Stock Broker Fraud Blog

Wachovia Corporation agreed to acquire A.G. Edwards Corporation for $6.8 billion in stock. This will vault Wachovia into the second-largest U.S. retail brokerage, behind only Merrill Lynch, with $1.1 trillion in client assets.

This transaction is the largest of the recent takeovers of regional brokerage firms, which are having difficulty fending off hiring of their representatives. Falling commissions in the industry has caused disruptions in sales staffs.

For years there has been speculation over whether A.G. Edwards, a mostly employee owned firm, could maintain its independence and raises new speculation about other large regional brokerages like Raymond James.

The deal will cause Wachovia to surpass Citigroup's Smith Barney brokerage unit in number of representatives as well as Ameriprise Financial, which claimed to be third. Wachovia said the combined company will have 15,000 financial advisers and an increased presence in 48 of the 50 largest metropolitan areas.

Wachovia has built its brokerage business relatively quickly, largely through the acquisition of Prudential Securities in 2003, and several smaller firms. Prudential Financial Inc. continues to own 38% of Wachovia.

By purchasing A. G. Edwards Wachovia will not only have a larger base to market financial products, but it will nearly double its number of brokerage offices to 1,512. The acquisition of A. G. Edwards will also increase Wachovia's focus on small investors and give it wider geographic coverage, particularly the Midwest.

A question yet unanswered is whether, with disparities in payout, Wachovia can retain both the A. G. Edwards Brokers as well as its own. Merrill Lynch retained a much smaller number of brokers than expected it bought Advest in December 2005. UBSAG saw an exodus of brokers from Piper Jaffray’s advisory business, which the Swiss bank last year.

Wachovia and its rivals, including Bank of America Corp., are eager to take aim at baby boomers, tens of millions of whom will take control of their retirement assets in the next decade. Wachovia also advertises its services to women and young people.

Shepherd Smith and Edwards represents investors in the recovery of their losses. We have handled many claims against both Wachovia and A. G. Edwards. Our expertise is also valuable to clients seeking to recover from investment firms after mergers, since such claims have unique problems concerning party entity, supervisory changes and documentation. If you or your company has sustained significant investment losses, contact Shepherd Smith and Edwards to schedule a free conficential consultation with one of our attorneys.

The U.S. Securities and Exchange Commission granted Tenet Healthcare Corp. an unusual break: The company will be given protection against shareholder lawsuits even though it is being punished for fraud.

The SEC accused the largest publicly traded hospital chain of deceiving investors by failing to disclose a scheme to boost earnings. Tenet Healthcare neither admitted nor denied the allegations but agreed to pay $10 million to settle. Yet, the SEC waived a rule that says companies engaging in fraud lose a statutory shield that makes it difficult for shareholders to sue if forecasts made using the bogus earnings information prove wrong.

This decision is the latest used to demonstrate that SEC and its Chairman Christopher Cox, favors corporations at the expense of investors. During the past six months, the agency created to protect investors has repeatedly taken actually sides against investors after being lobbied by business groups. The SEC has even advised the U.S. Supreme Court to raise the bar making it more difficult for even the SEC to win its suits!

Meanwhile, just this week SEC commissioners with a goal of chipping away at the Sarbanes-Oxley corporate-governance law, which the U.S. Chamber of Commerce claims is overly burdensome for companies and driving up auditing costs.

"There are certain actions they have taken that strongly suggest the SEC is using its authority to scale back litigation and enforcement,'' said Barbara Roper, director of investor protection at the Washington-based Consumer Federation of America. "Cox appears to be very sympathetic to the concerns of corporate defendants.''

Barney Frank, chairman of the U. S. House of Representatives Financial Services Committee, has called a hearing to examine the 3,700-person agency, which was created in 1934 to restore public confidence in the capital markets after the stock market crash of 1929.

After 17 years as a Republican congressman from California Cox, over outcries of his political partisanship, was appointed by George W. Bush as head of the SEC in August 2005. His response to recent criticism by investor rights groups, and even state securities regulators, is to simply deny the charges: “We are relentless advocates for investors,'' he told reporters May 10, “every day we come to work, that's our priority.''

On another front, the SEC has indicated it is reviewing the effect of investor lawsuits. Frank said he feared that review might open the door to replacing shareholder lawsuits with arbitration. “This is like the nuclear bomb issue from Cox,'' said Joel Seligman, president of the University of Rochester and author of a book on the history of the SEC. “To so radically change the structure of securities-dispute resolution should only occur if Congress weighs in.''

Another SEC move drawing fire is a new policy led by Cox that limits the ability of the SEC's staff attorneys to set fines on companies. The new procedure requires the staff to seek authorization from commissioners before negotiating penalties. Ohio Attorney General Marc Dann, a Democrat, and Utah Attorney General Mark Shurtleff, a Republican, said in a May 11 letter to Frank that the change is part of a series of SEC actions that ``indicate a new direction that is obviously unsettling for investors.''

Meanwhile, the SEC had granted exemptions to Wall Street brokerage firms and banks from being governed by the Investment Advisor’s Act, although these firms were performing the same tasks as investment advisory firms which are governed by the act. It was not until the D.C. Court of Appeals recently ruled against the SEC's exemption, and outcry ultimately caused the Commission to abandon an appeal, that the exemption ended.

SEC has opposed investors on a number of other occasions, including filing briefs to the U.S. Supreme Court opposing investors seeking recovery for securities fraud. For example, the SEC is opposing Enron shareholders who seek recovery from Merrill Lynch and other investment banking firms which allegedly assisted Enron in efforts to deceive its shareholders.

The SEC also filed a Supreme Court brief opposing investors in a case against Tellabs Inc., accused of overstating its business prospects, and apparently plans to oppose shareholders in a Supreme Court case against Motorola and Cisco Systems, which are accused of helping a communications company add $17 million in phony revenue to its books.

Shepherd Smith and Edwards represents investors to recover losses in investments. We have also worked diligently to protect investor rights through our efforts to prevent legislative changes which would harm investors. Your assistance in protecting investors' rights would be appreciated. If you or your company has sustained significant investment losses, contact Shepherd Smith and Edwards to schedule a free conficential consultation with one of our attorneys.

A large percentage of U.S. investors could be convinced to invest into a “guaranteed return” investment scam, according to a poll by “Money-Track,” a public-television series, and Investor Protection Trust, an investor education group.

The poll surveyed investors regarding eight basic investment principles, such as the definition of diversification and inquiring into to the background of financial professionals. When presented with questions to determine their fraud tolerance only 1% of the 1255 persons surveyed responded correctly on all eight principles.

Given investment swindle scenarios, such as the opportunity to invest into an options-trading system which guaranteed returns of at least 100%, 43% of investors responded indicating they would take the bait.

“Everyone wants to believe that they can make a ‘quick score’” said Don Blandin, president and chief executive of Investor Protection Trust in Washington. “They have to understand that there isn’t going to be any overnight ‘rags to riches’ for the majority of people.”

According to the survey, two-thirds of those participating would meet with a financial professional without seeking a background check such as though the Securities and Exchange Commission, National Association of Securities Dealers (NASD) or state securities regulors.

Many investors need help preparing for retirement. Half of those surveyed said they had not created a financial plan. Only forty percent said they expected Social Security to make up a major part of their retirement income.

Other surveys have demonstrated that sophisticated investors are more easily victimized by investment fraud than those less knowledgeable. Yet, many investors hesitate to file claims to recover losses because they fear appearing foolish.

Losses can also be caused by negligent actions of investment firms or advisors. WhIle most people would not hesitate to ask for compensation for repair or medical costs if involved in a car wreck, some hesitate to seek just compensation when negligent acts cause investment losses.

We at Shepherd Smith and Edwards represent investors in claims for losses caused by negligent or fraudulent acts by investment firms and advisors. If you or your company has sustained significant investment losses, contact Shepherd Smith and Edwards to schedule a free confidential consultation with an attorney.

After his former boss was sentenced, a former head of American trading on the Citibank NA commodity desk was sentenced in May to 12 months and a day in prison and ordered to pay approximately $188,000 after pleading guilty to conspiring to falsify bank records and to commit wire fraud, said a U.S. Attorney for the Southern District of New York.

U.S. Attorney Michael Garcia said Charles Craig Gile schemed to inflate trading profits of the Citibank commodity desk by as much as $20 million during 2003 to increase his stature at the firm and make himself eligible for bonuses. Garcia added that Gile and David Becker, Head of Commodities Trading at Citicorp, understated the market risk and overstated the financial performance of Citibank's commodity holdings that year. In March, Becker was sentenced to 15 months in prison.

Garcia said the defendants accomplished their scheme using various means, including inputting false data into computer models used to estimate the value of positions held by the commodity desk. Other false inputs were apparently made to artificially decrease the amount of risk being taken by the trading desk. The models therefore showed millions of dollars of artificially inflated profits for Citibank.

The government further charged that Gile and Becker caused false information to be reported to Citibank's financial control department, which monitored the commodity desk. In addition to the prison sentence, Gile was ordered to pay $185,819 in restitution and a $3,000 fine.

The law firm of Shepherd Smith and Edwards represents investors seeking recovery of damages in securities fraud claims Contact us if you would like to schedule a free confidential consultation with one of our securities attorneys.

In two related decisions the a New York U.S. Bankruptcy Court determined that a failed broker-dealer must arbitrate (under the NASD Code of Arbitration) its differences with a former registered representative and the firm that hired him -- even though the defunct firm is no longer is an NASD member -- and that an arbitration agreement is even enforced when the party seeking recovery is in bankruptcy.

According court records, in 2000, M. Carleton Boothe went to work for NASD member firm Continental Broker-Dealer Corp. and received $300,000 he was to repay if he left the firm within five years other than through death or disability. Boothe resigned in 2004 and joined Gunnallen Financial Inc. Continental soon closed and was expelled from the securities industry.

After Continental was then thrown into bankruptcy, the bankruptcy court trustee for Continental sought to recover the unpaid balance of the note from Boothe and to obtain damages from Gunnallen Financial for claims including “raiding” its brokers and stealing its clients. Boothe and Gunnallen then sought to enforce certain arbitration agreements to move these actions from bankruptcy court to NASD arbitration. The bankrultcy court agreed.

Claims against brokerage firms and/or their representatives virtually always be determined in securities arbitration, not in court. This is because investors almost universally execute agreements containing agreements to arbitrate. Meanwhile, in their licensing agreements, all NASD member firms and registered representatives also agree to arbitrate any and all disputes with other member firms or registered representatives. (Such agreements do not cover disputes totally unrelated to the securities industry.)

