Stock Broker Fraud Blog

H&R Block reported a loss of $433.7 million for its fiscal year 2007, compared to a gain of $490.4 million a year ago, and it lost $85.6 million in the fourth quarter vs. a gain of $587.5 in the year earlier period. The losses can mostly be attributed to Option One, its subprime mortgage unit, which the company hopes to soon sell.

The nation's largest tax preparer was started in Kansas City by Henry and Roger “Bloch” brothers when the IRS stopped preparing tax returns free in 1955. The firm has been hugely successful in that business – for a few months out of the year. Yet the firm has been mostly unsuccessful in other ventures seeking to earn revenues the rest of the year.

Its investment subsidiary, H&R Block Financial Advisors, arose from the Block’s purchase of Olde Financial Company in 1998 for $850 million. At the time Olde and its founder were in the midst of many regulatory and other woes, many of which Block inherited.

The parent firm’s latest report states: “Conditions in the non-prime mortgage industry continued to be challenging during the 2007 fourth quarter. Mortgage operations were particularly impacted by deteriorating conditions in the secondary market, where reduced investor demand for loan purchases, higher investor yield requirements and increased estimates for future losses reduced the value of non-prime loans,” the report adds.

Block hopes to receive over $1 billion from sale of this subsidiary, but some analysts are doubtful this can be accomplished and others believe any sale would be at a fraction of Block’s asking price.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

The newly formed self-regulatory organization for broker-dealers will be called The Securities Industry Regulatory Authority (SIRA). This "new" organization is actually the same NASD, plus the regulatory functions of the NYSE, which it paid-off NASD members to assume. So a question to the NASD is: Why change your name?)

SIRA is scheduled to launch in the next few months. NASD's Director Linda Shapiro, slated to head SIRA, said the organization will include more “principles-based and prudential regulation” as part of its focus. She said that NYSE Regulation and NASD will combine their rulebooks.

Shapiro said that the organization will use “proactive” regulation to help firms stay in compliance instead of waiting for them to violate regulations before enforcing the rules. “Proactive regulation” is currently used for overseeing a small group of large firms in the Consolidated Supervised Entity (CSE) Program. SIRA will take the CSE model and push it into the industry more. Use of “proactive” regulation will allow firms to understand SIRA’s expectations, which will hopefully protect investors.

Shapiro says consolidating both SRO’s into one will improve the global competitiveness of U.S. markets and its broker-dealers. SIRA will regulate more than 5,000 brokerage firms and over 650,000 registered representatives. She has called on U.S. regulators to work with their counterparts abroad to create a more harmonized regulation system.

She wants regulators around the world to work together to examine the larger multinational broker-dealer firms. She also doesn’t believe that soft dollars can be eliminated because independent research, which creates market transparency for investors to really understand their investment opportunities, is essential. SIRA will employ 3,000 staff. It will be the world’s largest self-regulator organization.

So why change the name? The NASD, soon SIRA, is the primary regulator of securities firms. Calling it the "National Association of Securities Dealers" just sounds too much like the fox is in charge of the henhouse. The "Securities Industry Regulatory Authority" sounds more like the name of a governmental watchdog, although it is just a new name for the same nationwide association of securities dealers which is owned and operated by its members. To paraphrase Shakespeare: A "rotton tomato" by any oher name would smell as fowl.

Shepherd Smith and Edwards is committed to fighting for the rights of investors that are the victims of securities fraud. We have helped thousands of U.S. investors recover their financial losses. Call Shepherd Smith and Edwards at 1-800-259-9010 for your free consultation.

Related Web Resources:

New Name, New Agenda for NASD/NYSE Entity, RegisteRedrep.com, June 21, 2007

NASD, NYSE Say They Will Merge Their Regulatory Bodies, Washington Post, November 29, 2006

NYSE Regulation

NASD

Wachovia Securities LLC of Richmond, Virginia says that it will pay $2 million in restitution to settle charges that it did not properly supervise its fee-based brokerage business from 2001 to 2004. It also says that it will pay some 1,300 customers who were either allowed to continue the inappropriate fee-based accounts or were asked to pay account fees on Class A mutual fund shareholdings that had already been paid for.

In a settlement reached with NASD, Wachovia says it will work with an outside consultant to evaluate the way that it identifies and pays customers their restitution. 549 customers collectively paid Wachovia fees of about $1.9 million, although they did not conduct any trades for at least two years.

NASD says that firms are obligated to look at whether fee-based accounts are appropriate. Customers with fee-based accounts are generally asked to pay a yearly fee (either a set rate or a percentage fee) instead of a commission every time a transaction takes place.

NASD says that Wachovia did tell its brokers that a Pilot Plus account was not suitable for buy-and-hold customers, customers who made a limited number of trades, and customers with assets worth less than $50,000. NASD also says, however, that Wachovia did not create a system or procedures for figuring out whether Pilot Plus accounts were appropriate for these customers.

NASD claims that 620 Pilot Plus clients with assets lower than $25,000 paid the minimum yearly fee—already two times the 2% rate allowed. Other clients were asked to pay an initial sales fee and an ongoing asset-based fee on purchases of Class A mutual fund shares. Both groups are entitled restitution under the settlement terms.

NASD also alleged that Wachovia did not properly supervise members of the “Red Carpet Club.” These are the firm’s high revenue producing brokers that were not required to undergo Wachovia’s review and approval processes. Wachovia is charged with violating NASD’s rules about communicating with members of the public after it gave brokers a customer letter that inaccurately referenced Pilot Plus as a fee-based, investment advisory service.

If you are an investor who has lost money because of the broker misconduct, please contact Shepherd Smith and Edwards today for your free consultation. We are a securities litigation law firm dedicated to help investors recover their financial losses caused by the inappropriate actions of members of the securities industry.

Related Web Resources:

NASD Fines Wachovia $2 Million For Fee-Based Account Violations, CNN.com, June 21, 2007

NASD Fines Wachovia Securities $2 Million for Fee-Based Account Violations, NASD, June 21, 2007

An SEC administrative law judge found that JB Oxford Holdings, Inc. “violated the forwarding pricing rule” when it executed trades after 4pm EST at the same day price, but found the firms former general counsel was not to blame.

ALJ Robert Mahoney determined that JB Oxford Holdings was involved in over 12,000 late mutual fund trades affecting over 600 funds in violation of "forward pricing" rules but dismissed charges against Scott G. Monson, JB Oxford Holdings Inc.’s former general counsel.

The SEC charges stated that seven JBOC clients were allowed to enter into transactions after market closing at prices established and Monson drafted a procedural agreement which allowed this. However, the ALJ said Monson was not to blame because he did not know what the prices were or that there was any issue regarding the legality of the trade time.

In the decision, Mahoney exonerated Monson since he was not aware there was a “forward pricing” rule during the time in question. Allegations that Monson should have known that the procedural agreement for mutual fund investments he together would play a part in JB Oxford Holdings’s mutual fund investments were also dismissed .

The ALJ said that Monson did act in a matter that “contributed to JBOC’s primary violations, but that Monson was not the reason JBOC violated the rule, regardless of whether or not the procedural agreement was used. The decision added that JBOC personnel did not consider late trading an issue even before Monson drafted the documents in question.

The decision stated that the SEC never charged Monson with determining whether the trading times allowed by the procedural agreement violated securities regulations. Although the ALJ found that Monson changed the times when ordered to do so by operations personnel, the CEO, and the assistant vice president of operations, he did not act independently.

The law judge concluded that the SEC did not prove there was a preponderance of evidence that Monson was aware of, or should have been aware of, the fact that the drafts would lead to JBOC’s primary violations.

Shepherd Smith and Edwards is a securities litigation firm dedicated to helping investors that have been the victims of securities fraud recover their losses. We have a high success rate for helping investors get their money back. Contact Shepherd Smith and Edwards today to schedule your free consultation.

Related Web Resources:

View the ALJ's Initial Decision (PDF)

Late Trading, SEC.gov

First announced on this Blog last week was news of problems at Brookstreet Securities. Midweek, the firm then reported that “disaster” had struck because CMOs owned by the firm and its clients had been marked down in price and margin calls had caused the firm to reach the brink of failure. On Friday, Brookstreet closed for business.

Over the weekend we heard a rumor, not confirmed, that Scott Brooks, the son of Brookstreet founder Stanley Brooks, had joined Wedbush Morgan Securities of Los Angeles and invited the Brookstreet brokers to do the same. That rumor was confirmed today in news reports.

