October 30, 2009

Scottrade Fined $600,000 by FINRA for Inadequate Anti-Money Laundering Program

This week, the Financial Industry Regulatory Authority announced that it is fining Scottrade $600,000 for failing to put into place and work with an adequate anti-money laundering program that would have allowed it to identify and report suspect transactions. FINRA says that by failing to meet this requirement, Scottrade violated the Bank Secrecy Act and FINRA rules.

According to FINRA, each broker-dealer must have its own anti-money laundering procedures, policies, and controls that are customized to its business model. FINRA says that between April 2003 and April 2008, Scottrade neglected to implement an AML program that did this. Scottrade's business model is primarily online.

Scottrade was handling about 49,000 trades daily in 2003. By 2007, the brokerage firm was handling some 150,000 trades a day.

FINRA says that the brokerage firm’s online business model and growing trade volume increased the chances of hacking, identity theft, money laundering, and securities law violations. Yet, according to FINRA Enforcement chief and executive vice president Susan Merrill, Scottrade did not even have an automatic or systematic surveillance system in place until January 2005—and she says the new system proved inadequate. Before then, Scottrade used a manual system for monitoring accounts and relied on cashiering, branch, and margin employees to identify and report possibly suspect activity.

FINRA also says that the brokerage firm’s AML procedures did not provide adequate written guidelines for employees on how to identify when a transaction was suspicious. Its AML analysts also allegedly did not receive sufficient written guidelines on detecting and probing possibly suspect trade activity.

Scottrade is not agreeing to or denying the allegations. However, the brokerage firm has agreed to an entry of FINRA’s findings. A Scottrade spokesperson says enhancements to the broker-dealer’s anti-money laundering program have now been made.

Related Web Resources:
Scottrade Fined $600,000 for Inadequate Anti-Money Laundering Program, FINRA, October 26, 2009

Anti-Money Laundering (AML) Source Tool for Broker-Dealers, SEC

The Bank Secrecy Act, IRS.gov

Continue reading "Scottrade Fined $600,000 by FINRA for Inadequate Anti-Money Laundering Program" »

October 29, 2009

Citigroup, AK Capital, National Financial Services, and Tradestation Fined and Censured by NYSER Over Trade Violations

The New York Stock Exchange Regulation Inc. has censured and fined four firms for trade violations. The four investment firms, Citigroup, AK Capital, National Financial Services, and Tradestation, agreed to the censures and fines but did not admit to or deny wrongdoing.

According to NYSER:

• Citigroup Global Markets Inc. allegedly cancelled 365 market-on-close (MOC) orders after the cutoff time at 3:40 ET on four 2007 trade dates and submitted, between December 9 2008 and January 5, 2009, 12,480 limited-on-close (LOC) orders after the cutoff time on 18 trade dates. Citigroup was ordered to pay a $150,000 fine.

• National Financial Services, LLC employees allegedly engaged in wrongdoing related to LOC and MOC orders it made on eight trade dates between 2006 and 2008. NFS also allegedly neglected to properly supervise these employees. The firm agreed to a $75,000 fine.

• Tradestation allegedly failed to oversee and put into place adequate internal compliance controls, took part in conduct not in line with the fair and equitable trade principals involving odd-lot orders, and neglected to find out necessary facts about certain orders and clients. Tradestation agreed to a $100,000 fine.

• AK Capital allegedly failed to use background checks on employees, failed to set up written policies designed to prevent the misuse of material nonpublic data, and failed to review trade confirmations and certain clients’ monthly account statements. The NYSE Arca options-trader registrant also allegedly neglected to keep records and books that accurately showed all liabilities, assets, capital accounts, and income expenses. The firm agreed to a $20,000 fine.

Related Web Resource:
Monthly Disciplinary Actions - October 2009, NYSE Regulation

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October 27, 2009

Morgan Keegan Again Ordered by Arbitrators to Pay Bond Fund Losses to Investors

Morgan Keegan & Co. has been ordered to pay $51,000 to Larry and Diane Papasan. Larry Papasan is Memphis Light, Gas and Water Division’s former president.