Prior to these decisions, it was uncertain as to whether arbitration agreements could be enforced by defendants seeking to avoid being taken into a bankruptcy court by a bankruptcy trustee, in a suit for damages or to collect a debt alegedly owed to the bankrupt person or entity. (Parties being sued in bankruptcy court by a bankruptcy trustee often feel they can not get a favorable outcome and may prefer to have claims against them determined in arbitration.)

Furthermore, these decisions hold that, even if a brokerage firm or broker is no longer in the securities industry, an arbitration agreement in place at the time of the wrongdoing and/or when the claim arose is enforceable by either party to the agreement to keep the claim from going to court, even bankruptcy court.

While the facts of any matter can result in a different outcome, these decisions likely mean an investor must arbitrate with, and can not sue, a former securities broker, securities firm or those who controlled that firm, for claims which arose when those parties were in the securities industry. As well, if an individual or institution investor is in bankruptcy, the investor’s claim against either a current or former broker or firm will likely not be determined in bankruptcy court but instead in arbitration, with any funds awarded then turned over to the bankruptcy trustee.

In re Continental Broker-Dealer Corp. (Stern v. Boothe), Bankr. E.D.N.Y., Case No.: 04-85318-JBR; Adv. Pro. No.:806-08370-JBR, 5/9/07; In re Continental Broker-Dealer Corp. (Stern v. Gunnallen Financial Inc.), Bankr. E.D.N.Y., Case No.: 04-85318-JBR; Adv. Pro. No.: 807-08003-JBR.

Over the past 17 years, Shepherd Smith and Edwards has represented institutional and individual investors in more than 1,000 claims in securities arbitration. Less than a handful of other law firms can claim such experience in this field. If you or your company has sustained significant investment losses, contact Shepherd Smith and Edwards to schedule a free conficential consultation with one of our attorneys.

In a recent survey of financial services professionals, many financial advisers said that they knowingly skirted their companies’ compliance regulations and are tired of complying with a regulatory framework that seems to be growing more complicated.

100 financial services professionals were surveyed by Shorewood, Minnesota-based consulting and training firm for the financial services industry Vestment Advisors Inc. 71 of the respondents were registered representatives.

One survey participant said that everyone violates compliance rules on a daily basis because it was not possible to work in the securities industry without regularly violating an SEC or NASD rule Another participant said that it was unlikely that anyone had “never violated a compliance rule,” seeing that hundreds of rules existed.

Other participants provided examples of these violations, including “selling away” clients’ loans, unauthorized trading, forging signatures, not processing checks upon receipt, and not sending correspondence to clients through compliance officers first for review.

While 13% of registered representatives said they spent a full day every week taking care of paperwork and compliance issues, 21% of the 71 registered representatives surveyed said that they spent less than one hour a week on these kinds of matters.

Some advisers admitted to not having the time to complete the adviser training, even asking others who worked for them to take the exams instead. Many of them also expressed frustration that when they have made attempts to take action that was legally within compliance regulations, their attempt were rejected by their firms. Nearly half of the advisers surveyed worried that a client would file a complaint or lawsuit against them.

Katherine Vessenes, Vestment Advisors President, blamed lack of proper training by compliance offers as a reason for these kinds of misconduct.

If you are an investor who has lost money because of the misconduct of a financial adviser and you would like to file a claim to recover your loss, it is advisable that you speak with an investment fraud attorney who can represent you. Statistics show that you increase your chances of recovery by retaining the services of a lawyer who can make your claim for you while protecting your interests.

Shepherd Smith and Edwards is a law firm dedicated to helping clients like you. We’ve represented thousands of clients over the years and have a very good track record of success. Over 90% of our clients have recovered all if not part of their losses. Contact Shepherd Smith and Edwards today to schedule your free consultation.

Advisers often skirt compliance rules, survey finds, Investmentnews.com, May 29, 2007

Related Web Resource:

Financial Advisors Are Struggling With Compliance And Legal Issues: Study shows loss of production and fear of lawsuits are a concern to advisors, Vestment.net

U.S. Senator Charles Grassley has introduced legislation that would require most hedge fund advisers to register with the Securities and Exchange Commission. Called the Hedge Fund Registration Act, the bill closes a loophole created by the U.S. Court of Appeals (DC) when it struck down a 2004 SEC rule requiring most hedge fund advisers to register with the agency.

That ruling lets hedge fund advisers count the different funds they manage as just one client, rather than noting the number of investors who have purchased into each fund. Because of this, the majority of hedge fund advisers do not have to register with the SEC because they fall under the 1940 Investment Advisers Act exemption.

Senator Grassley says that if the bill were passed, only advisers with less than 15 clients would be exempt from registering. An adviser exempted from registration would also have to oversee less than $50 million and could not publicly “hold himself out” as an adviser.

Senator Grassley also said the bill would allow the SEC to oversee these advisers and prevent them from “operating in secret.” He said that this type of oversight was important because hedge funds affect not just wealthy investors but regular investors and the market overall.

Because hedge fund assets have increased to over $1 trillion, requiring that hedge fund advisers register with the SEC has become a very controversial issue. While critics of registration say that being allowed to operate without the SEC’s oversight is has led to hedge funds' success, advocates of registration say this requirement would create the necessary transparency in a trillion dollar, and growing, field of intestments.

At Shepherd Smith and Edwards, our securities litigation attorneys are committed to helping investors that have been the victims of securities fraud recover damages. We represent clients from all over the United States and abroad, and we have offices located in cities throughout the United States, including Houston, New York, Dallas, Chicago, Phoenix, San Francisco, and New Orleans, as well as in Mexico City. To schedule a free consultation, contact Shepherd Smith and Edwards today.

Related Web Resources:

Sen. Grassley Introduces the Hedge Fund Registration Act of 2007, Grassley.Senate.gov, May 15, 2007

Investment Advisers Act of 1940, SEC.gov

David A. Stockman was chief architect of President Ronald Reagan's economic plan (a plan dubbed “voodoo economics" by George H.W. Bush). Stockman then became a high-profile Wall Street money man, but was indicted Monday on charges of conspiracy, securities fraud and obstruction of justice.

Stockman, 60, who faces the prospect of three decades in prison, is accused of defrauding investors and banks during his tenure as head of Collins & Aikman, a large auto-parts maker that descended into bankruptcy in 2005.

First elected to the House of Representatives at age 30, after serving only two terms in the House, Stockman was then named Reagan's first director of the Office of Management and Budget. He was the highly visible spokesman for the "trickle-down" economic theory of the Reagan administration. However, private conversations over budget with a journalist caused Reagan to, as Stockman states, take him to the "woodshed". He soon matriculated to the New York world of investment banking.

A lengthy investigation which led to recent charges. Manhattan U.S. Attorney Michael J. Garcia said Stockman and a team of handpicked executives entered into secret agreements with suppliers, created false documentation to fool auditors and lied repeatedly about a cash squeeze to ensure that banks would continue to finance their operations. It is reported that Stockman also misled company investigators examining deals between Collins & Aikman and a business owned by a board member, according to the grand jury indictment.

Stockman turned himself to authorities in and two hours later appeared in court wearing a navy pinstriped suit, tasseled loafers and a pair of tortoiseshell glasses. In a boisterous voice, Stockman pleaded "not guilty." He was released on a $1 million personal recognizance bond.

Three other former Collins & Aikman officials were charged along with Stockman. Four other employees have pleaded guilty and agreed to testify against their onetime supervisors. Because he has already provided sworn testimony to securities regulators, Stockman is almost certain to take the witness stand when the case goes to trial

Calling the charges “hyper technical”, Stockman blamed his ouster from the company and the multiple federal probes that followed as a "reckless spasm" of the Sarbanes-Oxley corporate accountability law. He also asserts that his case is quite different than the accounting scandals that surfaced five years ago.

Since 1990, the law firm of Shepherd Smith and Edwards has helped victims of securities fraud recvoer damages. We have represented more than 1,000 clients and over 90% have recovered all or a portion of their losses. If you would like to speak with a securities litigation attorney, contact Shepherd Smith and Edwards to schedule a free consultation.

Three former brokers of Citigroup, Merrill Lynch and Lehman Brothers face a second trial on charges they conspired to commit fraud by allowing day traders to eavesdrop on orders being discussed on investment firms' internal “squawk boxes.” Four current and former executives at the day trading firm A. B. Watley Group will also be retried for their alleged roles in the scheme.

After a seven-week trail seven defendants including these former brokers were acquitted of securities fraud and other charges, but the jury deadlocked on the conspiracy charges opening the door to a retrial.

Prosecutors assert the brokers conspired to give Watley traders access to large orders broadcast over intercoms, or “squawk boxes”, in exchange for cash and commissions. The traders bought or sold stock ahead of the orders in anticipation of share-price swings, prosecutors say.

During the first trial, John J. Amore, Watley’s former chief executive and a prosecution witness, testified he introduced the intercom scheme when he was hired in 2002 as a consultant. Amore pleaded guilty to conspiracy to commit securities fraud prior to the trial.

The law firm of Shepherd Smith and Edwards represents institutional and individual investors in investment claims. Collectively, we have recovered more than $100 million from investment and securities brokerage firms. If you or your firm has sustained significant losses in investments contact us to arrange a free confidential consultation with one of our securities litigation lawyers.

The Securities and Exchange Commission for the first time proved a company used insurance to hide its losses.

The agency accused an executive of cellphone distributor Brightpoint Inc. of overstating the company’s earnings through improper use of an insurance policy. A New York jury found the company’s director liable for assisting in Brightpoint’s fraud and other violations of securities law said the SEC

In November, the American International Group(AIG) paid $126 million to settle claims by the Department of Justice and SEC that it assisted companies, including Brightpoint and the PNC Financial Services Group, inflate earnings through AIG’s insurance products.

To raise capital, rather than turn to a bank for a traditional loan or sell corporate debt, a company would borrow money from its insurer. The loan would be repaid in the form of increased premiums for traditional insurance, falling into an accounting category of “finite risk insurance”.

“Cracking down on the abuse of so-called finite insurance and reinsurance to cook the books of public companies has been a priority for us,” said SEC Regional Director Mark Schonfeld “This verdict makes clear that such conduct is fraud, plain and simple.”

Several other insurers including Ace, the Chubb Corporation and the Travelers Companies have received inquiries about such practices.

Shepherd Smith and Edwards is a law firm dedicated to representing institutional and individual investors to recover damages. We seek recovery for investment fraud, including damages sustained in life insurance and annuity contracts. If you or your firm has sustained significant losses in securities or insurance products contact us to arrange a free confidential consultation with one of our attorneys.