Brookstreet’s brokerage business was conducted through independent contractor brokers similar to giant Linsco Private Ledger and other firms. Before now, Wedbush Morgan did not have an independent contractor brokerage arm, as do other firms including Raymond James Financial, Inc.

It is reported that Scott Brooks, the former executive vice president of Brookstreet, will “substantially build and staff” that part of the business. “I understand that you have options,” he told the reps in an e-mail. “I believe this is an optimal solution for you.”

There is competition among other brokerage firms and headhunters to recruit Brookstreet brokers. including through the use of highly placed Internet ads purchased through Google. An industry source says that Securities America Inc. of Omaha, Nebraska has made particularly aggressive offers.

Shepherd Smith and Edwards represents clients that are the victims of securities fraud. If you have lost money because of misconduct by someone in the securities industry, hiring an experienced law firm can increase the chances of recovering your losses. Contact Shepherd Smith and Edwards today.

Brookstreet Securities Corp. has liquidated securities following margin calls by National Fidelity Securities (NFS), a division of Fidelity Investments.

Earlier in the week, it was reported on this blog that Brookstreet informed its agents in an E-mail that “disaster” had struck the firm. NFS had marked down the value of collateralized mortgage obligations (CMOs) that the firm and its clients held and that the firm would likely fail without an infusion of capital. A copy of that E-mail can be found in an earlier Blog story.

Because of the markdowns of the CMOs, margin calls were issued leading to a liquidity crunch, according to a Brookstreet trader. When the margin calls were not satisfied, the securities were liquidated. On Friday, the firm announced that it had closed for business.

Funds and securities in Brookstreet clients' accounts, held at NFS, will continue in the custody of that “clearing firm,” said a Fidelity spokesman, referring all further questions to Brookstreet.

As earlier reported here, while the value of many Brookstreet clients’ accounts fell, NFS would not speak with clients, referring them to “your broker.” Meanwhile, their brokers were not answering their phones.

"We have been advised by Brookstreet that its securities business is limited to liquidating trades only," the NFS spokesperson said. This means that sales can be entered in client accounts, but no purchases (except to cover short positions). The question for many Brookstreet customers was who they should call to sell their positions.

The securities litigation firm of Shepherd, Smith, and Edwards is committed to helping investors that have been the victims of securities fraud recoup their losses. If you would like to speak with one of our attorneys, contact Shepherd Smith and Edwards today.

As a former Vice President and registered representative at several major brokerage firms for 20 years, I witnessed Wall Street in action. My assessment of Wall Street is that the majority of the 600,000+ registered representatives at over 5,000 brokerage firms are fairly honest people who seek the best interest of their clients. Unfortunately, there are some “bad apples” in that barrel – brokers who seek to line their own pockets with little regard for their clients.

Yet, it is not so much the apples but the “orchard” that is most troubling today. When I began my investment career in 1970, those running investment firms sought to take care of their clients and maintain their firm’s image. Over the following 20 years, I witnessed their profit motive increasingly outstrip those goals.

Today, it is clear that most financial firms pay little more than lip-service to their clients' welfare. In the past decade, those who run these firms have discovered an important fact: Crime pays on Wall Street! The best example is the widespread research scandal which led to massive investigations, fines and lawsuits.

Yet, the fines paid were relatively small and most of the lawsuits were dismissed. Heavy duty lobbying by Wall Street had changed laws, for example to limit class actions to claims for fraud under federal laws in federal courts, with no recovery allowed from those who assist in the fraud. To make matters worse, the first case was decided by a 96 year old judge in the heart of Wall Street, who stated that the vast majority of investors just wanted to gamble anyway.

The bottom line is that the Wall Street firms identified in the investigations generated well over $100 billion as they misled investors to increase their profits, but have paid about 5% percent of those revenues for their transgressions. Meanwhile, as other major scandals continue to surface, the investment firms involved continue to make record profits.

How many in the public know that primary regulation of Wall Street firms is by an association owned and operated by those firms? The Securities and Exchange Commission is the government's agency created to protect investors, but it is instead busy lowering restrictions on investment firms and lending its weight on the side of firms sued by investors, including at the U. S. Supreme Court.

Fortunately, individual claims filed by investors have fared better than class actions. Although the mandated securities arbitration process investors must use to recover from brokerage firms is another subject of concern for those who fight for investors, it does offer a fighting chance of success.

Meanwhile, the quality of fruit on Wall Street is not likely to change until that orchard is “fumigated for bugs" through legislative changes.

By: William S Shepherd:

When I left the securities industry in 1990, I agumented a law degree with a Master of Law (LLM) in Securities Regulation from Georgetown Law School. I then founded the law firm of Shepherd Smith and Edwards. We have since represented investors in almost 1,000 securities arbitration claims nationwide and are one of the largest in the U.S. specializing in such claims. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

Merrill Lynch, Morgan Stanley, Smith Barney and Charles Schwab are being sued for claims they improperly directed their clients's funds into lower paying deposit accounts at affiliate banks, enabling those banks to reap billions in extra profits. Attorneys for investors seek permission to add Wachovia, based on "sweep" accounts it will receive from AG Edwards in an impending merger.

Details of the suit, filed in January but amended last month, had not previously been reported. Bank deposit sweep programs “put the broker in a very conflicted position” said an attorney for the investors recently, adding “this is not what they should be doing as financial advisers.”

The claim states that the firms are positioning themselves as objective financial advisers, but send their customers' funds into bank deposits paying far less than market rates, adding that the firms disclose to clients that more profitable accounts are available, but bury the disclosures in documents while failing to mention the magnitude of their profits.

Merrill’s savings bank, for example, holds $55 billion in deposits from Merrill’s customers, plus other assets, and earned over $2 billion last year, confirms Jon Holtaway, managing director of Danielson Associates Inc., a bank consulting firm in Rockville, Maryland. He added that Merrill earns a net interest margin of 3.6% - 6 to 7 times as much as the 0.5% to 0.6% firms make on money merket funds.

The suit claims that most of the firms' banks initially paid interest rates competitive with money market funds, but changed to a "tiered" rate structure with yields of 1% or less to smaller customers. Morgan Stanley rolled out its program in 2005, with deposits growing by 30 times to $16.4 billion by February 2007, according to company reports.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

According to reports, the SEC asked the Justice Department's Office of the Solicitor General to file an amicus curiae (friend of the court) brief to U.S. Supreme Court in support of the Enron investors' position in a seminal case involving "scheme liability" under a key provision of the federal securities law.

However, lawyers for the Justice Department failed to honor the SEC's request. After the deadline for such briefs was missed, a spokesman for the U. S. Solicitor General's Office confirmed that the brief was not filed, while declining to say "whether or when we would file something in the future."

The case, which has wound its way to the U.S. Supreme Court, was filed against Wall Street banks and brokerage firms for their alleged roles in assisting Enron to defraud its shareholders. Trial was eminent in a Houston Federal Court when a Court of Appeals in New Orleans intervened and said the Securities Exchange Act does not allow such claims. (Congress has forbid all class action claims by investors except under the federal securities laws.)

A high-profile lawyer for the Enron Shareholders publically called-out the SEC Chairman, who is a former U.S. Congressman and political appointee, to intervene in the case to protect investors. The SEC then suprised some by indicated it would take the investor's side before the Supreme Court. However, Wall Street got its way in the end, as no action was taken to assist the victims.

Others have filed amicus briefs on behalf of the Enron Victims, including The North American Securities Administrators Association, an organization of state securities regulators, warning that letting Wall Street firms off-the-hook for their role in scandals such as the Enron debacle will endorse their assistance of other companies to defraud investors.

The SEC said it had no comment on OSG's decision not to file a brief supporting the plaintiff investors' position. It appears that the SEC and Justice Department may be operating as a "tag team" in protecting Wall Street from liability for securities fraud rather than protecting investors.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

NASD and NYSE regulators, which will soon merge, jointly released proposed guidance for broker-dealers to establish policies and procedures on electronic communications employees use to conduct business and to "take reasonable steps" to monitor such compliance.

The two securities self-regulatory organizations (SRO's) stated that brokerage firms should have a supervisory system in place to make sure brokers are complying with all applicable rules when employing all types of electronic communications.

The SRO's added that, once "reasonable" policies and procedures are in place, the firms would themselves decide what "additional supervisory policies and procedures are required to adequately supervise their business and manage the member's reputational, financial, and litigation risk." Unlike SRO rules, SRO "guidelines" do not require approval of the SEC.

