June 30, 2008

Massachusetts Commonwealth Secretary William Galvin Sues UBS for Fraud

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Commonwealth of Massachusetts Secretary William Galvin is suing UBS because it says the investment firm pushed auction-rate securities onto investors in an effort to minimize its own losses. In his complaint, the state’s head securities regulator cited fraud as grounds for the lawsuit.

Galvin cites several e-mails that indicate that UBS told its sales team to aggressively sell the notes to as many investors as possible after the firm realized that the $300 billion auction-rate securities market was in trouble and there were beginning to be more people selling than buying.

One e-mail, dated December 15, indicates that UBS’s wealth management unit held $33 billion of the auction-rate securities and that the firm had underwritten $43 billion of the market’s securities. Galvin says UBS engaged in a “comprehensive and deliberate” strategy to minimize their inventory.

UBS Global Head David Shulman is identified in the complaint as pushing employees to find more clients to purchase auction-rate securities even though he sold his entire personal stake. The Massachusetts regulator wants UBS to buy investors out for the same prices they paid for the risky instruments and compensate investors that have sold their stakes for any losses.

UBS plans to defend itself against Galvin’s allegations. A company spokesperson says the firm is working on solutions to the frozen market that has kept so many shareholders locked into shares that were supposed to be as liquid as cash.

While some issuers, such as John Hancock and Eaton Vance have managed to get their investors out of the frozen market, UBS and many other Wall Street Firms have only been able to let clients borrow against their holdings’ value.

Please contact Shepherd Smith Edward and Kantas, LLP if you believe that broker misconduct or negligence caused your investment loss. Our stockbroker fraud lawyers have helped thousands of investors recover their losses.


Related Web Resources:

Galvin charges UBS with fraud, Boston.com, June 26, 2008

E-Mail That Investors Might Like to Read, New York Times, June 29, 2008

UBS

William Francis Galvin, Secretary of the Commonwealth

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Posted In: Auction-Rate Securities , UBS

June 27, 2008

Connecticut Brokerage Aide Must Pay $58,825 To Settle Charges He Made Unauthorized Securities Trades

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The U.S. District Court for the Southern District of New York has ordered a Connecticut man to pay $58,825 in civil penalties, prejudgment interest, and disgorgement to settle charges he engaged in a scheme to take part in unauthorized securities trades, which caused prices to rise dramatically.

The Securities and Exchange Commission says that Joshua Eudowe, who worked at a brokerage firm owned by his stepfather, Lawrence Goldstein, was not a registered representative but was brought in to help with marketing and research efforts.

In 2006, the SEC says that he made several unauthorized purchases of CreditRiskMonitor.com Inc. and FRMO Corp. stocks in client accounts of investment partnerships managed by his stepfather. Eudowe also is accused of hacking into the company Web site and using Goldstein’s password to engage in unauthorized securities trades without permission.

His unauthorized trading activities reportedly caused both FRMO and CRMZ stock prices to rise, exceeding 52-week highs. The SEC says that Eudowe sold several thousand shares at inflated prices using his own brokerage account.

As part of his settlement, Eudowe is barred from violations in the future. The Securities and Exchange Commission says that by agreeing to settle, Eudowe is not admitting to or deny wrongdoing.

Engaging in securities fraud is against the law, and if you are an investor that has lost money because of the fraudulent actions of a broker, a broker aide, or anyone else involved in the securities industry, contact Shepherd Smith Edwards & Kantas LTD LLP today.

Related Web Resource:

Read the Complaint (PDF)

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Posted In: Securities Fraud

June 25, 2008

Citigroup Settles Securities and Exchange Commission Charges Over Accounting Issues Related to Argentine Bonds

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Without admitting to our denying any wrongdoing, Citigroup has agreed to settle Securities and Exchange Commission charges that it took part in improper accounting related to specific Argentine bonds. According to the SEC, Citigroup was able to avoid paying another $479 million in pre-tax charges during the 4th quarter of 2001.

Citigroup became affected by Argentina’s economic and political problems because the bank owns Argentine government bonds and over $1 billion in Argentine-related consumer loans. Because of the crisis, the South American country’s government had to default on certain sovereign debt obligations and devalue the country’s currency.

Citibank had to make several accounting decisions, including those involving Argentine government bonds that were not eligible for bond swap, government-sponsored exchanges involving bonds for loans, the sale of Banco Bansud S.A. (a bank subsidiary that Citigroup had acquired), and the result of government actions that lead to the conversion of $1 billion in Citigroup loans to Argentine pesos.

