December 28, 2007

SEC Investment Management Division Director Wants Mutual Funds to Call Their “Distribution Fee” a “Sales Charge”

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The director of the Securities and Exchange Commission’s Investment Management Division is calling for mutual funds to rename their 75 basis point “distribution fee” and call it a “sales charge”—regardless of whether the sales charge is deducted right away or over a period of time.

At the Investment Company Institute's 2007 Securities Law Developments Conference in Washington, Donohue issued a call out for “truth in labeling.” He said that financial advisers should notify investors about the sales charge and the information about the charge should also be in the prospectus and the confirmation.

Last year, the mutual fund industry collected 12b-1 fees totally $11.8 billion. These fees are authorized under the 1940 Investment Company Act Rule 12b-1 in 1980.

12b-1 fees were originally intended to cover marketing and distribution costs. However, they are now used to pay consultants and financial advisers, 401k administrators, and fund supermarkets (such as Fidelity and Charles Schwab). The fees are also used to cover a company’s internal expenses.

The Investment Management Division staff wants Class A, Class B, and Class C investors to be treated fairly, rather than having distribution costs be unfairly divided between the three groups. Donohue said the current discrepancy could lead to conflicts of interests for people charged with selling the funds.

Donohue also wants to the industry to look at whether investors are paying over what the NASD rule has set for 12b-1 fees and beyond the maximum sales load. His SEC division staff will suggest reforms that update the 12B-1 factors, which fund boards evaluate when examining 12b-1 plans.

The division will also look at ICA Section 22(d), which mandates that a fund’s public offering price be included in the prospectus. He and his division want to approach the issues from the point of view of a fund investor.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents investors who have lost money because of the negligence or misconduct of security industry members. Contact Shepherd Smith and Edwards today.

Related Web Resources:

Remarks Before the ICI 2007 Securities Law Developments Conference, by Andrew J. Donohue, SEC.gov, December 6, 2007

Division of Investment Management, SEC.gov

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Posted In: Mutual Funds , SEC

December 26, 2007

Goldman Sachs Class Securities Fraud Lawsuit is Dismissed

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A class securities fraud lawsuit against Goldman Sachs & Co. was dismissed by the U.S. District Court for the Southern District of New York. The lawsuit had charged that a Goldman Sachs & Co. senior analyst issued false research reports with inflated projections of Exodus Communications Inc.'s financial growth on more than one occasion.

Judge Thomas Griesa granted the motion to dismiss after deciding that the second amendment complaint "fails to adequately plead loss causation." The court dismissed the original lawsuit filed by Exodus investors based on the same grounds.

The Allegations:

Goldman Vice President of Investment Research and Senior Technology Analyst Matthew Janiga was the analyst appointed by Goldman Sachs to cover Exodus because he was known for letting investment bankers influence his published opinions. Janiga put Exodus on the “recommended list” in January 11, 2001. Just one day prior, Exodus closed a $1.9 billion acquisition. Goldman Sachs served as the strategic adviser on the deal.

On January 24, Exodus’s stock dropped dramatically during after-hours trading. Investment bankers from Goldman Sachs allegedly were working on Exodus’s debt and equity offerings scheduled to launch in February. On the first day of the class period, and to avoid any adverse effects, Janiga allegedly published a note that reemphasized and defended his recommended list rating.

According to the plaintiffs, Janiga repeated this alleged ‘cycle of deception’ for the entire class period—predicting in its reports that Exodus would rebound from its weak beginning in 2001 during the second quarter. Janiga reportedly made specific numerical projections indicating this recovery.

Janiga finally began to publish reports about its doubts regarding Exodus’s performance between June 14- 21. Exodus filed for bankruptcy in September.

The court granted the defendant’s motion to dismiss. It said that although the fraud on the market theory is applicable to cases involving analyst reports, the plaintiffs failed to properly allege lost causation and the complaint must therefore be dismissed.