The regulators addressed generally the use of weblogs and other electronic methods and also covered the review of certain e-communications by legal or compliance personnel. The release advised some type of compliance review of e-mails sent by a registered representatives, including as part of standard branch office inspections.

While its own guidelines are non-specific, these stressed that "vague language addressing these issues may leave room for unwanted individual interpretation," adding that there should be "specific language explaining to employees the potential consequences of noncompliance."

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

In a letter to his Berkshire Hathaway shareholders entitled “How to Minimize Investment Returns,” Warren Buffett points out that between December 31, 1899 and December 31, 1999, the Dow rose from 66 to 11,497. That's a 17,400% gain! Thus, a hundred dollars invested into a Dow portfolio during the 20th century would have grown to $17,500!

Yet, that’s an annual compound return over 100 years of only 5.3%, said Buffet while adding that, if only 1% per year is paid in management fees, nearly 20% of the profits would go to the money manager.

Building on Mr. Buffets warning: If a $100 investment was made the last day of 1899 and managed for 1%, it would COMPOUND at a net rate of only 4.3%. Thus, the portfolio would have grown to only $6,736 during the century that followed. The fee would have cost great-gramps over $10,000, leaving him with a little over one-third what he would have without "professional help”.

So what does all this mean in real dollars? Although a dollar in 2000 was worth only 5.4 cents compared to 1900, Great-grandfather’s $100 would have increased by 2000 to nearly $945 in real value compared to 1900, almost 10 times what he started with. Yet, his investment would only be worth $363 after a money manager took an annual 1% bite.

For Warren Buffet, a frictional cost of 1% is very damaging, but what about smaller investors - realizing virtually everyone is a smaller investor than Mr. Buffett. Many are charged fees of 2% or more, either through higher fees or with annuity charges added.

An investor charged 2% in management fees per year on a hundred dollar "Dow" investment held during the 20th Century would end up with only $2,570, instead of $17,500 without management costs! In real dollars of the 1900 variety, that investor would have $139 - a real value profit of $39 rather over $800. Thus, professional help at 2% would have cost the investor 94% of his gains. Value added"? I think not!

In his letter, Mr. Buffet quotes Sir Isaac Newton, a scientific genius who nevertheless lost a bundle in the South Sea Bubble, explaining later, "I can calculate the movement of the stars, but not the madness of men." It seems that even a genius can be fooled when it comes to investments.

By: William S Shepherd

William Shepherd is the founder of the law firm of Shepherd Smith and Edwards a securities law firm that represents investors seeking recovery of losses in their accounts at investment firms. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

The New York Stock Exchange’s regulator group says that Morgan Stanley must pay $500,000 for not overseeing a group of brokers that had recommended unsuitable transactions for accounts belonging to the guardians of injured children and to retirees. The guardian accounts were for children, 10 to 18 years of age, who received medical malpractice settlements after being injured at birth or as a child.

NYSE regulation started investigating the brokerage firm about three years ago. Disciplinary action has been taken against two brokers, while two other brokers and a branch manager were also investigated for misconduct.

The branch manager investigated in the case is believed to have known that there were court-ordered trade restrictions for the guardian accounts but did not tell staff members about them. The court had only authorized the guardian accounts to invest in Treasury strips and bonds. Commissions and fees were to remain low, which they did not.

Morgan Stanley is being held accountable for failing to hold on to and look over business correspondence from the brokers and not having proper procedures in place for inputting and distributing block trades. Complaints from customers were reported incorrectly or not at all.

Since the investigation, Morgan Stanley has taken steps to avoid making violations like these again and the guardian accounts have been made whole again. The firm is not denying or admitting to the charges.

Shepherd Smith and Edwards is known nationwide as a securities litigation firm committed to helping investors that have been the victim of broker misconduct recover their losses. If you are an investor that is serious about getting your money back, contact Shepherd Smith and Edwards today.

Morgan Hit for Faulty Oversight, Investment News, June 22, 2007

Morgan Stanley Draws $500K Fine For Churning Accounts, Smart Money, June 14, 2007

Related Web Resources:

Morgan Stanley

Today was "Black Friday" for Brookstreet Securities, as it closed for business. The firm's 650 independent contractor brokers have been terminated, says Stanley Brooks, President of the firm. Brookstreet clients are left in limbo, many with huge losses in their accounts.

As reported earlier this week, Brookstreet Securities Corp, based in Irvine, California, told its agents that "disaster" had struck and it was in eminent danger of folding. The e-mail communication (previously posted on this site) claimed this was as a result of mark-downs on collateralized mortgage obligation securities (CMOs) by Fidelity's National Financial Services (NFS), which cleared trades and maintained accounts for Brookstreet.

Some of Brookstreet's clients report that their accounts continued to fall in value this week. Yet, if they attempted to do anything NFS told them they must to talk to their (Brookstreet) broker, but their broker was not answering the phone. Meanwhile, Some of these clients' margin accounts slipped into the "red", meaning not only have these investors' funds disappeared but NFS now claims the investors owe it money!

Brooks said the firm had a value of about $17 million at the end of May which has evaporated. He said he turned down several tentative offers to recapitalize the firm. "I am flabbergasted," said Brooks, 59. "My life's work is gone."

William S. Shepherd, founder of Shepherd Smith and Edwards a law firm which represents investors nationwide in claims against financial firms states:

"I have met with and had favorable dealings with Mr. Brooks in the past and consider him to be a decent person. I would be surprised to learn he personally cheated his clients. However, there are apparently many Brookstreet investors whose accounts have also 'evaporated'. Many lost retirement and other savings, meaning their own "life's work is gone". These victims likely face a financial situation worse than that of Mr. Brooks."

We at Shepherd Smith and Edwards have claims pending against Brookstreet Securities, are in the process of filing new claims and are taking steps toward a class action. If you or someone you know has suffered losses, contact us to arrange a free confidential consultation with one of our attorneys.

More information about the situation at Brookstreet Securities

A U.S. District Court in Indiana entered a permanent injunction against several defendants charged by the SEC over their alleged involvement in a $32 million prime bank scheme. They were also ordered to pay $14 million in disgorgement, plus other sanctions

The SEC issued a release saying these defendants, including First National Equity LLC, P.K. Trust & Holding Inc., Worldwide T&P Inc. and several individuals, had raised approximately $32 million using while using misrepresenting and omissions to sell interests in a purported system to trade of various financial instruments, including notes.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

Technorati Profile

Claims are being filed and steps are being taken toward a class action to assist investors recover their losses after Brookstreet Securities reportedly advised its 500 brokers via E-mail that "disaster" had struck which could soon close the firm! Text of the firm's internal e-mail is as follows:

"Disaster, the firm may be forced to close...

"Today, the pricing system used by National Financial has reduced values in all Collateralized Mortgage Obligations. Many of those accounts were on margin and have suffered horrendous markdowns and unrealized as well as realized losses.

"National Financial and the regulators expect Brookstreet to pay for realized liquidated losses and take a capital charge for unrealized mark to market losses. This firm has done a valiant if not Herculean job of managing the liquidations and capital charges to the firm's net worth and net capital. We had reduced the margin balance significantly; we had liquidated and reduced exposure by 80%.

"That still left a $70,000,000 margin balance against around 85,000,000 of value. Unfortunately the pricing service used by NF revalued many CMO positions downward last night. We went from a positive net capital of 2.4 million, down from 11 million at the end of May, a negative net capital of 2.1 million. It would take a capital infusion of at least $5,000,000 to keep the company in compliance with no guarantee that additional markdowns will not be forth coming.

"I cannot in good conscience request that anyone put money in the firm, I think $10,000,000 could be a minimum without consideration of the horrific customer complaints to follow.

"I have told many of you that you are always in danger of not being paid on your last check when working for any broker dealer, which is why I have always paid twice per week and maintained huge net cash positions, generally in the realm of 15,000,000 on average. I will try to get enough money from our account at NFS to complete our upcoming payrolls.

"Since I have been writing this letter I have received three hurried inquiries about re capitalizing the company. I will negotiate an arrangement that guarantees that everyone gets paid, to the best of my abilities. Please stay at Brookstreet at least until Friday so I may do my best for each of you. Unfortunately we are on 'SELL ONLY.'