A Securities and Exchange Commission action against Jamie Solow, a former stockbroker who is accused of allegedly taking part in a fraudulent trading scheme involving unsuitable and risky securities, including collateralized mortgage obligations, will not be dismissed, says the U.S. District Court for the Southern District of Florida.

According to the court, the SEC’s antifraud charges satisfied a “level of specificity” for this type of pleading’s particularity requirements. The complaint also gives Solow proper notice of the claims (and their basis) that he aided and abetted Archer Alexander Securities Corp. in their violation of securities laws.

The court has also said that Archer allegedly committed records and books violations and did not comply with FOCUS reporting requirements. The court says that since Solow knew that his conduct was improper, and because he was a registered Archer representative, the firm was obligated to maintain proper records.

The SEC says that in 2003, the defendant took part in fraudulent trading that involved inverse floating rate collateralized mortgage organizations, which are considered risky and volatile and only appropriate for sophisticated investors. Solow was affiliated with Archer Alexander Securities Corp., and the SEC says that he “intentionally disregarded” the firm’s policies on falsified ticket trades and the trading of inverse floaters and made it look like his transactions were in compliance with Archer’s procedures.

Solow is also accused of selling inverse floaters to retail customers who were “risk-averse” and misleading them by saying the risky derivatives were “a suitable investment.” As a result of Solow’s misconduct, Archer ended up running afoul of net capital, books, records, and FOCUS report filing requirements.

Solow had tried to get the charges dismissed in court, saying that the SEC, in its complaint, did not make its allegations adequately nor did it specify how he (Solow) had falsified trade tickets. He also said that Archer and its CEO must have known what he was doing since his transactions made up a huge portion of the firm’s revenue. The court, however, rejoined by saying that Solow’s disputes could help his defense, but that they were not appropriate for this stage of the court proceedings.

Shepherd Smith and Edwards is dedicated to representing investor clients who have lost money because of the misconduct and wrongful actions of members of the securities industry. If you would like to speak with one of our attorneys for a free consultation, contact Shepherd Smith and Edwards today.

Related Web Resources:

Securities and Exchange Commission v. Jamie L. Solow, Civil Action No. 06-81041-CIV-Middlebrooks/Johnson (S.D. Fla., November 8, 2006, SEC.gov, November 9, 2006

SEC Nabs Mortgaged-Backed Securities Broker for Fraudulent Sales, CCH Wallstreet, November 16, 2006

Read the Complaint (pdf)

The SEC says it is requesting that the name of Pakistani banker Ajaz Rahim be added to the lawsuit charging the trading in of call options for TXU Corp that were based on insider information regarding an investment group’s leveraged buyout of the entity. The commission filed its third amended complaint in the U.S. District Court for the Northern District of Illinois.

The SEC is accusing Rahim of accepting tips offered by CSFP banker Hafiz Naseem, who is said to have misappropriated information from Credit Suisse, LLC, which advised TXU regarding the buyout.

Naseem was charged in connection to his alleged involvement in the controversy in the SEC’s second amended complaint. The SEC had issued allegations of insider trading just before the TXU buyout against “Certain Unknown Purchasers of TXU Call Options.

The SEC says that on five days last February, Naseem breached his fiduciary duties to his client and Credit Suisse when he informed Rahim of a proposed LBO of TXU by an investor group being led by Texas Pacific Group and Kohlberg Kravis Roberts & Co.

Rahim bought, through UBS AG London, 6,700 TXU call option contracts that had March 2007 expiration dates. He also purchased 15,000 shares of TXU stock from Bank Julius Baer Co. Limited. The commission says that these purchases let Rahim make about $5.1 million in unlawful profits following the announcement of the LBO.

The commission says that Naseem also told Rahim about upcoming deals with nine other issuers and that Rahim traded in these issuers’ securities at least 25 times within minutes of getting the information from Naseem. Rahim is also accused of allegedly buying securities with these companies, before public mergers were announced, via accounts at Bank Julius Baer Co. Ltd and/or Merrill Lynch Pierce Fenner & Smith. From these transactions, he illegally garnered $2.425 million in profits.

To make sure that he would gain personally and financially from his illegal behavior, Naseem opened a brokerage account in 2006 in Pakistan and gave trading authority to Rahim.

The SEC wants the court to order an injunctive relief against Rahim, as well as civil penalties and disgorgement.

For years, Shepherd Smith and Edwards has helped investors that have been the victims of securities fraud recoup their losses. Of the more than 1,000 clients we have represented in the United States, more than 90% of them have recovered all if not some of their losses. If you would like to speak with a securities litigation attorney, contact Shepherd Smith and Edwards to schedule an appointment for your free consultation.

Related Web Resources:

Securities and Exchange Commission Charges Ajaz Rahim, Pakistani Banker, With Insider Trading, SEC.gov

SEC: asset freeze against unknown foreign purchasers of call option for TXU Corp stock prior to acquisition announcement, Journal of Derivative Accounting

Read the SEC's Third Amended Complaint (PDF)

TXU Corp.

The New York Stock Exchange Regulation Inc. announced that RBC Dain Rauscher Inc. consented to be fined $90,000 for failures related to its anti-money laundering compliance program.

According to an exchange press release, the Minneapolis-based firm failed to establish written procedures regarding filing of suspicious activity reports. Additionally, the exchange alleged, the firm did not have an adequate monitoring system to review and document follow-up on exceptions found by the firm's department, the release stated.

The firm, which neither admitted nor denied the allegations, consented to the fine and a censure, according to the release.

The action came under the exchange's most recent round of enforcement activity in which 11 individuals also were disciplined on allegations that included books-and-records and supervisory deficiencies, sales-practice misconduct, and failure to disclose prior criminal history, the release noted.

Regulatory cases such as this are subject to review by the Securities and Exchange Commission and possibly, federal courts.

More information is available on NYSE Regulation's Web site at: http://www.nyse.com/DiscAxn/discAxn_05_2007.html.

For decades investors have been told their accounts were protected by the Securities Investor Protection Corporation (SIPC) without being told what was covered by this insurance. Few realize this protection only provided that whatever securities and cash are in an account when a firm goes out of business would be returned to the investor. (Furthermore, such claims are difficult to file and often take years to process.)

Thus, if investors are defrauded into purchasing investments, if their accounts are churned for commissions or if other wrongdoing occurs in their accounts, they are NOT protected by this Federal insurance. Even claims for unauthorized transactions, including the sale of viable securities in order to purchase worthless securities from the firm or its officers are not always refunded. In short: Fraud is not covered by SIPC!

After years of complaints, efforts by attorneys representing investors and pressure by some consumer-friendly legislators, the National Association of Securities Dealers, Inc. (NASD) and the Securities Exchange Commission (SEC) were finally persuaded to act. However, rather than force brokerage firms to disclose the insurance coverage (or lack of it) the NASD and SEC passed a much less effective requirement.

The new rule requires members to merely advise new customers, and remind existing customers annually, that they can obtain information about the Securities Investor Protection Corporation by contacting SIPC. The phone number and Web address will be included.

As is true with most insurance companies it is very difficult to determine from the information provided by SIPC what is and is not covered by this protection. Therefore, the vast majority of investors will remain in the dark and continue to be misled into believing they can recover if they are defrauded by a broker or firm in an insured account.

Once again the SEC is serving Wall Street firms rather than protecting investors. These firms do not want securities fraud to be covered by SIPC because their premiums would be much higher. Meanwhile, these firms have the best of both worlds: The can continue to “sell” investors into a false sense of security by indicating their accounts are “insured”, yet pay low premiums because the insurance covers little and rarely pays any claims.

Additional propaganda can be found in SR-NASD-2006-124 (Release No. 34-55737, 5/10/07 and at http://www.sec.gov/rules/sro/nasd/2006/34-54871.pdf; 72 Fed. Reg. 27606, 5/16/07).

The North American Securities Administrators Association released its “Top 10 Traps" likely to ensnare investors, a list that included real estate investment contracts, affinity fraud, foreign exchange trading, and Internet fraud.

Other problematic areas, according to NASAA, include: "free lunch" investment seminars; oil and gas scams; prime bank schemes; private securities offerings; unlicensed professionals and unregistered products; and unsuitable sales.

"The path to safe investing is littered with traps that are likely to catch unwary investors," Joseph Borg, NASAA's president and the director of the Alabama Securities Commission, said in the release. "It always pays to remember that any investment that sounds too good to be true usually is."

While Borg observed that many investor traps are "usually baited with slick sales pitches promising high returns for little or no risk," he also noted that investors "can be trapped by legitimate investment products that are suitable for some investors, but not all."

Unsuitable sales, as they are known, are a concern when securities sales professionals encourage clients to put their assets into investments that are not a appropriate for them. As an example, variable and equity-indexed annuities are incompatible with the needs of most senior investors. Yet, as NASAA explained, sales agents are lured by high commissions on these investments to ignore suitability standards

NASAA further warned of those who target their victims based on religious, ethnic, cultural, or professional ties. Non-English speaking investors are particularly vulnerable. In many “affinity fraud” cases scammers infiltrate a particular group to develop trust and even use a respected member of the group to, knowingly or unknowingly, hype a particular "investment."

Scams have for centuries been pitched one-on-one, but mass solicitations via the Internet can now instantly reach millions of potential victims. "The Internet can be a con artist's dream," NASAA said, "Easy access to you and your money, with no 'return address' if the deal goes sour."

The most prevalent scam run on the Internet is the "pump-and-dump," in which stock manipulators convince the unwary to buy thinly traded issues in an effort to drive up their price.

A more old-fashion but successful way unscrupulous promoters reach investors is through seminars. Potential victims, including seniors, are offer a free lunch to hear to achieve "higher returns and little or no risk." Yet the opposite is often true - high risk and no returns.

We have assisted investors to recover losses caused by all types of wrongdoing. If you wish to discuss your situation in confidence with an experienced securities attorney, contact Shepherd Smith and Edwards today.

For decades, telemarkers in "boiler rooms" have bilked the elderly by convincing touting them to buy investments which supposedly pay high rates of return or have fabulous growth potential.

Now thieves operating in small offices in Canada and warehouses in India work day and night targeting elderly Americans. Working from lists of names and phone numbers, they call War veterans, retired schoolteachers and thousands of other elderly Americans and posed as government and insurance workers updating their files.

Then, the criminals empty their victims’ bank accounts!

