January 31, 2010

SEC is working on issues related to asset-backed securities, credit ratings, and money market mutual funds, says Schapiro

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According to Securities and Exchange Commission Chairman Mary Schapiro, the agency is dealing with a number of credit crisis-related issues associated with money market mutual funds, asset-backed securities, and credit ratings. She also said that the SEC is working on ABS rule proposals that would allow the interests of investors and sellers to align.

The proposals, and other measures, would seek to give investors easier access to loan level data, allow them more time to review products before they invest, create a mechanism to allow for continuous disclosure, and modify “shelf” offerings eligibility standards. Schapiro says that the proposals are meant to be preemptive and would tackle certain areas where issues similar to the ones that surfaced during the current financial crisis might arise in the future.

American and European regulators have been closely examining collateralized debt obligations, mortgage-backed securities, and other ABS because of the large parts they played during the financial collapse. The SEC is reviewing ABS regulations and ABS-related disclosures and reporting. The agency is also seeking to impose more stringent credit quality and maturity requirements for market mutual funds, as well as put into place substantial liquidity standards. Members will be voting on proposed rule amendments meant to strengthen the money market mutual funds’ framework. The SEC is in the process of taking out credit rating references in a number of its regulations and rules.

Schapiro warned that products are going to start appearing faster and will be sold at “lightning speed” to “sometimes devastating” results. She said the SEC also intends to deal with issues related to municipal securities markets, advisory firm roles, proxy voting mechanics, and the relationships between broker-dealers and investment advisers and their retail clients. .Schapiro made her statements on January 20 during an update regarding the agency’s efforts to deal with credit crisis.

The financial crisis has led to investment losses by numerous individuals and entities throughout the US. Our securities fraud lawyers have been working diligently to help stockbroker fraud victims recoup their losses that were caused by investment adviser and broker misconduct.

Related Web Resource:
Speech by SEC Chairman: Embracing the Change, SEC.gov, January 20, 2010

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Posted In: Asset-Backed Securities , Credit Ratings , Money Market Funds , SEC

January 30, 2010

Judge Gives Lower Sentence to Former Credit Suisse Broker Convicted of Auction-Rate Securities Fraud

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Eric Butler, a former Credit Suisse Group AG broker, has been sentenced to five years in prison for securities fraud. A jury found the ex-stockbroker guilty of misleading clients into thinking that they were buying student loan-backed, low-risk auction-rate securities when they were actually buying ARS that were high-risk and backed by home mortgage assets. He modified the trade confirmations to conceal this discrepancy. His securities fraud scam collapsed when the ARS market did, but not before investors sustained $1.1 billion in losses.

The government asked that Butler be ordered to serve a 45-year prison sentence pay stiff penalties. However, U.S. District Court Judge Jack Weinstein sentenced him to just five years, imposed a $5 million fine, and ordered that he forfeit $500,000.

Following the guilty verdict, Weinstein expressed concern about placing all of the blame on Butler. He said that he gave the ex-Credit Suisse broker a reduced sentence because the financial services industry has a “pernicious and pervasive" corrupt culture.

Weinstein says the blame for misdeeds such as stockbroker fraud should be placed not only on individuals but also on the financial institutions that hire them. While stating that Butler abused his power, violated his clients’ trust, and defrauded them of significant sums of money, the judge also placed accountability for the former Credit Suisse broker’s crimes on the failure of lawmakers and government regulators to properly oversee the financial markets, the investors’ failure to supervise their financial transactions, and Credit Suisse’s failure to properly supervise Butler.

Our stockbroker fraud lawyers can’t help but wonder why investors continue to place their faith in an industry where so many brokers have proven that they lack the experience to successfully manage clients’ assets and the arbitration process is set up in a manner that makes it hard for investors to recover a substantial portion of their investment losses.


Related Web Resources:
Ex-Credit Suisse Broker Butler Gets Five-Year Prison Sentence, Bloomberg, January 23, 2010

Ex-Credit Suisse broker guilty in $1B scheme, NY Daily News, August 17, 2009

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Posted In: Credit Suisse , Financial Firms

January 29, 2010

Troubled GunnAllen Securities to be Acquired by Progressive Asset Management as Lawyers for Investors Investigate the Sale.

