February 27, 2009

Morgan Stanley Court Case Demonstrates Why Securities Arbitration is Often a Better Forum

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Many lawyers and investors complain about securities arbitration. According to Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Attorney William Shephard, however, the following Morgan Stanley case is “one of many cases filed in court which would have likely not been dismissed in securities arbitration.”

Earlier this month, the U.S. District Court for the Southern District of New York tossed out a securities class action lawsuit filed against Morgan Stanley, Morgan Stanley DW Inc. (MSDWI), Morgan Stanley & Co. Inc. (MS&Co.), the Technology Fund, the Information Fund, Morgan Stanley Investment Management Inc., Morgan Stanley Investment Advisors Inc. (MSIA), and Morgan Stanley Distributors Inc. The class action case is on behalf of investors in the Morgan Stanley Information Fund and Morgan Stanley Technology Fund over alleged improprieties in initial public offering shares allocations, as well as alleged conflicts of interest between Morgan Stanley’s research and investment banking departments.

According to the court, the investors claim they lost millions of dollars in the purchase of the funds as a result of violations of the 1933 Securities Act. The plaintiffs are also claiming that Morgan Stanley, MSDWI, and MS&Co. publicly said that they kept a “Chinese Wall” between their research and investment banking departments so there wouldn’t be any conflicts of interest when, in fact, this wall had fallen and MS & Co. was acting to benefit its investment banking departments. They also claim they were told that analyst recommendations and research were not influenced by the interests of Morgan Stanley or its affiliates.

Among the conflicts of interest, the investors are alleging that the defendants engaged in at least one of the a number of roles involving companies that with shares included among the funds’ portfolio securities for the class periods, including:

• As underwriters for certain securities.
• As investment bankers for certain companies with securities in the funds’ portfolios.
• Preparing and sending out research reports and recommendations about companies that had shares in the funds’ portfolios.
• Trying to get first-time or more underwriting and additional business from the companies that had shares in the portfolios.

The plaintiffs contend that MS & Co. factored in how much investment bank business research analysts were able to secure when determining their total compensation. This resulted in MS & Co.'s promotion of Morgan Stanley shares or those of potential clients, which then would lead to the price inflation of the companies’ shares. They also claimed that the portfolio funds had a substantial amount of Morgan-Stanley sponsored-stocks and that Morgan Stanley took part in “laddering,” which involved rewarding customers with “hot” IPO shares when they went after research tie-ins that artificially inflated an IPO stock’s aftermarket share price.

The court, however, dismissed the lawsuit saying that the plaintiffs failed to plead material omissions that Morgan Stanley should have disclosed.

Related Web Resources:
Morgan Stanley Suits Over Conflicts Tossed, Law360.com, February 4, 2009

Morgan Stanley

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Posted In: Arbitration , Class Action Lawsuits , Financial Firms , Morgan Stanley

February 26, 2009

Bank of America, Citigroup, Goldman Sachs, and Wells Fargo Chief Executives Among Those Defending Bailout Fund Use

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Earlier this month, the chief executives of the eight biggest banks in the United States, including Citigroup, Bank of America, Wells Fargo, and Goldman Sachs addressed the House Financial Services Committee in an attempt to persuade US lawmakers that billions of dollars in bailout funds were used as intended—to increase consumer and business lending and improve balance sheets. The banking heads also admitted to certain mistakes and promised that compensation in the future would be commensurate with performance.

Under the Capital Purchase Program, the federal government gave the banks $125 billion in cash infusions in November. Bank of America and Citigroup also received $20 billion each in Treasury investments.

At the session, some of the bank executives gave testimony regarding activities performed since they received the government’s financial assistance. For example, Kenneth Lewis, Bank of America’s chief executive, says that during 2008’s fourth quarter, the bank committed to $115 billion in new loans.

Vikram Pandit, Citigroup’s chief executive, said his bank had provided $75 billion in new loans for the fourth quarter. He also said that Citigroup had used $36.5 billion to expand personal loans, mortgages, and credit lines for businesses, families, and individuals, as well as to create secondary market liquidity. He said Citigroup had cancelled an order for a $50 million jet.

While the executives were contrite, Committee Chairman Barney Frank criticized them for giving executives bonuses, in addition to salaries. Lawmakers also asked the banks’ executives to stop home foreclosures until the Obama Administration can executive a $50 billion plan on mortgage modifications and other assistance for borrowers that are experiencing problems.

John Stumpf, Wells Fargo's chief executive, said that his bank could hold off on foreclosing on loans in which it is the investor or owner. Pandit said Citigroup could support a moratorium for borrowers that live on properties facing foreclosure. Lewis said Bank of America could place a moratorium on home foreclosure for two or three weeks.