"I believe I will be able to reconstitute another opportunity for everyone that will result is a minimum of change and disruption. There will be disruption. Please give a day or so for us to come up with the best strategy. This has happened to us in one day, amazing. All of our family net worth is in the firm, please give me time to present a new plan."

Brookstreet operates through independent contractor brokers nationwide and last year generated approximately $70 million in gross revenue. The firm was founded by Stanley Brooks who, with family members, reportedly owns 75% of the firm.

The law firm of Shepherd Smith and Edwards represents investors nationwide in claims against investment firms. We have represented investors in claims against Brookstreet Securities and have a number of new clients who recently lost in their accounts at that firm. We have also taken steps to institute a class action. To learn whether we can assist you or inquire about joining a class action, contact us to arrange a free confidential consultation with one of our attorneys.

As discussed in earlier stories on this blog, the SEC was challanged by an investment advisors association in court for exempting Wall Street brokerage firms from liability under laws governing investment advisors, despite the fact that the brokerage firms were performing identical services.

The investment advisors won their suit a few months ago, ending the "Merrill Rule", which had strangely been championed by the SEC, a 75 year old govenment agency created to protect investors. The SEC Chairman then personally, and not on behalf of the SEC, asked Congress to end "soft dollar" arrangements for investment advisors which he said were being abused.

It its latest ComplianceAlert letter to chief compliance officers of registered firms, the SEC has highlighted numerous areas of noncompliance, including performance advertising deficiencies "discovered" during a SEC review of several registered investment advisers.

The most common deficiency, the letter said, was that many advisory firms' advertisements reguarding their performance returns omitted proper disclosures and were thus misleading. For example, there was no disclosure whether advisory fees had been deducted from the performance results, the SEC advisory said. Nor was there information in the advertisements as to whether dividends and other important data was considered when calculations were made to compare the advisors' performance to a benchmark index, such as the S&P.

The SEC alert mentioned that its review found only one investment advisor in full compliance, which is likely to send chills through the investment advisor community. While the letter also covered sales of collateralized mortgage obligations, real estate investment trust products and college savings plans, it was clear that investment advisors are directly in the SEC's sights.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

A hedge fund managed by Bear Stearns that takes both bullish and bearish positions in subprime loans has been hit heavily by conditions in that market. Some of the fund's assets were held at Merrill Lynch, on margin. When the equity in the fund dropped, Merrill issued margin calls.

The hedge fund reportedly began with about $600 million in investor capital, $40 million of that from Bear Stearns and its executives, then borrowed $6 billion from Wall Street lenders, including Merrill, Goldman Sachs, Bank of America and Deutsche Bank.

As the fund's assets lost market value, the Bear Stearns managers scrambled to sell hundreds of millions of dollars in assets to satisfy demands for cash and assets from creditors to stave off liquidation of the fund. The managers auctioned almost $4 billion in mortgage bonds, and attempted to present a 30-day plan to sell more assets, but was unable to persuade Merrill to refrain from seizing assets.

An auction was then held by Merrill to liquidate these assets and the fund's fate remains in peril. It the hedge fund is dissolved it would become the second blowup of hedge funds dealing in the high risk home loans, known as "subprime" mortgages. UBS AG shut down Dillon Read Capital Management after bad trades in subprime-mortgage loans led to a $124 million loss.

Wall Street is concerned that the asset liquidations could cause values on other subprime pools to spiral downward causing additional pressure to liquidate other simliar portfolios. Sub-prime mortgages react to market conditions different than high-quality and liquid mortgage-backed bonds, and are more akin to "junk" corporate bonds in fluctuation and liquidity.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

The Securities and Exchange Commission says that investors who were affected by the fraudulent market timing in the PBHG Funds will receive $73 million. This is the second of three disbursements to be made from the Pilgrim Baxter Fair Fund.

Pilgrim Baxter & Associates, Ltd. was the investment adviser for PBHG Funds during the time when the fraudulent market timing took place. By the time the third disbursement is made, 384,000 investors affected by this fraud scheme will have been paid.

The Fair Fund came about because of the SEC enforcement actions charging the PBHG Funds of “unlawful market timing” by Harold J. Baxter, Gary L. Pilgrim, and Pilgrim Baxter & Associates Ltd. The charges against PBA for allowing certain investors to market time were settled three years ago when PBA agreed to the fine of $90 million in civil penalties and disgorgement (although PBA did not deny or admit guilt). It also agreed to put into place mutual fund governance and compliance reforms.

Pilgrim and Baxter, the founders of the mutual fund family, agreed to being banned from the securities industry and to paying $160 million in penalties and disgorgement. They also settled federal and New York charges of allowing the illegal market timing.

$125 million—the first payment—was disbursed in April. The last disbursement will take place in September 2007.

More than $1.8 billion in Fair Funds to investors who have been the victims of securities fraud.

If you are an investor who has lost money because of the illegal conduct of members of the securities industry, the best way to get your investment back it to retain the services of an experienced securities litigation attorney. Shepherd Smith and Edwards has represented thousands of clients across the United States and we have collectively recovered over $100 million for them.

To schedule a free consultation with Shepherd Smith and Edwards, contact us today.

Related Web Resources:

Fair Fund to distribute $73 million, Investment News.com, June 13, 2007

Read the Distribution Plan (PDF)

Citigroup Global Markets Inc is being charged $3 million by NASD to settle charges connected to misleading materials it allegedly gave Bellsouth employees during retirement meetings and seminars held in North Carolina and South Carolina. NASD also says that Citigroup has to pay over 200 ex-Bellsouth employees $12.2 million in restitution. The latter comes came from a civil class action involving Smith Barney, which had tried to get the case dismissed under SLUSA.

NASD says that Citigroup neglected to properly supervise certain brokers located in Charlotte, North Carolina that used the misleading sales materials during numerous meetings with BellSouth Corp. employees. The materials made “exaggerated and unwarranted projections of future earnings” and did not elaborate on the related risks of making certain investments.

Following these presentations, over 400 BellSouth employees opened more than 1100 accounts via these brokers. Many of their investors had retired early from BellSouth and had less than $350,000 in savings. Many of them cashed out their 401(k) accounts and pensions and invested these funds with the Citigroup brokers.

Also disciplined by the NASD:

*Jeffrey Sweitzer, who developed the sales campaigns, directed many of these seminars, drafted the misleading materials, and managed the brokers. He suspended for 18-months and ordered to pay a $125,000 fine.

*Matthew Muller was suspended for $9 months and ordered to pay $50,000 for his participation in numerous seminars and in-person meetings.

*Joseph Zentner received a 30-day suspension and was fined $30,000 for helping Sweitzer prepare some of the misleading materials.

All three men are being ordered to complete 40 hours of training on complying with federal securities laws and NASD rules.

*Randall Matz, a branch office manager, was suspended from his supervisory role for 90 days and fined $60,000.

*Elizabeth Harris, a branch operations manager, was also suspended from acting as a supervisor for 45 days. She is being ordered by NASD pay a $30,000 fine. Both must pass an NASD Qualification Exam before they can return to these roles.

All parties, including Citigroup, agreed to the suspensions and fines without admitting to or denying the charges.

Shepherd Smith and Edwards has represented many former employees of telephone companies with similar complaints against various brokerage firms. We have an excellent track record for helping these investors recover their losses. If you are an investor who has lost money because of the misconduct of broker-dealers or anyone else in the securities industry, contact Shepherd Smith and Edwards to schedule your free consultation.

Related Web Resources:

Citigroup to pay $15.2 million for misleading retirees, Reuters, June 6, 2007

Citigroup Global Markets to Pay Over $15 Million to Settle Charges Relating to Misleading Documents and Inadequate Disclosure in Retirement Seminars, Meetings for BellSouth Employees, P.R. Newswire

Last year, money managers directed a billion in dollars of their clients' funds in hidden commissions to Wall Street investment firms, says SEC Chairman Christopher Cox. These “soft”dollars” are purportedly for research and other services. Instead, the funds are made available to the money managers who often use these for "lavish trips, theater tickets, and fancy meals," Cox added.

In these "soft dollar" transactions, clients of investment advisers pay an extra five cents or so per share which is credited to cover costs of research and other services of the firm handling the transaction. A nickel per share may seem small, but on tens of billions of total shares traded becomes a huge amount. Those paying these costs include investors into mutual funds, pension funds, and 401(k) plans.

Laws impose a “fiduciary duty" on money managers to protect their clients’ interests, even over their own. Yet, a “safe harbor” was enacted in 1975 which allows the managers and brokerage firms to “bundle” research and other services with executions and not be liable for violating duties to their clients, including the duty to shop for the best execution price.