These seniors are being targeted with the help of by large companies! For example the firm InfoUSA advertises lists of “Elderly Opportunity Seekers,” 3.3 million older people “looking for ways to make money,” and “Suffering Seniors,” 4.7 million people with cancer or Alzheimer’s disease. “Oldies but Goodies” contained 500,000 gamblers over 55 years old, for 8.5 cents apiece. One list said: “These people are gullible. They want to believe that their luck can change.”

“Only one kind of customer wants to buy lists of seniors interested in lotteries and sweepstakes: criminals,” said Sgt. Yves Leblanc of the Royal Canadian Mounted Police. “If someone advertises a list by saying it contains gullible or elderly people, it’s like putting out a sign saying ‘Thieves welcome here.’ ”

Some researchers estimate that the elderly account for 30 percent of telemarketing sales — another example of how companies and investors are profiting from the growing numbers of Americans in their final years. In 2003, the Federal Trade Commission estimated that 11 percent of Americans over age 55 had been victims of consumer fraud. “Most people have no idea how widespread and sophisticated telemarketing fraud has become,” said James Davis, a Federal Trade Commission lawyer. “It shocks even us.”

Telemarketing fraud has become a global criminal enterprise preying largely upon millions of elderly Americans every year, authorities say. Vast databases of names and personal information, sold to thieves by large publicly traded companies, have put our seniors within reach of fraudulent telemarketers. Major banks then make it possible for criminals to dip into victims’ accounts without authorization, according to court records.

One such victim is Iowa resident Richard Guthrie, a 92 year old World War II Veteran and Purple Heart recipient. Mr. Guthrie was contacted by phone and tricked into revealing his banking information. The crooks then contacted Wachovia, the nation’s fourth-largest bank, and raided his account, according to banking records. Between 2003 and 2005, scam artists submitted at least seven unsigned checks to Wachovia that withdrew funds from Mr. Guthrie’s account, according to banking records. Wachovia accepted those checks and forwarded them to Mr. Guthrie’s bank in Iowa, which in turn sent back $1,603 for distribution to the checks’ creators that submitted them.

Within days, however, Mr. Guthrie’s bank became concerned and told Wachovia the checks had not been authorized. Wachovia then returned the funds. But it failed to investigate whether Wachovia’s accounts were being used by criminals, according to prosecutors who studied the transactions.

According to the New York Times, some financial firms, including Wachovia, have made refunds to victims who complain, yet have not stopped selling lists used by criminals, even after executives were warned that they were aiding continuing crimes, according to government investigators.

In all, Wachovia accepted $142 million of unsigned checks from companies that made unauthorized withdrawals from thousands of accounts, federal prosecutors say. Wachovia collected millions of dollars in fees from those companies, even as it failed to act on warnings, according to records.

In 2006, after account holders at Citizens Bank were victimized by the same thieves that singled out Mr. Guthrie, an executive wrote to Wachovia that “the purpose of this message is to put your bank on notice of this situation and to ask for your assistance in trying to shut down this scam.” But Wachovia, which declined to comment on that communication, did not shut down the accounts.

Banking rules required Wachovia to periodically screen companies submitting unsigned checks. Yet there is little evidence Wachovia screened most of the firms that profited from the withdrawals.

In a lawsuit filed last year, the United States attorney in Philadelphia said Wachovia received thousands of warnings that it was processing fraudulent checks, but ignored them. That suit, against the company that printed those unsigned checks, Payment Processing Center, or P.P.C., did not name Wachovia as a defendant, though at least one victim has filed a pending lawsuit against the bank.

During 2005, according to the United States attorney’s lawsuit, 59 percent of the unsigned checks that Wachovia accepted from P.P.C. and forwarded to other banks were ultimately refused by other financial institutions. Wachovia was informed each time a check was returned.

“When between 50 and 60 percent of transactions are returned, that tells you at gut level that something’s not right,” said the United States attorney in Philadelphia, Patrick L. Meehan.

Other banks, when confronted with similar evidence, have closed questionable accounts. But Wachovia continued accepting unsigned checks printed by P.P.C. until the government filed suit in 2006.

Although Wachovia is the largest bank that processed transactions that stole from Mr. Guthrie, at least five other banks accepted 31 unsigned checks that withdrew $9,228 from his account. Nearly every time, Mr. Guthrie’s bank told those financial institutions the checks were fraudulent, and his money was refunded. But few investigated further.

Mr. Guthrie’s memory is faulty, but his family says he has lost a total of more than $100,000 to such practices.

Wachovia was asked in detail about its relationship with the firm that perpetrated the hoax against Mr. Guthrie and the accusations in the United States attorney’s lawsuit. The company declined to comment, except to say: “Wachovia works diligently to detect and end fraudulent use of its accounts.” During the time the bogus firm was a customer, Wachovia say it honored all requests for returns related the company’s accounts. The bank’s statement continued: “Wachovia is cooperating fully with authorities on this.”

Prosecutors argue that many elderly accountholders never realized Wachovia had processed checks that withdrew from their accounts, and so never requested refunds. Wachovia declined to respond.

We at Shepherd Smith and Edwards, have assisted investors to recover losses from financial institutions including Wachovia. We recommend you NEVER GIVE PERSONAL FINANCIAL INFORMATION TO ANYONE WHO CALLS YOU. We also recommend you NEVER INVEST THROUGH ANYONE YOU HAVE NOT MET IN PERSON, NO MATTER HOW CONVINCING THE SALESMAN OR SOUND THE FIRM MAY APPEAR. If you wish to discuss your situation in confidence with an experienced securities attorney, contact Shepherd Smith and Edwards today.

The Securities Industry and Financial Markets Association (SIFMA) was recently formed by a merger of The Securities Industry Association and The Bond Market Association. On its website the SIFMA claims “We are committed to enhancing the public’s trust and confidence in the markets…” and that in 2007 it will focus on goals including “Ensure the public’s trust in the securities industry and financial markets.”

Yet, within months, SIFMA has already fallen prey to its own financial scandal. The trade group today acknowledged that Micah S. Green resigned after it was learned that he approved improper loans to employees while he headed the Bond Market Association before the merger. Mr. Green made one of the loans to himself (later paid in full).

Mr. Green was widely thought to be in line for leadership of the newly-merged group until it was suddenly announced in late March that he would resign and that his co-chair Marc E. Lackritz would head the organization. Lackritz was though to be planning to resign before the investigation over the loan improprieties was revealed.

The official statement issued by the securities group in the wake of the scandal was: "These allegations proved largely unfounded, but it was determined that certain internal controls and procedures at BMA could have been improved. These procedural deficiencies were among the factors considered when SIFMA moved to a single CEO structure.”

Observers wonder whether it is ossible for any organization to exist on Wall Street without allegations of fraud, theft or nefarious self-serving actions soon surfacing.

At Shepherd Smith and Edwards, our securities attorneys represent investors in claims against the securities industry. We have been successful in helping many investors through mediation, negotiation, arbitration, and litigation. If you wish to discuss your situation in confidence with an experienced securities attorney, contact Shepherd Smith and Edwards today.

Related Web Resources: Securities Industry and FInancial Markets Association Home Site.

Penthouse International Inc., Charles Samel—a former Penthouse director and executive vice president—and former shareholder Jason Galanis have agreed to settle SEC allegations that they were involved in a revenue recognition scheme.

The SEC says the two men took part in accounting and financial reporting violations while at Penthouse in early 2003. Penthouse then allegedly improperly included in its financial statements revenue of $1 million. It had gotten the money as an up-front payment related to a five-year Web site management agreement. Including the amount on its statements, says the SEC, had increased the company’s reported revenue and changed a $167,000 quarterly net loss to an $828,000 profit.

The commission also cited other ways in which Penthouse’s Form 10-Q was materially misleading. The SEC says that the electronic signature of Penthouse's principal executive and financial officer was included in the statements to meet Sarbanes-Oxley certification requirements for the publishing company's 2003 quarterly report. Apparently, the signature made it seem that the officer, Robert Guccione, had looked at and signed the document when he actually had not, says the SEC. The commission also says that Penthouse’s outside counsel and auditors did not review the filing and that this lack of review was not revealed in the filing.

According to the SEC, Samel and Galanis have each agreed to pay $60,000. They have also consented to be barred from serving as a director or officer of any public company. Both men and Penthouse have consented to being enjoined from securities law violations in the future. None of the three defendants, however, agreed to or denied the charges.

Guccione, who resigned his post as chief executive at the end of 2003, settled SEC allegations of faulty financial disclosures in 2005.

At Shepherd Smith and Edwards, our securities attorneys have collectively recovered about $100 million for our investor clients who have lost money because of the negligent actions of those involved in the the securities industry. We have been successful in helping many investors through mediation, negotiation, arbitration, and litigation.

If you would like to speak with an experienced securities attorney who can help you, contact Shepherd Smith and Edwards today.

Related Web Resources:

Penthouse Settles with SEC, Webcpa.com, May 15, 2007

Penthouse publisher, executive settle with SEC, MSNBC.com, May 10, 2007

SEC v. Penthouse International, Inc., Charles Samel and Jason Galanis

William F. Galvin, Head of the Massachusetts Securities Division, declared war against deceptive financial advisers who prey on senior citizens.

Massachusetts became the first state in the nation to adopt regulations governing brokers or advisers who use credentials or professional designations suggesting expertise in advising senior citizens on financial matters.

Effective June 1, the new regulations state that only credentials accredited by a nationally recognized accreditation agency – also approved by the Secretary of the Commonwealth - may be used when offering seniors financial advice.

"The Securities Division of my office has seen a number of instances in which older investors have been duped into buying unsuitable investments by self-proclaimed senior financial advisers who are, in reality, salesmen for one specific instrument, such as an equity indexed annuity," Secretary William F. Galvin said.

"The salesmen have used impressive-sounding but often meaningless credentials to gain legitimacy with their clients."

The new regulations govern use of credentials and professional designations that use words such as "senior," "retirement," "elder" in combination with words such as "certified," "adviser" and/or "specialist" to imply a special certification or training in advising or servicing senior investors.

In the new regulations, the term "senior investor" refers to a person 65 years of age or older.

Securities regulators are like "police" who write tickets and arrest criminals. To recover damages for a car wreck or an "investment wreck" you should contact a skilled attorney to represent you. Our firm has represented 1,000's investors nationwide. To discuss whether we can assist you recover investment loss, contact Shepherd Smith and Edwards today for a free consultation.

Linsco Private Ledger (LPL) has apparently warned competitor National Planning Holdings, Inc. (NPH) to stop its aggressive recruiting practices aimed at luring registered representatives away from three broker-dealer firms LPL is in the process of acquiring. Reportedly, LPL has threatened to steer all its representatives away from selling insurance products of the parent firm of NPH if such recruiting tactics do not end.