The SEC says that Citigroup dealt with these areas in a way that did not adhere to generally accepted accounting principals, and, as a result, the bank overstated its income, which allowed it to exceed its earning expectations. Conforming to GAAP would have decreased its earnings during the 2001 4th quarter by over 8%. The SEC is also accusing Citigroup of engaging in record-keeping, reporting, and internal accounting violations of the Securities and Exchange Act.

Citigroup is not being fined, but it has agreed to cease and desist from violating securities laws in the future as part of its settlement of the charges.

If you are someone that has suffered financial losses because of the misconduct or negligence of a broker-dealer, an investment bank, or another member of the securities industry, contact Shepherd Smith Edwards & Kantas, LLP today.


Related Web Resources:

Citigroup Settles Probe of Argentine Bond Accounting, Bloomberg.com, June 16, 2008

SEC Orders Citigroup To Stick To GAAP, Stanford.edu, June 17, 2008

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Posted In: Citigroup

June 23, 2008

Another Lawsuit Against Former Merrill Lynch Research Analyst Henry Blodget is Dismissed Due to Loss Causation

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The U.S. District Court for the Southern District has dismissed a securities fraud lawsuit filed by investor Nicholas Vale against ex-Merrill Lynch Internet Group head Henry Blodget on the grounds that Vale failed to factually show how the defendant’s fraud caused his investment losses.

In his lawsuit, Vale accused Blodget of issuing bogus positive reports about Internet Capital Group Inc. and B2B Internet HOLDRs, an exchange traded fund. He says that he depended on reports by Blodget and Merrill Lynch when he bought almost 3,000 ICGE stock shares for about $300,000 in 1999 and he would not have bought the shares if not for Blodget’s reputation as a research analyst.

In 2002, the New York State Attorney General’s Office accused Merrill Lynch, Pierce, Fenner & Smith Inc., Merrill Lynch & Co. Inc., and Blodget of regularly issuing false or misleading recommendations about Internet-based stocks to try and increase the firm’s underwriting business. Merrill Lynch settled the allegations with a $100 million fine. Vale, who says that he suffered major losses after selling the shares in 2000, is one of a large number of investors that have filed lawsuits accusing Merrill Lynch and Blodget of securities fraud.

The defendants of Vale’s lawsuit, however, argued that the case should be dismissed because Vale neglected to plead fraud with requisite particularity or to plead loss causation. The District Court granted their motion, citing that Vale neglected to plead that the alleged false statements that the defendants made caused the his financial losses.

The court’s findings are similar to its “loss causation” ruling in another lawsuit against Blodget and Merrill Lynch, this one filed by investor Ronald Ventura regarding investments he made in Internet holding company CMGI.

Please call the stockbroker fraud law firm of Shepherd Smith Edwards & Kantas, LLP to discuss your investment fraud case.


Related Web Resources:

SEC Sues Merrill Lynch & Henry M. Blodget for Research Analyst Conflicts of Interest Firm and and Blodget to Settle with SEC, NASD, and NYSE, SEC.gov, April 28, 2003

The Trial Of Henry Blodget, Forbes.com, January 6, 2003

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Posted In: Securities Fraud

June 19, 2008

Lincoln Funds International Inc. and Its Principals Issued Restraining Order Following Alleged $21 Million Biotech Scam

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The U.S. District Court for the Central District of California has slapped Lincoln Funds International Inc with a temporary restraining order and told the advisory firm to temporarily freeze its assets. Judge Cormac J. Carney also appointed a temporary receiver over the assets, as well as the assets of three Lincoln Biotech Venture funds and Brookstone Capital, which is Lincoln Fund’s predecessor company.

Lincoln Funds, along with its three principals, are accused of engaging in a biotechnology investment fraud scam, raising over $21.8 million from hundreds of investors. According to the SEC, Robert L. Carver, his son Robert L. Carver II, and James L. DeMer sold securities in Lincoln Funds, the three biotech funds, and Brookstone Capital while making “baseless predictions” and promising that there would be initial public offerings at the two companies.

The Commission charges that the defendants took part in “sham transactions” to make it appear as if Lincoln Funds was not associated with Brookstone or Carver because both had been subject to state regulatory orders. It is also accusing the defendants of misappropriating and misusing at least $2.5 million in investor funds, defrauding the partnerships as a result.

The SEC has charged all defendants with fraud in the offer or sale of securities, unregistered offer and sale and securities, investment advisor fraud, and purchase/sale securities-related fraud. The three principals are also charged with failure to register as a broker dealer.

The SEC complaint seeks to enjoin the defendants from further federal securities law violations, as well as disgorgement, an asset freeze, and civil penalties.

The California Department of Corporations has also ordered Lincoln Funds and two of its principals to cease and desist from securities transactions involving misleading or bogus statements.

