May 28, 2010

Citigroup to Pay $1.5 M for Supervisory Violations Related to Broker’s Handling of Trust Funds

| Share

According to the Financial Industry Regulatory Authority, Citigroup Global Markets Inc. has consented to pay $1.5 million in disgorgement and fines for failing to properly supervise broker Mark Singer and his handling of trust funds belonging to two cemeteries. By agreeing to settle, Citigroup is not denying or admitting to the charges. Also, the disgorgement amount of $750,000 will be given back to the cemetery trusts as partial restitution.

FINRA says that from September 2004 and October 2006, Singer and his clients Craig Bush and Clayton Smith were engaged in securities fraud. Their scheme involved misappropriating some $60 million from cemetery trust funds. Bush and Smart were the successive owners of the group of cemeteries in Michigan that the funds are believed to have been stolen from. Smart bought the cemeteries from Bush in August 2004 using trust funds that were improperly transferred from the cemeteries to a company that Smart owned.

When Singer went to work for Citigroup as a branch manager in September 2004, he brought Bush’s cemetery trust accounts with him. FINRA says that Singer then helped Smart and Bush open a number of Citigroup accounts in their names and in the names of corporate entities that the two men controlled or owned. The broker also helped them deposit cemetery trust funds into some of the accounts, as well as effect improper transfers to third parties. Some of the fund transfers were disguised as fictitious investments made for the cemeteries.

FINRA says that Citigroup failed to properly supervise Singer when it did not respond to “red flags” and that this lack of action allowed the investment scheme to continue until October 2006. As early as September 2004, Singer’s previous employer warned Citigroup of irregular fund movements involving the Michigan cemetery trusts. Within a few months, Citigroup management also noticed the unusual activity.

Citigroup failed to “conduct an adequate inquiry” even after finding out in February 2005 that Smart may have been making misrepresentations about his acquisition of hedge fund investments that belonged to the Michigan cemetery trusts and had used the hedge funds as collateral for a $24 million credit line. Although the investment bank had received a whistleblower letter in May 2006 accusing Singer of broker misconduct related to his handling of the cemetery trusts, it still failed to restrict Singer’s activities or more strictly supervise him.

Related Web Resources:
Citi Sanctioned $1.5M By Finra In Supervisory Lapse, The Wall Street Journal, May 26, 2010

Stealing from the dead, CNN Money, August 13, 2007

Continue reading "Citigroup to Pay $1.5 M for Supervisory Violations Related to Broker’s Handling of Trust Funds" »

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

Posted In: Broker Fraud , Citigroup , FINRA , Financial Firms , Securities Fraud

May 27, 2010

Republican Senator Seeks to Water Down Fiduciary Standards in Pending Investor Rights Bill and Exempt Insurance Companies from Liability

| Share

The North American Securities Administrators Association is criticizing an amendment introduced by Sen. Susan Collins (R-Maine). SA 4009, an amendment to the Senate financial regulatory reform bill (S. 3217), would protect variable annuities sellers from the fiduciary standard. While her amendment imposes a fiduciary standard on broker-dealers that offer investment advice to retail customers, variable contract products and representative-investment companies would not have to adhere to this standard.

The NASAA and other critics say that the amendment proposes a weaker version of the standard that would leave the very victims the standard is supposed to protect in a vulnerable position. NASAA also says that Collins’ proposed standard falls short of the standard in the way that 1940 Investment Advisers Act defines it. In a release issued earlier this month, NASAA says that with seniors and other small investors often having to contend with abusive practices from agents and brokers who end up recommending certain products because they come with higher commissions or revenue sharing payments, NASAA stressed the need for Congress to require that investment advisers and brokers abide by “the fiduciary duty of the Investment Advisers Act.” The Consumer Federation of America agrees with NASAA’s position on the Collins amendment.

NASAA is placing its support behind amendment (SA 3889). Referred to as the “Honest Broker” amendment, the legislation proposes that the Securities and Exchange Commission adopt a rule that would extend the fiduciary duty under the Advisers Act to brokers who offer investment advice. SA 3889 was introduced by Senators Daniel Akaka (D-Hawaii) and Robert Menendez (D-N.J.).

Other proposed amendments include SA 3806, by Senator Ted Kaufman (D-Del.) and Sens. Arlen Specter (D-Pa.). Their amendment extends the fiduciary duty under the Advisers Act to broker-dealers. Their amendment also proposes criminal liability for willful violations of the duty. SA 3792, introduced by Sen. Barbara Boxer (D-Calif.), would make each financial services provider subject to a fiduciary duty. The amendment gives Commodity Futures Trading Commission and the SEC the authority to define, enforce, and clarify the duty for regulated enitites under their jurisdictions.