After months of negotiations, LPL, the largest independent-contractor broker-dealer in the industry, said at the beginning of March that it was acquiring three broker-dealers owned by Pacific Life Insurance Co. of Newport Beach, Calif. Along with Mutual Service Corp., the other broker-dealers were Associated Securities Corp. of El Segundo, Calif., and Waterstone Financial Group of Itasca, Ill.

National Planning is a Santa Monica, Calif.-based network of four broker-dealers owned by Jackson National Life Insurance Co. of Lansing, Mich. Industry observers said that National Planning recruiters were talking to and negotiating with reps and advisers affiliated with the three Pacific broker-dealers LPL is acquiring.

According to sources, officials at LPL of San Diego and Boston recently told executives of NPH’s parent company that they should rein in the recruiters at National Planning Holdings broker-dealers. Failure to comply would result in LPL’s pulling Jackson’s insurance products from its network of 7,900 affiliated reps, observers said.

When asked about the alleged hardball tactics, officials at both LPL and Jackson National said that business remains usual between the two. Spokesmen from each company downplayed any riff. Bill Dwyer, president of LPL’s independent-adviser-services division, declined to comment on recruiting policies in general but added that LPL has long-standing relationships with insurance companies that own broker-dealers. Tim Padot, a spokesman for Jackson National and National Planning Holdings, echoed Mr. Dwyer’s statement stating in an e-mail message. “We have a lot of respect for the LPL organization, and we look forward to a mutually productive relationship for years to come.”

Reaction from advisers to LPL’s alleged tough mandate ranged from severe disappointment to outrage. “It certainly flies in the face of what our industry is all about: independence for the client and the rep,” said one adviser affiliated with Mutual Service Corp. of West Palm Beach, Fla., who asked not to be identified. LPL is “acting awfully big right now.”

“Essentially, LPL played its cards, and NPC folded,” said an adviser affiliated with Mutual Service Corp. He was referring to National Planning Corp., the largest independent-contractor broker-dealer owned by Jackson National. “Personally, I think it’s atrocious.”

In 2006, LPL generated $1.7 billion in gross revenue. When the combination is complete, LPL could add as many as than 2,200 registered representatives. National Planning Holdings network generated $492.7 million in 2006.

We at Shepherd Smith and Edwards, have helped victims of securities fraud to recover, collectively, approximately $100 million dollars from both large and smaller financial firms. We have represented clients nationwide in more than 1,000 arbitration and litigation proceedings. Over 90% of our clients recover all or a portion of their losses. Contact Shepherd Smith and Edwards to schedule a free consultation.

Last week, Citigroup Global Markets Inc. said it would pay a $200,000 fine to settle charges by the Securities and Exchange Commission. The charges are connected to Leg Mason Wood Walker Inc’s allegedly improper interference with auction rate securities. Citigroup is LMWW’s merger successor.

According to the SEC, the penalty amount was determined based on LMWW’s willingness to cooperate, the “relatively small share of the auction rate securities markets," and LMWW’s decision to report the allegedly illegal practices at a later time than did other broker-dealers from an earlier settlement.

During that related case, 15 broker-dealers—Citigroup included—said they would pay penalties of over $13 million related to charges that they participated in violative practices affecting the $200 billion auction rate securities market.

Because Citigroup already is facing a cease and desist order connected to the earlier case, the SEC did not request an order for this case.

The SEC says that auction rate securities are preferred stock or bonds that have dividend yields or interest rates that are reset on a periodic basis via auctions. Institutional investors are the ones that primary participate in this type of market.

LMWW allegedly underwrote and supervised a limited amount of these auctions. The SEC is accusing LMWW of bidding for its proprietary account during these auctions so that there wouldn’t be failed auctions without proper disclosure. As a result, LMWW was able to influence the clearing rate, which determines the interest of yield an issuer has to pay investors until the next auction takes place.

In instances where LMWW lowered the clearing rate, investors were able to get a lower return rate on investments. The SEC says that investors might not have known of the credit risks and liquidity connected with certain securities when LMWW’s actions influenced the clearing rate.

For nearly 20 years, Shepherd Smith and Edwards has represented thousands of investor clients in their claims against hundreds of brokerage firms. Our team of attorneys, legal staff, and consultants jointly have over 100 years experience in the securities industry, which makes us extremely qualified to provide legal representation to clients nationwide in filing claims against financial companies.

To discuss whether we can help you recover your investment loss, contact Shepherd Smith and Edwards today to schedule your free consultation.

Related Web Resources:

Read the SEC order (PDF)

Citigroup

Securities and Exchange Commission

A promissory note issued by the promoter of a race car venture to a girl friend is a "security" within the meaning of Wisconsin securities law, the Wisconsin Court of Appeals ruled. Therefore, the court affirmed the conviction of the promoter for securities fraud based on his failure to disclose to the investor--with whom he had a "romantic relationship"--a prior larceny conviction and bankruptcy filing.

According to the case opinion, Laura DeLuisa met Kevin McGuire in January 2001. He told her he was involved in a NASCAR related venture and showed her pictures of several race cars he said he owned. DeLuisa mentioned to McGuire that she was awaiting a personal injury settlement.

McGuire asked DeLuisa to loan him money for his NASCAR related expenses. After receiving her settlement, DeLuisa wrote checks to people associated with McGuire's NASCAR venture. DeLuisa made the checks, eventually reaching $140,000, payable to various vendors but not McGuire. McGuire told her the money was for establishing his NASCAR venture and that it would be a good investment. McGuire said he would repay DeLuisa and she would realize a profit. During this period, the court said, DeLuisa and McGuire's "acquaintance evolved into a romantic relationship."

On July 1, 2001, McGuire signed a promissory note to DeLuisa at her lawyer's office agreeing to repay her $140,000 plus 10 percent interest on the unpaid balance amortized over four years. The note provided that in the event of untimely payments or default, all interest and any amount still owed would become immediately due and payable.

McGuire soon stopped making payments and DeLuisa filed a complaint with Wisconsin securities regulators. A securities examiner learned McGuire had filed for bankruptcy in 1998 and had a felony conviction for larceny for which he had served time in prison. McGuire apparently never told DeLuisa about the bankruptcy, the conviction or the prison term.

A trial court eventually found McGuire guilty of securities fraud based on his silence concerning his felony conviction and bankruptcy. The trial court sentenced McGuire to seven years' probation with one year of conditional jail time, and ordered him to pay DeLuisa restitution. McGuire apealled claiming the note was not a "security", thus he could not be guilty of securities fraud.

The court analyzed the definition of a security under both WIsconsin and Federal law, applying the "family resemblance test" as determined in the U.S. Supreme Court case of Reves v. Ernst & Young, 494 U.S. 56 (1990). Applying the Reeves test, the court looked at various factors:

The first concerns the intent of the parties: Is the seller's purpose to raise money for the general use of a business enterprise rather than to finance substantial investments. Is the buyer interested primarily in the profit expected to be generated. If so, the instrument is likely to be a "security," the court explained. In this case, "the bottom line is McGuire's motivation was to raise money for his NASCAR venture and DeLuisa's motive was to make a profit."

The second factor of the family resemblance test examines whether the instrument was one for which there was common trading for speculation or investment. The narrow plan of distribution for this instrument "weighs in favor of a 'nonsecurity' determination," the court said.

The next factor is an objective one: would a reasonable investor have considered the transaction to be an investment? "The relevant facts bearing on this factor are the same ones we considered on the first factor, motivation. Here, McGuire convinced DeLuisa that since NASCAR was 'up and coming,' his venture had a promising future and she would realize a return significantly better than likely could have been achieved at a local bank. A reasonable investor would have considered the transaction with its higher-than-commercial interest rate to be an investment," the court said.

Finally, the court said, the last factor examines whether another regulatory scheme exists which, without resort to securities law, adequately protects the public from the risk the instrument poses. The court found no such regulatory scheme existed to protect DeLuisa.

Thus, the court said, on balance, only the second factor weighs in favor of a finding of a "nonsecurity." The factors are considered as a whole, however, and failure to satisfy one of the factors is not dispositive and thus concluded that McGuire's note qualifies as a "security".

The moral of this story seems to be: Before you convince a girl friend to loan you money for a venture, don't forget to tell her you have comitted a crime, gone to jail and declared bankruptcy.

Shepherd Smith and Edwards represents investors nationwide who have been victims of investment fraud. If you have questions concerning whether you may be a victim of "securities fraud", call for a free consultation at 1-800-259-9010 or contact Shepherd Smith and Edwards online.

The U.S. District Court for the District of Columbia dismissed class action claims against Goldman Sachs & Co. stemming from two Real Estate Mortgage Investment Conduit--or REMIC--deals with Fannie Mae.

Judge Richard Leon said that the plaintiffs--Fannie Mae investors–-failed plead a case which involved "direct acts" of securities fraud by Goldman. (In a court system friendly to those accused of securities fraud, claims are not allowed for aiding and abetting Federal Securities violations and class action claims involving securities fraud can no longer be filed under state laws.)

However, this court's decision does not prevent members of the former class action from now seeking their own claim against Goldman in court or arbitration. Clients of Goldman who purchased shares of Fannie Mae during this period would likely have the stronger claims. Such claims could include aiding and abetting, conspiracy and other claims under state laws which were not allowed in the class action. Fortunately, statutes of limitations on individual claims are usually preserved while a class action case is pending in court.

Federal National Mortgage Association (FNMA or "Fannie Mae") is a federally chartered government sponsored enterprise that provides funds for commercial and residential mortgages. Shares of FNMA trade on the stock exchange. The plaintiffs filed the class securities fraud suit on behalf of investors who purchased shares of Fannie Mae between April 17, 2001 and Sept. 27, 2005. In addition to Fannie Mae, the plaintiffs named three former senior executives; KPMG LLP, Fannie Mae's outside auditor during the class period; and Goldman, which designed and implemented two REMIC transactions in December 2001 and March 2002.

The plaintiffs asserted that Fannie Mae repeatedly violated generally accepted accounting principles, issued false financial statements, and made other actionable public disclosures, thereby " 'engag[ing] in one of the largest financial frauds in U.S. corporate history.'" The plaintiffs then contended that Goldman participated in a securities fraud because it proposed the two REMIC transactions; suggested that they could help Fannie Mae manage its income recognition for GAAP purposes, and performed unspecified functions as underwriter/dealer when the REMIC interests were offered to prospective purchasers of those interests.