Related Web Resources:
Foreclosures halt by Bank of America, Citigroup, JPMorgan, Wells Fargo, UB-News.com, February 14, 2009

Fed Urges Banks to Put Bailout Funds Into Loans, Not Dividends, Bloomberg.com, February 24, 2009

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Posted In: Bank of America , Citigroup , Financial Firms , Goldman Sachs , Wells Fargo

February 25, 2009

Credit Suisse Securities Ordered by FINRA Panel to Pay $406 Million for Improper ARS Sale to Semiconductor Manufacturer STMicroelectronics NV

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A Financial Industry Regulatory Authority Panel says Credit Suisse Securities must pay STMicroelectronics $406 million. The award, issued in favor of the semiconductor manufacturer, is over Credit Suisse Securities's sale of unauthorized auction rate securities. Consequential damages and legal fees are also part of the FINRA award. STMicroelectronics also gets to keep some $25 million in interest award.

STMicroelectronics N.V. had filed for arbitration because Credit Suisse had made unauthorized purchases of credit link notes and collateralized debt obligations when it should have bought student loan securities that were Federally guaranteed, which was what the semiconductor company had mandated and authorized. STMicroelectronics N.V. says Credit Suisse Group engaged in fraud because of its actions.

Also, in STMicroelectronics's securities fraud lawsuit against Credit Suisse Group, which was filed last year, the semiconductor company alleged that Credit Suisse purposely set out to defraud the company. It also claims that transferring clients’ accounts into auction-rate securities was part of a plan to receive higher fees for the service it was providing.

FINRA Arbitration
FINRA provides a dispute resolution forum for business disputes between investors, individual registered representatives, and securities firms. Recent FINRA dispute resolution statistics through January 2009:

• 525 cases filed through January 2009
• 267 cases were closed

FINRA Dispute Resolution has the biggest securities dispute resolution forum in the world. FINRA oversees nearly all such mediations and arbitrations in the United States.

STMicroelectronics Sues Credit Suisse Over Securities, The New York Times, August 7, 2008

FINRA Awards STMicroelectronics $406 Million Against Credit Suisse Securities (USA) LLC, PRNewswire.com, February 16, 2009


Related Web Resources:
STMicroeiectronics N.V. (Claimant) vs. Credit Suisse Securities (USA) LLC
(Respondent), Case Number: 08-00512, FINRA

Credit Suisse

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Posted In: Credit Suisse , Financial Firms

February 22, 2009

Houston Stockbroker Fraud Law Firm to Represent Stanford Bank Investors Living in Latin America

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In the wake of the US Securities and Exchange Commission's accusations that R. Allen Stanford allegedly operated multibillion-dollar fraud scheme through Stanford Group. Co., Stanford investors in Ecuador, Panama, and Venezuela have been contacting the Stanford International Bank’s affiliates in their countries in an attempt to close their accounts. Stanford has Latin American offices in Mexico, Venezuela, Peru, Ecuador, Colombia, and Panama. Stanford and his cohorts are accused of selling securities worth $8 billion in certificates through a bank in Antigua.

Among the reactions from certain Stanford affiliates and Latin American governments:
Stanford Bank Venezuela SA, a separate bank that is commercially affiliated with Stanford Financial Group. Co, says it possesses enough liquidity to be in compliance with international and local standards. In Panama, the country’s banking authority says Stanford Bank of Panama SA had $41.8 million in capital in January 2009 (The Panamanian government, however, does not insure the deposits). In Bogota, the securities exchange says that stock transactions by the Stanford Financial Group’s brokerage unit In Columbia appeared to operating per usual last week. Unfortunately, however, thousands of Stanford clients in Latin America may be victims of this international, multibillion-dollar scam.

Venezuela, Peru, Panama, Ecuador, and Colombia have already taken steps against Stanford-owned companies in their countries to help investors. For example, the Venezuelan Finance Minister announced the decision to sell Stanford-owned companies. Meantime, the securities regulator in Peru suspended operations at the local Stanford Financial group office and promised to help secure investors’ funds. Ecuador suspended a Stanford affiliate until claims are resolved or for 30 days.

The Houston-based stockbroker fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP, LP represents investors from all over the world who have been victims of investment fraud. We are committed to representing victims of the $8 billion Stanford fraud scheme in cities throughout the United States and abroad. Rather than filing a class action lawsuit, we are choosing to handle each client's case on an individual basis—we believe this allows each client to recover more. Contact our Houston, Texas stockbroker fraud lawyers today.

Related Web Resources:
Latin America takes action over local Stanford companies, AFP, February 19, 2009

Stanford Bank’s Clients in Latin America Seek Funds, Bloomberg.com, February 17, 2009

Stanford Group Co.