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After undergoing major litigation costs, GunnAllen Financial Inc. has agreed to be acquired by Progressive Asset Management Inc., which already controls a smaller broker-dealer. Progressive claims to be a “socially conscious” investment firm.

The combination of the firms would appear to create a broker-dealer with about 1,000 independent advisors and brokers in more than 200 offices nationwide. If so, the resulting firm would be ranked in the 30 largest independent broker-dealers, according to information available from InvestmentNews.

The terms of acquisition have not been disclosed, according to David Levine, executive vice president of Progressive, who also did not specify whether his firm would be acquiring GunnAllen’s broker-dealer firm or only its advisers and assets. Often buyers of troubled securities firms seek to buy only the assets leaving behind creditors with little or nothing, including former clients of the firm who have ongoing suits and claims.

Nor has Fred Kraus, GunnAllen's president, or any other spokesman of that firm commented on whether the acquisition of GunnAllen would include only that firm’s assets, or whether the entire firm would be acquired.

GunnAllen experienced phenomenal growth over the past decade, amid reports that salespersons and advisors may have been hired somewhat indiscriminately. More recently, a number of customer claims have surfaced, punctuated by a large Ponzi scheme in Detroit involving one of GunnAllen representatives. The firm has denied knowledge or responsibility for the representative's actions regarding that scheme.

Late last year, John Sykes resigned as Chairman of GunnAllen Holdings Inc., the firm’s largest owner, but also purchased Pointe Capital Inc., another registered broker-dealer which had been purchased by GunnAllen Holdings only months earlier. Meanwhile, regulators from the Financial Industry Regulatory Authority Inc. (FINRA) descended on GunnAllen's Tampa, Florida, offices to ascertain that the firm's net-capital requirements were being met as litigation costs rose and assets were leaving the firm.

Lawyers for investors with claims pending against GunnAllen, its principles and/or its representatives are monitoring the events surrounding GunnAllen, now including the sale of that firm, to ascertain whether any transfer of its assets will be in a commercially reasonable manner and according to FINRA requirements.

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Posted In: GunnAllen Financial

January 27, 2010

Former Evergreen Investment Adviser Settles SEC Insider Trading Charges Involving Ultra Short Opportunities Fund

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Charles Marquardt, Evergreen Investment Management Co. LLC’s former chief administrator, has settled charges filed by the US Securities and Exchange Commission that he sold Evergreen Ultra Short Opportunities Fund shares after obtaining insider information that a number of the MBS holdings were going to drop down in value. Marquardt worked for Evergreen at the time he allegedly engaged in insider trading and served as the Evergreen Ultra Short Opportunities Fund’s investment adviser. The mutual fund mostly invested in mortgage-backed securities.

On June 11, 2008, he allegedly found out about the likely decrease in value of several of its MBS holdings and that there was a possibility that the Ultra Fund could end up shutting down. Marquardt is accused of having redeemed all of his shares the following day. One of his family members also sold Ultra Fund shares. Marquardt and his relative avoided incurring $4,803 and $14,304 in financial losses, respectively. The fund was liquidated on June 19 of that year.

To settle the charges against him, the investment adviser has agreed to a bar from future violations, as well as to a two-year industry bar. He will pay a $19,107 civil penalty, $1,242 in prejudgment interest, and $19,107 in disgorgement. By settling, Marquardt is not admitting to or denying wrongdoing.

Insider trading is illegal and does not pay off. Just last month, in an unrelated case, investment banker Adhan S. Zaman pleaded guilty to one count of securities fraud. Zaman, who previously worked for Lazard Ltd., admitted to engaging in insider trading.

He is accused of misappropriating non-public, material data from the financial advisory and asset management company and of giving tips to other persons who then used the information to execute securities transactions. They also used insider trading tips that were given to Zaman by a friend that worked in an entity involved in the acquisitions of publicly-traded companies. Tipees made about $400,000, while Zaman was paid about $68,000 in benefits and cash.