The Papasans filed their arbitration claim against Morgan Keegan last year after they lost about $80,000 in the account they had with the investment firm. The Papasans’ claim is one of many arbitration cases and securities fraud lawsuits filed by Morgan Keegan investors who sustained RMK fund losses. The general accusation is that the broker-dealer misrepresented the volatility of the bond funds, which they allegedly were not managing conservatively.

Larry Papasan, who is retired, opened his account because he knew John Wilfong, a former Morgan Keegan financial adviser. Wilfong felt so confident about the bond funds that he even sold them to his mother, Joyce Wilfong, who also went on to suffer financial losses from her investment. Her friend Maxine Street also suffered bond fund losses.

The two women filed a joint arbitration claim against Morgan Keegan. Joyce was awarded $68,000, while Street settled for an undisclosed sum.

According to the Papasans, John Wilfong spoke with Jim Kelsoe, the RMK funds’ manager, prior to leaving Morgan Keegan for UBS. Kelsoe allegedly told Wilfong not to liquidate because the funds were safe. The Morgan Keegan fund manager is named in other cases for allegedly failing to disclose the risks associated with the mutual fund investments.

Related Web Resources:
Latest RMK Award Goes to Ex- MLGW Head, Memphis Daily News, October 27, 2009

Two Morgan Keegan Funds Crash and Burn, Kiplinger, December 2007

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October 24, 2009

JP Morgan to Repurchase $480 Million in ARS from Michigan Investors

JPMorgan Chase & Co. is offering to repurchase $480 million in auction-rate securities from investors in Michigan. The full buybacks are for investors who bought ARS between 2006 and early 2008. JPMorgan’s offer is part of a settlement that it reached with the Michigan Office of Financial and Insurance Regulation.

The broker-dealer is also paying the state of Michigan $664,000 to settle allegations that it misled clients into thinking that the ARS they were buying were liquid like cash. 90% of the settlement went to the state’s general fund, while 10% was deposited in the OFIR’s Michigan Investor Protection Trust.

OFIR also reached similar agreements with Citigroup, Banc of America Securities, Merrill Lynch, Comerica, and Wachovia. The state of Michigan has negotiated over $3.5 billion in payments for investors and received over $6.5 million.

Many investors were caught off guard when their ARS accounts froze after the market collapsed. Many broker-dealers were accused of misleading clients and making it seem as if auction-rate securities were as liquid as cash.

Michigan is not the first state that JPMorgan Chase & Co. has settled with over allegations that it misled clients about ARS. In August 2008, JP Morgan Chase, along with Morgan Stanley, agreed to give back more than $7 billion to ARS investors as part of the settlement they reached with New York State Attorney General Andrew M. Cuomo.

Related Web Resources:
OFIR Announces $480 Million Auction Rate Securities Settlement with JPMorgan Chase, MichNews.org, October 8, 2009

Cuomo Settles JP Morgan, Morgan Stanley ARS Claims, CFO, August 14, 2008

Michigan Office of Financial and Insurance Regulation

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October 21, 2009

Two Dresdner Kleinwort Traders Censured for Market Abuse by UK’s FSA

Two Dresdner Kleinwort traders were censured for market abuse by the United Kingdom’s Financial Services Authority. According to the FSA, Darren Morton had access to inside information about a possible new issue of Barclays floating-rate bonds in March 2007 that would offer more favorable terms than the last issue.

The FSA says that Morton shared what he knew with trader Christopher Perry and the two men sold the whole holding of the previous issue held by K2, a Dresdner investment vehicle with a portfolio containing $65 million of Barclay’s FRNs. That same day, a new issue was announced, and counterparties that bought the bonds from K2 lost some $66,000.

Rather than accept the FSA’s offer to settle and receive a fine and/or penalty at a lower amount, the two men took their case to the FSA’s tribunal authority. The regulatory committee found that the two men did not realize that they were engaging in market abuse.