The inherent conflicts “offer perverse incentives to investment advisers to use them in ways that aren't beneficial to investors," Cox continued, describing how money managers have an incentive to trade simply to generate additional soft dollars, rather than in the client's interest. This creates a "witch's brew" of hidden fees, conflicts of interest which harm investors, he added.

Accordingly, Cox has personally made a request that Congress reconsider the safe harbor for money mangers provided in the legislation. This appears to be a reverse of position for Cox who has sided against investors on many issues since his appointment. He states that his position is personal and he is not speaking for the SEC on this issue.

Some believe this action by Cox may be a payback to investment advisors, who recently won a court case filed against the SEC requiring it to enforce the very same fiduciary duty requirements on Wall Street brokerage firms that Cox says investment advisors are avoiding through the safe harbor.

A spokesman for the Investment Advisers Association, which won the suit against the SEC, said it was “still evaluating” Chairman Cox's opposition to the soft dollar safe harbor. The IAA's roughly 500 member firms collectively manage more than $8 trillion in assets for individual and institutional clients.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

The American Association for Justice (formerly the American Trial Lawyers Association) has called for a disciplinary investigation of District of Columbia Administrative Law Judge Roy Pearson Jr., who brought a $65 million lawsuit against a family-owned dry cleaning business for losing his pants.

The Association's members are U. S. lawyers who file lawsuits on behalf of clients. Its President, Lewis S. "Mike" Eidson, stated: "Our court system has no place for those who abuse the instruments of justice for personal gain or the intimidation of others."

In addition to the call for investigation, Eidson added: "As attorneys who are committed to helping Americans receive justice throughout courts, we are outraged by the very idea of a $65 million claim over a pair of pants. It is not only ridiculous - it is offensive to our values."

"This case is clearly atypical and we cannot allow those who oppose us on fundamental issues of access to the civil justice system to turn this case into an indictment of that system," Eidson continued. "Our mission continues to be to ensure Americans have a level playing field in our courtrooms - even when it means taking on the most powerful corporations."

Insurance companies, drug companies and other large corporations are spending huge sums to fund media advertisements hyping “frivolous” lawsuits and lobbying lawmakers to reduce liabilities on corporations, while decimating the rights of ordinary Americans. Meanwhile, almost no publicity is afforded attorneys’ efforts to set the record straight or even to denounce unwarranted cases such as this.

Special interest groups rant about rich lawyers yet, according to Forbes, only one of the 400 richest Americans made his or her fortune practicing law (Joe Jamail of Houston). Meanwhile, many of the other 399 richest Americans are the very ones paying for adverse publicity of lawyers. Studies demonstrate as well that the average lawyer earns less than $100,000 per year - less than stockbrokers, engineers, doctors and many other professionals.

Many members of the American Association of Justice have already personally pledged contributions to a defense fund established to support the dry cleaners.

The SEC says that former Putnam Investment advisers Omid Kamshad and Justin Scott have settled charges that they improperly traded mutual fund shares. The SEC says that they did so without denying or admitting wrongdoing and are barred from future violations of the 1940 Investment Advisers Act.

In addition, Scott agreed to disgorging $489,439 plus prejudgment interest of $159,475, while Kamshad will disgorge $57,157 and a $13,709 prejudgment interest. They also agreed to being suspended from the advisory industry for one year and to each paying $400,000 civil penalties.

The SEC had accused both men of making short-term trades in their Putnam-administered compensation and retirement accounts, potentially causing harm to other shareholders. In this case, the SEC has alleged that by taking part in personal trading while being in charge in other investors’ funds, both men did not appear to have their investors interests in mind.

In 2004, Putnam said it would pay $110 million to settle Massachusetts and federal charges connected to its alleged role in the controversy surrounding the firm. Other executives involved have already made deals with regulators.

The securities attorneys at Shepherd Smith and Edwards represent injured persons who have lost money because of the inappropriate actions of mutual fund managers, broker-dealers, and others in the industry. Contact Shepherd Smith and Edwards to schedule your free consultation.

Related Web Resources:

Ex-Putnam managers to settle, pay $1.5m, Boston.com, June 5, 2007

The SEC Order for Omid Kamshad (PDF)

The SEC Order for Justin Scott (PDF)

HSBC Brokerage, a New York firm which allegedly directed all government securities orders to an affiliated broker-dealer, agreed to pay $250,000 to settle NASD charges it failed to have adequate systems in place to ensure the best execution for its clients.

Allegedly the firm routed orders to affiliate, HSBC Securities (HSI), without taking adequate steps to ensure that its customers could not get better prices through other sources. The NASD said in a news release that "HBI's inability to provide documentary evidence of its supervisory review for best execution of trades inhibited NASD's ability to review transactions for best execution." HBI settled this action without admitting or denying the charges.

Prior to a merger of the two related firms, HBI's retail brokerage business was primarily located in HSBC bank branches, the NASD said. To support the retail business, HBI operated a trading desk to handle orders placed by brokers.

The NASD found that in mid-2004 HBI directed its fixed income traders to route all government securities orders to HSI for execution. The dollar volume of U.S. Treasury transactions that HBI sent to HSI rose from approximately one-forth of all orders in late 2003 to almost 100 percent by December 2004.

While HBI's traders were required to "shop" orders for government securities transaction before placing it with the affiliate, according to the NASD, HBI had inadequate systems to monitor this process by its traders. While several HBI officers apparently recognized the increased risk associated with directing all government securities orders to a single, affiliated broker-dealer, the firm failed to put proper procedures in place to ensure clients received the best execution on their orders.

The law firm of Shepherd Smith and Edwards represents institutional and individual investors nationwide to recover losses caused by investment and brokerage firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

Shareholders of mutual funds Janus Capital Group may not pursue a class action claim that the company violated federal securities laws by permitting hedge funds to engage in market timing with the shares of mutual funds operated by Janus, the U.S. District Court for the District of Maryland ruled.

In recent years, the U.S. Congress has been persuaded to limit class actions involving securities only to claims under federal securities laws. Meanwhile, federal securities claims are limited to misrepresentations and omissions in the purchase and sale of securities and do not, for example, include claims for actions which are simply fraudulent or negligent. Furthermore, courts have decided that no one can be held liable for assisting, or "aiding or abetting", others in violating federal securities law. Such limitations enabled Janus avoid its responsibility and have the class action against it dismissed.

In their complaint, the plaintiffs, purchasers of Janus Group stock, alleged that the Janus Funds misstated in their fund prospectuses their policies regarding market timing and late trading.
Specifically, the prospectuses said the funds were "not intended for market timing or excessive trading" and that measures were in place to stop such practices.

The plaintiffs then claimed that in fact the mutual funds permitted several hedge funds to engage in market timing transactions. The plaintiffs further claimed that the price of Janus Group stock declined significantly after such practices were revealed to the public and investors began to withdraw money from the funds. T

In dismissing the "parent investor class action" filed under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, the federal judge also that, since the shareholders were unable to sufficiently allege that Janus Capital Management -which manages the Janus Funds-- or made a false statement of material fact in connection with the shareholders' purchase or sale of a security that those claims should also be dismissed.

The judge further decided that, since the Janus Group did not actually make or prepare the prospectuses, or create the statements included in them, it
could not be held liable for fraud. Although the plaintiffs argued that
the fact that the prospectuses included Janus's logo, name, and Web site should make Janus Group liable for the allegedly misleading statements, the court said that such a proposition is "far from self-evident, and plaintiffs cite no authority in support of it."

The court also rejected the contention that the funds' dissemination of the prospectuses was sufficient to hold Janus Group liable for the misstatements, since it could not be held liable for aiding and abetting the fraud, for the reasons stated above, stating that courts have already "simply rejected the proposition that dissemination of a misleading document is tantamount to making a misstatement for securities fraud purposes."

However, investors who lost in the Janus mutual funds or other investments may be able to seek recovery of losses if their accounts were mishandled. The law firm of Shepherd Smith and Edwards represents investors nationwide in claims against stockbrokers, investment advisors and their firms. To learn whether we can assist you, contact us to arrange a free confidential consultation with an attorney.

"B Share", or "back-end load", mutual fund issues are being reconsidered by The Securities and Exchange Commission. The "B share" nick-name is derived from Rule 12 b-1 of the Investment Company Act of 1949, amended a quarter century ago to allow for the creation of such shares.

