July 29, 2009

Ex-Credit Suisse Broker Who Pleaded Guilty to Securities Fraud for Role in Auction-Rate Securities Scam Knew in Late 2007 that Clients’ Funds Were in Trouble

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Julian T. Tzolov, a former Credit Suisse Securities (USA) LLC broker, has pleaded guilty to fraud charges over his involvement in an auction-rate securities scheme involving hundreds of millions of dollars. Tzolov, 36, is accused taking investor funds and placing them in high-risk ARS rather than government-backed conservative instruments.

In April, Tzolov was charged with wire fraud, conspiracy to commit securities fraud, and securities fraud. Tzolov and another man, Eric Butler, are accused of as early as November 2003 soliciting funds from companies to invest in ARS. Tzolov allegedly told potential clients that he would be investing their money in government-backed ARS. Instead, the former Credit Suisse broker placed the investors’ money in ARS that were connected to riskier, collateralized debt obligations. He is also accused of falsifying the names of products that investors bought to make it look as if they were purchasing conservative instruments, rather than CDO-ARS.

When the CDO-ARS market fell in late 2007, Tzolov was unable to sell the securities and repay clients who were demanding their returns. This incident is further evidence that broker-dealers and brokers knew before February 2008 that investors and their money were in trouble.

Tzlolov’s conviction is the first one connected to the ARS market. His sentencing is scheduled for October. Tzolov was captured earlier this month after he fled the US in May while under house arrest. He could end up serving 20 years in prison for each fraud count.

Ex-Broker Pleads in Auction-Rate Case, WSJ, July 23, 2009

Julian Tzolov, Ex-Credit Suisse Broker, Target Of International Manhunt, The Huffington Post, June 5, 2009

Continue reading "Ex-Credit Suisse Broker Who Pleaded Guilty to Securities Fraud for Role in Auction-Rate Securities Scam Knew in Late 2007 that Clients’ Funds Were in Trouble" »

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Posted In: Auction-Rate Securities , Credit Suisse , Financial Firms

July 27, 2009

Morgan Stanley to Pay $500,000 to Resolve SEC Charges that it Recommended Unapproved Money Managers to Clients

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Morgan Stanley & Co. Inc. has consented to pay half a million dollars to settle Securities and Exchange Commission charges that it recommended unapproved money managers to clients. The SEC claims the broker-dealer breached its fiduciary duty to Nashville advisory clients when it made material misstatements about a program designed to help clients choose money managers who were “properly vetted,” as well as assist them in developing investment goals.

Instead, the SEC claims that Morgan Stanley suggested money managers who were not approved to take part in the broker-dealer’s advisory programs and did not undergo the firm’s due diligence process. The SEC says that it was specifically William Phillips, a former Morgan Stanley broker based in Tennessee, who guided clients to three managers who were “unapproved.”

The clients were not told that the managers gave Morgan Stanley and Phillips significant fees or commissions of at least $3.3 million. The alleged incidents took place from 2000 to through early 2006.

Meantime, Phillips is contesting the charges against him and Is denying that he engaged in any impropriety. Phillips’s attorney claims the SEC is not alleging antifraud violations and that the allegations did not stem from any client complaints.

By agreeing to settle, Morgan Stanley is not admitting to or denying the allegations. The broker-dealer, however, did agree to cease and desist from violations in the future.

Scott Friestad, the SEC’s Associate Enforcement Director, recently noted that it is the job of investment advisers to put investors’ interests before their own and to give clients accurate and complete information at all times.

Related Web Resources:
Morgan Stanley paying $500,000 to settle SEC charges of misleading clients in Nashville, Newser.com, July 27, 2009

SEC Charges Morgan Stanley and Former Adviser with Misleading Clients, SEC, July 20, 2009


Related Web Resources:
Read the SEC's Order against Morgan Stanley (PDF)

Read the SEC's Order Against Phillips (PDF)

Continue reading "Morgan Stanley to Pay $500,000 to Resolve SEC Charges that it Recommended Unapproved Money Managers to Clients" »

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Posted In: Broker Fraud , Financial Firms , Morgan Stanley

July 26, 2009

Provident Royalties Faces $485 Million Texas Securities Fraud, Says SEC

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The US Securities and Exchange Commission has charged Provident Royalties, LLC, Provident Asset Management LLC, and founders Brendan Coughlin, Paul Melbye, and Henry Harrison with Texas securities fraud over their alleged involvement in a $485 million investment scam. The SEC claims the defendants used the ponzi scheme to defraud thousands of natural gas and oil investors.