While the two men were censured, they were not fined and their right to work was not challenged. The FSA cited a number of factors to explain the sanction chosen:

• The two did not make money personally from the trade.
• They have undergone market abuse training.
• No one gave them proper guidance.
• Their compliance and disciplinary records are clean.

FSA enforcement director Margaret Cole, however, noted that insider dealing is cheating regardless of the market. She promised that future offenders will be slapped with harsher sanctions.

Related Web Resources:
The FSA and the intriguing case of Dresdner Kleinwort bond managers, Guardian.co.UK, October 7, 2009

SA censures Dresdner traders over market abuse, MarketWatch, October 7, 2009

Financial Services Authority

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October 20, 2009

Elder Securities Fraud: FINRA Bars Former Broker From Industry

The Financial Industry Regulatory Authority has barred former broker Sergio M. Del Toro from the industry for allegedly defrauding an elderly investor, age 90, of over half a million dollars. Del Toro has agreed to the bar but is not admitting to or denying wrongdoing.

FINRA says that between 2004 and 2006, Del Toro recommended that the elderly investor, who died in 2006, invest $511,000 in 3rd Dimensions Inc, a speculative, development-stage company. FINRA is accusing Del Toro of promising to buy back at $400,000 the securities that the senior investor had bought for $351,000 if the latter was dissatisfied. The elderly client bought additional stock at Del Toro's suggestion. The former broker received about $76,650 in commissions.

FINRA claims that not only did the client pay $3-$4 for 3rd Dimension stock, which was not appropriate given the investor’s financial situation and age, but also, Del Toro allegedly did not have any reasonable grounds for valuing the stock at those prices when he sold them to his client.

FINRA claims Del Toro knew 3rd Dimension was making little if no revenue at the time and did not notify the two broker-dealers that he was registered with about his activities.

Elder Financial Fraud
Unfortunately, elderly senior investors can be easy prey for brokers that are willing to take advantage of them. It can be devastating to have your life savings (that you worked so hard for and hoped could cover your retirement or be passed on to your children and grandchildren) stolen from you by a financial professional.

Elder investment fraud is a crime. It is also a form of elder abuse when the victim is an older senior investor.

Related Web Resources:
FINRA Bars Former New York Broker for Defrauding Elderly Investor of More Than $500,000, FINRA, October 8, 2009

Elder Financial Abuse, National Committee for the Prevention of Elder Abuse


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October 17, 2009

Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC

The US Securities and Exchange Commission is upholding the market timing violations against two AG Edwards and Sons Inc. supervisors and one of its stockbrokers. Billions of dollars were involved in the mutual fund market timing transactions.

While market timing, which involves the buying and selling of mutual fund shares in a manner that takes advantage of price inefficiencies, is not illegal, a violation of 1934 Securities Exchange Act Section 10(b) and Rule 10b-5. can arise when there is intent to deceive.

Last year, the ALJ found that AG Edwards and Sons brokers Charles Sacco and Thomas Bridge intentionally violated antifraud provisions when they engaged in market timing activities even though they had been restricted from doing so. The ALJ also found that supervisors Jeffrey Robles and James Edge failed to properly supervise the stockbrokers.

The antifraud charges filed against Bridge by the SEC Enforcement Division involved 1,352 trades (representing $1.126 billion) he executed over a two-year period for companies belonging to client Martin Oliner. The Enforcement Division accused Sacco of entering 25,533 market timing trades (representing $4.036 billion) for two hedge fund clients between 5/02 – 9/03.

The SEC determined that Edge, who was Bridge’s supervisor, knew and was complicit in the latter’s actions. Although Robles was not considered to have been complicit in Sacco’s alleged broker fraud, the commission said he should have noticed there were problems.

The SEC ordered Bridge to cease and desist from future violations. He is also barred from associating with any dealers or brokers for five years. Sacco has already settled his broker-fraud case.