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Posted In: Stanford Group Co.

February 20, 2009

Wachovia Fined More than $4.5 Million by FINRA for Sales Violations Involving Mutual Funds and Trusts

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Two Wachovia units have agreed to fines totaling over $4.5 million for violations related to the sales of unit investment trusts and mutual funds. The Financial Industry Regulatory Authority announced the fines last week. By agreeing to settle, Wachovia, which is now owned by Wells Fargo Bank, is not admitting to or denying wrongdoing.

Wachovia Securities is being fined $4.4 million for failing to give investors sales-charge discounts for eligible unit-investment-trust-transactions, for not making sure investors were given the benefit of net-asset-value transfer programs whenever they were applicable in mutual fund purchases, and for unsuitability violations involving Class B and Class C mutual fund shares.

FINRA also says Wachovia Securities neglected to provide breakpoint and rollover discounts connected to over 20,000 unit-investment-trust purchases. As a result, customers ended up paying excess sales charges worth about $2.7 million.

When a customer pays a sales charge, NAV transfer programs let clients redeem fund shares and use these proceeds to purchase shares in a different mutual fund without having to pay another sales charge. FINRA cites Wachovia’s failure to ensure that investors availed of these kinds of programs as the reason customers ended up paying front-end charges they shouldn’t have or purchasing share classes that were accompanied by higher fees. Also, Wachovia Securities Financial Network must pay a $150,000 fine for the improper sale of Class B shares. Both firms were cited for inadequate supervisory procedures connected to the transactions.

According to FINRA enforcement chief Susan Merrill, failing to recommend an appropriate share class or present existing discounts creates additional costs to investors. She cautioned that regulated firms should take into account all applicable factors when making recommendations to clients.

Wachovia says that its units have returned over $5.4 million to customers affected by the violations.


Related Web Resources:
FINRA Fines 2 Wachovia Units Over $4.5 Million For Sales Violations

Financial Industry Regulatory Authority

Wachovia Securities

Wachovia Securities Financial Network

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Posted In: Financial Firms , Wachovia

February 19, 2009

Multibillion-Dollar Stanford Securities Fraud Scam Has Investors Contacting Houston Stockbroker Fraud Lawyers for Help

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The Securities and Exchange Commission is charging Robert Allen Stanford and three of his companies for their alleged involvement in a multibillion dollar investment fraud scheme. His companies that are named in the complaint include Stanford International Bank (SIB), Stanford Group Company (SGC), which is a Houston-based investment adviser and broker dealer, and Stanford Capital Management, which is based in Antigua. The SEC is asking for emergency relief for the investors that have been victimized by the alleged scheme.

The SEC complaint, filed in Dallas, Texas accuses Stanford and friends and family that he works with of orchestrating the investor scam. The SEC claims that SIB used SGC financial advisers to sell some $8 billion worth of “certificates of deposit” to investors with the promise they would receive high interest rates that were, in fact, unsubstantiated and improbable. The SEC says the defendants misrepresented these CD’s when they told investors that they were safe.

The SEC complaint also contends that another scam involving $1.2 billion in sales of Stanford Allocation Strategy (SAS), which is a proprietary mutual fund wrap program, involved the use of materially bogus historical performance information that helped SGC to grow the SAS program from under $10 million in 2004 to over $1 billion. In 2007 and 2008 , SGC earned fees of about $25 million as a result. The program’s bogus performance was used to bring in registered investment advisers with substantial books of business. These advisers were then provided with substantial incentives to transfer client assets to SIB’s CD program.

Following the SEC's request for relief, a US district court judge frozen the assets of the defendants, issued a temporary restraining order, and named a receiver to take charge of the assets.

Robert Allen Stanford is from Texas. His businesses have attracted a wide range of investors, including young businessmen, middle-class Americans, and retirees wanting to place their money in short-term CD’s in exchange for higher returns.

In Houston, Stanford investors are reacting to news of the alleged investment scam and hundreds of them have been reaching out to Stanford investment advisers to find out how to get their money back. “Many people automatically thought Stanford CD’s were insured,” says Shepherd Smith Edwards & Kantas, LLP Founder and Stockbroker Fraud Attorney William Shepherd. Now, however, there are reports this may not have been the case. The Texas securities fraud lawyer and his partners are being contacted by many Stanford investors who are worried about their money.

Shepherd Smith Edwards & Kantas LTD LLP is one of the largest securities fraud law firms in the United States that represents investors who wish to recover their investment losses. Over the last two decades, we have handled over a thousand cases against financial firms for our investors. We are currently at “ground zero” with this case.