If you have are the victim of investment fraud, our stockbroker fraud law firm can help you explore your legal options for recovery. Contact Shepherd Smith Edwards & Kantas today.

Related Web Resources:

SEC Halts a $21 Million Fraud Involving Biotech Investment Funds, SEC.gov

The California Department of Corporations Cease-and-Desist Order (PDF)


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Posted In: Investor Fraud

June 18, 2008

SEC Judge Slaps Next Financial Group With $125,000 Fine Over Recruiting Practices

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Securities and Exchange Commission Administrative Law Judge James T. Kelly is ordering Next Financial Group Inc. to cease and desist from recruiting practices that violate privacy laws. He also has slapped the company with a $125,000 penalty.

Recruiting practices that need to stop included those involving use of clients’ private information. Next has been known to ask recruits to provide their user id and password so that the firm could enter the computer systems of the recruits’ brokerage firms and collect clients’ non-public personal information.

The SEC had originally requested that the judge impose a $325,000 on Next. Judge Kelly, however, acknowledged that there is general confusion within the securities industry about Regulation S-P, which implements stricter privacy laws under the Gramm-Leach-Bliley Act of 2000. However, even Next’s expert witnesses agreed that using the passwords and user ID’s of recruits in this way is not in line with normal industry practices.

Judge Kelly also acknowledged that the SEC did not present any evidence that clients had been “substantially” harmed or inconvenienced by this recruiting practice.

Next Financial reported a gross revenue of $114.3 million in 2007. The independent broker-dealer has about 880 affiliate representatives.

Our stockbroker fraud law firm is dedicated to investors recouping investments lost as a result of broker-dealer misconduct or fraud. Contact Shepherd Smith and Edwards today.


Related Web Resources:

Next spanked for recruiting practices, InvestmentNews.com, June 18, 2008

Next Financial


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Posted In: Broker-Dealers , Financial Firms , Next Financial

June 16, 2008

SEC and State Regulators Probe Whether UBS Played a Role in Auction-Rate Securities Collapse

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The Boston Globe says it has reviewed documents that indicate that UBS Financial Services continued selling municipal bond investments without warning clients of the risks even though the firm already knew that trouble was brewing. Yet when the $330 billion auction-rate securities market shut down in February, UBS brokers expressed surprise at the collapse.

This lack of disclosure is in contrast to UBS’s dealings with some of its bigger clients. The investment bank reportedly advised them of the pending problems at least three months before all trading ended. All this indicates that there is a possibility that UBS played a bigger part in the auction-rate securities collapse than it has owned up to, and the Securities and Exchange Commission and New Hampshire and Massachusetts regulators are investigating this matter—in addition to trying to determine whether UBS did in fact mislead investors.

UBS has acknowledged that it did not give some investors enough warning, and it has refused to explain why it warned other clients about the auction-rate securities risks. If only one side of UBS did in fact know about the upcoming auction-rate securities crisis and did not warn the other side, securities attorneys say that the investment firm could be in legal hot water.

In a settlement with Massachusetts Attorney General Martha Coakley, the firm is paying back $37 million in auction-rate securities to the Massachusetts Turnpike Authority and 18 Massachusetts cities and towns. A UBS spokesperson says that the company is also offering clients cash loans while using the investments they can’t access as collateral.

One investor, 73-year old New Hampshire resident Richard Stahl, says he has $650,000 that is frozen in auction-rate bonds. He claims that UBS did not tell him that he was dealing with the risk of “failed auctions." He is now unable to sell his municipal bonds. Stahl says that he has asked UBS to repay him, but he received a letter from UBS Assistant General Counsel Kenneth A. Christie rejecting his request.

If you believe you lost money because a broker-dealer did not warn you of the potential risks associated with your investment, contact Shepherd Smith and Edwards today.


Related Web Resources:

Wall St. firm told only some about risk, Boston.com, June 9, 2008

Auction-Rate Securities Practices and Procedures, UBS

Holders of Auction-Rate Debt Have Choices, but Few Solutions, Wall Street Journal, June 12, 2008

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Posted In: Auction-Rate Securities , UBS

June 12, 2008

Former JP Morgan Chase and Credit Suisse Banker is Sentenced to 10 Years in Prison for Insider Trading Tip Scam

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In the U.S. District Court for the Southern District of New York, former JP Morgan Chase and Credit Suisse investment banker Hafiz Muhammed Zubair Naseem was sentenced to 10 years in prison for his involvement in an insider tip scam.