Related Web Resources:
Joint Letter Opposing Collins Amendment (PDF)

S.3217 - Restoring American Financial Stability Act of 2010

Continue reading "Republican Senator Seeks to Water Down Fiduciary Standards in Pending Investor Rights Bill and Exempt Insurance Companies from Liability " »

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

Posted In: Legislation , NASAA

May 25, 2010

Leahy Amendment Would Provide Whistleblower Protection While Holding SEC and CFTC Accountable If They Don’t Follow Up on Tips

| Share

A number of watchdog groups want Senate Banking Committee Chairman Chris Dodd (D-Conn.) to support an amendment to the financial regulatory reform bill that he is sponsoring. The bill lets the Securities and Exchange Commission and the Commodity Futures Trading Commission set up bounty programs for whistleblowers that approach them with information about financial fraud. However, if the government doesn’t act on these tips, the bill has two key provisions that prevent whistleblowers and the public from ever finding out. Leahy’s amendment would eliminate the provisions while protecting the identities of whistleblowers.

In a letter to Senator Dodd, the groups said that such limits on public access are “poison pill secrecy measures” that would not only prevent the public and whistleblowers from ever knowing whether the tips were pursued, but also would keep the latter from proving they are whistleblowers if they were ever retaliated against. The groups said that such secrecy would allow regulators to avoid being held accountable if they failed to act on any whistleblower tips.

The watchdog groups that support the amendment include Public Citizen, OMB Watch, the Project on Government Oversight, Citizens for Responsibility and Ethics in Washington, OpenTheGovernment.org, Government Accountability Project, Common Cause, Progressive States Network, Consumer Action, National Community Reinvestment Coalition, Americans for Financial Reform, and the National Fair Housing Alliance.

Related Web Resources:
S.3217 - Restoring American Financial Stability Act of 2010, OpenCongress.com

Read the groups' letter to Senator Dodd (PDF)

Continue reading "Leahy Amendment Would Provide Whistleblower Protection While Holding SEC and CFTC Accountable If They Don’t Follow Up on Tips " »

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

Posted In: Stockbroker Regulation

May 22, 2010

Deutsche Bank Securities & National Financial Services Fined $925,000 for Regulation SHO Short Sale Restrictions & Supervisory Violations

| Share

The Financial Industry Regulatory Authority says that Deutsche Bank Securities and National Financial Services LLC have consented to be fined $925,000 in total for supervisory violations, as well as Regulation SHO short sale restrictions violations. By agreeing to settle, the broker-dealers are not denying or admitting to the charges.

FINRA claims that the two investment firms used Direct Market Access order sytems to facilitate client execution of short sales and that they violated the Reg SHO “locate” requirement, which the Securities and Exchange Commission adopted in 2004 to discourage “naked” short selling. FINRA says that while the two broker-dealers put into effect DMA trading systems that were supposed to block short sale order executions unless a locate was documented, the two investment banks submitted short sale orders that lacked evidence of these locates.

FINRA says that during the occasional outages in Deutsche Bank's systems, short sale orders were automatically rejected even though a valid documented locate had been obtained. This is when the the investment bank would disable the automatic block in its system, which allowed client short sales to automatically go through without first confirming that there were associated locates.

As for NFS, FINRA contends that the investment bank set up a separate locate request and approval process for 12 prime clients that preferred to get locates in multiple securities prior to the start of trading day. With this separate system, the requests and approvals for the numerous locates did not have to be submitted through the firm’s stock loan system at approval time. Instead, the clients could enter and execute orders through automated platforms that lacked the capacity to automatically block short sale order executions that didn’t have proper, documented locates.

Related Web Resources:
FINRA Fines Deutsche Bank Securities, National Financial Services a Total of $925,000 for Systemic Short Sale Violations, FINRA, May 13, 2010

Regulation SHO, Nasdaq Trader

Continue reading "Deutsche Bank Securities & National Financial Services Fined $925,000 for Regulation SHO Short Sale Restrictions & Supervisory Violations " »

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

Posted In: Deutsche Bank , FINRA , Financial Firms , National Financial Services , Securities Fraud

May 19, 2010

JP Morgan Chase & Co. Accused of Securities Violations Involving Guaranteed Investment Contracts and Derivatives

| Share

In a May 10 Securities and Exchange Commission filing, JP Morgan Chase & Co. says that an SEC regional office intends to recommend that the agency file charges against the investment bank for securities violations involving the selling or bidding of derivatives and guaranteed investment contracts (GICs). JP Morgan says the Office of the Comptroller of the Currency and a group of state attorneys general are looking into the allegations. The investment bank is cooperating with investigators.