To combat a huge growth in "no load" mutual funds in the 1980's, commission based investment firms lobbied for the creation of a product to compete. In response, the U. S. Congress agreed to amend the Investment Company Act to provide for a new class of mutual funds. On such funds, mutual fund companies can, instead of charging the investor an up-front commission, pay commissions to investment firms and their brokers right away, then charge the investor fees over time to recoup those commissions.

Since that time regulators have been besieged with complaints regarding B Shares. Deception, omission and out-and-out misrepresentations have often been made to lure investors into believing such funds are "no load". Most observers acknowledge the potential for such abuse, yet little has been done to address the issue.

As well, such funds do not make adjustments to lower commissions on larger investments as do the much older variety of "A shares". For example, if an investor invests $500,000 into A shares, or a "family" of such funds to diversify, they usually pay smaller percentage commission - perhaps 2% - than someone a total of $25,000, who may pay 4%. An investor usually pays one percent per year for 5 years on B-shares, a total of 5%.

To be sure the commissions already paid by the mutual fund company to investment firms is recovered, a penalty is charged to the investor for cashing out of the fund prior to the five years necessary to recover the sales expense. Many investors discover for the first time that the the fund was indeed not a "no load" fund when they seek to sell.

As further abuse, some brokers used questionable tactics to convinced clients to cash in B shares of one fund, causing a penalty to the client, only to invest the proceeds into B shares of another fund, renewing the period for sales charges and penalty. This is especially prevalent when a client's account is moved from one investment firm to another. Sometimes it is the same broker making the change, who liquidates at one firm then reinvests at a new firm, thereby avoiding detection.

Another abuse is failing to inform investors seeking changes in their portfolios that, instead of liquidating B shares and incurring the penalty, investor can usually move their funds to a different fund within the same family of funds and avoid the penalty.

Even those investment brokers who properly explain B Share fees to their clients seldom warn the significance of being charged an extra 1% per year on their investment. This "deferred sales charge" comes in addition to other fees and costs charged to the investor by the mutual fund.

Therefore an investor can a total of 2%, or even higher, in annual costs on their assets. This means that, instead of enjoying a growth of perhaps 10%, as their investment rises in value, the investor would only earn 8%. A compounding return of 8% is far lower than compounding at 10%. The effect is even more pronounced in a falling market, since total charges of 10% in 5 years can double market losses of 10%.

Investors investing for income are hurt even more by charges and fees on B Shares because instead of earning a rate of perhaps 6% on their investment, that investor would earn in the range of 4% after paying costs and fees of 2%.

Investors who make withdrawals from mutual funds, such as retirees needing income, can suffer even more through a phenomenon known as "reverse dollar-cost averaging." Salespersons are often quick to point out to investors who make systematic investments of the same amount that, because of ebbs and flows of the market, more shares are purchased at lower prices than at higher prices. However, they seldom inform clients that the reverse is true when systematic withdrawals are made from an account - more shares are liquidated at low prices than high prices.

Although the SEC's Chairman admits that the creation of B shares was then to be a "temporary solution to address specific distribution problems", with
$11 billion in annual revenues on B shares now at stake for investment firms, considering their powerful influence over such decisions, it is doubtful that "roundtable discussions" at the SEC will result in any meaningful changes.

The law firm of Shepherd Smith and Edwards has represented many investors who have lost substantial sums in mutual finds, including in "B-shares". To learn whether we can to assist you to recover your losses contact us to arrange a free confidential consultation with one of our lawyers.

Following the 2001 merger of AOL and Time Warner the stock price of the combined company, AOLTW, went into a year-and-a-half decline, and numerous shareholder class action securities fraud suits were filed. The various class actions were consolidated in a federal court in New York.

If the case is soon dismissed AOL Time Warner Inc. shareholders may be able to bring otherwise expired individual securities fraud claims against the company, but they must first wait for a decision on class certification in a pending lawsuit, a federal court in New York ruled.

When a class action is on file, the statute of limitations for an investor to file an individual claim will be "tolled" (extended while the class action is pending) but such tolling can not be used until "class certification" is approved by the court. The "standby suit"--anticipating the denial of certification-- was filed by the investor, but the court determined that, because the limitations periods had expired on the investor's individual claims his case, and the class action was still pending, tolling during the class action could not be employed and the case was dismissed.

The shareholder may not file a "standby suit"--anticipating the denial of certification--after his own limitations period has expired, the court said. Attorneys for investors warn that, although this case held that such a case may not be actually filed, investors should not delay contacting an attorney to assess the viability of and be prepared to file their own case. While class actions "toll" limitations periods, as short as two years after the fraud is exposed, much of that time has often passed prior to the date the class action was filed.

Shepherd Smith and Edwards is a securities law firm is committed to assisting those who have lost money in investments. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

The NASD fined Omaha, Neb.-based Securities America Inc. a total of over $15 million for luring 32 long-term employees of Exxon Corporation into early retirement using false promises of high returns. The NASD stated that supervisors at Securities America largely ignored such actions by its registered representative who has been charged with violating securities regulations.

The NASD is focusing much of its enforcement resources on brokers and investment firms specializing in retirement planning services. The NASD's chief counsel of the New Orleans region said retirement-age workers are extremely vulnerable to retirement planning investment scams. In many cases, the workers have little financial sophistication, but huge portfolios of assets that must be invested for post-employment purposes.

Employees of large companies such as Exxon are tempting targets for unscrupulous brokers touting inflated predictions of earnings to generate huge fees for the brokers. The target employees are able to "rollover" their retirement accounts, sometimes worth over a million dollars, to banks or brokerage firms. Often these workers hive little or no experience in investing and must rely entirely upon an investment advisor. This problem will grow as the baby boom generation retires.

The NASD counsel described how hungry salespersons go into companies to pitch themselves, their firms and claims of superior returns on retirement assets. They use free lunches and dinners to attract candidates aiming to get the trust of long-time workers, enticing some to even retire early. While many of these salespersons have proper motives and operate appropriately, he added, but "clearly, there is potential for abuse."

The NASD spokesman indicated that it will focus its efforts to address incompetence, unsuitability, over-concentration, illiquidity, abusive fees, hyped predictions, misleading written and oral representations and omissions, and failures to supervise. He specifically discussed abusive practices using annuities and more recently invented ETF's (exchange traded funds).

While the NASD claims it is employing heightened scrutiny to protect retires, abuses are likely to continue. Enforcement of NASD regulation is mostly reactive and often inadequate. It currently has oversight responsibilities over some 650,000 registered representatives at over 5,000 licensed brokerage firms. The task will soon grow because the New York Stock Exchange is divesting itself of regulatory duties over its membership, which includes most large large brokerage firms.

NASD member firms collectively hold trillions of dollars in assets and receive hundreds of billions in revenues. Critics point out that the millions of dollars in fines of its members by the NASD adequately deter wrongdoing in the industry.

The law firm of Shepherd Smith and Edwards represents companies, pension funds and individual investors of all types to recover losses. Retirees and senior citizens have a higher rate of sucess in recovering than other investors. To learn whether our firm may be able to assist your pension fund, you, a relative or a friend contact us to arrange a free confidential consultation with an attorney.

A employee of the Global Energy Group of Credit Suisse was arrested and charged for his role in an alleged scheme using material nonpublic information on nine merger transactions involving Credit Suisse clients to obtain over $7.5 million in profits. The Securities and Exchange Commission also brought charges against the country head of investment banking at the Pakistan-based Faysal Bank.

Prosecutors said the Faysal Bank agent traded on tips about forthcoming announcements on acquisitions of publicly traded companies Northwestern Corp., Energy Partners Ltd., Veritas DGC Inc., Jacuzzi Brands Inc., Trammell Crow Co., Hydril Co., Caremark Rx Inc., John H. Harland Co., and TXU Corp. Credit Suisse advised either the target company or the acquiring entity in transactions involving each of those companies, they said.

Based on tips from the Credit Suisse employee, the Pakistani banker allegedly purchased securities in advance of a public disclosure, then quickly sold the securities once the public disclosure of an acquisition was made. Through dozens of transactions, including trades in an offshore account, the alleged scheme netted more than $7.5 million in profits, prosecutors charge.

The law firm of Shepherd Smith and Edwards represents investors nationwide. We have has also assisted foreign investors in claims against U.S. investment firms. To learn whether we can assist you or your firm to recover losses, contact us to arrange a free confidential consultation with one of our attorneys.