Prosecutors say that Naseem retrieved insider information from the internal bases of both Credit Suisse and JP Morgan Chase. Confidential information that he pulled from Credit Suisse’s files included data related to possible deals with TXU Corp., John H. Harland Co., Caremark Rx Inc., Hydril Co., Trammell Crow Co., Jacuzzi Brands Inc., Veritas DGC Inc., Energy Partners Ltd., and Northwestern Corp.

Insider information from JP Morgan Chase dealt with possible transactions in Engineered Support Systems, Computer Science Systems, Alliance Data Systems, K2 Inc., Education Management Corp., Aramark Corp., Huntsman Corp., and Northwestern Corp.

Prosecutors also say that Naseem was observed going through papers on analysts’ desks. Naseem would then give the information he acquired to Ajaz Rahim, the investment banking head of Faysal Bank in Pakistan. The two men would then use the information to execute securities transaction.

The investment scheme netted over $7.5 million, and Naseem and Rahim were charged last year. Naseem was convicted on 29 counts of insider trading, and a warrant is still out for Raheem’s arrest.

District Court Judge Robert P. Patterson ordered forfeiture of $7.5 million, three years of supervised release, and a mandatory $2,900 special assessment. Naseem’s lawyer calls his client’s sentence “grossly unfair.”

Investment bank-related misconduct is against the law. If you are an investor who has lost money because of securities fraud, contact Shepherd Smith and Edwards today.


Related Web Resources:

Convicted investment banker to file appeal, Dawn.com, June 10, 2008

Former Credit Suisse Investment Banker Sentenced To 10 Years In Prison For Insider Trading, News for Press.com

Feds Charge Prominent Pakistani Banker In CSFB-TXU Insider Trading Case, Dealbreaker.com, May 30, 2007

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Posted In: Credit Suisse , Insider Trading , J P Morgan - Chase

June 10, 2008

State Regulators Investigate World Financial for Deceptive Sales Practices

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Security regulators in Missouri, Utah, and a number of other US states are accusing World Financial Group of making variable annuities sales that are unsuitable and misrepresenting investment returns. A number of World Financial customers have filed private arbitration claims making similar allegations.

World Financial is owned by Dutch insurer Aegon NV. World Financial's agents sell annuities, life insurance, and mutual funds. Unlike more traditional sales teams, however, agents make money based on a pyramid-like multilevel sales system. The agents receive most of their compensation from their recruitment of new agents rather than products sales, including a portion of the commissions that the new agents make.

In a 2006 investor presentation, Aegon USA CEO Patrick Baird called World Financial a “real recruiting machine.” The company reportedly has over 18,000 licensed insurance agents and brokers and, according to an Aegon executive in 2006, about 80,000 “producers,” which includes unlicensed and part-time members. Those who meet sales goals are awarded jewelry and trips to the top of the Transamerica Building in San Francisco that is owned by Aegon. Clients are sometimes invited to join the company’s sales force.

Some state securities officials, including those in Iowa, Alabama, and Minnesota, have filed lawsuits to bar inappropriate sales practices by World Financial. In 2006, Missouri’s securities commissioner fined World Group Securities and broker Jolee Martin $150,000 for enticing seniors to invest $1.2 million in “unsuitable” variable annuities.

Martin and World Group Securities earned $98,000 in commissions from these transactions. Martin accepted the sanctions, including a four-month suspension and a five-year bar from handling accounts or selling variable annuities to anyone over 65 years of age, but did not admit or deny wrongdoing.

Utah’s Division of Securities has cited at least four World Group Securities brokers since 2006. One couple, Robert and Raleine Allen, filed an NASD arbitration claim against World Group Securities last year alleging misrepresentation that caused them to lose over $500,000 on products that were unsuitable for their risk tolerance. A judge forced the company into arbitration over the proceedings, and a settlement with the Allens was reached.

If you are the victim of inappropriate investment sales practices or any other kind of broker misconduct, contact Shepherd Smith and Edwards today.

Related Web Resources:

World Financial Group Inc.

Aegon NV

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Posted In: Broker Fraud , Miscellaneous

June 6, 2008

Former SEC Commissioner Nazareth Says The US Not Keeping Up with Evolving Investment Markets

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Former Securities and Exchange Commissioner Annette Nazareth says that those in charge of overseeing the US financial markets are years behind when it comes to “rethinking regulation” and modernizing the structure required to keep up with the changing investment markets. Nazareth voiced her concerns to the US Chamber of Commerce during a forum about financial regulation last month and talked about how US regulation was lacking compared to other “respectable jurisdictions with robust economies that have rethought regulation.”

Recently, the US Treasury Department recommended the merging of the Securities and Exchange Commission and the Commodity Futures Trading Commission as part of a “blueprint” to restructure financial regulation. Nazareth did not directly endorse this recommendation, but she did talk about how a lot of existing regulation either leaves gaps or is redundant.