The plaintiffs alleged that the two "unorthodox" REMIC transactions shifted $107 million of Fannie Mae's earnings into future years. The allegations stated that Goldman was willing to engage in these transactions because Fannie Mae was one of its largest trading clients, from which Goldman received millions of dollars in fees.

Shepherd Smith and Edwards represents investors nationwide who have been victims of investment fraud. If you have questions concerning claims, including those alleged in the above-described matter against Goldman Sachs, call for a free consultation at 1-800-259-9010 or contact Shepherd Smith and Edwards online.

After $134 million was found missing from the funds he managed, a flamboyant former professor is now claiming amnesia after being charged with lying to federal investigators. The U.S. Attorney's office in Charleston, South Carolina, said Al Parish, 49, made false statements and provided false documents to the Securities and Exchange Commission. The former Charleston Southern University professor then surrendered to FBI agents.

Last week, the SEC reported that Parish had been charged with civil fraud, saying he provided false statements to over 300 investors indicating that the five funds he managed were trading profitably. The SEC said that after it tried to contact Parish, "he checked into a local hospital claiming to have amnesia."

While his attorney said Parish had remained in the area since the civil case began and would not flee, prosecutors argued that Parish is a flight risk because of the large amount of missing funds involved in the case and should therefore be held without bail. The judge agreed ordering Parish to be held without bail. If convicted, Parish faces up to five years in prison and a $250,000 fine.

Parish was known as a colorful stock-market whiz with flashy suits and a million-dollar pen collection. His employer had even given him investment control over a $10 million scholarship fund. Many elderly investors had entrusted their retirment funds to Parish. Officials at Charleston Southern University and other investors expressed shock when they learned their assets were missing.

Shepherd Smith and Edwards represents investors who have been the victim of investment fraud and has even assisted some investors to recover a portion of their stolen funds. If you feel that you have been a victim of investment fraud, call for a free consultation at 1-800-259-9010 or contact Shepherd Smith and Edwards online.

A coalition of consumer and labor groups that are plaintiffs in the shareholder litigation against Enron Corp. say that they are asking the Securities and Exchange Commission to talk to the U.S. Supreme Court on their behalf.

The University of California is a lead plaintiff in the case, and its attorney, Christopher Patti, says the shareholders deserve to have their case presented during trial before the Supreme Court. He also said that he felt that the law was broad enough so that parties, such as financial institutions that were active, key, and consenting participants in the Enron fraud case and had intentionally engaged in deceptive conduct to purposely mislead investors, could be included.

On May 8, a group of Enron shareholders that claim that the energy trading giant allegedly defrauded them sent a letter to the SEC asking it to file an amicus brief with the high court explaining why banks and other parties took part in Enron’s fraudulent scheme and should be held accountable.

On March 19, the U.S. Court of Appeals for the Fifth Circuit had reversed an earlier court ruling, concluding that even though Enron had a responsibility to shareholders for the fraud scandal, banks did not. It is this case that shareholders have asked the Supreme Court to review.

Also, in March, the Supreme Court agreed to take a look at a federal appeals court’s ruling that equipment vendors to cable television provider Charter Communications could not be held responsible for their alleged roles in Charter Communication’s alleged fraud scheme to make its financial performance seem better than it actually was. In this case, the U.S. Court of Appeals for the Eight Circuit decided that the vendors had—at the most—aided and abetted the violations.

Patti says the plaintiffs are encouraging the SEC to join them in asking for “their day in court.”

SEC Chairman Christopher Cox has stated that investors have a right, through the judicial process, to recover their losses.

Shepherd Smith and Edwards has an excellent track record for helping their investor clients recover their losses resulting from the inappropriate actions of members of the securities industry. To schedule your free consultation with one of our attorneys, call us at 1-800-259-9010 or contact Shepherd Smith and Edwards online.

It will be interesting to learn whether the SEC will continue to represent the Wall Street special interests by taking yet another a legal position against investors. By taking positions against the very investors it is charted to protect, the SEC encouraged the courts to side with white collar criminal. This further guts the SEC of its own regulatory powers. The position taken by the SEC in this Enron case can become a defining moment to determine whether the SEC is only a “Fox” in charge of the henhouse or whether the SEC “Fox” is actually going to publicly eat the chickens.

Related Web Resources:

Regents of University of California v. Credit Suisse First Boston (USA) (PDF)

Stoneridge Investment Partners LLC v. Scientific Atlanta Inc., (PDF)

U.S. Senator Robert Casey of Pennsylvania has joined the efforts of two other U.S. Senators, and others, to persuade the SEC to lift the requirement mandating arbitration when there is a security dispute. Senator Casey expressed his opinion earlier this week at the yearly public policy conference hosted by the North American Securities Administrators Association Inc. (NASAA) of Washington. Mr. Casey said he would use his position as a Banking Committee member to push the SEC on this matter.

Senator Russ Feingold of Wisconsin and Senator Patrick Leahy of Vermont had written a letter to the SEC just last week requesting that mandatory arbitration in securities disputes be banned.

Currently, most investors are required to sign agreements mandating that they take their disputes to an NASD-operated arbitration system. NASAA has asked the U.S. Congress to consider letting investors bring their disputes to the courts.

At a separate panel on investor protection, Ira Hammerman, senior vice president and general counsel of the Securities Industry and Financial Markets Association, spoke in favor of the arbitration system. He sees it as a more efficient way for customers to have their claims addressed. He did say that because arbitration was becoming more like litigation, however, there could come a time when it might not make sense to pursue arbitration.

Bryan Lantagne, the director of the Massachusetts Securities Division, spoke against the arbitration system. He cited a lack of forum choice for investors and the fact that industry arbitrators, as arbitration panel members, got to issue decisions regarding claims made by investors. He also pointed out that investors did not usually receive written decisions, nor did they have the right to appeal decisions. He also spoke out against a recent proposal by the Committee on Capital Markets Regulation that would allow company shareholders to be come part of the arbitration system.

Shepherd Smith and Edwards has helped thousands of investors recover funds by representing them in arbitration and/or mediation proceedings. Our firm is made up of a team of experienced lawyers, consultants, and others that are committed to helping our investor clients who have been victimized by the wrongful action of members of the securities industry. Contact Shepherd Smith and Edwards today to schedule your free consultation.

Related Web Resources:

Senators urge end to mandatory arbitrations, Investment News, May 8, 2007

North American Securities Administrators Association

The NASD announced this week that it fined two Fidelity brokerage firms $400,000 for preparing and distributing misleading sales literature promoting Systematic Investment Plans, which were sold primarily to U.S. military personnel. Issuance and sales of new systematic investment plans after these were prohibited by Congress last fall.

The NASD found that between January 2003 and January 2006, the two firms violated NASD advertising rules by preparing and distributing misleading sales literature. From May 2003 through January 2006, the Fidelity firms prepared and distributed a brochure entitled "Time is Money" that included misleading performance claims about its “Destiny Plans”. According to "mountain charts" contained in the brochures, these plans significantly outperformed the S&P 500 Index over a 30-year period. Yet, during the most recent 10- and 15-year periods—the time frame most relevant to current and prospective investors - Destiny Plans substantially underperformed the S&P 500 Index.

The brochures also showed average annual total returns for 1, 5 and 10 years as well as the life of the Plan, without showing comparable returns for the S&P 500 Index. This also created the misleading impression that the plans outperformed the S&P 500 Index when instead that index significantly outperformed the plans.

The Fidelity brokerage firms also used the performance of one class of the shares in charts, when investors could actually only purchase another class which did not perform as well because of higher expenses. The broker-dealers prepared and sent over 10,000 copies of these brochures for use by their registered representatives.

The NASD also found that the Fidelity firms also prepared and distributed a misleading newsletter to over 325,000 of the plan holders with a chart showing plan performance. However, the chart demonstrated performance of the underlying mutual fund portfolio rather than the performance of the plan itself which, after sales fees and expenses were charged, significantly reduced the plan’s performance.

The NASD further found that Fidelity did not adequately supervise the review of the sales literature in light of the unusual features of these products.

Morgan Stanley & Co. Inc., the world’s second largest securities firm, will pay $7.9 million for its failure to provide best execution to certain retail orders for over-the-counter securities, the Securities and Exchange Commission announced today. Morgan Stanley embedded undisclosed mark-ups and mark-downs on certain retail OTC orders processed by its automated market-making system and delayed the execution of other retail OTC orders, for which Morgan Stanley had an obligation to execute without hesitation.

“By recklessly programming its order execution system to receive amounts that should have gone to retail customers, Morgan Stanley violated its duty of best execution and defrauded its customers,” said Linda Chatman Thomsen, Director of the regulator’s Division of Enforcement. ``Best execution is a fundamental duty of a broker- dealer,'' Thomsen, added. ``Morgan Stanley violated its duty'' and committed fraud by setting-up its order-execution system "to receive amounts that should have gone to retail customers.''

The company began overcharging clients after embedding undisclosed fees on some trades when it adopted a new computer system to handle transactions in 2001, the SEC said. The lapses affected more than 1.2 million transactions valued at about $8 billion from 2001 through 2004. A Morgan Stanley trader stumbled onto the problem in December 2004 when unusually high trading in a company's stock generated a $400,000 profit within a few minutes, the SEC said. The trader alerted his supervisor, and by that afternoon a technician pinpointed the programming “error”.

All of Morgan Stanley’s revenues from its undisclosed mark-ups and mark-downs will be distributed back to the injured investors through a distribution plan, according to the SEC. The order requires Morgan Stanley to pay disgorgement of $5,949,222, prejudgment interest thereon of $507,978, and imposes a civil money penalty of $1.5 million.

Without admitting or denying the commission’s findings, Morgan Stanley consented to the entry of an order by the Commission that censures Morgan Stanley.``$8 million isn't enough of an impact on their revenue or bottom line to have me worried too much,'' said Jeffery Harte, an analyst at Sandler O'Neill & Partners in Chicago who recommends buying Morgan Stanley stock. ``$8 million is a rounding error.''

The SEC may examine other firms' systems for similar problems, said Elaine Greenberg, an SEC official in Philadelphia overseeing the case.

If you or someone you know has been the victim of investment fraud, contact Shepherd Smith and Edwards today to schedule a free consultation with an attorney. For decades we have successfully assisted investors recover their losses. Visit our firm's Web site for more information.

Stock market cheerleaders these days sound as inebriated as New Year's Eve drunks on Y2K. Too bad their hangovers have apparently affected their memories since 1/01/2000.

Since that date, over 88 months or more than two-thirds of a decade have passed by, yet the Dow Jones Average Industrial Average and the Standard and Poor’s index of 500 stocks have barely moved an inch. Imagine an S& P stock unit, consisting of fractional shares of each stock in the index, costing in dollars the value of the S& P index. On the first day of 2000, that unit would have been worth $1,469.25. At the end of April, 2007 it was worth $1,482.37.

