May 30, 2008

First Southwest Co. Settles SEC Charges That It Improperly Intervened In Auction-Rate Securities Market

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First Southwest Co. will pay a $150,000 fine and honor a cease and desist order to settle Securities and Exchange Commission charges that it interfered with the auction-rate securities market without disclosing its positions from January 2003 to June 2004. The Texas broker-dealer is not denying or admitting the administrative charges by agreeing to settle.

According to the SEC, First Southwest made bids to prevent failed auctions and all-hold auctions. As a result of these interventions, the auction’s clearing rate was affected and investors got a higher or lower rate of return on investments.

The SEC says that First Southwest violated Section 17(a)(2) of the Securities Act of 1933 that does not allow material misstatements and omissions during any securities sale or offer. The Commission also expressed concern that investors may not have known about the credit risks and liquidity associated with First Southwest’s actions.

The SEC says it considered the broker-dealer’s willingness to cooperate and its small portion of the auction-rate securities market when deciding on the penalty. The fact that First Southwest did not bring its actions to the SEC’s notice was also noted.

Since April, state and federal regulators have been investigating whether large investment firms engaged in misconduct related to the auction-rate securities market. Many auctions have recently failed because of the worldwide credit crisis, and investors are complaining that they were told that ARS’s were safe like cash, when they actually are not.

If you have suffered financial losses because of the negligence or misconduct of an investment firm, contact Shepherd Smith and Edwards today.


Related Web Resources:

First Southwest Company Settles Charges Concerning Its Conduct In The Auction Rate Securities Market, SEC.gov, May 27, 2008

Another Firm Gets Tangled in ARS Web, CFO.com, May 28, 2008

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Posted In: Auction-Rate Securities

May 28, 2008

SEC Director Says Deploying Enforcement Resources Continues to Be A Challenge

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At the 28th Annual Ray Garrett Jr. Corporate and Securities Law Institute, Securities and Exchange Commission's Chicago Regional Office Director Merri Jo Gillette told lawyers that the challenges of maintaining and deploying enforcement resources continues for the SEC.

Gillette says that the fiscal challenges brought about by the flailing US economy and the Iraq war that have affected other federal agencies are also impacting the SEC. Because of this, the SEC’s enforcement group’s 1,000 staff members are choosing to focus on the most urgent matters while maintaining an effective presence in “as many areas as we can.”

The SEC Enforcement Official said the division had developed a number of working groups, each one focusing on one securities enforcement issue. Working groups currently are concentrating on the issues of municipal securities, insider trading and hedge fund misconduct, sub-prime lending-related fraud, and options backdating.

Members of each groups are experts from across the United States that meet regularly via conference calls to discuss any new developments or concerns. The groups also are tasked with giving SEC staff members that are not part of the groups the latest information on the respective issues.

The SEC has also organized a number of issue-specific enforcement teams currently concentrated on frauds involving financial fraud, microcap stocks, Internet-based frauds, and Foreign Corrupt Practices Act violations.

Gillette said that issuers that take meaningful internal steps to remedy problems and work with agency investigators would receive credits that could reduce penalties against them and allow them to potentially escape prosecution.

During her speech, Gillette emphasized that her commentary did not necessarily reflect the SEC’s views.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents victims of investor fraud. Contact Shepherd Smith and Edwards and ask for your free consultation.


Related Web Resources:

28th Annual Ray Garrett Jr. Corporate and Securities Law Institute, Northwestern Law, May 1 and May 2

Merri Jo Gillette Named Regional Director of the SEC's Midwest Regional Office, SEC.gov, June 8, 2004

SEC Division of Enforcement


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Posted In: SEC Enforcement

May 27, 2008

Piper Jaffray Accused of Giving Faulty Advice in Two Bond Offerings

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Earlier this month, the U.S. Court of Appeals for the Eighth Circuit refused to hear an interloculatory appeal regarding attorney-client privilege related to the lawsuit accusing Piper Jaffray & Co of giving faulty advice in two bond offerings. The lawsuit names Union County, Iowa as the petitioner.