SSEK Investment Fraud Attorney Shepherd says, "Class action cases seeking losses in investments have historically resulted in recovery of less than 10% of what the investor's lost." Our securities fraud law firm will handle each Stanford investor’s claim individually.

Related Web Resources:
SEC Charges R. Allen Stanford, Stanford International Bank for Multi-Billion Dollar Investment Scheme, SEC.gov, February 17, 2009

Read the SEC Complaint (PDF)

Stanford International Bank

Stanford Group Company

Stanford Capital Management


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Posted In: Financial Firms , Investor Fraud , Stanford Group Co. , Texas Securities Fraud

February 18, 2009

Merrill Lynch, Pierce, Fenner & Smith Inc To Settle SEC Charges of Pension Consulting Business-Related Violations for $1 Million

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Merrill Lynch, Pierce, Fenner & Smith Inc has reached a $1 million settlement agreement with the Securities and Exchange Commission over charges that the broker-dealer misled its pension consulting clients by neglecting to disclose conflicts of interest. By agreeing to settle, Merrill Lynch is not denying or admitting wrongdoing. The investment firm will, however, cease and desist from committing future violations.

According to the SEC, Merrill Lynch recommended that clients pay hard dollar fees using directed brokerage. The firm's investment advisers, however, failed to mention that choosing this option—which would direct trades to be executed through Merrill—could allow the company and its investment adviser representatives to receive substantially higher revenues. The SEC also accused Merrill Lynch of neglecting to reveal a similar conflict of interest when it recommended to clients that they utilize the firm’s transition management desk and of making misleading statements about the firm’s process for identifying new money managers.

SEC charges against Merrill Lynch include anti-fraud provision violations, failure to maintain specific records, and failure to supervise its investment advisers in the Ponte Vedra South office in Florida.

Also cited by the SEC for misleading pension consulting clients about the way Merrill identified new money managers is Jeffrey Swanson. The former Merrill adviser agreed to case and desist from violating the 1940 Investment Advisers Act in the future. By agreeing to the censure, however, Swanson is not admitting to or denying wrongdoing.

The SEC also censured former Merrill Lynch adviser Michael Callaway for breach of fiduciary duty when he made misrepresentations about the manager identification process and his compensation related to transition management services. The SEC says Callaway should have made sure that any conflicts of interest should have been revealed to clients. Both Callaway and Swanson were from the Florida office.

The SEC says that the outcome of this case should remind investment adviser representatives that they must disclose all conflicts of interest when offering advice to clients.

Related Web Resources:
SEC Charges Merrill Lynch With Misleading Pension Consulting Clients, SEC, January 30, 2009

Read the SEC Administrative Proceeding Against Merrill Lynch, Pierce, Fenner & Smith, Inc., January 30, 2009 (PDF)


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Posted In: Financial Firms , Merrill Lynch , SEC Enforcement

February 16, 2009

Wachovia and SEC’s Finalized Auction-Rate Securities Settlement Will Provide Over $7 Billion in Liquidity to Investors

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Wachovia Securities, LLC and the Securities and Exchange Commission have reached a finalized settlement to resolve charges that the company mislead investors when selling billions of dollars worth of auction-rate securities. Under the terms of the agreement, Wachovia would purchase ARS from non-profit organizations, individuals, and clients with accounts worth up to $10 million. This phase ended on November 28, 2008 and Wachovia has bought back over $6.2 billion in ARS from clients as of that date.

During a second buyback phase running from June 10 – 30, 2009, Wachovia will repurchase ARS it sold to its other clients. Fulfillment of the terms of the settlement will give thousands of investors over $7 billion in liquidity.

The terms of Wachovia’s agreement with the SEC are similar to the ones it reached with the North American Securities Administrators Association and New York Attorney General Andrew M Cuomo’s office, which mandated that Wachovia pay a $50 million fine and buy back the ARS it sold to investors. Following completion of this latest settlement's terms, the SEC will determine whether Wachovia needs to pay a fine. By agreeing to settle, Wachovia is not admitting to or denying wrongdoing.

The SEC, the North American Securities Administrators Association, and Cuomo have alleged that sales representatives purposely misled investors about ARS liquidity in 2008 (even though they knew as early as late 2007 that the ARS market was beginning to collapse) when they claimed the securities were equivalent in liquid to cash. The market fell on February 14, 2008 when Wachovia and other broker-dealers stopped supporting the auctions, causing segments of the ARS market to freeze and leaving thousands of clients without any means of recovering their funds.

Just recently, Cuomo’s office concluded its probe into Wachovia’s ARS activities and issued an Assurance of Discontinuance.