Edge is barred from acting in a supervisory role over any dealer or broker for five years. Robles received a similar bar lasting three years. All three men were ordered to pay penalties, while Bridge was ordered to disgorge almost $39,000 plus $16,665.57 in prejudgment interest.


Related Web Resources:
Read the SEC's Opinion regarding this matter

Commission Sanctions Thomas C. Bridge for Violations of the Antifraud Provisions of the Securities Laws and James D. Edge and Jeffrey K. Robles for Failing to Supervise Reasonably, Trading Markets, September 29, 2009

Continue reading "Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC " »

October 16, 2009

Ex-Enron Broadband CEO Goes to Prison for Texas Securities Fraud

Joseph Hirko, the ex-Enron Broadband Chief Executive Officer, has been sentenced to a prison term of 16 months for Texas securities fraud. Hirko pleaded guilty to wire fraud a year ago for giving out false information to improve Enron’s financial figures.

The former Enron Broadband CEO and others knew that the broadband operating system was still in development yet Hirko promoted it in press releases and during analyst conferences in order to to elevate Enron’s stock price.

The US Justice Department says Hirko consented to give up approximately $7 million, which will be given through the SEC’s Enron Fair Fund to Enron victims. As part of Hirko's plea agreement, Enron Creditor's Recovery Corp. will get $1.7 million from him.

The sentence issued by US District Court Judge Vanessa Gilmore is the maximum possible under federal guidelines for the wire fraud charge. If Hirko had been found guilty during trial, he could have been sentenced to years in prison.

The former Enron Broadband CEO and several others were accused of numerous activities connected to the artificial inflation of the company’s stock. Chief Operating Officer Kevin Hannon and Hirko’s co-CEO, Ken Rice, also pleaded guilty.

Hirko and four other defendants, Rex Shelby, Kevin Ward, Scott Yeager, and Michael Krautz, went to trial in 2005. They were acquitted on certain charges but the jury deadlocked on the rest of the charges. Retrials were scheduled.

A jury acquitted Krautz and convicted Howard, but Judge Gilmore threw out the latter's conviction on the grounds that the government applied a flawed legal theory. Howard then pleaded guilty. The Supreme Court ruled that because the jury acquitted Yeager of other charges connected to the same alleged scam, he could not be retried.

Related Web Resources:
Former Broadband CEO given 16-month sentence, Chron.com, September 28, 2009

Ex-Enron Broadband Co-CEO Sentenced for Wire Fraud, Bloomberg, September 28, 2009

Read May 15, 2000 Enron Broadband press release, HighBeam.com

The Fall of Enron, Houston Chronicle

Continue reading "Ex-Enron Broadband CEO Goes to Prison for Texas Securities Fraud" »

October 15, 2009

SEC Warns Charles Schwab Corp. of Possible Civil Charges Over Two Bond Funds

Charles Schwab Corp. has received a Wells notice from the Securities and Exchange Commission about possible civil charges related to the discount brokerage’s Schwab Total Bond Market Fund and Schwab YieldPlus Fund. Schwab has been the target of regulatory investigations over the two funds and is a defendant in a number of civil lawsuits.

SEC staff members plan on recommending civil charges against a number of Schwab affiliates over possible securities violations. The Wells notice is not a finding of wrongdoing or a formal allegation. It does, however, give Schwab an opportunity to respond before the SEC makes a decision on whether to move forward with an enforcement action. The discount brokerage says the possible charges are unwarranted.

In San Francisco, Schwab is defending itself against a class-action fraud lawsuit in federal district court. YieldPlus fund investors are accusing the brokerage firm of failing to fully disclose the risks connected with some securities in the Schwab funds.

The brokerage firm says that during the first half of 2009, it paid $21 million to settle arbitration claims and lawsuits related to these investments. According to Investment News, between September 1 and October 1, 2009, Schwab lost 7 out of 10 YieldPlus Finra arbitration cases. FINRA says awards against the brokerage firm totaled $772,000.