As a victim of securities fraud, you must speak with an experience securities fraud attorney who can help you. Shepherd Smith and Edwards has successfully represented clients throughout the U.S. Contact Shepherd Smith and Edwards today.

Related Web Resources:

Goldman Sachs & Co. : Exodus Communications, Inc., Stanford Law School

Goldman Sachs

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Posted In: Goldman Sachs

December 23, 2007

Citibank and Columbia University Sued for Charging College Students Extremely High Interest Rates on School Loans

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A former Columbia University student is suing Citibank and Columbia University for what he is calling “modern-day slavery,” for allegedly colluding to charge unreasonably high interest rates on student loans.

Brian Baxter, 57, is now a licensed psychotherapist and a social worker. He graduated from Columbia University in the 1990’s with a BA in sociology and a master’s in social work. Baxter says that he is still paying back the interest on his student loan even though it has been 10 years since he graduated.

He says that his $65,000 loan has turned into $172,000. Creditors take 15% of his paycheck regularly. Baxter says he will likely spend the rest of his life paying back his debt.

Baxter is accusing Columbia of guiding him toward Citibank, the school’s preferred lender and is calling the alleged collusion an act of “modern-day slavery.” He says he filed the lawsuit on behalf of all first-generation, low-income college students.

New York Attorney General Andrew Cuomo is investigating the lending practices of universities and colleges. So far, 63 U.S. colleges and universities have been named as having misled students who applied for student loans. Over 25 schools and at least 12 lenders have reached settlement agreements collectively valued at $13.7 million. Other lawsuits are pending. Students have been repaid $3.4 million.

Governor Cuomo is examining whether school officials received kickbacks for encouraging students to sign up with certain lenders. There is evidence that allegedly shows how schools, lenders, and financial officers benefited from certain arrangements that ended up costing students money. Some schools supposedly have a “preferred-lender” list, while others have exclusive “preferred-lender” deals. Other evidence revealed that some loan companies have school financial aid officers on their boards.

Shepherd Smith and Edwards represents clients who have been financially taken advantage of by a member of the securities industry. Faiilure to disclose conflicts of interest is inappropriate and wrong. Contact Shepherd Smith and Edwards and ask for your free consultation.


Related Web Resources:

Columbia and Citibank 'Modern Day Slavers' Suit, New York Post, December 17, 2007

Columbia U., Citibank sued for 'slavery', UPI.com, December 17, 2007

Cuomo: School loan corruption widespread, USA Today

New York State Attorney General Mario Cuomo

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Posted In: Citigroup

December 20, 2007

NASAA Calls for Voluntary Securities Arbitration System

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On December 12, The North American Securities Administrators Association told the Senate Judiciary Constitution Subcommittee says that it is calling for a voluntary securities arbitration system. NASAA also approves of the proposed Arbitration Fairness Act (S. 1782).

NASAA says that right now, nearly every broker-dealer has to include a pre-dispute arbitration provision in its customer agreements that says public investors must submit any disputes with a firm and its associates to an arbitrator.

Illinois Secretary of State and Illinois Securities Director Tanya Solov says that mandatory arbitration is unfair to investors and that the securities arbitration system should be voluntary. Currently, arbitration panels are made up of one mandatory securities industry representative and public arbitrators that may have connections to the securities industry.

She expressed the concern that even though independent arbitrators are supposed to be conflict-free and therefore qualified to make a decision about a conflict, these arbitrators can't help but bring their own experiences and training to the panel. Solov also called for FINRA to revise its statistics about arbitration outcome. She said that just because an investor recouped a small amount of his or her losses, this didn't necessarily constitute a win for him or her.

Congressional Research Service says that the legislation, introduced on January 12, would:

• Make no predispute arbitration deal enforceable or valid if arbitration of “(1) an employment, consumer, or franchise dispute, or (2) a dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power is required”

• Allow a court, instead of an arbitrator, to determine an agreement’s enforceability or validity.