The case involves a soybean crushing plant in Union County. CF Processing, owned by Crestland Cooperative, was supposed to construct the plant. Union County says that Piper Jaffray gave the county advice regarding the issuance of two general capital loan notes—bond offerings worth $5.865 million—related to the construction project.

The mill was going to be assessed for property tax purposes. CF Processing agreed to pay any shortfall so the county could make its necessary debt service payments if the tax revenue generated from the assessment did not cover them. Crestland also gave its guarantee regarding CF Processing’s performance. The two companies, however, defaulted on all their obligations when they filed for bankruptcy in 2001.

Union County is suing Piper Jaffray for breach of contract, breach of fiduciary duty, negligence, negligent misrepresentation, and fraud. The County says that Piper Jaffrey failed in its duty to correctly advise it about the risks involved in the bond offerings if CF and Crestland were to default. Union County says that Piper Jaffray should have also provided information on other financing options.

Piper Jaffray says that the county has refused to provide the documentation about the advice at issue and filed a motion to compel. Union County says attorney-client privilege and the work product doctrine makes the documents not discoverable.

The magistrate judge says that Union County waived its attorney-client privilege related to the documents because of its lawsuit. The county then filed its appeal.

Shepherd Smith Edwards & Kantas LTD LLP represents investors that have suffered financial losses because of broker-dealer fraud and other kinds of stockbroker fraud.


Related Web Resources:

Union County, Iowa v. Piper Jaffray & Co.

Piper Jaffray

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Posted In: Financial Firms

May 22, 2008

E*Trade Securities LLC, TradeStation Securities Inc. and CIBC World Markets Corp. Face FINRA Fines For Failing to Accurately Report Equity Securities Order Information

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E*Trade Securities LLC, TradeStation Securities Inc. and CIBC World Markets Corp. have collectively been fined $1.6 million for their failure to fulfill their obligation to accurately report data about equity securities orders and ensure compliance with applicable Financial Industry Regulatory Authority regulations.

FINRA announced the fines earlier this month. Along with the announcement, FINRA’S Market Regulation Department stressed how it is the firms’ responsibility to vigilantly monitor the thoroughness and accuracy of information that they give to regulators.

FINRA mandates that member firms must record information about NASDAQ listed equity securities orders, including when they are originated, received, sent, executed, canceled, or modified. All data must be electronically recorded and sent to OATS, FINRA's Order Audit Trail System. The information is critical because it lets FINRA recreate an order’s life cycle and helps the SRO regulate more effectively.

FINRA says that TradeStation Securities Inc. did not report about 23.5 million “events” connected to such orders. The firm is paying the largest fine at $750,000. E*Trade Securities has been to pay a $500,000 fine.

CIBC’s fine is $350,000 for failing to report an affiliate firm’s more than 28 million orders. CIBC’s fine would have been higher except that the firm has already taken action to report the deficiencies and remedy the matter.

All three firms agreed to FINRA’s findings without deny or admitting to the SRO’s charges.

If you are investor that lost money because of stockbroker fraud or any other broker-dealer misconduct, Shepherd Smith and Edwards wants to talk to you. Our stockbroker fraud law firm has helped thousands of investors recoup their lost investments.

Related Web Resources:

FINRA Fines Three Firms a Total of $1.6 Million for OATS Reporting and Supervision Violations, FINRA.org, May 15, 2008

Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change Relating to the Reporting of Foreign Equity Securities to the Order Audit Trail System, SEC.gov, September 28, 2007

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Posted In: FINRA

May 20, 2008

Securities Fraud Lawsuit Against Ex-Merrill Lynch Analyst Accused of Issuing False Reports About CMGI Inc. is Dismissed

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In New York, a judge has dismissed the securities fraud case against former Merrill Lynch research analyst Henry Blodget. The former lead Internet analyst of the company’s Internet Group is accused of allegedly issuing false reports regarding CMGI Inc. stock.