Zaman faces up to 20 years in prison and the greater fine of either $5 million or two times the gross loss or gain. The US Sentencing Guidelines will have to be taken into consideration.


Related Web Resources:
SEC settles insider trading case, Boston.com, January 21, 2010
Former San Francisco, CA investment banker pleads guilty to insider trading, BNO News, January 16, 2010

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Posted In: Evergreen , Financial Firms , Lazard Ltd.

January 26, 2010

Former Southwest Securities Broker’s Lifetime Industry Bar for Texas Securities Fraud is Affirmed, Says Appeals Court

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The U.S. Court of Appeals for the Fifth Circuit has affirmed the Securities and Exchange Commission’s lifetime bar against a former Southwest Securities Inc. stockbroker. Scott Gann, who allegedly committed Texas securities fraud, is no longer allowed to associate with dealers, investment advisers, and brokers.

The SEC imposed the permanent bar against Gann because of his alleged involvement in a mutual fund market timing scheme. The appeals court says that the SEC’s ruling is not an abuse of discretion and is supported by the record.

Gann and George Fasciano, also a former Southwest Securities broker, are accused of engaging in market timing trades for Haidar Capital Management and Capital Advisor. They allegedly got around the rules of some of the mutual funds that prohibit market timing by using multiple representative and account numbers. Despite receiving 69 block notices from 34 mutual funds, their strategy allowed them to continue executing market timing trades.

The SEC filed an enforcement action in federal district court accusing the two men of violating the 1934 Securities Exchange Act Section 10(b). Fasciano settled before the case went to trial.

The district court held that Gann was in violation of Section 10(b). An SEC administrative law judge then entered a permanent associational bar against the ex-Southwest Securities broker. The SEC affirmed the bar, as did the appeals court.

The appeals court also noted that as Gann is convinced he did not engage in any wrongdoing—even though the SEC and two courts found that Gann acted wrongfully—there is no guarantee he won't commit future violations.

Related Web Resources:
Gann v. SEC, SEC.gov (PDF)

1934 Securities Exchange Act, Cornell University Law School

Continue reading "Former Southwest Securities Broker’s Lifetime Industry Bar for Texas Securities Fraud is Affirmed, Says Appeals Court" »

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Posted In: Financial Firms , Market Timing , SEC Enforcement , Southwest Securities , Texas Securities Fraud

January 23, 2010

Securities Class Actions are No Longer the Fad as Investors Hire Their Own Attorney to Recover Far More!

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According to Advisen Ltd, 910 securities lawsuits were filed in 2009 in the wake of the economic crisis—a 13% increase from the 804 complaints filed in 2008. 239 securities fraud class action lawsuits were filed in 2009—the same number filed in 2008. Advisen reported a 22% increase in the number of regulator-filed securities fraud complaints last year compared to the year before.

The author of Advisen’s report, John W. Molka III, says lawsuits over the Madoff ponzi scam and the credit crisis kept regulators and litigators busy during the first half of last year. Plaintiffs’ lawyers then had a backlog of other complaints to work on during the second half of the year.

Molka says that even though there wasn’t a change in the number of securities class action complaints filed, overall they made up a smaller percentage (about 25%) of the total number of lawsuits submitted. This decline in securities class action lawsuits has been going on since 2005, when they comprised about 50% of all securities complaints.

Advisen says that meantime, regulators continue to increase their enforcement efforts with lawsuits and actions. Securities actions filed in state courts and breach of fiduciary complaints are also growing in number.

To obtain the maximum recovery for your securities case, you should speak with a securities fraud law firm about your legal options. Our securities fraud lawyers represent clients with arbitration claims and securities lawsuits against negligent financial firms and other liable entities.

Related Web Resources:
Advisen, Ltd.

Read the Report, Advisen

Continue reading "Securities Class Actions are No Longer the Fad as Investors Hire Their Own Attorney to Recover Far More! " »

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Posted In: Class Action Lawsuits , Securities Fraud

January 21, 2010

Court Stops Results One Financial LLC Adviser’s Alleged Investment Fraud Scam

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Per the Security and Exchange Commission’s request for emergency relief, the U.S. District Court for the Northern District of Illinois has halted an alleged investment fraud scam involving Results One Financial LLC adviser Steve W. Salutric. He is co-founder of the financial firm. Hon. William J. Hibbler ordered that all assets under Salutric’s control be frozen and he issued a temporary restraining order against him. Hibbler is also granting other emergency relief.