According to the SEC civil complaint, Provident allegedly made a series of fraudulent offerings of limited partnership interests and preferred stock from at least June 2006 through January 2009 and persuaded about 7,700 US investors to invest half a billion dollars. The Texas-based firm allegedly promised yearly returns of more than 18% and misrepresented the way the funds were going to be used. The SEC is also accusing broker-dealer Provident Asset Management, LLC of making direct retail securities sales, as well as soliciting unaffiliated retail broker-dealers to submit placement agreements for each offering.

The SEC contends that investors thought that 86% of the funds would be used in gas and oil investments, mineral rights, leases, exploration, and development. While less than 50% of the investors’ funds were actually used to acquire and develop gas and oil exploration, the SEC claims the other funds were used to pay previous investors of Provident Royalties.

Coughlin, Harrison, and Melbye have been charged with orchestrating the ponzi scam. Also named in the SEC complaint are the 21 entities that sold securities to investors.

The SEC is charging the defendants with violating the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and the Securities Act of 1933. The SEC is seeking preliminary and permanent injunctions, a temporary restraining order, financial penalties, and disgorgement of ill-gotten gains in addition to prejudgment interest. An emergency freeze on the assets has been issued and a receiver has been appointed.

Related Web Resources:
SEC Obtains Asset Freeze in $485 Million Nationwide Offering Fraud, SEC, July 7, 2009

Read the SEC Complaint (PDF)


Continue reading "Provident Royalties Faces $485 Million Texas Securities Fraud, Says SEC" »

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Posted In: Broker-Dealers , Financial Firms , Ponzi Scams , Provident Asset Management , Texas Securities Fraud

July 23, 2009

SSEK Looks Into Securities Fraud Claims for Richard Buswell and Brookstone Securities Clients Over Private Placement Units Sales in Advanced Blast Protection

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Our securities fraud lawyers are investigating claims for clients of Richard Buswell and Brookstone Securities over private placement units sales in Advanced Blast Protection, as well as charges that clients received unsuitable recommendations.

The Financial Industry Regulatory Authority has made public records noting that Brookstone Securities terminated Buswell’s employment this year in the wake of investigations involving allegations of fraud, unsuitability, failure to disclose complaints, churning, and other “disclosable matters” that may be “outstanding.” Buswell’s employment termination was reportedly punitive.

Some investors say they lost their retirement because Buswell gave them the wrong advice and defrauded them. He is also accused of overstating potential earnings for clients, convincing some of them to invest in companies that would give him commissions, and in some cases was given higher commissions than expected. Buswell is also accused of making high risk investments for investors who would have been better off making more conservative to moderate moves.

Investors have also filed complaints against Buswell over the sale and marketing of private placement units in Advanced Blast Protection. ABP is based in South Florida. The company’s clients were supposed to receive principal payments this year but ABP defaulted. As a result, investors were left with illiquid investments.

Please contact Shepherd Smith Edwards & Kantas LTD LLP if you bought ABP private placement or were an investor client of Brookstone and Buswell.

Related Web Resources:
Investors sue advisers, 2TheAdvocate.com, May 15, 2009

FINRA

Continue reading "SSEK Looks Into Securities Fraud Claims for Richard Buswell and Brookstone Securities Clients Over Private Placement Units Sales in Advanced Blast Protection" »

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Posted In: Broker Fraud , Brookstone Securities , Financial Firms , Securities Fraud

July 22, 2009

Texas Securities Fraud Lawsuit Against Former EnergyTec CEO Can Move Forward, Says District Court

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The U.S. District Court for the Northern District of Texas says it won’t dismiss the securities fraud lawsuit against Frank Cole, the former head of Energytec Inc. The plaintiffs are accusing Cole, Energytec, and others of taking part in a fraudulent oil investment scam that cost investors millions of dollars.