In 2007, investor Ronald Ventura had filed a securities fraud lawsuit against Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Inc., and Blodget. Ventura is one of a number of plaintiffs that have sued the defendants after the New York State Attorney General’s Office made allegations that they had published misleading or false recommendations about Internet-based stocks. Merrill Lynch agreed to a $100 million fine in 2002 as part of a settlement deal with the NYAG.

In The U.S. District Court for the Southern District of New York earlier this month, Judge John Keenan said that Ronald Ventura’s complaint "fails to plead that the alleged false statements made by the defendants were the cause of Ventura's financial losses.”

Instead the judge says that the plaintiff said that Blodget issued falsely optimistic target projections and made false recommendations to investors about CMGI stock even though the ex-Merrill Lynch analyst believed that the Internet holding company was facing a liquidity crisis and issuing misleading information about its revenues.

It wasn’t until a 2000 research report finally revealed the risks associated with CMGI’s dangerous financial state that the company’s stock price dropped. Ventura claims that Blodget's reports helped boost CMGI’s stock value and gave Merrill Lynch a profitable underwriting business. The plaintiff also alleges that Blodget was rewarded for bringing new business to Merrill Lynch.

Judge Keenan says that he dismissed the case because Ventura failed to adequately plead loss causation. The judge says that just like other investors, Ventura lost money by speculating in CMGI stock (which rose during the Internet boom and then dropped significantly when the bubble burst in 2000). The judge says that Ventura is trying to blame Blodget for the gambling losses.

If you are a victim of stockbroker fraud, the best way to make sure that you obtain financial recovery is to contact Shepherd Smith and Edwards today. Our stockbroker fraud lawyers have helped thousands of investors recover their losses.

Related Web Resources:

SEC Sues Merrill Lynch and Henry Blodget for Research Analyst Conflicts of Interest, SEC.gov, April 28, 2003

Investor's Suit Against Merrill Over Internet Stock Dismissed, New York Law Journal, May 13, 2008


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Posted In: Merrill Lynch , Securities Fraud

May 18, 2008

SEC Director Erik Sirri Says Direct Market Access Systems Guidance For Broker-Dealers Is In The Works

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At a Security Traders Association conference in Washington DC earlier this month, the Securities and Exchange Commission’s Division of Trading and Markets Director Erik Sirri told broker-dealers to “look for guidance” when using direct access systems when making trades.

The announcement that direct access systems guidance was pending comes after Goldman Sachs Execution and Clearing L.P., a prime broker and clearing affiliate of Goldman Sachs Group Inc., settled SEC charges over its alleged involvement in a customer fraud scheme that involved the use of direct access trading systems.

Also called sponsored access systems, direct access trading systems lets brokers quickly and efficiently handle large quantities of trades for clients. Sirri says that the guidance would help broker-dealers determine what controls need to be implemented to determine when customers are engaging in illegal trades. He says that the SEC and the Financial Industry Regulatory Authority have been in dialogues with direct access systems users.

Following the case involving the Goldman Sachs unit, SEC's Enforcement Division Director Linda Chatman Thomsen says that brokerage firms should be held responsible when their customers engage in illegal activities.

On March 31, the Treasury Department recommended merging the SEC with the Commodity Futures Trading Commission. The recommendation was part of a regulatory reform blueprint. Sirri said the SEC would support this decision if implemented but that the major differences between the equities markets and the Commodities would have to be addressed.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents clients that have lost investments because of the negligence of broker-dealers or others in the securities industry.

Contact Shepherd Smith and Edwards today.