Related Web Resources:
SEC Finalizes ARS Settlement to Provide $7 Billion in Liquidity to Wachovia Investors, SEC.gov

Read the SEC Complaint

NY State Attorney General Andrew Cuomo's Office

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Posted In: Auction-Rate Securities , Financial Firms , Wachovia

February 14, 2009

Annuity Investors Should Not Rely on Class Actions to Recover Their Losses

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Thousands have lost in investments into annuities issued by AXA Equitable Life Insurance Co., Nationwide Life Insurance Co., AIG SunAmerica Life Assurance Co., and Variable Annuity Life Insurance Co. A class action was filed on these investors’ behalf, but, as has happened to millions of investors in the last decade, they have now also become victims of Congress and the courts.

Investors who do not “opt out” of class actions in securities cases can severely harm their chance of ever recovering. It may be best for those with small or weak claims to let the class action lawyers get rich, while only sending them a few “pennies on the dollar” (The average securities class action produces less than 10% net recovery to investors). It is better than nothing, but those who lost hundreds of thousands or millions of dollars should consult an attorney of their own. It is also best if they go to one who will not charge them to review their options.

State securities laws, along with claims for fraud, negligence, or breach of contract and fiduciary duty, are usually the best route to recovery for investors. However, Wall Street has managed to persuade Congress to confine securities class actions to the Federal Securities laws and to gut investors’ rights under these federal laws. Fortunately, investors can take action under state laws.

In an unpublished opinion, the U.S. Court of Appeals for the Fourth Circuit affirmed that the Securities Litigation Uniform Standards Act preempts the litigation of variable annuity investors who were allegedly harmed by market timing involving mutual funds that were part of their investment allocations. SLUSA closes a loophole that exists in the 1995 Private Securities Litigation Reform Act. The latter lets plaintiffs who file their lawsuits in state court avoid the securities fraud pleading requirements of the PSLRA.

According to the court, the plaintiffs bought variable annuities from the defendants.The court said the variable annuities at issue in this case involve mutual funds with foreign securities.

The policyholders of these annuities allocate their funds into different investment accounts offered by an annuity. Policyholders that decide to invest in a variable account then apportion funds into sub-accounts, each one corresponding with a mutual fund that the defendants have made investments in. The funds placed in these sub-accounts are entered into a pool of assets belonging to the defendants. This money is used to buy the designated mutual funds’ shares.

Rather than being given ownership of the mutual funds, policyholders are given sub-account accumulation units that are in proportion to the amount of money they’ve placed in the sub-account. The sub-account’s AU value is determined once a day when trading ends on the New York Stock Exchange. The defendants use each securities’ closing trade price in its home market to determine a mutual fund’s NAV. Because foreign securities markets close before 4p, their closing prices are a number of hours old by the time the NAV is calculated. Also, the NYSE’s value movements that happen after the close of the foreign securities markets frequently foreshadow movements that might occur in the markets the following day.

This allows short-traders to take advantage of “stale” foreign securities prices by selling or buying shares belonging to a mutual fund’s corresponding sub-account and then rapidly buying or selling the shares when the foreign market shows the most current value movement.

The court said market timing by annuity holders adversely affects sub-account holders’ interests. However, the court also said the class action was brought for variable annuity policyholders who invested in sub-accounts with corresponding mutual funds that had foreign securities and that no market timing had occurred.

The four actions were filed in Illinois state court. The defendants moved the actions to the U.S. District Court for the Southern District of Illinois and requested a motion to dismiss them because of SLUSA preemption. The plaintiffs sought to have the cases remanded due to lack of subject matter jurisdiction. Before a ruling could be made by the district court, the actions were sent to the U.S. District Court for the District of Maryland and consolidated with other market timing cases.

Plaintiffs then tried to avoid SLUSA preemption by amending their four cases to one assertion: that they were exposed by the defendants to market timing's diluting effects. However, the district court granted the defendants' motion to dismiss due to SLUSA preemption. The court said that since the plaintiffs were non-trading securities holders, the defendants could not have made misrepresentations connected to the sale or purchase of securities to the plaintiffs, as the latter party has alleged.

Please contact the investment fraud law firm of Shepherd Smith Edwards and Kantas, LLP. We would like to review your case for free.

Related Web Resources:
AIG SunAmerica Life Assurance Co, Hoovers.com

AXA Equitable Life Insurance Co.

Nationwide Life Insurance Co.

Variable Annuity Life Insurance Co., Yahoo Finance

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Posted In: Annuities and Insurance

February 13, 2009

UBS Sued by New Orleans Employees’ Retirement System for Alleged Tax Scam that Helped the Rich While Causing Investor Losses

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In the US District Court for the Southern District of New York, UBS AG was named as a defendant in a class action lawsuit alleging that the company engaged in a tax scam designed to help rich US investor avoid federal taxes. The plaintiff in the case is the New Orleans Employees Retirement System, which includes purchasers that publicly traded UBS securities between May 4, 2004 and January 26, 2009.

