, despite advice by legal counsel not to do so.

As for AllianceBernstein, NASD says that the firm paid for guests of brokers to eat at famous New York Restaurants and see Broadway shows.

NASD says the three distributors did not have appropriate compliance systems and procedures in place to make sure that the non-cash compensation rules were followed.

Shepherd Smith and Edwards represents clients who have been the victim of investment fraud by brokers and their firms, and we have helped thousands of investors across the United States recover their financial losses. To schedule a free consultation, contact Shepherd Smith and Edwards today.

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Posted In: NASD Enforcement

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March 1, 2007

The NASD Charges Two Former Prudential Brokers And A Branch Manager With Helping A Hedge Fund Manager Engage In Market Timing Through Variable Annuities

On February 15, the NASD announced that it was charging two former prudential brokers with helping a hedge fund manager to time the market through variable annuities. The former broker’s supervisor was also charged with failure to properly supervise them. Both brokers were registered with Prudential Securities Inc., now called Prudential Equity Group, during this time.

David Corn and Jeffrey Doerr allegedly helped Paul Saunders, a client, by opening 20 accounts for him under the names of a number of limited partnerships that had been created by Saunders. The limited partnerships had the same beneficial owners as James River Capital Corp., which was Saunders’s market timing hedge fund. The NASD says that the two brokers should have known their client would use the accounts for the purpose of market timing variable annuities and that the limited partnership had the same beneficial owners.

The SRO says that, between October 2001 and September 2003, Saunders executed about 900 variable annuity sub-account transactions with the brokers’ help. These transactions earned about $5.2 million, while violating the restrictions set up by insurance companies that offered annuities. The two brokers made about $45,000 each from these trades and their commissions.

The NASD says that insurance companies sent notices to Corn and Doerr asking them to restrict their clients market timing activities. The SRO claims that the two men used several deceptive practices to help Saunders evade these restrictions. The NASD says that Darrel Trost, the brokers’ manager, should have been aware of these activities. Trost is accused of failing to respond to the insurance companies and Prudential’s compliance department. The NASD also says that seven months went by where the three men did not update forms to indicate they were being investigated.

Last August, Prudential Equity Group reached a deferred prosecution agreement with the Department of Justice. The Group admitted to criminal wrongdoing related to market timing and, in a global settlement involving seven regulators, agreed to pay $600 million.

Saunders agreed to pay $2.5 million to settle NASD charges against him related to the alleged market timing activity.

Shepherd Smith and Edwards is a securities litigation law firm dedicated to help investors who have been the victims of securities fraud recover their losses. Contact us online, and your first consultation is free. Contact Shepherd Smith and Edwards today.

Related Web Resource:

NASD Charges Two Former Prudential Brokers with Facilitating Hedge Fund Manager's Deceptive Market Timing in Variable Annuities, NASD, February 15, 2007

Prudential Equity Group

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Posted In: Hedge Funds , Prudential

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Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

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Putnam Retail Management, Scudder Distributors, and AllianceBernstein Investments Say They Will Pay $700,000 Settlement Over NASD Allegations That They Violated Non-Cash Compensation Rules

The NASD Charges Two Former Prudential Brokers And A Branch Manager With Helping A Hedge Fund Manager Engage In Market Timing Through Variable Annuities

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