In their securities fraud complaint, the plaintiffs say that Energytec developed 250 “Income Programs” with oil well working interests, in addition “Purchase Agreements” and “Evaluation Reports” for each program. Frank W. Cole Engineering prepared the evaluation reports, which were offered to investors, along with the purchase agreements, in connection with the sale of income program securities.

According to the plaintiffs, the evaluation reports and the purchase agreements contained material misrepresentations. They also claim that there were material omissions in the documents. For example, Energytec failed to disclose that a corporate officer had a prior criminal conviction and did not reveal that monthly payments were in fact advance payments that Energytec would later recoup.

Jomar Oil, the lead plaintiff in the investment fraud case, says Energytec’s Income Program 225 had unregistered brokers who sold securities and that this violated the Connecticut Uniform Securities Act and the Securities Exchange Act. The plaintiffs are accusing Energytech and Cole of lying to investors and filing SEC reports that were misleading.

The Texas court declined Cole’s motion to dismiss the securities fraud lawsuit accusing him of playing a key role in the Ponzi scheme. The judge noted that the plaintiffs had met applicable pleading requirements and had gone beyond pleading ‘positional scienter’ in regards to Cole.

Related Web Resources:
Ex-CEO Loses Bid to Exit Energytec Ponzi Suit, Securities Law 360, July 13, 2009

Judge Allows Suit Over Alleged Energytec Scam, Courthouse News Service, July 13, 2009


Continue reading "Texas Securities Fraud Lawsuit Against Former EnergyTec CEO Can Move Forward, Says District Court" »

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Posted In: Ponzi Scams , Texas Securities Fraud

July 21, 2009

Carlyle Group Sued by Former Congressman Michael Huffington For Investment Loss of More than $20 Million

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Former Congressman Michael Huffington is suing Carlyle Group, a private equity firm, and affiliated companies for more than $20 million in investment losses. Huffington, the ex-husband of columnist Arianna Huffington, says he was misled about the safety of a fund that contained mortgage-backed securities. The closed-end fund, Carlyle Capital, was supposed to be a low-risk investment fund. Huffington says he invested $20 million in the fund.

Huffington, who was a member of the California House from 1993 to 1995, filed his investment fraud lawsuit against Carlyle and Carlyle Capital executives in Massachusetts Superior Court. Huffington is accusing David M. Rubenstein, Carlyle managing director and co-founder, of misrepresenting the funds’ risks during conversations.

Huffington also contends that in March 2007, John Stomber, the head of Carlyle Capital, told investors that the fund wasn’t exposed to high-risk investments. Huffington says that in August 2007, Stomber told investors that the fund was performing on target. A report in 2008 stated that the fund’s returns were in line with near-term targets. Yet two weeks later, Huffington contends that the equity of the shareholders was gone. In March 2008, Rubenstein contacted Huffington to let him know that the fund had defaulted on its debts and lenders were selling the collateral.

Carlyle Capital was supposed to borrow money to purchase the securities and then make money on the difference between what was earned on the interest paid on the bonds and the firm’s borrowing costs. The fund collapsed after lenders made repeated margin calls. The private equity firm and its investors lost $700 million.

Related Web Resources:
High-Profile Investor Sues Carlyle Group, Forbes.com, July 13, 2009

Carlyle Sued Over Fund's Losses, Forbes.com, July 13, 2009

Continue reading "Carlyle Group Sued by Former Congressman Michael Huffington For Investment Loss of More than $20 Million" »

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Posted In: Investor Fraud , Mortgage Backed Securities

July 16, 2009

Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP Files Claims Against Morgan Keegan Following SEC Wells Notice

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Last week, the Staff of the Atlanta Regional Office of the US Securities and Exchange Commission sent Morgan Keegan & Co, Inc., Morgan Asset Management, Inc., and three employees a “Wells” notice. The notice stated the Staff’s intention to recommend that the Commission bring enforcement actions over possible federal securities laws violations. Morgan Keegan, is a subsidiary of Regions Financial Corporation.

The Staff had been investigating a number of mutual funds that Morgan Asset Management had previously managed. In light of the Wells notice, the securities fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP is continuing to file arbitration claims against Morgan Keegan for covering up the risks associated with their bond funds.