FBR Capital Markets analyst Matt Snowling says the Wells notice could directly impact current and upcoming arbitration claims and litigation from investors who sustained losses from Schwab's two fixed-income mutual funds. Snowling says that the Wells notice and ongoing FINRA arbitration over the bonds funds increases the chances Schwab will likely have to settle the class-action fraud lawsuit.

Our securities fraud lawyers represent investors with FINRA arbitration claims against Charles Schwab. Please contact our stockbroker fraud law firm for a free case evaluation.

Please also refer to the ugent notice our securities fraud lawyers posted on our Blog site this week about what a Schwab YieldPlus investor must do to file a private claim.

Related Web Resources:
Schwab slapped with SEC warning; YieldPlus settlement may be on the horizon, Investment News, October 15, 2009

Charles Schwab Receives Wells Notice From SEC - Filing, WSJ, October 14, 2009

October 13, 2009

Notice: Schwab YieldPlus Investors Must Act Quickly To File Independent Claims For Losses

Investors who invested into YieldPlus Funds issued by the Charles Schwab Corp. must take immediate action to avoid being limited in recovery to the amount obtained through a class action suit. Many with significant losses have been advised by attorneys to seek individual recovery in Securities Arbitration through the Financial Industry Regulatory Authority (FINRA). Those with smaller losses are being advised to remain in the class action.

Most investors who seek recovery of investment losses through private claims receive a greater portion of their losses than those who remain in class actions, even after paying expenses including legal fees. In some cases investors can recover many times the amount paid through class action settlements.

To file a private claim a YieldPlus investor must “opt out” of the class on or before December 28, 2009. This requires the investor to provide a written statement requesting exclusion from the Schwab YieldPlus class-action lawsuit, sign and date the request, include their mailing address and mail this information by the due date. It is highly recommended that this be done earlier than that date and on a form provided by the Administrator. Any flaw in the process can result in a failure to be eligible to proceed.

Allegations regarding the Schwab YieldPlus funds include that investors were deceived about the inherent risk in the funds, which were packaged and sold as cash alternatives. Instead, it is claimed, the YieldPlus funds were invested into high risk mortgages and mortgage derivatives. Investors also claim the funds' registration and disclosure statements omitted material information and facts about the investments, including that the investments were speculative, illiquid, and that the value of the underlying investments were inflated. Schwab has denied all these allegations.

October 12, 2009

Citigroup ordered to pay $600,000 FINRA fine for inadequate supervision that may have allowed foreign clients to avoid paying taxes on dividends

Citigroup, Inc. has agreed to pay a $600,000 Financial Industry Regulatory Authority fine to settle claims that its alleged inadequate supervision of certain derivative transactions between 2002 and 2005 allowed a number of foreign clients to avoid paying taxes on dividends.

The way this allegedly worked is that during a period of dividend payments, the customer would sell stock to Citigroup. The bank would pay the client an income equal to the dividend. It would also pay any share price increase.

FINRA is accusing Citigroup of failing to control trades and failing to prevent improper trades, both internally and with trading partners. The dividend equivalent that certain foreign Citigroup clients obtained was not considered subject to withholding taxes. Citigroup's strategy was allegedly intended to lower its tax bill.

By agreeing to pay the $600,000 fine, Citigroup is not admitting to or denying the allegations.

The US Senate has created an inquiry into accusations that certain Wall Street firms manipulated derivatives and stock-loans so that clients could avoid hundreds of millions of dollars in taxes. The Financial Times is reporting this amount to be in the billions of US dollars.

The Senate’s Permanent Subcommittee on Investigations says that Citibank paid the IRS $24 million over the allegations and worked to give the agency full disclosure.

Throughout the US, our stockbroker fraud lawyers represent institutional and individual investors who have sustained financial losses because of broker-dealer fraud or other misconduct.

Related Web Resources:
Citigroup slapped with $600,000 fine from FINRA, American Banking News, October 13, 2009

Citigroup fined over tax strategies, Boston.com, October 13, 2009

Citigroup agrees to pay fine, Kansas City, October 12, 2009

October 10, 2009

NASAA Releases Investment Adviser Best Practices To Improve Compliance

The North American Securities Administrators Association has updated its best practices for investment advisers. The best practices were developed after a series of exams revealed several problem areas.