The 120-page complaint says that UBS would encourage analysts and investors to consider “new net money” that came to the investment bank during each reporting period as a major indicator of the company's performance and future prospect. The securities fraud class action lawsuit, however, contends that UBS employed a fraudulent scam to lure a material amount of this “new net money.” This scheme also helped extremely rich US investors avoid federal taxes by placing billions of their dollars in undeclared Swiss bank accounts.

The New Orleans Employees' Retirement System claims the investment bank's Swiss bankers acted improperly and violated Securities and Exchange Commission regulations when they sold securities in the United States even though they lacked the necessary licensing. The plaintiff contends that UBS's fraudulent actions led to the firm generating fees worth hundreds of millions of dollars each year and that these funds were used to create more loans through fractional lending.

The lawsuit also accuses UBS of taking action to conceal the tax scam from investors, the Internal Revenue Service, and the Department of Justice while purposely making it appear that the firm’s Wealth Management division was growing at an unprecedented pace.

The plaintiff says UBS's claims that it had “robust internal controls” and “state of the art risk management tactics” were misleading and false because while UBS was providing these reassurances to investors, it was in fact engaged in its tax evasion scam.

In addition to UBS, defendants in the class action case include Marcel Ospel, Phillip Lofts, Peter Wuffli, Mark Branson, Peter Kurer, Martin Liechti, Peter Kurer, and Raoul Weil.

The putative Class is seeking billions of dollars in damages.

Related Web Resources:
The New Orleans Employees' Retirement System, Through Its Counsel Labaton Sucharow LLP, Files Class Action Lawsuit Against UBS AG in Connection With Tax Haven Scheme -- UBS, Trading Markets, January 30, 2009

UBS AG

New Orleans Employees' Retirement System v. UBS AG, Justia Docket

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Posted In: Class Action Lawsuits , Financial Firms , Securities Fraud , UBS

February 11, 2009

Merrill Lynch Pierce Fenner & Smith Does Not Have to Halt Redemption of ARS Clients, Says Court

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In the U.S. District Court for the Southern District of New York, Judge Shira Scheindlin said that TGS- GS-NOPEC Geophysical Co failed to convince the court that the institutional investor would suffer irreparable harm if Merrill Lynch Pierce Fenner & Smith Inc. continues redeeming clients’ ARS under the investment firm’s current procedures. The judge refused to stop the redemptions and said that the geographical exploration company has admitted that any harm caused by an improper redemption procedure can later be remedied.

Following the collapse of the auction-rate securities market, Merrill Lynch devised a redemption plan to help restore some liquidity to investors, whose ARS were now frozen. The scheme allows the investment bank to redeem partial liquidity to its clients. Anytime an issuer declared a partial redemption, Merrill would note a $25,000 share from each client account before giving out the remaining shares through a proportionate lottery.

Since October 2008, GS-NOPEC Geophysical Co held some $64.5 million in ARS accounts with Merrill. The company claims that Merrill's redemption scheme is not in its favor.

TGS began FINRA arbitration proceedings against Merrill in November. The company wants to repurchase its ARS with interest, recession purchases, or the actual damages of its holdings’ par value. TGS later filed for injunction pending arbitration and asked the court to mandate that Merrill Lynch allocate prior and future partial redemptions solely in proportion to holdings.

The court refused. The judge said that any harm that TGS incurs can be remedied financially, which is what the company is seeking via arbitration.

TGS-NOPEC Geophysical Company v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Federal District Court Filings and Dockets, Justia


Related Web Resources:
TGS-NOPEC Geophysic

Merrill Lynch Pierce Fenner & Smith Inc.

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Posted In: Auction-Rate Securities , Financial Firms , Merrill Lynch

February 9, 2009

Merrill Lynch, J.P. Morgan and Others fail to Obtain Dismissal of IPO Case by Houston Judge

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In Texas, a Houston judge has ruled that a would-be class securities lawsuit filed against JP Morgan Securities, Inc., Merrill Lynch, Pierce, Fenner and Smith and a number of other defendants can move forward. The plaintiffs were investors in Superior Offshore International Inc., a company that collapsed following a failed initial public offering. The four other defendants are former Superior company executives.

In the US District Court for the Southern District of Texas, Judge Nancy Atlas found that the plaintiffs met their burden when pleading material misrepresentations and omissions in Superior's registration statement. She denied the defendants’ request to dismiss the complaint.