Our investor clients are accusing Morgan Keegan of selling specific funds that it promoted as relatively conservative investments when in fact, the funds were exposed to subprime mortgage securities, collateral debt obligations, and other high risk debt instruments. Investors are alleging that Morgan Keegan took part in a scam that defrauded investors of certain bond funds while misrepresenting their degree of involvement in more high risk investments. As a result, our investor clients suffered major financial losses after the subprime mortgage market collapsed.

The Allegations Against Morgan Keegan Name a Number of RMK Funds, including:

• RMK Multi-Sector High Income Fund
• RMK Select High Income Fund
• RMK High Income Fund
• RMK Select Intermediate Bond Fund
• RMK Advantage Income Fund
• RMK Strategic Income Fund

**A Wells notice is not a formal charge or official finding of wrongdoing. It gives the recipients a chance to offer their accounts about the issues raised by the notice before the Commission takes any formal action.

Our securities fraud law firm is comprised of a team of experienced stockbroker fraud attorneys, consultants, and others. Over the years, we ‘ve taken our more than 100 years of combined experience in securities law and the securities industry to help thousands of investors recoup their losses.

Shepherd Smith Edwards & Kantas LTD LLP successfully represents clients in matters of arbitration, mediation, negotiation, and litigation. Our investor fraud cases have been heard in state and federal courts, as well as in arbitration before the Financial Industry Regulatory Authority, the American Arbitration Association, and the New York Stock Exchange.

Related Web Resources:
SEC could take action against Morgan Keegan, Bizjournals.com, July 15, 2009

Morgan Keegan Target For Possible SEC Suit, Memphis Daily News

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

Posted In: Arbitration , Broker Fraud , Financial Firms , Morgan Keegan , Regions Financial Corporation

July 14, 2009

FINRA Says Number of Stockbroker Fraud Arbitration Claims by Plaintiffs is Rising

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According to the Financial Industry Regulatory Authority, the amount of investor fraud claims alleging securities fraud and other violations has grown. From January to May 2009, investors filed 3,163 stockbroker fraud claims—an 85% increase from the 1,711 stockbroker fraud arbitration claims that were filed for the same period in 2008.

More investors have filed arbitration complaints since the demise of the sub-prime mortgage market in 2007. About 7,000 investment fraud claims are expected to be filed in 2009—compare this figure to the 4,982 arbitration claims in 2007 and the 2,238 securities fraud arbitration claims in 2007. In 1,718 of the arbitration cases filed through May 2009, breach of fiduciary was the most common complaint.

Also, more investors with arbitration claims are emerging victorious. This may be in part due to new rules by the Securities and Exchange Commission that limits a defendant’s ability to file a dismissal motion. For the first five months of this year, arbitration panels issued rulings in favor of investors in 47% of arbitration claims—compared to 42% of the time during the same time period in 2008.

However, Shepherd Smith Edwards & Kantas LTD LLP founder and Stockbroker Fraud Attorney William Shepherd says, “Considering there are about 60 million investors in the U.S., it is actually surprising that so few seek recovery. Approximately 1 in 10,000 investors file claims, but I believe at least 1 in 1,000 investors is cheated. Thus, 90% of valid claims are never filed. Claims involving money lost gambling in the market or over honest but bad advice do not succeed. Valid claims include those for fraud, misrepresentation, unsuitable investments, failure to disclose risks, or even for negligence.”

Related Web Resources:
Investor Arbitration Claims Sharply Up, Law.com

FINRA

Continue reading "FINRA Says Number of Stockbroker Fraud Arbitration Claims by Plaintiffs is Rising" »

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Posted In: Arbitration , Broker Fraud , FINRA

July 12, 2009

Ameriprise Must Pay $17 Million for REIT Fraud

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The US Securities and Exchange Commission says Ameriprise Financial Services has consented to pay $17.3 million to settle allegations that it received millions of dollars in undisclosed compensation in exchange for selling certain REITs (real estate investment trusts) to its brokerage customers.

The SEC says Ameriprise demanded and got “revenue sharing” payments to sell the REITs but neglected to disclose it was receiving the payments. The SEC is also accusing Ameriprise of violating a number of federal securities laws when it sold over $100 million in unregistered shares involving one specific REIT.