458 state-level investment advisers took part in examinations between January and May 2009. Some 1,887 deficiencies in 13 compliance areas, including the areas of books and records, registration, supervision, unethical business practices, and financials, were found.

NASAA President Denise Voigt Crawford says the best practices should help strengthen internal compliance programs. This will hopefully decrease the chances of regulatory violations (that can lead to securities fraud) while helping investment advisers provide better client services and meet compliance challenges.

NASAA Best Practices Recommendations for Compliance Procedures and Practices:

• Update contracts.
• Revise and update the disclosure brochure and form ADV every year.
• Back up information that is stored electronically.
• Ensure records are protected.
• Prepare and maintain financial records, other mandatory records, and client profiles.
• Develop a manual of relevant, written compliance and supervisory procedures.
• Make sure financials are always accurate.
• Each year, prepare and send out a current privacy policy.
• If necessary, maintain surety bond.
• If applicable, put into place the proper custody safeguards.
• Ensure that all advertisements are accurate.
• Look at disclosures, solicitor agreements, and delivery procedures.

At this time, state regulators are in charge of overseeing investment advisers who manage under $25 million. The Securities and Exchange Commission supervises investment advisers who manage over $25 million. NASAA is seeking to increase state oversight to include investment managers who oversee assets of up to $100 million. The Financial Industry Regulatory Authority also wants to expand its investment adviser authority.

Related Web Resources:
State inspectors find fewer problems among investment advisers, Investment News, September 29, 2009

NASAA Outlines Best Practices For Investment Advisers, NASAA.org


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October 8, 2009

SEC Office of Administrative Services' Office of Acquisitions Has Shortfalls that Could Impede Operation, Says Audit

According to an external audit of the SEC Office of Administrative Services' Office of Acquisitions (OA), there exists “significant risk areas” that could affect operation and lead to improper accounting of federal resources. OA is responsible for the SEC’s contracting and procurement functions.

Shortfalls revealed included:

• Failure to submit accurate information in the Federal Procurement Data System
• Failure to keep accurate information and records about contracting and procurement
• Failure to engage in contract close-out procedures that are in accordance with Federal Acquisition Regulation and SEC regulations.
• Failure to properly manage and supervise personnel training and contract activities at regional offices

Per the report, shortfalls appear to have occurred due to a number of issues, including insufficient data for properly managing operations, poorly trained employees, and operational procedures that are not consistent.

Also, after checking the SEC's Office of Financial Management records, the Audit found $13 million in contracts that were not identified in OA’s consolidated spreadsheet. In certain cases, OA had marked certain contracts as closed when OFM still noted them as open.

Following the audit, 10 recommendations were issued, including establishing new internal review processes, revising recordkeeping procedures, modifying operational processes, and coming up with a training plan for contracting obligations and personnel performing procurement duties.

SEC Inspector General H. David Kotz also issued a separate audit which found problems within the SEC's Office of Freedom of Information. His audit found that the SEC had compliance issues with the Freedom of Information Act, which outlines procedures that have to by abided by when members of the public ask the federal agency for information.

Deficiencies included a lack of written procedures and policies for handling such requests, improper or inadequate procedures for disclosing documents that are not in compliance, failing to properly manage certain information, discriminating against certain entities asking for data, the improper processing of certain request, and failure to comply by rules requiring that an information request receives a response within 20 days.

Related Web Resources:
Watchdog:Flaws In SEC Acquisitions,Freedom Of Information Offices, Dow Jones, September 25, 2009

SEC Office of Administrative Services' Office of Acquisitions

SEC FOIA/PA Program, The Freedom of Information & Privacy Act Office, SEC.gov

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October 7, 2009

Make Credit Rating Agencies Collectively Liable for Inaccuracies, Proposes Lawmaker

House Financial Services subcommittee chair Paul Kanjorski introduced a new draft bill that proposes making credit ratings agencies collectively liable for inaccuracies. The agencies received a lot of heat when they failed to properly warn investors about the risks associated with subprime mortgage securities before the market fell.