• Render arbitration provisions in collective bargaining agreements from this S. 1782, the Arbitration Fairness Act of 2007 exempt.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents investors who are trying to get their money back in arbitration or in court.
Our stockbroker fraud lawyers have helped thousands of clients get their lost investments back. Contact Shepherd Smith and Edwards today.

Related Web Resources:

North American Securities Administrators Association

S. 1782, the Arbitration Fairness Act of 2007 (PDF)

Congressional Research Service

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Posted In: Arbitration

December 19, 2007

Ronin Capital, Goldman Sachs Execution & Clearing, Penn Mott Securities, and Pearson Capital Management Receive Censures and Fines from NYSE Regulation

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New York Stock Regulation Inc. announced its enforcement actions against four trading companies. The regulator says that Ronin Capital, LLC mismarked over 8,300 short orders because of inadequate supervisory procedures and supervision. The company continued to mismark short orders even after the SEC brought the violation to its attention. Ronin Capital was censured by NYSE Arca and ordered to pay $200,000.

NYSE Arca fined Goldman Sachs Execution & Clearing LP (GSEC) $105,000 for failing to adequately supervise business operators and associated persons in a way that guaranteed compliance with odd lot trading order rules.

Pearson Capital Management LLC was censured and fined $5,000 because it failed to meet market maker requirements. Penn Mott Securities was fined $3,200 for similar violations.

NYSE Regulation also announced enforcement action against three people:

*Former UBS Financial Services Inc. Vice President Montague Hasie is permanently barred from the exchange because he refused to testify about events that took place while he was at UBS. Hasie and some of his clients were indicted in a U.S. district court for allegedly misusing shares.

*Former Wedbush Morgan Securities registered representative Matthew Pavich was temporarily barred because of books and records violations.

*Former UBS Financial Services Inc. employee Richard Wendell Babichy is barred for 12 months for failing to report a customer complaint, failing to follow a customer’s instructions, and making or causing to make false entries in his employer’s records and books.

If you have lost money because of the reckless or negligent actions of a stockbroker or anyone else in the securities industry, you have the right to get your investment back. The stockbroker fraud law firm of Shepherd Smith and Edwards can help you. Contact us today for your free consultation.


Related Web Resources:

NYSE Regulation

Ronin Capital LLC

Goldman Sachs Execution & Clearing LP

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Posted In: Goldman Sachs , Pearson Capital Management , Penn Mott Securities , Wedbush Morgan

December 18, 2007

JP Morgan Will Pay $500,000 to Settle Municipal Securities SRO Claim

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JP Morgan Securities Inc. says it will pay $500,000 to settle charges that it failed to disclose to regulators that it used and paid consultants to acquire a number of municipal securities offerings.

The settlement agreement was announced by the Financial Regulatory Authority (FINRA), which is in charge of enforcing the Municipal Securities Rulemaking Board (MSRB) rules and any violations. According to MSRB regulations, firms must disclose any payments to consultants for municipal securities offerings.

FINRA says that JP Morgan actually stated in its MSRB filing that it did not use or pay any consultants to make any municipal securities-related transactions. In fact, from January 22 through June 2004, JP Morgan actually used consultants extensively in connection to its municipal bond business, paying some 40 consultants $7.1 million in total.

Yet 10 of JP Morgan’s quarterly disclosures to MSRB stated that consultants “obtained or retained” zero business. JP Morgan also denied paying consultants for municipal securities-related business even though it made at least six payments worth $750,000 in total to at least 16 consultants for at least 70 municipal securities offerings.

JP Morgan is not denying or admitting to the charges by agreeing to the $500,000 fine.

If you are the victim of broker misconduct, you should speak with a stockbroker fraud lawyer right away. An experienced attorney can help you recover your lost investment. Contact Shepherd Smith and Edwards today.


Related Web Resources:

FINRA Fines J. P. Morgan Securities $500,000 for Failing to Disclose Use of Payments to Consultants to Obtain Numerous Municipal Securities Offerings, FINRA, December 13, 2007

Municipal Securities Rulemaking Board

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Posted In: J P Morgan - Chase , Municipal Securities Offerings

December 14, 2007

FINRA Says Democrats Nominate Picks For SEC Commission

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The Financial Industry Regulatory Authority (FINRA) says that Senate Majority Leader Harry Reid has sent to the White House the Democrats’ choices to fill their two slots on the Securities and Exchange Commission.