Related Web Resources:

SEC and NYSE Settle Enforcement Actions Against Goldman Sachs Unit for Role in Customers' Illegal Trading Scheme, SEC.gov, March 14, 2007

Direct Access Trading Systems, Investopedia.com

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Posted In: Direct Access Systems , SEC

May 15, 2008

Former Broker-Dealer Chanin Capital Settles SEC Charges That It Failed to Set Up Proper Insider Policies and Processes

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Former broker-dealer Chanin Capital LLC says it will pay a $75,000 fine to settle Securities and Exchange Commission charges that it failed to set up procedures and policies to prevent employees and others from misusing inside information. The firm’s compliance officer at the time, A. Carlos Martinez, agreed to cease and desist from further violations and to pay $25,000 in a related SEC administrative proceeding.

According to the SEC, from January 1999 through September 2003, Chanin did nothing to enforce the policies it had designed to prevent others from misusing its material nonpublic data. The former broker-dealer showed an improvement in honoring its own polices after September 2003 and even revised its compliance procedures twice. However, the SEC says that Chanin still lacked the necessary policies and procedures to maintain and enforce its revised compliance program.

The SEC says that Martinez aided and abetted Chanin’s violations because the compliance officer was in charge of putting into place and enforcing the broker-dealer’s insider trading and compliance policies.

In October 2006, Chanin Capital stopped functioning as a broker dealer. It deregistered beginning April 1, 2007.

Chanin and Martinez are not admitting to or denying the charges by agreeing to settle.

Shepherd Smith and Edwards is a stockbroker fraud law firm that has helped thousands of US and international investors recover their losses. If you are a victim of investor fraud or broker misconduct, contact Shepherd Smith and Edwards today.


Related Web Resources:

Former Broker-Dealer and Compliance Officer Fined For Violating Securities Exchange Act Provision Designed to Prevent Use of Material Nonpublic Information, SEC.gov, May 1, 2008

Read the SEC Complaint (PDF)

In the Matter of A. Carlos Martinez (PDF)


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Posted In: Insider Trading

May 14, 2008

GunnAllen Financial Settles FINRA Charges Over the Firm's Alleged Involvement in Trade Allocations

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GunnAllen Financial Inc. has settled Financial Industry Regulatory Authority charges that it was allegedly involved in a trade allocation scheme, in addition to several reporting, anti-money laundering, supervisory, and recordkeeping deficiencies. The trade allocation scheme was allegedly conducted by Alexis J. Rivera, the former head trader at GunnAllen.

FINRA says that in 2002 and 2003 and acting through Rivera, GunnAllen participated in a “cherry picking” scam. Rivera took profitable stock trades and put them into his wife’s personal account instead of GunnAllen customer accounts. Rivera allegedly made over $270,000 in illegal profits.

The ex-trader has been barred from FINRA. The trade allocation scheme violated FINRA rules and the federal securities laws’ anti-fraud provisions. Rivera’s supervisor, Kelley McMahon, has agreed to a six-month suspension from taking part in a principal role with any FINRA-registered company. She has also agreed to a $25,000 fine.

Also according to the SRO, GunnAllen "never put any stock of a company on a restricted or watch list” before 2005 nor did the investment firm notify its own compliance department of its investment banking activities. GunnAllen also reportedly did not tell its parent company that it was involved in a consulting contract with someone that had been banned from FINRA in the past.

FINRA also sanctioned GunnAllen for a number of other failures, including complaint reporting and supervisory deficiencies, failure to keep a record of instant messages and e-mails, and neglecting to put in place a proper AML compliance program.

By settling, GunnAllen and McMahon are not admitting to or denying FINRA’s allegations.

If you are the victim of broker misconduct, contact Shepherd Smith and Edwards for a free consultation to discuss your case.


Related Web Resources:

GunnAllen Resolves Past FINRA Regulatory Issues; Looks Confidently Toward the Future, PR Newswire, May 8, 2008

GunnAllen Financial Pays $750,000 to Settle Charges Involving Former Head Trader's Trade Allocation Scheme, AML and Supervisory Deficiencies, Additional Charges, FINRA, May 8, 2008

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Posted In: GunnAllen Financial

May 11, 2008

UBS To Pay Massachusetts Municipalities Over $35 Million for Auction-Rate Securities Losses

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UBS Financial Services Inc. and UBS Securities LLC, both units of UBS AG, have agreed to pay 19 Massachusetts public agencies and local governments over $35 million for their losses in the auction-rate securities market. The sum represents the return of principal payments by the municipalities.