The SEC complaint accuses Salutric of making unauthorized withdrawals from clients’ accounts that were located in another financial institution that was the custodian of Results One Financial's client assets, forging client signatures on withdrawal request forms, and submitting the signed forms to the account custodian.

The SEC is charging the investment advisor with misappropriating several million dollars of his clients’s finds. Beginning in 2007, Salutric allegedly misappropriated more than $2 million from at least 17 clients to support entities and businesses that are linked to him. Funds that were allegedly misdirected include $610,000 to a film distribution company, $259,000 to two restaurants, and $321,000 to the church where he is treasurer. The SEC is accusing Salutric of misappropriating over $400,000 from a 96-year-old nursing home resident who has dementia. He also allegedly made Ponzi-like payments to certain clients.

Courthouse News Service says that Salutric managed over $16 million through Results One. The SEC says that there may be more clients who were defrauded and additional funds may have been misappropriated.

The SEC is seeking penalties, disgorgement, and an injunction.

Related Web Resources:
Securities and Exchange Commission v. Steve W. Salutric, Civil Action No. 1:10-CV-00115 (N.D. Ill.), SEC, January 8, 2010

Read the SEC Complaint (PDF)

Continue reading "Court Stops Results One Financial LLC Adviser’s Alleged Investment Fraud Scam " »

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Posted In: Financial Firms , Results One Financial LLC , Securities Fraud

January 19, 2010

SEC Cannot Order Former Rauscher Pierce Broker to Compensate Investors for Losses, Says Court

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According to the U.S. Court of Appeals for the District of Columbia Circuit, the Securities and Exchange Commission cannot order former Rauscher Pierce Refsnes Inc. broker Michael Siegel to uphold an award of restitution to investors who sustained financial losses as a result of his alleged broker misconduct. Siegel worked as a general securities representative for the financial firm from October 1997 to June 1999.

In 2002, NASD's Department of Enforcement charged Siegel with “selling” away and making inappropriate recommendations to certain investors. Specifically, the investors that the alleged violations involved are Dorothy and Barry Landry and Linda and Huntington Downer, who invested in World Environmental Technologies Inc. The NASD has accused Siegel of recommending that they invest in World ET without reasonable cause for why doing so would be appropriate for them. To discipline him, NASD ordered Siegel to serve two six-month suspensions. They also fined him $30,000.

While the NASD disciplinary committee did not order restitution, an NASD appeals panel did. He was told to pay $100,000 to the Landers and $303,000 to the Downers. Siegel appealed but the SEC affirmed the appeals panel’s decision.

Now, however, the appeals court is agreeing with Siegel that the SEC abused its discretion when it upheld the restitution awards because it did not properly assess the causes of the four investors’ losses. The court said there was no reasoned decision making to support the SEC’s judgment for why restitution is appropriate under NASD General Principal No. 5.

According to stockbroker fraud lawyer William Shepherd, "Most investors do not realize that securities regulators only 'police' the world of securities and rarely recover lost money for investors. State Securities Commissions and the SEC issue “tickets” and collect fines. The same is true for the Financial Industry Regulatory Authority (FINRA), despite spending millions of dollars to advertise themselves. In this case the SEC actually tried to force the broker to pay the losses, but the court said they could not. To recover losses an investor should hire a securities fraud attorney to seek damages. The chances for recovery are far better when working with an investment fraud law firm that specializes in securities claims.”

Related Web Resource:
Read the Opinion (PDF)

FINRA

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Posted In: Securities Fraud

January 17, 2010

Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court

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The U.S. Court of Appeals for the Fifth Circuit has affirmed the dismissal of LSF5 Bond Holdings LLC and Lone Star Fund V (U.S.) L.P.’s $60 million securities fraud claims against Barclays Capital Inc. and Barclays Bank PLC. The court noted that Barclays never represented that the mortgage pass-through certificates purchased by the private equity firms did not have delinquent mortgages. Also, the court said that seeing as the language used in the parties’ agreement obligated Barclays to substitute or repurchase delinquent representation, Lone Star failed to allege misrepresentation.