One problem with the current system is that the firms issuing the securities are the ones paying the credit ratings agencies for rating the securities. Kanjorski’s draft bill lets investors pursue lawsuits against credit rating agencies that recklessly or intentionally did not examine key data to determine the ratings. He says that collective liability could compel the ratings agencies to provide reliable, quality ratings while providing the proper incentive for them to monitor each other.

Critics of the plan, including Republicans and industry executives, warned that collective liability could result in a slew of expensive complaints while decreasing competition even more in an industry that Fitch Ratings, Moody’s Investors Services, and Standard and Poor’s already dominate.

Kanjorski said that his proposal was a “start,” which comes as Congress intensifies its watch over the credit ratings agency industry and the Obama administration calls for stricter government oversight.

Credit ratings agencies are charged with issuing the creditworthiness ratings of securities and public companies. The ratings can impact a company’s ability to borrow or raise funds and determine how much mutual funds, banks, local governments, and state pension funds will pay for securities.

When home-loan delinquencies went up last year, the investments’ value dropped and the credit ratings agencies were forced to downgrade the ratings they gave to thousands of securities. Large banks and investment firms sustained hundreds of billions of dollars in losses because of the downgrades.

Meantime, two former Moody’s employees, former analyst Eric Kolchinsky and former senior vice president for compliance Scott McCleskey, are accusing Moody’s of misconduct, including engaging in conflicts of interest, knowingly inflating ratings, and failing to implement “meaningful surveillance of municipal securities” despite the credit ratings agency's statements to the contrary. Moody’s acknowledges misjudging the magnitude of the subprime mortgage collapse but says the allegations are “unsupported.”

Recently, the SEC proposed rules that would put a stop to conflicts of interest and allow for greater transparency for credit ratings agencies.

When the subprime mortgage market collapsed, many investor sustained massive financial losses. Our securities fraud law firm is dedicated to helping our clients recover those losses. Contact Shepherd Smith Edwards & Kantas LTD LLP today.

Related Web Resources:
Lawmaker seeks group liability for rating agencies, Business Week, September 30, 2009

The Role and Impact of Credit Rating Agencies on the Subprime Credit Markets, SEC.gov, September 26, 2009

House Committee on Financial Services

October 5, 2009

Former Merrill Lynch Employee, Guilty of $1.4 Million Texas Securities Fraud Scheme, Receives Prison Term

A judge has ordered a former Merrill Lynch employee, San Antonio stockbroker Bruce E. Hammonds, to serve almost five years in prison and three years supervised release for Texas securities fraud. Bruce E. Hammonds also must pay $1.1 million in restitution to the Merrill Lynch investors he defrauded and almost $60,000 to two clients that he continued to defraud after the broker-dealer fired him in June 2008.

Hammonds reportedly did not deny the alleged fraud when Merrill Lynch confronted him about his activities. The broker-dealer has paid the investment fraud victims back in full.

According to the criminal complaint affidavit, Hammonds opened a working capital account under the name B & J Partnership.He was supposed to register the account in an internal monitoring system, which he never did. Instead of placing investors’ funds in a Merrill Lynch fund, he deposited $1.4 million of their money in his working capital account. He provided clients with charts demonstrating the performance of the B&J Partnership investment fund even though no such fund existed.

Hammonds pleaded guilty to federal securities fraud charges earlier this year after an investigation found that between August 2006 and October 2008, Hammonds didn’t invest clients’ funds in stocks and hedge funds. Instead, he used the money for personal purposes, including an alleged house-flipping business. He gave back $486,000 to clients so it would appear as if they had made money off their investments.