Superior Offshore International Inc. had provided commercial diving services and subsea construction to the natural gas and crude oil industry in the Gulf of Mexico. The company began IPO proceedings of about 10.2 million commercial shares at $15/share in April 2007. Merrill Lynch and JP Morgan acted as the primary underwriters. It was after this that Superior experienced major losses and its price dropped until it reached $1.08/share in April 2008. Soon after, Superior announced that it was shutting down operations.

In their consolidated class action, the plaintiffs claimed that while the registration statement revealed that the Superior board chairperson’s two sons were receiving salaries of $48,000 and $120,000, it failed to note that the two men weren't doing any significant tasks for their respective incomes. The plaintiffs also questioned Superior’s claims that there was a high demand for its services and that certain hurricane-related projects were expected to continue for a number of years when, in fact, that work had declined significantly. They challenged Superior’s claim that it had multiple customers and maintained that the company had provided materially misleading data about its management team.

The defendants had tried dismissing the complaint by citing a failure to state a claim. They said they could not be held liable for events that transpired after the IPO. While the Texas court said it recognized that Superior’s registration statement included warnings about possible risks that could arise, it determined that the plaintiffs were not questioning the accuracy of the potential risks that were noted. Rather, the court said they were challenging the completeness and accuracy of the information Superior had provided about its current state at the time of the IPO.

Related Web Resources:

Superior Offshore International, Inc., Securities Class Action Clearing House, Stanford Law School

Superior Offshore International Confirms Plan of Liquidation, Stockhouse.com, January 30, 2009

Continue reading "Merrill Lynch, J.P. Morgan and Others fail to Obtain Dismissal of IPO Case by Houston Judge" »

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Posted In: Financial Firms , J P Morgan - Chase , Merrill Lynch , Texas Securities Fraud

February 4, 2009

Securities and Exchange Commission Now Calling for Comments on FINRA Proposal Regarding New Financial Responsibility Rules

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The Securities and Exchange Commission wants feedback about the Financial Industry Regulatory Authority's proposal on new financial responsibility rules. Critics have expressed concern that the rules give FINRA wide discretion but without certain safeguards.

The Financial responsibility rules let FINRA make sure that some 5,000 brokerage firms have enough liquidity available so that they can take care of customer claims in a timely manner. FINRA recently submitted a filing with the SEC explaining how the proposed rules would give the self-regulatory organization the authority it needs to act quickly during an emergency or another unforeseen event. FINRA says the necessary safeguards already are in place and vowed to be judicious when exercising this authority.

The proposed rules are based on existing requirements in NYSE and NASD rules. FINRA says that a large number of provisions will only apply to firms that carry or clear customer accounts and would prevent such members from withdrawing equity capital for up to one year without the SRO’s consent. Members would also have to let FINRA know no later than 24 hours after when certain financial triggers are hit.

FINRA has been trying to develop a consolidated rulebook since its formation in July 2007 when the New York Stock Exchange and NASD were merged together. Last May, FINRA requested comments about the rule proposals.

The SRO says a few commenters were worried about how much authority FINRA had under rule 4110(a). Other commenters asked for more specific about the kinds of actions the SRO would have the authority to implement. Another commenter expressed concern that FINRA’s authority to ask for an audit might be too broad. Still others expressed concern over how one proposed rule that prevented members from withdrawing capital for 12 months was even stricter than the SEC’s own requirements.

Related Web Resources:
FINRA Seeks Comment on Proposals for Consolidated Rules Governing Financial Responsibility, Supervision, Books & Records, Investor Education, FINRA, May 14, 2008

Financial Industry Regulatory Authority (FINRA) Rulemaking, SEC.gov

Continue reading "Securities and Exchange Commission Now Calling for Comments on FINRA Proposal Regarding New Financial Responsibility Rules" »

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

Posted In: FINRA , SEC

February 3, 2009

Agape Founder Nicholas Cosmo Arrested for Allegedly Running $370 Million Ponzi Scam

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Last week, Agape World Inc and Agape Merchant Advance LLP owner and founder Nicholas Cosmo was arrested and charged with running a $370 million mail fraud scheme. According to US authorities, Cosmo ran his alleged Ponzi scam from October 2003 to December 2008, taking money from over 1,500 individual investors.

Cosmo reportedly told investors that he would place their funds into bridge loans for businesses at interests as high as 16%. Investors were reportedly promised returns of up to 80%.

While a few commercial loans were made, the interest rates were significantly lower than what was promised. Also, less than $10 million was actually loaned out. Over $100 million was placed in commodity futures trading accounts that incurred about $80 million in losses. According to US Postal Inspector Richard Cinnamo, Cosmo paid recruiters some $55 million find investors. Many of the recruiters have criminal records.

Cosmo also reportedly used over $212,000 in investor funds to pay a court-ordered restitution from an earlier conviction. He also spent over $100,000 in investor funds for personal expenses and invested $300,000 in the National Tournament Baseball. Cosmo is president of that league.