JP Morgan’s Form 10-Q details the bank’s activities during the first quarter of 2010. The investment bank says that Bear Stearns is also under investigation for possible securities and antirust violations involving the sale or bidding of GICs and derivatives. JP Morgan acquired Bear Stearns in 2008.

Guaranteed Investment Contract
GICs are sold by insurance companies. Other names for GIC include stable value fund, capital-preservation fund, fixed-income fund, and guaranteed fund. GICs are considered safe investments with a value that remains stable. They usually pay interest from one to five years and when a GIC term ends, it can be renewed at current interest rates.


Related Web Resources:
US Securities and Exchange Commission

Guaranteed Investment Contracts, Financial Web

Continue reading "JP Morgan Chase & Co. Accused of Securities Violations Involving Guaranteed Investment Contracts and Derivatives" »

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

Posted In: Financial Firms , J P Morgan - Chase , SEC Enforcement , Securities Fraud

May 18, 2010

State of Connecticut Retirement and Trust Funds to Get Back $795,000 Lost in Securities Fraud Carried by Former Connecticut State Senate Fresident

| Share

The Securities and Exchange Commission says that the U.S. District Court for the District of Connecticut has approved a Fair Fund distribution that will give back $795,000 to the State of Connecticut Retirement and Trust Funds, which suffered financial losses because of an investment scam involving William A. DiBella, the former president of the Connecticut State Senate. The SEC’s 2004 complaint had accused DiBella and his consulting firm North Cove of taking part in an investment scheme with former Treasurer of the State of Connecticut Paul Silvester, who had invested $75 million in state pension funds with private equity firm Thayer Capital Partners.

The SEC claims that Silvester arranged for DiBella to receive a percentage of the investment from Thayer. Silvester is also accused of increasing the pension fund’s investment with Thayer by at least $25 million so that DiBella could receive a larger fee. In total, Thayer paid $374,500 to DiBella through North Cove.

A jury found DiBella liable for abetting and aiding in the securities fraud, and the trial court ordered him to pay $374,500 in disgorgement, $307,127 in prejudgment interest, and $110,000 in penalties. The SEC had to instigate contempt proceedings with the federal court because of DiBella’s continued nonpayment. He finally completed payment of over $795,000 in March 2010, and the SEC fair fund was then set up.

“When securities prices fall, fraud and other misdeeds are often exposed,” said Securities Fraud Lawyer William Shepherd. “Tens of thousands of public and private pension and other funds have recently experienced large losses. As in this case, the SEC and other securities regulators will frequently take on one or a few cases and force recovery, while clearing the way for others to go forward using private attorneys. Our stockbroker fraud law firm continues to represent both public and private fund managers seeking recovery of losses caused by the inappropriate acts and omissions of financial firms and their agents.”

Related Web Resources:
SEC Announces Distribution of DiBella Fair Fund to Connecticut Retirement and Trust Funds, CityBizListNY

Court Orders William DiBella, Former Majority Leader of the Connecticut State Senate, to Pay Over $791,000 in Connection with Fraud Relating to State Pension Fund, SEC, March 14, 2008

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

Posted In: SEC Enforcement , Securities Fraud

May 16, 2010

SEC’s Division of Investment Management to Make 12b-1 Fee and Form ADV Recommendations Soon

| Share

According to the director of the Securities and Exchange Commission’s Division of Investment Management Andrew Donohue, its staff is close to recommending that the SEC adopt a proposed rule mandating that mutual funds give clients better information about the uses of Rule 12b-1 distribution fees and their amounts. The fees are automatically taken out of investor mutual fund balances and used as compensation for financial professionals’ expenses, including broker commissions, promotions, and distributions. More than $13 billion in Rule 12b-1 fees were collected in 2008.

Reform of Rule 12b-1 is likely to steer up a lot of controversy between industry participants and consumer interest groups. Adopted under the 1940 Investment Company Act in 1980, 12-b 1 fees’ use has changed significantly since then. At an American Bar Association function last month, Donohue said that the division hopes to recommend a reform proposal that is more investor-oriented, allows clients to have additional knowledge about how much the fees are and how they will be used, and better reflects today’s market environment.

The division is also close to recommending to the SEC that it adopt revisions to Part 2 of Form ADV, which is the main disclosure document that clients get from investment advisors. Under the proposal, registered investment advisers would have to give current and prospective clients a brochure written in plain English that provides important information about the services they are getting and who is representing them.