In 2006, Barclays bought mortgage loans from then-subprime lender New Century Capital Corp. Barclays then pooled about 10,000 mortgage loans into the BR3 and BR2 Trusts. The trusts then gave out pass-through certificates or mortgage-backed securities. $60 million of the securities were bought by LSF5.

Although trust offerings supplements and prospectuses included representations and warranties that as of “transfer service dating” the mortgage pools did not have any 30-day delinquencies, Lone Star found that nearly 300 of the BR2 mortgages were at least 30 days delinquent beginning the date of purchase. 850 mortgages in the BR3 Trust were also over 30 days overdue.

Lone Star filed a Texas securities fraud lawsuit against Barclays claiming that the delinquent loans were misrepresentations on the investment bank’s part. Barclays sought to have the lawsuit dismissed, arguing that if there were delinquent loans then Barclays must either substitute or repurchase them.

The district court turned down Lone Star’s remand request and agreed with Barclay’s interpretation of the language in the agreement. The court dismissed the case. The appeals court upheld the dismissal.

Related Web Resources:
Lone Star Fund V (U.S), LP et al v. Barclays Bank PLC et al, Justia Federal District Court Filings and Dockets

Read the 5th Circuit Opinion (PDF)

Continue reading "Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court" »

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Posted In: Barclay's Bank , Financial Firms , Securities Fraud , Texas Securities Fraud

January 15, 2010

For Role in $2.4 Billion Refco Investor Fraud Scheme, Former Mayer Brown Partner Receives 7-Year Prison Sentence

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Joseph P. Collins, a former Mayor Brown partner, has been sentenced to seven years in prison for his role in a $2.45 billion investment fraud scheme involving Refco Inc. He had hoped to obtain a more lenient sentence.

In July 2009, a jury found Collins guilty of wire fraud and securities fraud, as well as conspiracy to commit wire fraud, securities fraud, money laundering, bank fraud, and making false filings with the SEC. During his criminal trial, his defense attorneys argued that he did not know about the Refco fraud scam. However, while Southern Judge Patterson said that he believes Collins did not commit his crimes out of greed, Patterson noted what he called the firm partner’s “excessive loyalty” to his biggest client. According to Assistant U.S. Attorney Christopher J. Garcia, Collins brought in over $40 million to his law firm from his work with Refco.

Collins provided legal counsel and drafted documents that Refco principals used to conceal the company’s actual financial state while they made themselves wealthier. The government says that the documents were used to defraud Thomas H. Lee Partners, which owned a majority stake in Refco, and investors who purchased IPO shares in 2005.

Collins testified that Refco officials lied to him. He says he did not know that the financial services firm was conducting bogus transactions to conceal its true financial state from auditors and others. Collins says he did not personally profit from the scheme.

Former Refco CFO Robert C. Trosten and Ex-EVP Santo C. Maggio cooperated with the government in its case against Collins. Trosten and Maggio both pleaded guilty to the criminal charges filed against them over the Refco securities fraud scam. Former Refco CEO and Chairman Phillip Bennett is serving a 16-year prison term after pleading guilty in his criminal case. Meantime, Tone Grant, ex-Refco Group Ltd. president, is serving a 10-year prison term after he was convicted by a federal jury.


Related Web Resources:
Ex-Mayer Partner Gets 7 Years Over Refco, New York Law Journal, January 15, 2010

Former Refco Lawyer Collins Convicted in $2.4 Billion Fraud, Bloomberg, July 11, 2009

Mayer Brown

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Posted In: Financial Firms , Refco , Securities Fraud

January 13, 2010

Number of FINRA Arbitration Claims Rose in 2009 Following Market Crisis

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According to FINRA dispute resolution president Linda Fienberg, the market turmoil of the last two years has led to an increase in the number of arbitration cases filed, as well as a change in the the kinds of claims that are submitted. Fienberg made her statements before the DC bar.