Barclays Bank PLC and a former proprietary trader for Barclays' U.S. Distressed Debt Desk agreed to pay a total of $11.69 million to settle Securities and Exchange Commission charges they traded on inside information received while on the creditors committees for six bankrupt companies. Neither admitted or denied the SEC's claims.

The SEC filed an action in a U.S. District Court in New York claiming the bank and its former agent illegally traded millions of dollars of bond securities while aware of material nonpublic information received through six bankruptcy creditors committees. The six bankrupt debtors were Galey & Lord Inc., Pueblo Xtra International Inc., Desa International Inc., Archibald Candy Corp., Conseco Inc., and United Airlines.

The SEC charged that, for example, the defendants made 82 illegal trades in notes and other securities of United Airlines. In some instances "big boy letters" were issued, but neither Barclays nor its trader ever revealed the inside information to the counterparties, according to the SEC. (A "big boy letter" is an agreement in which the buyer of securities agrees not to sue the seller while acknowledging the seller may possess confidential information the buyer does not have.)

Barclays consented to pay disgorgement of $3,971,736, prejudgment interest of $971,825, and a civil fine of $6,000,000. Its agent paid a fine of $750,000. Both also agreed to be permanently enjoined from violating the antifraud provisions of the federal securities laws.

The law firm of Shepherd Smith and Edwards has assisted investors nationwide to recover a total of more than $100 million. To learn whether we can assist you or your firm to recover your losses, contact us to arrange a free confidential consultation with one of our attorneys.

A federal jury in Denver found four participants guilty of securities fraud and other charges in connection with a "high-yield investment scheme" in which hundreds of investors lost $56 million.

Norman Schmidt, of Denver was found guilty of conspiracy to commit securities fraud, mail fraud, and wire fraud in addition to money laundering. Charles Lewis, of Littleton, Colo., was found guilty of conspiracy, mail fraud, wire fraud, securities fraud and money laundering. George Alan Weed, of Benton, Ill., was convicted of mail fraud, wire fraud, and securities fraud, and Michael Duane Smith, of Colbert, Wash., was convicted securities fraud. Schmidt is seeking appeal.

Two others have pleaded guilty in the scheme: Janice McClain Schmidt, of Denver, sentenced to nine years in prison, and George Beros of Shaker Heights, Ohio, who awaits sentencing. One other alleged participant in the fraud, Peter A. W. Moss, was indicted but is apparently in the United Kingdom. The U.S. Attorney's Office is attempting to extradite him.

Smitty's Investments, Reserve Foundation Trust, and Capital Holdings are fictitious names of companies the defendants were alleged to have used in a "Ponzi" scheme. According to court testimony, Schmidt obtained tens of millions of dollars from hundreds of investors, which he and the defendants used for their own personal gain.

The scheme was called a "high-yield investment program" promising rates of return from 2 percent to 400 percent. Investors were sent fake monthly statements falsely reflecting growth of and earnings on investors' funds with part of the funds from new investors used to pay prior investors, according to the U.S. Attorney's Office.

Our goal at Shepherd Smith and Edwards is to assist institutional and individual investors to recover their losses. Even when recovery is difficult, we strive to help investors whenever possible. To learn whether our firm may be able to assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

Few stockholders realize that when their shares of stock are held at a brokerage firm that firm can vote their shares without a "proxy". Thus, if an investor owns 100 shares of XYZ stock held at ABC brokerage firm, without the investors permission, ABC firm can cast the investors vote in annual meetings of XYZ, including for XYZ's directors.

At a recent meeting at the SEC on the long debated issue, Catherine R. Kinney, president and chief executive officer of the New York Stock Exchange, announced that the NYSE has agreed to amend its rules to eliminate broker discretionary voting, but only in the election of directors. There is no proposal to stop brokerage firms from voting their clients' shares, without permission, on other matters.

A NYSE rule states that brokers may vote on "routine" proposals if the beneficial owner of the stock has not provided specific voting instructions to the broker 10 days before the voting date. "Routine" proposals have been interpreted to include such important votes as election of directors. The proposed change will consider election of directors as "non-routine." The change was previously proposed but revised to exclude such voting by mutual funds.

Corporations and their directors are against the change, stating this would increase their costs of notifying shareholders of upcoming votes. More important is their fear this change will diminish their advantage over those opposed to actions by corporate boards. Brokerage firms have a vested interest in pleasing directors in order to keep or obtain companies as investment banking clients.

When opening their accounts brokerage firms currently ask clients if they want their identity revealed to issuers of securities. The knee-jerk reaction to revealing one's identity these days is to say "no". Yet, this keeps the investor from receiving voting materials except in "non-routine" matters. The brokerage firm can then cast the investor's vote on such matters unless the client notifies it 10 days prior to the vote. Many feel the question asked when the account is opened should be clarified or that brokerage firms simply not be allowed to cast such votes.

In response to criticism, some brokerage firms have voluntarily agreed to "proportional voting", in which the brokerage firm submit a proxy on their clients' shares to assist in obtaining a quorum, but then vote their clients' shares along the lines of others voting.

The law firm of Shepherd Smith and Edwards represents institutional and individual investors in claims against investment firms. If you have lost in your account at an investment firm contact us to arrange a free confidential consultation with one of our attorneys.

The California Supreme Court and a U.S. Court of Appeals have both determined that securities arbitration standards do not violate the California Constitution. The courts have instead decided that The Federal Arbitration Act preempts (is superior to) California's ability to govern securities arbitration.

Rapidly growing arbitration is forcing consumers to, often unknowingly, forego their right to go to court. To protect its citizens from injustices in arbitration the California legislature passed legislation in 2001 ordering the California court system to create ethical standards for commercial arbitrators. Comprehensive standards were then created regarding arbitrators, including disclosure and conflict-of-interest checks.

The NASD's Arbitration Code is not consistent with these new standards and the NASD refused to make adjustments to comply with the California requirements. It instead sued members of the California court system in federal court seeking a ruling that California could not set standards regarding securities arbitration. In November 2002, the US Court dismissed the lawsuit holding the US Constitution barred the suit in federal court.
The NASD appealed.

Meanwhile, the California Supreme Court ruled that federal arbitration law preempts the standards set by California court system "at least in the context of self-regulatory bodies like NASD." The federal court then came to the same conclusion.

These decisions mean that California and other states have no power to protect their residents from arbitration standards of the NASD they believe are substandard. The NASD is the National Association of Securities Dealers, Inc., an association owned and operated by members of the securities industry with oversight by the SEC.

Virtually all claims by investors against investment firms must be filed in securities arbitration. Since 1990, the law firm of Shepherd Smith and Edwards has represented investors nationwide in more than 1,000 claims against investment firms. You may contact our law firm to arrange a free confidential consultation with one of our attorneys.

The Securities and Exchange Commission says that it will not grant Sky Capital LLC’s request that the agency review the NASD’s action against the firm. The commission says it lacks the proper jurisdiction.

Sky Capital became an NASD member in 2002 following initial denials by the NASD and appeals made to its National Adjudicatory Council. Sky Capital says staff members at the NASD used several delay tactics during the application process and were prejudiced against the firm’s CEO because he had problems in the past with both substance abuse and regulatory issues.

Sky Capital also says that NASD got in the way of plans to acquire assets belonging to The Thornwater Company, LLP. It says that NASD did this by placing restrictions on Thornwater and then later lifting those restrictions. And while it approved another Sky Capital acquisition—this time of a broker-dealer in Florida—it did so only after a significant delay.

Sky Capital says that over a three-year period, NASD examined the firm and its employees eight different times. One exam led to a “letter of caution” from NASD, as well as a “Minor Rule Violation” letter directed at Sky Capital’s CEO.

Four of the exams were completed without any action. One exam led to a settlement and two fines were paid. The last two exams are still ongoing, although the NASD hasn’t filed any complaints against Sky Capital. Sky Capital says it has complained to NASD’s Office of the Ombudsman regarding the “inappropriate treatment of its membership application and harassment through the examination process” but that no one seems to be listening.

Sky Capital says the actions by NASD’s staff violate the 1934 Securities Exchange Act’s fair process requirements and the constitutional requirements of due process. Also, Sky Capital says that NASD lacks an internal procedure for dealing with member complaints about the staff and that this could be considered a lack or denial of service, as well as a violation of NASD rules and the 1996 SEC report under the 1934 Act Section 21(a).