SEC Enforcement Director Robert Khumazi says the broker-dealer’s clients were not told that brokers had incentives to sell the REITs. He stressed the importance of investors being able to rely on unbiased advice from financial advisers.

The SEC charges come from REITs sales that took place between 2000 and May 2004. CNL Holdings Group, Inc. and W.P. Carey & Co. LLC created, advised, and managed the REITs named in the proceedings.

By agreeing to settle, Ameriprise is not admitting to or denying wrongdoing.

Shepherd Smith Edwards & Kantas LTD LLP represents Ameriprise investors with securities fraud cases against the broker-dealer. Stockbroker fraud attorney and firm founder William Shepherd says “Our law firm handles claims of all types for investors nationwide who lost in accounts at Ameriprise and other financial firms. Over 90% of our clients recover all or part of their losses. It is sad that many investors choose not to seek recovery from investment firms that commit fraud or and other wrongdoing. We offer a free consultation and most of our clients advance no fees or costs but instead pay these out of their recovery.”

Related Web Resources:
Ameriprise Pays $17.3M To Settle SEC Charges, Wall Street Journal, July 10, 2009

REITs, Investopedia


Continue reading "Ameriprise Must Pay $17 Million for REIT Fraud" »

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Posted In: Ameriprise - Securities America , Broker Fraud , Broker-Dealers , Financial Firms , REITs

July 10, 2009

Morgan Stanley Plan to Repackage Low-Grade Debt Obligations Then Sell These as Low-risk AAA Bonds is "Preposturous," Says Stockbroker Fraud Lawyer Bill Shepherd

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Morgan Stanley is taking low grade collateralized debt obligations, repackaging these in into new pooled securities and obtaining questionable AAA ratings. The broker-dealer plans to sell $130 million CDO’s this way in a manner similar to the way banks have been dealing with commercial mortgage-backed securities. The repackaged CDO is to a great expent a copy of a CDO put together by Goldman Sachs Group in 2007 using bonds from Greywolf CLO I Ltd.

$87.1 million of securities are expected to receive the AAA rating—the offering is 89 cents on the dollar—the second portion is $42.9 million of securities that Moody's Investors Service have rated Baa2.

According to Sylvain Raynes, an R&R Consulting principal, many insurers and banks can only buy AAA. She says that by making AAA out of not AAA, people with AAA “on their forehead” can purchase.

Morgan Stanley is mirroring re-REMICs. This financing structure bundles mortgage securities into bonds that give investors another layer of collateral (or protection) from downgrades. Banks use Re-REMICs as protection against losses on residential mortgage securities.

Already, some $27 billion in home-loan bond re-REMICs have been issued this year—an increase from the $17 billion for all of 2008. Even Goldman Sachs has plans to sell $216.9 million of repackaged commercial mortgage debt. Re-REMIC will come from bonds sold in 2006.

After learning about Morgan Stanley’s plan to repackage CDO’s, Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Attorney Bill Shepherd said, “Apparently there have been no lessons learned by Wall Street about packaging and selling questionable loans by attaching misleading AAA ratings to these in order to subvert prudent investment goals. Our securities fraud law firm is pursuing many claims for institutional and individual clients who have been burned by such investments. Any defense by investment firms that they did not know these investments were risky was then—as is now—simply preposterous!”

Related Web Resources:
Morgan Stanley Plans to Turn Downgraded Loan CDO Into AAA Bonds, Bloomberg.com, July 8, 2009

Morgan Stanley To Sell $130M Repackaged CDO - Sources, Wall Street Journal, July 8, 2009

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Posted In: Collateral Debt Obligation , Financial Firms , Morgan Stanley

July 8, 2009

SEC Wants to Know Why Target-Date Mutual Funds are Growing Riskier

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The US Labor Department and the Securities and Exchange Commission want to know why target-date mutual funds, which were supposed to get safer as investors aged, have become more high risk. Large mutual fund firms, including Vanguard and Fidelity , promised that as investors approached their retirement target-date funds would automatically shift from high-growth investments to safer ones, such as bonds. These funds were supposed to be a safe bet for retirement.