7,134 arbitration files were submitted last year—a definite increase from the 4,982 arbitration cases filed the year before and the 3,238 arbitration cases submitted in 2007. Fienberg said that the number of cases filed goes up when stock prices go down. For example, when the dotcom bubble burst, nearly 9,000 arbitration claims were submitted in 2003.

Fienberg told the group that in the wake of the auction-rate securities crisis, more large corporations filed claims over frozen assets last year. The last two years also saw an increase in claims over mutual funds, making this type of fund the most common security cited in arbitration cases.

Fienberg also reported that more claimants are prevailing—48% in 2009— compared to 42% in 2008 and that cases are being resolved in a shorter period of time—within 14 months last year compared to more than 15.5 months during each of the two years prior.

Commenting on Fienberg’s statements, Shepherd Smith Edwards and Kantas founder and stockbroker fraud lawyer Bill Shepherd said, “Securities class action claims are down because the law and the justice system has decimated them. All securities class actions can only be filed under federal (not state) securities laws, which are very unfriendly to investors. Judges that were recently appointed to the federal bench (at all levels) are pro-business and anti-lawsuit. Thus, if possible the majority of securities class action claims must be settled early or they risk dismissal before any money is recovered. This means that the attorney filing these cases loses their own money.”

“For these and other reasons,” Shepherd went on to say, “the average recovery in securities class action claims has fallen to less than seven cents per dollar lost. Put another way, crime does pay when that crime is securities fraud. Also, the largest securities class action firm was recently closed and several principals were put in jail (not uncommon for an enemy of Wall Street). Other firms have ceased filing such cases. One again, Wall Street wins and investors lose. This will only change when ordinary people realize that lawsuits are their only hope of leveling the playing field.”

Related Web Resources:
Crisis Caused Spike, Different Trends In Arbitration Cases, FINRA Official Says, BNA, January 11, 2010

Financial Industry Regulatory Authority

Linda Fienberg, FINRA

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Posted In: Arbitration , FINRA

January 11, 2010

Schwab YieldPlus and Morgan Keegan RMK Funds Among Worst Mutual Fund Disasters of the Last Decade, According to US News & World Report

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US News and World Report says that the first decade of the 21st Century for fund investors got worse after the dotcom bubble burst in 2000. The media publication picked its 10 worst fund disasters:

Reserve Primary Fund: Investors scrambled to cash in shares after the fund’s price sank to over $1/share on September 16, 2008. According to US News & World Report, the Reserve Primary Fund’s biggest mistake was relying too much on Lehman Brothers, which left the fund with $785 million in worthless bonds when Lehman collapsed. Meantime, other funds found themselves in trouble as panic spread. Three days later, the federal government said it would temporarily insure money market funds.

Market timing scandal of 2003: Funds were accused of illegal late trading and front running that showered favor on more influential investors—leaving ordinary retail investors in a state of mistrust toward the institutions they had turned to for securing their retirement savings. Bank of America, Janus, Putnam, and PBHG were just a few of the financial firms accused of market timing, though the practice appeared to have permeated the entire fund industry to some extent.

Merrill Lynch Internet Strategies Fund: Merrill Lynch launched this fund the same month the dot-com bubble burst in 2000. The fund lost 70% in just over a year. The Merrill Lynch Internet Strategies Fund was just one of a number of funds that had to shut down following the crash.

Chicken Little Growth Fund: Allegations of investor fraud and poor performance led to this fund shutting down after just 16 months.

Congressional inaction: Lawmakers made US News & World Report’s list for both overlooking the Generate Retirement Ownership Through Long-Term Holding Act for nearly 10 years and neglecting to send through the Arbitration Fairness Act.

Schwab YieldPlus Funds: This ultrashort bond fund lost 35.4% in 2008. Promoted as a money market fund alternative, the losses are attributed to high-risk mortgage-backed securities that “imploded.”

TCW’s firing of Jeffrey Gundlach: Fearful he would walk out the door and take a significant portion of the team with him, TCW fired him. At least 40 employees followed Gundlach. TCW’s Total Return Bond Fund has experienced an outflow of billions of dollars.