The two names put forward are Luis Aguilar, a partner at the Atlanta law firm of McKenna, Long & Aldridge and Elisse Walter, a senior FINRA official.

The SEC is under pressure to not act on a controversial proxy initiative until all members are appointed. SEC Chairman Christopher Cox and SEC Commissioners Annette Lazareth, Paul Atkins, and Kathleen Casey are currently on the commission. Lazareth is the only Democrat on the panel. She plans to step down. Another commissioner, Roel Campos, left the SEC in August.

Aguilar specializes in investment companies, investment advisers, corporate and securities law, and international transactions. He also worked as an SEC staff attorney, practiced law with several national law firms prior to working with McKenna, Long & Aldridge, and served as general counsel to UNESCO.

Walter is Senior Executive Vice President, Regulatory Policy & Programs at FINRA. She served in the same role at NASD. Walter supervises a number of departments, including Corporate Finance, Investment Company Regulation, Advertising Regulation, and Member Education and Training, and the Offices of Disciplinary Affairs, Emerging Regulatory Issues and Economic Analysis. She is in charge of FINRA’s investor education initiatives.

Despite the regulations that are in place to protect investors from fraud, there are times when investors are the victims of broker fraud or misconduct. These instances are when the stockbroker fraud law firm of Shepherd Smith and Edwards steps in. We have helped thousands of investors get their money back.

Contact Shepherd Smith and Edwards today and ask for your free consultation with one of our experienced broker fraud lawyers.

Related Web Resources:

Democrats Nominate 2 for SEC Vacancies, Washington Post, November 14, 2007

SEC

McKenna Long and Aldridge, LLP

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Posted In: SEC

December 12, 2007

Bear Stearns, Deutsche Bank, and Merrill Lynch Among the Wall Street Firms Subpoenaed by New York Prosecutors

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New York Attorney General Andrew Cuomo is subpoenaing several Wall Street firms, including Deutsche Bank AG, Merrill Lynch & Co, and Bear Stearns, for information about packaging and selling debt connect to high-risk mortgages.

Prosecutors want to look at the way investment banks review the quality of mortgages before turning them into packaged products that can be sold to investors. They also want to find out how debt is being turned into securities and learn more about the credit-rating firm-bank relationship.

This past summer, mortgage-backed securities affected by growing default and delinquency rates had high debt ratings despite the backing of loans issued to lenders.

Two hedge funds run by Bear Stearns fell apart—instigating the credit markets crisis. The collapse cost investors some $1.6 billion. The collapse cost Merrill Lynch, a big investor in the fund and other subprime mortgage securities close, to $8 billion.

The investigation will look at the way relationships among third-party due-diligence firms, mortgage companies, credit-rating firms, and securities firms and their connection to the firms’ involvement with the subprime mortgage crisis. Underwriting standards will also be reviewed.

Last month, NY Attorney General Cuomo sent subpoenas to investment banks as part of his investigation into U.S. mortgage loans. Fannie Mae and Freddie Mac were among those subpoenaed.

If you are an investor who has lost money because of the misconduct of anyone in the securities industry, contact Shepherd Smith and Edwards right away. One of our securities fraud attorneys would be happy to speak with you during a free consultation. Shepherd Smith and Edwards has helped thousands of investors recover their losses.


Related Web Resources:

Wall St. firms get subprime subpoenas, CNN.com, December 5, 2007

New York State Attorney General Andrew Cuomo

Merrill Lynch

Bear Stearns

Deutsche Bank

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Posted In: Bear Stearns , Deutsche Bank , Merrill Lynch

December 11, 2007

FINRA Consolidation Results in Fewer Exams for Securities Firms

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Thanks to the consolidation of NYSE and NASD into the Financial Industry Regulatory Authority (FINRA), security firms registered in the United States will now content with fewer regulatory tests. FINRA officials announced the decrease in the number of examinations.