Related Web Resources:
Judge sends ex-stockbroker to jail for bilking investors, Business Journal, October 2, 2009

Stockbroker sent to prison for $1.4 million scheme, My San Antonio, October 3, 2009

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October 3, 2009

Colorado Sues Stifel, Nicolaus for Misrepresenting Auction-Rate Securities to Investors

The Colorado Securities Division is suing Stifel, Nicolaus & Co. for securities fraud. State regulators are accusing the broker-dealer of making false assurances to investors about auction-rate securities.

In its Colorado securities fraud complaint, the securities division accused Stifel Nifel, Nicolaus of violating the Colorado Securities Act by allowing investors to think that their ARS-investments would always be liquid, failing to properly supervise sales team members, and making unsuitable investment recommendations to clients.

The Division claims that Stifel, in the role of underwriter, knew that there were liquidity risks linked to ARS but never let its sales force know about them. Stifel brokers allegedly compared ARS to money market funds on a regular basis and sold them as if they were appropriate for cash management purposes. Investors were told they would always be able to access their funds as if it were cash. However, when the ARS market collapsed in February 2008, the Colorado investors that purchased auction-rate securities were unable to get their funds or sell their bonds.

The ARS lawsuit against Stifel, Nicolaus seeks to have the broker-dealer suspended in Colorado. The complaint comes on the same day that the Indiana Securities Division filed its securities fraud lawsuit against Stifel, Nicolaus & Co.

ARS are long-term bonds. They are dependent on the success of a periodic auction for short-term liquidity. The fallout continues from the ARS market collapse and state securities regulators continue to take action against broker-dealers. Our securities fraud law firm has remained diligent in our efforts to help ARS investors whose funds were frozen. Broker-dealers and their employees must be held accountable for securities fraud. Our investment fraud lawyers are committed to helping our clients recover their financial losses.

Colorado securities regulators file complaint against Stifel, Nicolaus, Business Journal, October 1, 2009

Read the press release announcing the charges filed by Colorado Dep't of Regulatory Agencies (DORA), Division of Securities against Stifel, Nicolaus

October 1, 2009

Indiana Accuses Stifel Nicolaus & Co. of Auction Rate Securities Fraud

The Indiana Secretary of State’s Office filed an administrative complaint today accusing Stifel Nicolaus & Co.’s local office of securities fraud, failing to properly train members of its sales team, and failing to disclose risks associated with purchasing auction-rate securities. As a result, some 141 Hoosiers who had invested $54.0 million sustained losses when the ARS market fell apart last year and their securities were frozen.

92 of the ARS investors who were affected were Jeffrey Cohen’s clients. Cohen is the local Stifel office’s managing director. His clients had invested $45 million.

For violating the Indiana Securities Act, the broker-dealer could be ordered to pay a $10,000 fine/violation, as well as restitution to the securities fraud victims. Other states, including Colorado and Missouri, have made similar charges against Stifel Nicolaus.

Colorado’s securities regulator also filed its auction-rate securities complaint against Stifel Nicolaus today alleging that the broker-dealer failed to fully inform local investors about ARS risks. The securities fraud lawsuit also accuses the broker-dealer of violating the Colorado Securities Act, misrepresenting ARS as short-term investments that were liquid, and providing clients with unsuitable recommendations.

Missouri’s complaint, filed in March by Secretary of State Robin Carnahan, claims that over 1,200 investors suffered losses when ARS worth $180 million were frozen.

Auction-Rate Securities
Many investors throughout the US were shocked to discover that the ARS they had purchased were not, as broker-dealers had told them, investments that were liquid like cash. Our stockbroker fraud law firm continues to work diligently with many ARS clients to recover their investments.

Related Web Resources:
Local Stifel office accused of securities fraud, IBJ, October 1, 2009

Colorado charges Stifel unit with ARS sales fraud, Reuters, October 1, 2009

Missouri Secretary of State Robin Carnahan sues Stifel Nicolaus, Daily Record, March 13, 2009


Continue reading "Indiana Accuses Stifel Nicolaus & Co. of Auction Rate Securities Fraud " »