Direxion Monthly Emerging Markets Bear 2x: Sustained 58% losses each year for the last three years. The highly leveraged fund that concentrates in emerging markets leaves plenty of room for tracking errors unless sales and purchases are made at the exact right moments.

Morgan Keegan RMK Funds: High-risk mortgage backed securities led to these funds sustaining massive losses. Morgan Keegan RMK funds lost $2 billion the year beginning March 31, 2007. Investors are lined up with their arbitration filings.

Janus: The company’s Global Technology Fund lost 84% in the 2000-2002 bear market. Janus was involved in market-timing debacle of 2003. It also lost big and damaged its reputation from holding 41 million Enron shares.

Our stockbroker fraud law firm represents investors throughout the US that have sustained financial harm because of these fund disasters.

Related Web Resources:
The Decade's 10 Worst Fund Disasters, US News & World Report/Yahoo News, December 30, 2009

SEC Takes Steps to Address Late Trading, Market Timing and Related Abuses, Securities and Exchange Commission, December 3, 2003

Why the Burst Internet Bubble Didn't Break the Economy, Business Week, July 21, 2000

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Posted In: Bond Funds

January 7, 2010

SunTrust Robinson Humphrey Ordered to Pay $4.1 Million to Former Institutional Salesperson for Alleged Defamation and Wrongful Termination

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A FINRA arbitration panel is ordering SunTrust Robinson Humphrey, Inc. to pay $4.1 million to a former institutional salesperson who claims he was defamed in a regulatory filing and wrongfully terminated. SunTrust Robinson Humphrey is the corporate and investment bank services unit of SunTrust Banks, Inc.

Lance B. Beck, who worked for the company 19 years and sold debt securities, claims he was slated to gross more than $3 million when, following the auction-rate securities market collapse, he was let go. According to a regulatory filing for the former institutional salesman, his case against his former employer involves a $2.9 million ARS transaction with a institutional customer. SunTrust later decided to repurchase the securities.

Beck is accusing SunTrust of making disclosures on his Form U5 that were “devastating,” and prevented him from getting hired by other companies or take his book of business with him. Beck wanted certain language in the form, which brokerage firms have to submit to regulators when a broker leaves the company, expunged.

A FINRA panel has recommended expungement. It noted that a review of Beck’s firing showed that the brokerage firm’s allegations against him were false and “intended to defame” so that another brokerage firm wouldn't want to hire him and prevented him from taking his clients with him.

Beck was awarded $1.2 in compensatory damages, $419,000 in lawyer’s fees, and $2.5 million in punitive damages.

“Recovery for statements made in regulatory filings are very difficult to obtain,” says Shepherd Smith Edwards & Kantas LTD LLP founder and securities fraud attorney William Shepherd, who has represented a number of licensed securities persons. “No attorney should attempt to represent securities persons without a full understanding of the law and background concerning such claims, as well as the experience to handle these claims in securities arbitration.” Shepherd was himself licensed in securities and served as a vice president at several major Wall Street firms for 20 years. He also obtained a Masters Degree in Securities Regulation (LLM) from Georgetown Law School and has been a securities attorney for more than 20 years.

Related Web Resources:
SunTrust Robinson Humphrey to pay $4.1 mln in defamation case, Marketwatch, January 4, 2010

FINRA

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Posted In: Arbitration , FINRA , Financial Firms , SunTrust Investment Services Inc.

January 6, 2010

Investors of Robert Bentley Ponzi Scam Suffer Setback as Court Overturns $32.7 Million Verdict Against Brokerage Firm and Investment Bank

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On Monday, the victims of Robert Bentley’s $1 billion Ponzi scam suffered a setback when a federal appeals court overturned a $32.7 million jury verdict against Peninsula Bank of Delray Beach, its ex-executive vice president, Joseph Marzouca, Southeastern Securities, Inc., and its president Theodore Benghiat. The defendants are accused of helping to keep Bentley’s Ponzi scheme going.