The settlement agreement follows a probe by the Massachusetts Attorney General’s Office into accusations that the two UBS units misled the local entities by convincing them that the investments were low-risk enough that they were allowable for towns and cities under Massachusetts law.

According to a UBS spokesperson, the investment bank agrees that the auction-rate securities investments are not in fact permissible under this law. The spokesperson said that the repayment and agreement with the Massachusetts entities only apply because of this specific law.

Local US governments throughout the United States have invested over $300 billion in auction-rate securities markets. Auction-rate securities investments were once considered “safe.” These investments, however, have been frozen for months because of insufficient market liquidity—their value dropping as a result.

Many holders have been unable to get rid of their securities because of inevitable losses. The agreement between UBS and the Massachusetts entities allows the municipalities to recover their frozen funds.

UBS has had to note down over $37 billion in bad investments ever since the start of the subprime mortgage crisis.

Shepherd Smith and Edwards has helped thousands of US and international victims of investor fraud recover their losses.

Related Web Resources:

UBS to return $35M to Massachusetts governments, agencies in settlement over risky investments, International Herald Tribune, May 7, 2008

UBS to return $35 mln to US state over investments, AFP, May 8, 2008

UBS Financial to return $37M to cities, towns, MTA, Massachusetts Municipal Association, May 7, 2008

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Posted In: Auction-Rate Securities , UBS

May 9, 2008

Wachovia Securities LLC Sued For Alleged Fraud Involving the Sale of Le Nature's Senior Subordinated Notes

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In Los Angeles Superior Court, a number of life insurance companies, mutual funds, retirement systems, and other investors are suing Wachovia Securities LLC for alleged fraud related to the sale of senior subordinated notes for beverage maker Le Nature's Inc. The Pennsylvania-based company filed for bankruptcy in 2006.

Causes of action include fraud, negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement. California Public Employees' Retirement System (CalPERS) and the Nature Conservancy are among the scores of plaintiffs.

The plaintiffs are accusing Wachovia of knowing about the fraud and financial problems at Le Nature’s but keeping this information from investors so that the beverage company would keep paying the firm substantial fees. They say the lack of disclosure also helped Wachovia’s high-yield debt business.

Also named in the lawsuit are BDO Seidman and Ernst & Young. The companies had worked for Le Nature’s as auditors on different occasions. The plaintiffs say that the “clean” audit reports aided in the fraud. BDO Seidman denies the accusation and vows to vigorously defend itself against the charges.

Wachovia claims that it too was the victim of fraud by the drink company. One Le Nature's accounting director that pled guilty to fraud acknowledged that the company had issued false information to Wachovia.

About 75 plaintiffs claim they suffered aggregate losses worth over $70 million. The plaintiffs are accusing Wachovia Securities of minimizing its own losses by purposely reducing its own exposure to Le Nature’s notes.

The complaint says that the drink company massively inflated its profits and revenue for years even though it was failing badly. Yet Wachovia market analysis gave Le Nature’s an “outperform” rating despite the fact that it was struggling to survive.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents investor fraud victims in cities across the United States.

Related Web Resources:

Lawsuit alleges fraud in LeNature's dealings, Pittsburgh-Tribune Review, May 1, 2008

Former Le-Nature's employee pleads guilty in fraud scheme, Forbes.com, April 24, 2008

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Posted In: Investor Fraud , Wachovia

May 6, 2008

Are Investment Banks Taking the Necessary Steps to End the Auction-Rate Securities Crisis?

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More than 80 days into the auction-rate securities crisis, about $300 billion
in investor funds continue to remain inaccessible. It is important to note that taxpayers, in addition to investors, are suffering in this frozen market because the municipal issuers (including schools, towns, highway authorities, and other entities) of auction notes are being asked to pay up to help restructure and redeem the debt.