Measured by these widely recognized yardsticks, if your retirement portfolio was invested only into blue-chip stocks and if you did not spend a dime, the portfolio you held at the birth of the Millennium has finally recovered its losses. After suffering the slings and arrows of anxiety and despair, you finally broke even. But is even this any cause for celebration?

Just think, if you had bought a long term CD at the bank, and earned a 6% annual rate, instead of investing into the stock market, your retirement account would be up almost FIFTY PERCENT! Wow, it would take a Dow Jones Industrial average today of almost 20,000, instead of its 13,000 current level, to match that stunning CD performance!

Meanwhile, we hear talk of consecutive day records going back to the 1920's being broken, but that is just a distraction considering how much poorer the average American is in relative terms than he or she was in 2000. For example, if we factor in even the modest inflation factor we have experienced during this period, a stock portfolio has lost 20% of its real value. (Source: The Federal Reserve Bank of Minneapolis). So a $100,000 retirement portfolio of blue chip stocks owned at the beginning of 2000 is now worth only $80,000 in "2000 dollars". I guess confetti is not really in order.

If we measure the value of the same 88 month old blue-chip stock retirement account in Eurodollars instead of U.S. Dollars, that same account is worth only $68,000 by comparison.

Thus, the question restated is: "Are you better off now than you were a little over 6 years ago?" The average stock investor may be just scratching his or her head and wondering what all the hoopla is about.

When state securities regulators led by Elliot Spitzer of New York exposed a shocking level of crime and fraud on Wall Street, corporations and securities firms stepped up their campaign to gut state securities laws and the powers of state regulators. These special interests had already convinced Congress to forbid class action claims for securities fraud under state laws.

Meanwhile, many are accusing the SEC, with its commissioners all appointed by the President, of pandering to those same special interests. Despite its purpose to protect investors, the Securities Exchange Commission (SEC) has taken numerous actions to reduce its own restrictions and has taken positions on numerous court cases which are contrary to the interests of investors.

In its latest action, the SEC announced May 3 that, beginning May 24, securities listed on the Nasdaq Capital Market will be exempt from state "blue sky" registration requirements.

Nasdaq called the exemption, which was granted by the SEC in response to Nasdaq's own petition, "an important milestone in the evolution of the Capital Market" that will reduce the cost of raising capital for the affected listed firms and thus cut costs to investors.

Specifically, the SEC rule amendment designates securities listed on the Capital Market as "covered securities" under Section 18 of the Federal Securities Act of 1933, meaning these securities are exempt from state law registration requirements. This action by the SEC expands the exemption to include a broad base of lesser known and lesser capitalized issuers of securities. Many see this as an open invitation to those seeking to defraud investors.

"This watershed development is a reflection of the quality of NASDAQ's regulatory program and the degree of investor protection afforded by NASDAQ's listing requirements," Michael Emen, Nasdaq's senior vice president for listing qualifications, said about the exemption. He said the exemption will play an important role in facilitating the capital-raising process for smaller public companies.

However, such comments ring hollow considering that, despite their considerable resources, neither the NASDAQ nor the SEC has demonstrated its capability and/or desire to regulate the securities markets earnestly or tirelessly as state regulators.

The SEC release approving increased listing standards for the Nasdaq Capital Market is posted at http://www.sec.gov/rules/final/2007/33-8791.pdf.

Randi Collotta, an Ex-Morgan Stanley compliance officer and attorney, and her husband, Christopher Collotta, are slated to plead guilty on May 10, 2007 for their involvement in one of the largest insider trading schemes to take place on Wall Street since the 1980’s.

Randi Collotta is accused by U.S. prosecutors of informing her husband and Marc Jurman, a Florida broker, of deals that were pending, including Adobe Systems Inc.’s $3.4 billion buy of Macromedia Inc. and the $2.1 billion acquisition of Argosy Gaming Co. by Penn National Gaming Inc.

The charges against the couple are part of U.S. prosecutors’ crackdown against Morgan Stanley employees that are accused of involvement in insider trading. 13 people have been charged in separate schemes that took place over a 5 year period and generated the participants over $15 million in illegal profits.

Although prosecutors that had initially charged Collotta in 2005 said she faced over 10 years in prison, she will be sentenced to less time because of federal sentencing guidelines.

Four other defendants charged in these schemes have pled guilty. Charges are still pending against nine others, including Mitchel Guttenberg, a former UBS executive director. According to prosecutors, he offered to pay back a $25,000 loan to a hedge fund trader—Erik Franklin—by giving him analyst ratings in advance.

The two men purchased and used disposable cell phones to send each other coded messages so their scheme wouldn’t be found out. Although Franklin has pled guilty, Guttenberg says he is innocent.

Last week, U.S. prosecutors in Manhattan accused Hafiz Naseem, a junior investment banker with Credit Suisse Group, of giving a banker in Pakistan tips. The scam has already generated at least $7.5 million. Ex-Goldman Sachs Group Inc/ and Merrill Lynch & Co. employees are facing insider trading charges in other cases.

At Shepherd Smith and Edwards, we have helped our clients, who have been the victims of securities fraud, collectively recover millions of dollars. We have represented clients in more than 1,000 matters in arbitration and mediation proceedings, and we have a very succesful track record for getting results. Contact Shepherd Smith and Edwards to schedule your free consultation.

Ex-Morgan Stanley Executive, Husband to Plead Guilty, Bloomberg.com, May 7, 2007

Related Web Resources:

Guilty Pleas Expected in Big Insider Trading Case, Washington Post, May 8, 2007

SEC Charges 14 Defendants in Wall Street Insider Trading Ring, Including Personnel at UBS Securities LLC, Morgan Stanley & Co., Inc. and Bear, Stearns & Co., Inc., SEC.gov, March 1, 2007

In the wake of the collapse of the subprime residential mortgage market, the leading bond rating agencies are beginning to crack down on what they see as risky lending practices in commercial real estate as well.

Like residential loans, commercial mortgages are pooled and packaged into bonds that are sliced up into portions carrying different degrees of risk. According to Moody’s, there were $769.6 billion in commercial mortgage-backed securities at the end of last year, representing 26.1 percent of all outstanding commercial mortgages, including apartment buildings.

The agencies that rate these securities have issued warnings in the past, but last month they sounded a new note of urgency, saying that for the first time they would adjust their ratings to reflect their concerns.

“Underwriting has gotten so frothy that we have to take a stand,” said Jim Duca, a group managing director at Moody’s Investors Service. “The industry was heading to Niagara Falls.”

Standard & Poor’s said that in the first quarter of this year, the delinquency rate for such bonds reached its highest level since its delinquency index was created in 1999.

Fitch also predicted a 15 percent increase in defaults of loans being currently written and bond analysts agree that a large number of the loans issued recently could result in large problems down the road.

As was the case in the overheated residential mortgage market, many loans for commercial transactions were designed to be borrower-friendly, including interest-only payments for the first 10 years with balloon payments at the end of the term. The agencies point out that, unlike the vast majority of residential loans, commercial lenders are not requiring landlords to set aside adequate reserves to cover taxes, insurance and other costs. Many lenders are prone to accept overly optimistic projections by borrowers, including occupancy and rental rate growth.

While the agencies are just starting to reflect their new credit-tightening standards, their warnings are already having repercussions in the bond market. Investors are demanding higher rates of return, making the bonds costlier for the dealers, said Rob Brennan, the global head of real estate financing for Credit Suisse. “The fact is that the marketplace forces the change immediately,” he said.

Many investors who own these commercial mortgages and mortgage backed securities have experienced default losses. As recent credit rating warnings have caused interest rates to rise on newer loans this has also caused the value of loans and securities held by these investors to fall in value, in some cases precipitously.
Last month, a new $4.2 billion commercial-mortgage-backed security offered by GE Capital had to be restructured after investors complained. Five loans totaling $226.7 million were removed from the offering, and the investment-grade portion of another loan was further trimmed by $50 million. Most of the loans removed from the offering were originated by Deutsche Bank, which also provided $6 billion in debt financing for the purchase nearly all the Manhattan portions of a portfolio. Deutsche Bank declined a request for comment on the restructuring of the GE Capital bond.

Brenan, a securitization industry veteran, said the changes were necessary even though they would result in higher costs to the investment banks. “We’re trading some short-term pain for long-term gain,” he said. “If we do this right, we’ll stop a level of excess from getting out of hand. We want to avoid the kind of train wreck that the subprime market experienced.”

At Shepherd Smith Edwards & Kantas LTD LLP our attorneys and staff have more than 100 years of collective past experience in securities regulation and the securities industry. We represent institutional and individual clients who have sustained significant losses in their investments. Phone toll free at (800) 259-9010 or contact us online at Shepherd Smith Edwards & Kantas LTD LLP to schedule a free consultation with one of our attorneys.

Ronald Peteka, a former Morgan Stanley & Co. client services representative, was arrested last month. According to Michael Garcia, the U.S. Attorney for the Southern District of New York, Peteka allegedly stole proprietary information about hedge funds from Morgan Stanley while working with one of the brokerage firm’s consultants for the information technology department. The consultant, named Ira Chilowitz, who was in charge of establishing secure computer connections between prime brokerage clients and Morgan Stanley, pled guilty early this year to four felony counts connected to the allegations against Peteka.

Among the list of allegedly stolen items is the names of all of Morgan Stanley’s major brokerage hedge fund clients, as well as the formulas that were used to figure out the rates paid by them for specific services. This list, according to Garcia, could be of great value to Morgan Stanley’s competition. Garcia said both Chilowitz and Peteka conspired to misappropriate this list.

The U.S. Attorney said that when Chilowitz pled guilty, he confessed that the reason he stole the list was because he anticipated that it could possibly help both him and Peteka gather new business for a consulting company they had planned on setting up together.

In the complaint filed against him, Peteka is also accused of meeting with other ex-Morgan Stanley employee, proposing the consulting firm idea to this person, and telling this person about the list, saying "you don't what to know where I got this."

Chilowitz has not yet been sentenced. Peteka faces $250,000 in fines and a prison sentence of up to five years.

If you are someone who has been the victim of investment fraud, contact Shepherd Smith and Edwards today to schedule your free consultation. Our attorneys have spent years successfully helping investors recover their losses. Visit our firm's Web site for more information.