Currently, a lot of firms are required to take a sales practice test and a financial examination with different regulators. Next year, however, the firms will be required to take just one examination that evaluates both finances and sales practices.

FINRA officials will oversee this new test. Brokers will also be given exams on price verification, valuations, proper disclosure procedures, and fees received.

FINRA officials also are in the process of creating streamlined standards that incorporates the best rules from the rulebooks of both NASD and NYSE. The FINRA rulebook will include revised and improved rules. New rules may be a combination of principle-based rules and prescriptive ones.

Also next year, FINRA will take a closer look at possible areas of conflict with hedge funds, money laundering, data security, fixed income reporting practices, supervisory controls, general suitability reviews, outsourcing practices, and subprime mortgage securitization-related matters.

The consolidation of NASD and NYSE into FINRA became final on July 27.

If you are the victim of securities fraud, it is important that you speak with a securities fraud attorney right away. Our attorneys at Shepherd Smith and Edwards are dedicated to helping people like you recover your losses. We have successfully handled many cases in state and federal courts and in arbitration.

Contact Shepherd Smith and Edwards today to receive your free consultation with one of our experienced securities fraud attorneys. We represent clients throughout the United States and abroad.


Related Web Resources:

SIFMA’s Annual Meeting, CCHWallstreet.com, December 5, 2007

FINRA

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Posted In: FINRA

December 5, 2007

Rafferty Capital Markets to Pay Over $400,000 in Sanctions Over Alleged Market Timing Trading Practices

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Rafferty Capital Markets LLC says it will pay over $400,000 in sanctions and abide by a 90-day ban preventing it from opening mutual fund brokerage accounts for customers. The penalties resolve FINRA charges that Rafferty Capital engaged in improper market timing trading practices. FINRA also charged Rafferty Capital with getting rid of e-mails pertaining to the transactions in question and failing to respond to warnings of improper timing practices.

According to FINRA, Rafferty Capital helped six hedge fund customers circumvent market timing restrictions without detection from January 2001 to August 2003. The firm i s accused of using various broker branch codes to engage in market timing.

The firm also allegedly allowed two hedge fund clients to continue market timing from April 2001 through April 2002 and circumvented efforts by mutual fund companies to prevent this type of trading. This alleged misconduct resulted in 118 more mutual fund exchanges. The $59,605 profit was made at the expense of other investors.

Rafferty Capital will pay the $59,605 as restitution.The remaining $350,00 is the fine Rafferty must pay to settle the FINRA charges.

SRO also says that Rafferty Capital did not heed red flags indicating that brokers were participating in market timing, lacked the proper procedures that brokers could follow to report rejected or restricted trades, neglected to preserve company e-mail records for the required two-year period, did not set up proper systems and procedures to detect and prevent late trading, and failed to create and maintain accurate records of mutual fund trades.

Rafferty Capital will also reevaluate its procedures and set up the proper systems to make sure that market timing and specific other practices do not occur. The firm is not admitting to any wrongdoing by agreeing to the settlement.

Shepherd Smith and Edwards represents investors who have lost money because of the misconduct of others in the securities industry. Retaining the services of an experienced stockbroker fraud attorney is the best way to increase your chances of getting your investment back. Contact Shepherd Smith and Edwards today and ask for your free consultation.

Related Web Resources:

Rafferty Capital settles charges for $400K, Crainsnewyork.com, November 29, 2007

Rafferty Capital Markets, LLC

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Market Timing

December 4, 2007

Morgan Stanley and WestLB Lose Cases Because of E-Mail Evidence—or Lack Thereof

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Brokerage firms involved in legal disputes are finding that they are being forced to hand over relevant electronic conversations that are resulting in large jury verdicts, regulatory fines, and the possibility that investors might re-open arbitration cases where e-mail conversations had been suppressed.