Nazareth also noted that while Sarbanes-Oxley imposed “burdensome” regulations, Congress has deregulated the futures markets. She said that there is a lot of business that exists on the cusps of securities and futures and that major issues that are key to the economy are not being systematically tackled.

The former SEC commissioner called for a return to “first principles,” including a renewed focus on the issues of who should regulate, why regulation is necessary, and who the regulations there to protect. She suggested that policy makers forego ego concerns and focus on what is good for the economy and for the markets.

Another former SEC Chairman, Harvey Pitt, was also part of the panel. He criticized the current focus on enforcement and regulation, which he says appears to blame and punish more than focus on what will help the capital markets work better. He also recommended that regulated entities work together with their regulator to ensure that everyone is aware of expectations and how to meet them.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents the victims of investor fraud. Your first consultation with one of our securities fraud attorneys is free.

Treasury Recommends SEC, CFTC Merge, CCH Wallstreet, April 7, 2008

Sarbanes-Oxley

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Posted In: Miscellaneous

June 4, 2008

Student Lender Brazos Group Inc. Wants Citigroup, Bank of America, and Other Banks to Solve Problems Caused By Auction-Rate Securities Market Crisis

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Student-loan company Brazos Group Inc. is $12 billion in debt, $7 billion of which it is unable to purchase back, refinance, or restructure. The company, which is the largest municipal borrower in the auction-rate securities market, wants Citigroup, Bank of America, and other banks to find a solution.

During the fiscal years of 2005-2007, Brazos used bonds to increase lending to $11.19 billion. However, Brazos and over 100 student lenders stopped making government-backed loans earlier this year when 98% of auctions to set rates on their debt did not attract enough bidders.

Brazos stopped making any more loans after the auction-rate securities market fell and currently pays about 5% on auction bond rates while getting 4% back on loans behind the securities.

It wasn’t until after the US Department of Education said it would purchase guaranteed student loans that Brazos said it would start lending again. This still will not allow the student lender to refinance or restructure its auction rate securities because funds for this new plan will go to new loans.

Brazos, like other student lenders, had to let go of many of its employees in the wake of the auction-rate securities market crisis and Congress's approval of legislation to reduce subsidies to providers by $20.9 billion over the next five years.

If you are an investor who has lost money because of the misconduct or negligence of someone in the securities industry, our stockbroker fraud law firm may be able to help you. Contact Shepherd Smith and Edwards today.


Related Web Resources:

Brazos

Brazos Auction-Rate Yields Exceed Loan Interest Rates, Bloomberg.com, June 2, 2008


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Posted In: Auction-Rate Securities

June 3, 2008

SEC Charges North American Clearing, Inc. With Misusing Customer Funds

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The U.S. District Court for the Middle District of Florida has granted the Securities and Exchange Commission’s motion for emergency relief, including an asset freeze, to prevent North American Clearing Inc. from misusing customer funds. The general securities and clearing brokerage company is accused of using client funds to finance its daily operations and conceal its financial state.

The SEC says it also obtained an order appointing a receiver over North American Clearing, as well as a temporary restraining order. The SEC had filed securities fraud and other charges against North American, its president Bruce B. Blatman, its director and founder Richard L. Goble, and ex-financial and operations principal Timothy J. Ward on May 27, 2008 one day before the district court granted its requests.

With approximately 40 correspondent brokers, North American Clearing Inc. handles over 10,000 customer accounts. The SEC says that its own actions indicative of the SEC’s dedication to protecting investors.

The misconduct allegedly started earlier in 2008 when the SEC says that the clearing company used customer securities as collateral to obtain a bank loan. It also increased its reserves in an account that is supposed to benefit clients. As a result, the clearing company’s own funds for daily expenses became depleted.

The SEC charges that North American "improperly sold customer money market funds as a means of temporarily freeing up funds that it then used to pay for daily operating expenses” on several occasions and that the defendants acted to overstate net customer money-market purchases. North American then illegally withdrew over $3 million from its customer reserves.

Any investors who loses money because of the misconduct of a broker-dealer, a financial adviser, or another member of the securities industry is entitled to legal remedies so they can get their money back. Contact the stockbroker fraud law firm of Shepherd Smith and Edwards today.

Related Web Resources:

Securities and Exchange Commission v. North American Clearing, Inc., et al., Civil Action No. 6:08-CV-829-Orl-31-GJK (M.D. FL) (May 27, 2008), SEC.gov, May 28, 2008

North American Clearing

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Posted In: Broker-Dealers

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