Related Web Resources:

Ex-Morgan Stanley Worker Charged, AP/Biz.Yahoo.com, April 4, 2007

IT Geek Gets Caught with Morgan Stanley “Client Rate List,” LinuxElectronics, February 5, 2007

Morgan Stanley

Geoffrey Brod, a former Aeltus Investment Management LLC portfolio manager has been charged by the SEC with concealing personal stock trades held by mutual funds that he was overseeing. The SEC is also charging him with falsifying internal reports. According to the SEC, Brod’s wrongful activities are in violation of his company’s ethics, as well as the antifraud and reporting provisions of the 1940 Investment Company Act.

SEC rules mandate that Brod turn in quarterly and yearly reports of personal securities transactions to Aeltus, which mandates pre-clearance of all portfolio managers’ securities trades, prohibits short-term trades, allows no more than 30 securities trades in a quarter, and requires both a 60-day holding period and a yearly certification of code compliance.

Brod is said to have actively taken part in personal, short-term trading in public company stocks. He had access on a regular basis to mutual fund holdings and their transactions in securities that were traded publicly. His method of trading, says the commission, required a very short-term trading pattern, and his holding period lasted about two to seven days. He engaged in about 3,5000 personal trades.

Brod is accused of making about $410,000 from his transactions. In addition, the SEC says Brod submitted bogus quarterly and yearly reports to Aeltus. In the reports, he stated that he had no securities holdings or transactions to report. According to the SEC, he also falsely certified his yearly compliance with Aeltus’ Code of Ethics.

A hearing will take place to determine the veracity of the SEC’s allegations against Brod. Aeltus, now called ING Investment Management Co., fired Brod in 2003.

For many years, Shepherd Smith and Edwards has helped investors who have lost money. because of the misconduct of brokers and other members of the securities industry, recover their losses. We have successfully represented many clients throughout the U.S. and internationally, and our offices are conveniently located in Phoenix, Chicago, New York, San Francisco, Dallas, New Orleans, Houston, and Mexico City. Contact Shepherd Smith and Edwards for your free consultation.

Related Web Resources:

SEC Alleges Ex-Fund Manager Broke Law, Forbes.com/AP, April 10, 2007

Read the SEC Order Against Brod (PDF)

U.S. Securities and Exchange Commission

ING Investment Management

As earlier reported, the securities firm of Edward Jones was ordered by the SEC to pay a total of $79 million to its clients and former clients. According to the SEC, the company failed to disclose kickbacks the firm received from various mutual fund companies, known as the “Preferred Fund Families.” The Preferred Families mutual funds are: American Funds; Federated Investors; Goldman Sachs Group; Hartford Mutual Funds; Lord Abbott Funds; Putnam Investments; and Van Kampen Investments.

Now, Edward Jones may be attempting to settle all potential civil claims against it “KNOWN OR UNKNOWN”, by its current or former clients FOR $18.00 PER CLIENT! The proposed settlement is as a result of a class action suit brought against the firm on behalf of millions of its current and former clients in the firm’s hometown of St. Louis, Missouri.

Language in the proposed settlement indicates the Edward Jones firm may be seeking to exempt itself from ANY AND ALL CLAIMS which could have been asserted by over 5 million of its current and former clients. Although, none of these clients would have actually signed such an agreement themself, any pending or future lawsuit, arbitration action or other legal claim could potentially be prejudiced by the final language in the settlement agreement.

According to the Notice of Proposed Settlement forwarded to these clients and former clients, based on the information provided the Plaintiffs by Edward Jones, the estimate of recovery per Class Member is approximately 17.99 in cash per former client and $19.86 in "credit vouchers" per current client. However, the actual amount any class action member might receive would vary based a based on a large number of factors.

According to the Notice of Proposed Settlement, CLIENTS AND FORMER CLIENTS OF EDWARD JONES MUST TAKE IMMEDIATE ACTION BEFORE JUNE 11, 2007, to avoid being included in this settlement. In class actions, THOSE WHO TAKE NO ACTION prior to the "opt out" date almost always ARE PREVENTED FROM SEEKING ANY OTHER RECOVERY for claims which are ultimately exemped as part of the class action settlement agreement.

[NO INVESTOR SHOULD ACT TO OPT OUT OF A CLASS ACTION OR DECIDE TO REMAIN A PART OF THE ACTION WITHOUT LEGAL ADVICE REGARDING THEIR OWN SITUATION. THE INFORMATION PROVIDED HEREIN IS NOT INTENDED AS SUCH LEGAL ADVICE.]

Numerous times ours law firm has been unable to assist investors with viable claims - some for hundreds of thousands or even millions of dollars - because these investors failed to take prompt action to be removed from class action cases prior to the deadline. These investors usually later receive either a TOKEN SUM from the class action settlement OR NOTHING AT ALL if they later fail to submit the required claim forms.

Shepherd, Smith and Edwards is a law firm that has represented thousands of investors nationwide to recover losses caused by misconduct of investment firms and their brokers. We offer free consultations and can be reached toll-free at (800) 259-9010 or via email at firm@sselaw.com

The SEC is considering a new policy that could let companies resolve shareholder complaints via arbitration. If adopted, this policy could limit a shareholder’s ability to sue the company in court.

A move toward arbitration could shift the balance of power between corporate managements and shareholders during a time when the balance has been more and more in favor of shareholders. The change could also restrict shareholders’ ability to recover financial, as well as other kinds of compensation from corporations.

The SEC is also examining whether corporations should be allowed to change their bylaws to make room for arbitration. This type of amendment will, in some cases, require the approval of shareholders.

Christopher Cox, SEC chairman says he doesn’t see arbitration as a remedy for all problems. He has a track record of trying to limit what he considers to be excessive securities regulation. Just this year, the SEC supported business in a “friend of the court” brief that was part of a Supreme Court case that had to do with the standards needed by a plaintiff to have a case go forward. According to the SEC, it was supporting the standard that was approved by most of the appeals courts.

A blue-ribbon committee suggested arbitration as a dispute resolution last November. An SEC roundtable may be a forum where this issue could be addressed.
There are many kinds of disputes that are already being settled through arbitration. Companies often include arbitration clauses in their contracts and brokerage firms insist that clients resolve claims in front of an arbitration panel.

There are many out there who claim that the possibility of shareholder lawsuits has helped remove some of the competitive edge among U.S. financial markets. In 2006, U.S. companies settled about 95 shareholder class action suits for alleged misconduct, paying a collective total of approximately $17.6 billion. Those who oppose these kinds of lawsuits say that lawyers are getting rich at the shareholder’s expense because of these cases and companies that might have listed stock in the US are now scared to do so as a result.

Giving companies the choice of arbitrating shareholder disputes could likely result in staunch opposition from trial lawyers and groups representing investors’ rights. Arbitration critics claim that the panels used by brokerages usually side with the industry instead of the consumer. Also, consumers’ rights to look at and review important information from the opposition is not as clear as in litigation.

Many arbitration hearings take place in private, instead of public. Last year, 42% of investors who settled their disputes against brokers in arbitration were compensated. The National Association of Securities Dealers says those figures are down from the 53% of 2000. Even though settlement figures are higher than in past years, the total number of securities class-action lawsuits filed has reached its lowest point in the last decade—says Stanford Law School and Cornerstone Research.

If arbitration continues to gain momentum, a few consumer groups could become worried that by limiting shareholder litigation, the country will lose a powerful means of preventing corporate wrongdoing. Shareholders may also have to pay for hiring a lawyer instead of filing a suit with a class.

If the SEC lets shareholder disputes be resolved in arbitration, this could further decrease the influence the plaintiffs bar’s influence. Recent SEC talks seem to be part of a number of initiatives designed to lower the regulatory burden on U.S. businesses. The SEC has even revised how commissioners review cases involving possible corporate penalties. Instead of waiting until the SEC staff arrived at a preliminary settlement, the revision allows commissioners to get involved earlier. SEC Chairman Cox says this will result in quicker resolutions and stricter penalties. Staffers have expressed concern that the change could deter staff lawyers from pursuing penalties.

A move toward arbitration would be a major policy change by the SEC in the way it interprets federal securities laws.

Shepherd Smith and Edwards represents investors that have filed claims against brokerage firms and their employers for misconduct resulting in investors losses. We have successfully helped thousands of investors across the country recover their losses. Contact Shepherd Smith and Edwards today at firm@sselaw.com or by calling (800) 259-9010 for your free consultation.

SEC Explores Opening Door To Arbitration, Wall Street Journal, April 16, 2007

Related Web Resources:

Securities and Exchange Commission

How The Securities Arbitration Process Works

Edward Jones is now sending checks and making electronic payments to its current and former customers as part of its settlement of revenue sharing claims. The Securities and Exchange Commission announced the distribution of $79 million from the “Fair Fund” (also known as the “Edward Jones & Co., L.P. Qualified Settlement Fund”) as compensation to victims of Edward Jones’ practices according to the settlement reached. These payments do not compensate Jones' clients for any losses caused by any other unfair sales practices.

According to the SEC, Edward Jones failed to adequately disclose kickbacks the firm received from various mutual fund companies, known as the “Preferred Fund Families.” The Preferred Families mutual funds are: American Funds; Federated Investors; Goldman Sachs Group; Hartford Mutual Funds; Lord Abbott Funds; Putnam Investments; and Van Kampen Investments. The SEC’s order is available on the SEC website: http://www.sec.gov/litigation/admin/33-8520.htm

Edward Jones’ kickback scheme impacted approximately 2.1 million of its customers who purchased shares of the Preferred Fund Families between January 1, 1999 and
December 31, 2004. The firm told the public and its customers it was promoting the sale of the Preferred Families' mutual funds because of the funds' long-term investment objectives and performance. However, Edward Jones failed to disclose that it received tens of millions of dollars of undisclosed revenue sharing payments from the Preferred Families each year for selling their mutual funds.

Customers receiving settlement checks and direct deposits are also receiving a letter asvising the recipient to consult a tax advisor before cashing or depositing the check. Some customers may receive a Form 1099 as a result of negotiating the check since the payment may be construed as a taxable distribution. Those receiving checks only have a limited time to cash or deposit the check before it becomes void.

The payments being made by Edward Jones to its clients and former clients are not reimbursing them for losses which may have been by caused by other wrongdoing such as unsuitable investments, misrepresentations or other improper sales practices. Investors who have lost a significant portion of their account at any brokerage firm should seek legal advice to learn if they may be able to recover all or part of such losses.

Shepherd, Smith and Edwards is a law firm that has represented thousands of investors nationwide to recover losses caused by misconduct of investment firms and their brokers. We offer free consultations and can be reached toll-free at (800) 259-9010 or via email at firm@sselaw.com.