Per court documents, Entrust Group and Bentley Financial Services Inc. misled investors by making them believe they were buying federally insured CD’s when they were actually buying unregistered IOU’s. David H. Marion, the receiver of Bentley’s companies in Paoli, Pennsylvania, says the Ponzi scam would have fallen apart much sooner without the defendants’ help.

The jury found that the brokerage firm and the bank either helped or conspired with Bentley to defraud investors. They said Southeastern Securities and Benghiat should pay almost $19.7 million and Peninsula and Marzouca should pay approximately $13.1 million.

The attorneys for the defense, however, argued that Marion, as the receiver, cannot pursue claims that should belong to investors. Prior to the jury verdict, Marion said he had recovered over 91% of the money lost by the victims. Attorneys for the plaintiff had called on the jury to hold the defendants liable for the money that Marion hadn’t been able to recover.

The 3rd Circuit sided with the defense and overturned the entire verdict.

“Courts, and especially Federal courts, are becoming more and more friendly to Wall Street,” says securities attorney William Shepherd, whose investment fraud law firm, Shepherd Smith Edwards & Kantas LTD LLP represents investors nationwide. “There has been a great deal of press in the last decade about ‘frivolous’ or ‘abusive’ securities law suits which has been greatly overblown. Investors should know that the price they pay for electing politicians who appoint pro-Wall Street judges is that when they suffer a devastating loss caused by fraud, their own case is subject to being tossed. This affects all cases because each one must be settled for a lower amount. It is a fact victims of securities fraud now recover an average of less than 7% of their losses in class action claims. Note that investors generally do much better when they hire an experienced attorney to file their individual claims.”

Related Web Resources:
3rd Circuit Tosses $33 Million Verdict Against Bank, Broker Charged With Aiding Ponzi Scheme, New Jersey Law Journal, January 6, 2010

Read the Opinion: Marion V. TDI (PDF)

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Posted In: Ponzi Scams

January 4, 2010

Number of Ponzi Scam Collapses Increased Significantly Last Year

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The number of Ponzi scams that fell apart increased by nearly four times in 2009, compared to the year, before resulting in over $16.5 billion in investor losses. This figure comes from the Associated Press, which analyzed Ponzi schemes in all US states.

Additional findings from the AP analysis:

• Over 150 Ponzi schemes fell in 2009
• 40 scams collapsed in 2008
• Allen Stanford’s $7 billion international Ponzi scam and Scott Rothstein’s $1.2 billion scheme were among the larger plots that fell apart last year

Bernard Madoff’s $65 billion Ponzi scam wasn’t calculated into last year’s figures because he was arrested at the end of 2008.

In addition to increased enforcement efforts, the economic collapse can be credited with the discovery of many schemes that may have otherwise gone undetected. The number of people willing to invest in new ventures went down in 2009 while current investors rushed to pull out their money. As Ponzi scammers rely on new investors to not only pay the old investors but also fund their expensive lifestyles, many schemes collapsed. The discovery of Madoff’s Ponzi scam has also made investors more wary and regulators more alert.

Another scam of note is Tom Petters’ $3.65 billion scheme. Petters used Petters Group Worldwide, LLC to run his Ponzi scam. He is in prison waiting to receive his sentence. He could be sentenced to a life prison term.

In 2009, the Federal Bureau of Investigation opened over 2,100 securities fraud probes. That’s 350 more investment fraud investigations than the number of investment probes that were opened in 2008. The FBI had 651 agents working on high-yield investment fraud investigations last year. Also in 2009, the US Securities and Exchange Commission issued 82% more restraining orders against securities fraud cases than they did in 2008. Ponzi scams now compromise 21% of the SEC’s enforcement workload—up from 9% in 2005.

The number of civil actions (31) that the Commodity Futures Trading Commission filed last year has more than doubled since 2008. Many securities fraud cases from last year have not yet gone to trial.

Related Web Resources:
AP: Ponzi collapses nearly quadrupled in '09, Yahoo, December 28, 2009

2009: The Year of the Ponzi, ABC News

Charles Ponzi


Continue reading "Number of Ponzi Scam Collapses Increased Significantly Last Year" »

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

Posted In: Madoff Ponzi Scheme , Ponzi Scams , Securities Fraud

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