In 2007, the Labor Department issued a ruling protecting employers that automatically sent workers 401(k) funds to target funds if the employees later lost money. This decision released a lot of money into the funds. Approximately $182 billion has gone into target-date funds. Yet as the stock market fell in 2008, a number of 2010 funds lost 40% value.

Now, SEC Chairman Mary Shapiro wants to know whether companies misled investors about the risks involved with target-date funds. The SEC has gathered data that reveal that no clear standards exist for how target-date funds should operate and that they can vary when it comes to investment risks even if their names or target dates are similar. According to Shapiro, the SEC is worried that funds with even the same target date can vary a great deal when it comes to investment and returns. Funds invested in safer bonds appeared to perform better. Last year:

Fidelity Freedom 2010 Fund: Invested 50% in stocks; it lost 25% of its value last year.
Wells Fargo 2010 Fund: Lost 11% and is heavy in bonds.
AllianceBernstein 2010: Dropped by 1/3rd; 57% invested in stocks.
Deutsche Bank Fund: 4% down; favors fixed-income investments.

Now, Congress wants workers that want to invest in target-date funds and other 401(k) funds to receive accurate marketing, better disclosure fees, and better financial advice. Envestnet Asset Management and Behavioral Research Associations conducted a study that brought to light a number of misconceptions about target-date funds. For example, employees believed target-date funds offer a guaranteed return, faster money growth, and the ability to invest less and still be able to retire.

Related Web Resources:
Target-Date Mutual Funds May Miss Their Mark, NY Times, June 24, 2009

Target-Date Funds That Hit the Mark, Smart Money, January 17, 2008

Continue reading "SEC Wants to Know Why Target-Date Mutual Funds are Growing Riskier" »

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Posted In: Mutual Funds

July 6, 2009

Stifel Financial Corp. Says 95% of Clients Agree to Auction-Rate Securities Buyback Plan

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According to Stifel Financial Corp., 95% of its clients with frozen auction-rate securities have indicated that they will accept its offer to buy back the investments over a three-year period. Missouri Securities Regulator and Secretary of State Robin Carnahan, however, continues to maintain that the buyback plan is inadequate.

She also disagrees with the broker-dealer’s claim that customers are endorsing the buyback plan by accepting it. Rather, she believes that it is the only option that Stifel has given clients that will allow them to get all of their funds back—and that means that many of them will have to wait three years. Carnahan noted that over 20 other broker-dealers were able to give their clients immediate relief.

Some 1,200 Stifel clients bought ARS before the market collapsed. The firm’s clients currently hold about $170 million in ARS. Some 40% of eligible accounts reportedly were to have received 100% liquidity by June 30. The remaining accounts are to obtain full liquidity by June 2012.

Stifel Chief Executive Officer and Chairman Ronald J. Kruszewski maintains that the broker-dealer did not know that the ARS market was in trouble until it collapsed. This is the main reason that Stifel has given for why it isn’t buying back their clients’ holdings in full the way other brokers have from their clients.

Carnahan’s office, however, alleges that Stifel was aware of the risks involved with investing in ARS and that the broker-dealer should have worked harder to protect investors. Her office sued Stifel in March 2009 over the way the firm marketed ARS and misled investors.

Related Web Resources:
Most Stifel clients accept auction rate securities buyback; Carnahan calls offer ‘inadequate’, St Louis Business Journal, June 23, 2009

Carnahan Sues Stifel Over Auction Rate Securities, iStockAnalyst, March 13, 2009

New Trouble in Auction-Rate Securities, The New York Times, February 15, 2008

Continue reading "Stifel Financial Corp. Says 95% of Clients Agree to Auction-Rate Securities Buyback Plan" »

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Posted In: Auction-Rate Securities , Broker-Dealers , Financial Advisers , Stifel, Nicolaus, & Co. Inc.

July 3, 2009

Wachovia Securities Agrees to $1.4 Million FINRA Fine for Failure to Deliver Prospectuses to Customers

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FINRA is fining Wachovia Securities, LLC $1.4 million for its alleged failure to provide customers with product descriptions and prospectuses between July 2003 and December 2004, as well as for related supervisory failures. A probe conducted by the SRO determined that the broker-dealer did not provide the prospectuses to clients in 6,000 of about 22,000 transactions during this time period. These 6,000 transactions’ market value was about $256 million.