$78 billion in auction-rate securities—many of them involving municipal notes that come with high interest penalty rates—are expected to be redeemed. Investors with remaining issues, however, aren’t us lucky.

According to Saber Partners Chief Executive Joseph S. Fichera, one option is for investors to try and sell on the Restricted Securities Trading Network, which would allow them to exit while letting municipal issuers repurchase securities at a savings. He also says that issuers might also want to renegotiate contracts to get rid of payments for failed auctions and unsold securities.

Meanwhile, Wall Street continues to generate money from this ongoing debacle. Investment firms continue to tell municipal issuers to repurchase their securities at par, because to recommend that they redeem at discounts could cause the firms’ own customers to record losses—and lead to potential arbitration cases.

The investment banks also continue to generate fees for their services in running these auctions even though 70% of these weekly securities auctions are failing. Investment companies also earn banking fees when municipal issuers redeem their securities and/or unwind derivative contracts tied to the securities.

On April 28, U.S. Representatives Deborah Price (Ohio) and Spencer Bachus (Ala) asked SEC Chairman Christopher Cox to grant “temporary relief” from current regulations so that closed-end fund investors with auction-market preferred stock (AMPS) could be afforded some protection.

They say the move could inject much needed liquidity into the marketplace that would benefit both preferred and common shareholders. They also noted that several affected funds might be interested in issuing a new kind of preferred stock with a “put” option that could restore auction market functioning for these kinds of securities.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents investors that have lost money because of the negligence, carelessness, or misconduct of investment banks, brokers, and other securities industry members.


Related Web Resources:

Securities investors say they were misled, Chron.com, April 30, 2008

Restricted Securities Trading Network

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Posted In: Auction-Rate Securities

May 5, 2008

Ex-WFG Investment Stockbroker Accused of Allegedly Defrauding Over 500 Senior Investors Agrees To Disgorge Ill-Gotten Earnings

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Sidney Mondschein, a former WFG Investment stockbroker, must disgorge $53,000 in ill-gotten gains he allegedly obtained when he defrauded over 500 senior investors by selling their confidential data to insurance brokers. Last month, Mondschein settled Securities and Exchange Commission charges before the U.S. District Court for the Northern District of California.

By settling, the SEC says that the former broker is not admitting to or denying the charges. As part of his agreement, Mondschein agreed to a bar preventing him from associating with any dealers or brokers for five years. He is also permanently enjoined from violating the 1934 Securities Exchange Act’s Section 10(b) and Rule 10b-5, as well as Regulation S-P. He must also pay a $45,000 penalty.

The SEC complaint has alleged that Mondschein illegally sold for profit the confidential data of over 500 clients, almost all of them senior citizens, to six insurance agents. Information included contact information and, sometimes, the dollar figure that an investor had spent on the last annuity. This sale allowed the insurance brokers to sell the investors more annuity products, even though the majority of them already had purchased equity-indexed or fixed annuities.

The insurers reportedly paid the stockbroker anywhere from $50 to $150 for the information. Mondschein also allegedly received customer commissions from the investors that employed his services to sell securities so they could buy the new annuities.

Mondschein allegedly created UNCI Inc. so that he could carry out his investment scam. He did not tell the Financial Industry Regulatory Authority or WFG Investment that UNCI Inc. existed.

Elderly investor fraud is a problem that must be stopped. Our stockbroker fraud attorneys at Shepherd Smith and Edwards have helped many senior investor fraud victims recover their losses. Contact Shepherd Smith and Edwards today.


Related Web Resources:
SEC Makes Broker Pay for Selling Client Info, CCH Wall Street, April 29, 2008

Broker Allegedly Sold Customers' Personal and Confidential Information to Insurance Agents as Sales "Leads" for Annuity Products, SEC.gov, December 6, 2007

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Posted In: Investor Fraud , Senior Investors

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