The SEC, however, says that Sky Capital agreed to the “letter of caution, the settlement reached following one exam, and the Minor Rule Violation Letter. It also says that Sky Capital did not satisfy any other jurisdictional requirements that would allow the SEC to intervene.

Shepherd Smith and Edwards is a securities litigation firm that is committed to helping investors who have lost money because of the wrongful actions of members of the securities industry. We continue to have a very high success rate of helping or clients recoup their losses. Contact Shepherd Smith and Edwards today.

Related Web Resources:

SEC Throws Out NASD Complaint, CCH Wall Street, June 6, 2007

Read the SEC's Opinion

Broker Files Complaint against the NASD, CCH Wall Street, December 1, 2006

Sky Capital, LLC

John H. Whittier, a former hedge fund manager and the founder of Wood River Partners LP and its offshore company in the Cayman Island, has pled guilty to carrying out a securities fraud scheme that cost investors $88 million. Whittier had been charged with four counts of securities fraud for his part in the scheme that mislead investors into thinking that he was keeping risks minimal while pursuing a broad and diverse investment strategy when in fact, he was doing the opposite.

He knowingly failed to make the mandatory public filings that would have revealed his concentrated holdings with one stock. In addition, after acquiring 80% of Endwave Corp’s common stock, he hid any interest earned by not making beneficial-ownership disclosures to the SEC. He also placed 80% of his U.S. hedge fund’s $127 million portfolio in Endwave, instead of placing the money in different investments as he had promised investors. He had vowed that only 10% of the fund’s money would be invested in an one stock.

Aside from owning the hedge funds in the U.S. and abroad, Whittier also owned and controlled a capital management company, which served as the investment adviser to the funds.

What Happened:
A company that Whittier had been managing investments for ended its relationship with him because of worries about suspicious and problematic trades involving Endwave stock. The company then liquidated its holdings, which caused a huge price drop that resulted in the U.S. hedge fund losing value. Margin calls were triggered at Wood River Cayman, which had also heavily invested in Endwave stock. Because of this, Whittier could not meet a number of margin calls and numerous brokers started liquidating the funds’ Endwave stock positions. Whittier told investors that he did not have the liquidity to pay redemption requests, and he and his funds eventually went out of business.

Prosecutors had also charged Whittier with trying to execute a similar scheme involving MediaBay Inc, another publicly traded company, when he falsely told its lawyers that he controlled just 9.6% of the stock. Whittier actually owned 23% of the stock, but the lawyers filed an SEC form revealing the smaller amount because of his false statement.

Whittier has pled guilty to one count each of failing to make a beneficial interest filing for MediaBay and Endwave, as well as one count of securities fraud. As part of his plea agreement, Whittier will forfeit $5,535,517 to the U.S. He could face up to six years in prison and a maximum fine of more than $5 million or two times the gross loss or gain from the crime that he committed.

If you are an investor who has lost money because of the misconduct of a broker, hedge fund manager, or other member of the securities industry, contact Shepherd Smith and Edwards immediately. Records show that asking a securities fraud attorney to represent you will improve the chances of you recovering your losses. Shepherd Smith and Edwards has helped thousands of investors get their money back.

Idaho hedge fund manager pleads guilty, Investment News, June 7, 2007

Related Web Resource:

Another Fishy Hedge Fund, Businessweek.com, October 13, 2005

SEC Files Emergency Enforcement Action Against John H. Whittier and the Wood River Hedge Funds Alleging Fraud, SEC.gov, October 13, 2005

The National Association of Securities Dealers has issued an “Investor Alert” warning of a rise in deceptive sales practices in the sale of annuities to senior citizens

The NASD also states that consumer confusion about annuities has also risen. “This is due, in part, to questionable or deceptive sales practices employed by companies and agents looking to take advantage of uninformed consumers,” it adds.

An “annuity” is defined in the release as “a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid.”

“There are several types of annuities, all of which carry varying levels of risk and guarantees,” the release states. It then lists Single Premium Annuity, Multiple Premium Annuity, Immediate Annuity, Deferred Annuity, Fixed Annuity, Variable Annuity and Equity-Indexed Annuity) but fails to indicate the particular risks of each.

The NASD advises investors to beware of “red flags” of possible deceptive sales practices, including high-pressure sales pitches, “limited-time” deals and tactics to move investors from one annuity to another. There is also a warning about unlicensed agents. The alert adds: “Remember, if it seems too good to be true, it probably is!”

Others warn that the use of terms such as “insurance” and “guarantee” are often misleading and can deceive seniors into believing annuities are always safe, which is not the case. Part of the deception is to mask whether one can even get out of an annuity and, if so, the downside risk and/or penalties involved.

However, none of these warnings are helpful to senior citizens and others who have already been scammed!

If you or someone you know may have been a victim of annuity fraud contact Shepherd Smith and Edwards. We have helped thousands of investors recover losses. You may contact our law firm to arrange a free confidential consultation with one of our attorneys.

The complete text of this and other NASD Investor Alerts is available at http://www.nasd.com/InvestorInformation/InvestorAlerts/index.htm

A federal jury has found former Connecticut State Senator William A. DiBella and consulting firm North Cove Ventures LLC liable for aiding and abetting a fraudulent investment scam.

The scheme involves former Connecticut State Treasurer Paul Silvester, who had invested $75 million in state pension funds with private equity firm Thayer Capital Partners. The former state treasurer allegedly fixed it so that Thayer would pay Mr. DiBella a percentage of the investment even though he didn’t do anything to warrant being paid.

The SEC says that in November 1998, Silvester asked Thayer to hire DiBella. The private equity firm allegedly consented to the hire and paying DiBella the percentage fee even though he did no work for it. Silvester allegedly added at least another $25 million to the pension fund’s investment just to get a larger fee for DiBella, who ended up receiving nearly $375,000.

Although Silvester settled the SEC’s charges nearly seven years ago, the SEC did not charge DiBella until 2004. DiBella had unsuccessfully tried getting the charges dismissed. The verdict against DiBella was returned last month following a seven-day trial in front of the U.S. District Court for the District of Connecticut. The jury ruled that DiBella was liable for aiding and abetting Silvester’s violations of antifraud provisions belonging to the 1940 Investment Advisers Act and 1934 Securities Exchange Act. Sanctions will be entered by the court at a later date.

If you have been the victim of securities fraud, you should contact Shepherd Smith and Edwards right away. We have helped thousands of investors recover their losses. We would like you to contact our law firm for a free consultation with one of our experienced securities fraud attorneys.

Jury Finds William DiBella, Former Majority Leader of the Connecticut State Senate, Liable for Aiding and Abetting Securities Fraud, SEC.gov, May 30, 2007

Conn. jury convicts ex-politician for taking fee, Reuters.com, May 30, 2007

Related Web Resource:

SEC lawyer challenges DiBella over grand jury leak, deal documents, Journal Inquirer.com, May 17, 2007

The order by an administrative law judge barring Bradley T. Smith, the former president of Bancshareholders of America Inc., from the investment adviser and broker-dealer industries has been affirmed by the SEC.

Since 2005, Smith has been under a federal court injunction related to private security offerings made by five of his companies. The injunction was imposed by the U.S. District Court for the Southern District of Ohio in connection to a case where the SEC has accused Smith of making false representations to investors regarding his use of offering proceeds to pay for personal and business expenses.

The court had also fined him $120,000 and held Smith severally and jointly liable with Scioto National Bank and Continental Midwest Financial Incorporated—there are aggregate disgorgement and prejudgment interests of more than $2 million. The ALJ judge then barred Smith from the industries in 2006.

The SEC says that Smith has argued that imposing the bar was not in the public’s interest and could negatively affect existing BSA shareholders. He said that BSA could collapse as a result.

The SEC, however, says that BSA can find another broker-dealer or investment adviser other than Smith so that the bar would not hurt the shareholders—or, the same shareholders could move their assets to another firm. The SEC also says that Smith has yet to take responsibility for his alleged misbehavior.

If you are an investor who has lost money because of the misconduct of members of the securities industry, contact Shepherd Smith and Edwards right away. We are a law firm dedicated to helping investors like you, and we have a very good success record for helping our clients get their losses back. Shepherd Smith and Edwards offers a free consultation to all prospective clients.

Related Web Resources:

Read the SEC's Opinion (PDF)

Temporary Restraining Order Issued in Federal Court Against Columbus Man and Four of His Companies, Ohio.gov, August 13, 2004