Per FINRA rules and by law, broker-dealers are required to give potential clients hard copy prospectuses. The SRO, however, discovered a number of deficiencies related to prospectus delivery by Wachovia Securities related to:

• Collateral mortgage obligations
• Exchange-traded funds
• Preferred stocks
• Secondary purchases of equity non-syndicate initial public offerings
• Corporate debt securities
• Mutual funds
• Equity syndicate initial public offerings
• Alternative investment securities
• Auction market preferred securities

According to FINRA Enforcement Chief and Executive Vice President Susan L. Merrill, failure to provide the investing public with prospectuses and other offering documents deprives customers of valuable data that they need to make “informed investment decisions.”

Per FINRA, reasons Wachovia Securities did not give prospective customers the required prospectuses included:

• Business units’ failure to report to the proper department that prospectus delivery was required
• Coding errors
• Failure to supervise and monitor outside vendors under contract to deliver prospectuses
• Inadequate supervisory systems, procedures, and polices

When the activity allegedly at issue occurred, Wachovia Securities, LLC was a non-bank affiliate and subsidiary of Wachovia Corporation. This year, the latter merged with Wells Fargo & Co..

By agreeing to settle, Wachovia Securities is not admitting to or denying the allegations. The broker-dealer, however, has agreed to an entry of the SRO’s findings.

Related Web Resources:
FINRA Fines Wachovia Securities $1.4 Million for Prospectus Delivery Failures, Related Supervisory Violations, FINRA, June 25, 2009

Wachovia Fined $1.4 Million By Finra For Not Sending Prospectuses, June 30, 2009

Continue reading "Wachovia Securities Agrees to $1.4 Million FINRA Fine for Failure to Deliver Prospectuses to Customers " »

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Posted In: Financial Firms , Wachovia

July 1, 2009

SEC May Sue State Street Corp Over Investor Losses Related to Mortgage-Backed Securities

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The Securities and Exchange Commission is considering whether to file civil charges against State Street Corp. over possible securities violations related to subprime mortgages. The Boston-based firm is the largest asset manager for institutions in the world.

In its regulatory filing that it submitted on Monday, State Street noted that the SEC had sent State Street Bank and Trust Co. a “Wells” notice related to a probe into disclosures and management of the bank’s fixed-income investments before 2008. The asset manager is cooperating with the SEC, as well as with Massachusetts’s attorney general. Massachusetts’s lead securities regulator, Secretary of the Commonwealth William F. Galvin, is looking at allegations that State Street misled pension funds over how much risk was involved in the investments.

Just before the housing market fell in 2007, State Street’s fixed-income investment unit began to increase its investments in bonds and securities related to subprime mortgages. Customers with poor credit records were even given loans. When the market collapsed and defaults on mortgages went sky high, the investments’ values dropped significantly, leading to investor losses.

Already, a number of investors have filed securities fraud lawsuits against State Street for allegedly investing in home mortgages that were too high risk. In October 2007, Prudential Financial Inc. sued State Street for $80 million on behalf of 200 retirement plans. The financial figure they are seeking is how much was lost in two bond funds. Some 28,000 retirement accounts were affected. In its complaint, filed under the Employee Retirement Income Security Act, the life insurer accused State Street of changing the funds’ investment strategies and making “highly leveraged investments in mortgage-related” assets without disclosing these investments.

In the 4th quarter of 2007, State Street put aside at least $618 million to settle claims related to subprime home loan-related losses. As of the end of March, the asset manager had $207 million left in its reserve fund.

Our investment fraud lawyers at the stockbroker fraud law firm of Shepherd Smith Edwards & Kantas, LLP has been handling a number of these claims and lawsuits against State Street.

Related Web Resources:
State Street Says SEC May Sue Over Bond Investments, Bloomberg.com, June 29, 2009

SEC tells State Street it could face civil charges, AP/Google, June 30, 2009

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

Posted In: Financial Firms , Mortgage Backed Securities , State Street Bank and Trust Company

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