In September, investors began complaining that their payouts had been postponed. Private investigator Mike Kessler notified the FBI, the New York Attorney general, and the Suffolk County district attorney that there were problems brewing, but no action was taken until investors were no longer getting paid.

In 1997, Cosmo was accused of misappropriating funds while working as a stockbroker. He pleaded guilty to one federal charge, was ordered to pay restitution, and was sentenced to 21 months in prison.


Related Web Resources:
Agape Founder Nicholas Cosmo Arrested and Charged with $370 Million Ponzi Scam, Time, January 27, 2009

In Echoes Of Madoff, Ponzi Cases Proliferate, Wall Street Journal, January 28, 2009

Agape World Inc

Continue reading "Agape Founder Nicholas Cosmo Arrested for Allegedly Running $370 Million Ponzi Scam" »

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

Posted In: Agape Ponzi Scheme

February 2, 2009

Merrill Lynch Ends Investor and Employee Class Action Lawsuits with $550 Million Settlement

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Last month, Merrill Lynch & Co. reached a $550 million settlement with investors and employees over losses related to investments in subprime mortgage-backed assets. A court must approve the proposed settlements.

In the securities class action case, the plaintiffs have accused Merrill Lynch of using statements on collateralized debt obligations and other assets to inflate the market price of its own shares. As a result, the plaintiffs contend, investors lost money.

The Ohio State Teachers Retirement System is the lead plaintiff in the class action lawsuit, which represents investors who bought preferred shares between October 17, 2007 and December 31, 2008. The agreed upon settlement is $475 million in cash.

Plaintiffs of the Employee Retirement Income Security Act class action have agreed to settle for $75 million in cash. Participants in the ERISA lawsuit are Merrill Lynch employees with Merrill Lynch stock in specific retirement plans. The plaintiffs have accused Merrill of failing to adequately reveal subprime-related losses that impacted its retirement accumulation plan, its savings and investment plan, and its employee stock ownership plan.

By agreeing to settle, Merrill Lynch says it is not admitting to any wrongdoing.

Fallout from the Subprime Mortgage Crisis
The subprime mortgage crisis has resulted in millions of dollars in losses for investors. If you believe that you were a victim of investor fraud or broker dealer misrepresentation and that these inappropriate actions caused you to sustain investor losses, you may be entitled to the recovery of those losses.

Related Web Resources:
Merrill Lynch settles subprime lawsuit, Business Insurance, January 20, 2009

Merrill settles employee class action for $75M, Investment News, January 19, 2009

Ohio announces $475M Merrill Lynch settlement, Forbes.com, January 16, 2009

Continue reading "Merrill Lynch Ends Investor and Employee Class Action Lawsuits with $550 Million Settlement" »

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

Posted In: Financial Firms , Merrill Lynch , Subprime Mortgage

February 1, 2009

Texas State Securities Board Orders Golden Triangle Energy Corp. and Vision Asset Development Co. to Stop Selling Securities

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The Texas State Securities Board has issued an emergency cease and desist order telling oil and gas companies Golden Triangle Energy Corp. and Vision Asset Development Co. to stop selling securities. The board is accusing both companies of lying to investors about certain payments and selling unregistered stock shares.

The board contends that the companies’ leader, Michael Dannelly, sold unregistered stock shares and units of interest in a joint venture involved with oil and gas wells and leases. Dannelly previously did business as Oil & Gas Managing Partners.

While selling interests in oil and gas well drilling programs, Dannelly is accused of spending millions of investors’ funds at casinos and on other personal expenses. The order also says that Dannelly organized a Ponzi scam and neglected to tell investors that he had was sued for securities fraud. Two sales agents, Harley Garvin and William McGarry, are also accused of selling unregistered stock shares.

In a separate case, and just one day before issuing the order against Vision Asset Development Co. and Golden Triangle Energy Corp, the board put out a search warrant affidavit against Impact Energy accusing the company of engaging in fraud when it sold natural gas securities.

Texas State Securities Board
The Texas State Securities Board works to protect Texas investors and make sure that a free and competitive market exists in the state. Texas securities laws are committed to prohibiting securities fraud and misrepresentation during securities sales. The state laws also offer sanctions and remedies in the event of violations.

Related Web Resources:
Texas State Securities Board takes action against Vision Asset Development, Golden Triangle Energy, DallasNews.com, January 28, 2008

Read the Cease and Desist Order, Texas State Securities Board (PDF)

Texas State Securities Board

Continue reading "Texas State Securities Board Orders Golden Triangle Energy Corp. and Vision Asset Development Co. to Stop Selling Securities" »

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

Posted In: Texas Securities Fraud

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