Here are a few cases where e-mail records played a key role that was generally not in the favor of the brokerage firm:

Morgan Stanley may have to pay several thousand investors anywhere from $3,000 to $20,000 after settling a case with FINRA, who says the brokerage firm did not in fact lose millions of e-mails because of the September 11 terrorist attacks. Investors had said these e-mails could have helped prove their arbitration cases against Morgan Stanley. FINRA says that millions of these e-mails had been restored to the firm’s system and Morgan Stanley tried to withhold this fact.

As part of its settlement with FINRA, Morgan Stanley paid a $3 million fine to the industry self-regulator and set up a $9.5 million fund from which it will pay investors that were affected by the omission.

Last month, a jury ordered WestLB AG to pay Claudia Quinby, a former sales employee, $2.54 million because it retaliated after she complained of sexual harassment. The e-mail records helped proved the case in Quinby’s favor.

Brokerage firms, like all businesses, are legally obligated to hang onto all evidence, including e-mails, when they are placed on notice that they are involved in a lawsuit. Federal securities laws mandate that securities firms have to keep records for a minimum of three years.

In 2005, a jury ordered UBS AG to pay $29.3 million in damages to Laura Zubulake. UBS threw away key e-mails that it should have kept after Zubulake filed a claim with the U.S. Equal Employment Opportunity Commission.

If you are an investor who has lost money because of the misconduct of a member of the securities industry , you have the right to get your investment back. Contact the law firm of Shepherd Smith and Edwards today and ask for your free consultation.

Related Web Resources:

Morgan Stanley, UBS No Longer Can Keep Secrets: Susan Antilla, Bloomberg.com, November 27

Morgan Stanley Must Pay Millions For Withholding E-Mails, Information Week, September 28, 2007

UBS Ordered to Pay $29 Million in Sex Bias Lawsuit, New York Times, April 27, 2005

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Morgan Stanley , UBS

December 2, 2007

Citadel’s $2.5 Million Investment into E-Trade Raises New Questions About Mortgage-Backed Securities

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Citadel Investment Group is investing $2.5 million into E*Trade Financial Corp, which has been negatively affected by shaky mortgage investments. The “bailout” will increase the hedge fund’s stake in E*Trade from 2.5% to 18%. Citadel will pay $800 million for E*Trade’s $3 billion in asset-backed securities. This will allow E-Trade to take off the riskiest assets from its balance sheet.

Citadel says the investment is a good business opportunity. The hedge fund cited E*Trade ’s online brokerage platform as a big reason for making the large investment.

The investment deal is an indicator of how much hedge funds have become involved in both sides of the mortgage crisis, sometimes as a victim and at other times as a rescuer. It also shows the growing influence that hedge funds have in the financial arena.

E*Trade met with 40 potential financial and strategic buyers before making the deal with Citadel. E*Trade says that out of all potential buyers, Citadel offered the “most comprehensive solution” to the company’s problems.

The Citadel-E*Trade deal has some people wondering whether a long-awaited price can now be placed on mortgage-backed securities. People familiar with the details of the E*Trade deal, however, say that the portfolio being talked about includes collateralized debt obligations and a number of securities that make a uniform price seem unlikely.

Citadel will nominate a representative on E*Trade s board of directors. E*Trade CEO Mitchell Caplan resigned last week.

This is not the first time that Citadel has searched for and bought assets in distress. In June, Citadel paid $180 million for assets of ResMae Mortgage Corp. at a bankruptcy auction. It also recently acquired assets of Sowood Capital Management LP.


The law firm of Shepherd Smith and Edwards represents investors who have lost money because of the misconduct of members of the securities industry. Please contact Shepherd Smith and Edwards and ask for your free consultation. We have helped thousands of investors get their money back.

Related Web Resources:

Citadel boosts E*Trade stake with $2.5 billion investment, Chicago Tribune, November 30, 2007

What the E*Trade Bailout Says About “Marking to Market”, The Wall Street Journal, November 29, 2007

E*Trade Financial

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Mortgage Backed Securities

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