Donohue noted that the division is also working on a proposal regarding summary prospectus for variable annuities that would also give investors key information in English that is easy to understand, as well access to more information via the Internet. He also noted that because of the increased use of “derivatives (including collateralized debt obligations and credit default swaps) and sophisticated financial products” and the ability of a fund’s manager to put together a portfolio in so many different ways that are not necessary related to how much has been invested or the kinds of instruments in the fund, the division is compelled to examine investment companies derivative activities and what they mean for the “regulatory framework.”


Related Web Resource:
Luncheon Address Before a Meeting of the Business Law Section of the American Bar Association Committee on Federal Regulation of Securities by Andrew J. Donohue, SEC.gov, April 24, 2010

Securities and Exchange Commission’s Division of Investment Management, Securities and Exchange Commission

Continue reading "SEC’s Division of Investment Management to Make 12b-1 Fee and Form ADV Recommendations Soon" »

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

Posted In: SEC

May 13, 2010

Private Equity Firm Onyx Capital Advisors LLC Charged with Securities Fraud by SEC

| Share

The SEC has filed securities fraud charges against the private equity firm, Onyx Capital Advisors LLC, its founder Roy Dixon Jr., and his friend Michael Farr. The agency is accusing the defendants of stealing over $3 million from three area public pension funds.

According to the SEC, Onyx Capital Advisors and Dixon raised $23.8 million from the pension funds for a start-up private equity fund that was to invest in private companies. Dixon and Farr, who controlled three of the companies that the Onyx fund had invested in, then illegally took out money that the pension funds had invested and used the cash to cover their own expenses.

While Onyx Capital and Dixon allegedly took more than $2.06 million under the guise of management fees, Farr allegedly helped divert approximately $1.05 million through the companies under his control. He is also accused of diverting part of the over $15 million that Onyx capital invested in SCM Credit LLC, Second Chance Motors, and SCM Finance LLC to 1097 Sea Jay LLC, which is another company that he controls. Farr then allegedly took money from Sea Jay, gave most of it to Dixon, and kept some for himself.

The SEC is accusing Onyx Capital and Dixon of making misleading and false statements to pension fund clients about the private equity fund and the investments they were making. The agency claims that the private equity firm and its founder violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act, and Rule 206(4)-8 thereunder. The SEC claims that Farr aided and abetted in the other two defendants’ violations of Sections 206(1) and 206(2) of the Investment Advisers Act.

Related Web Resources:
SEC charges private equity firm and money manager for defrauding Detroit-area public pension funds, SEC, April 23, 2010

Read the SEC Complaint, SEC (PDF)

Continue reading "Private Equity Firm Onyx Capital Advisors LLC Charged with Securities Fraud by SEC" »

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

Posted In: Private Equity FIrms , SEC Enforcement , Securities Fraud

May 12, 2010

Supreme Court Nominee Elana Kagan Took Investors Side on Two Significant Securities Cases

| Share

The Wall Street Journal reports that as Solicitor General of the United States, US Supreme Court nominee Elana Kagan has sided with investor interests in two high profile lawsuits. In one securities fraud complaint that looked at when shareholders can sue mutual–fund mangers that had allegedly charged fees that were excessive, her office submitted a legal brief supporting investors. Kagan contended that a lower-court ruling make sure that there was enough of a check on potentially exorbitant fees. In another securities case, the Solicitor General’s office argued that Merck & Co. Inc. shareholders did not wait too long to file lawsuits accusing the pharmaceutical company of misrepresenting the safety of VIoxx. This spring, the US Supreme Court unanimously agreed with Kagan’s position in both cases.

However, The solicitor general’s office is siding with the business side in another investor lawsuit that awaiting resolution by the Supreme Court. She is contending that foreign investors shouldn’t be able to file a US securities lawsuit against National Australia Bank Ltd, which is a foreign company.

The Wall Street Journal says that by choosing Kagan as the latest Supreme Court nominee, the Obama administration is taking “a friendlier approach” when it comes to investor cases.

Related Web Resources:
Kagan Sided With Investors in Two Notable Securities Cases, The Wall Street Journal, May 10, 2010

Does Elena Kagan Support Shareholder Rights?, The Big Money, May 11, 2010

A Climb Marked by Confidence and Canniness, NY TImes, May 10, 2010

Office of the Solicitor General

Continue reading "Supreme Court Nominee Elana Kagan Took Investors Side on Two Significant Securities Cases" »

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

Posted In: Miscellaneous , Securities Fraud

May 10, 2010

New Braunfels Firm Accused of Texas Securities Fraud In Sales of Viatical (Insurance) Investments

| Share

State District Court Judge Stephen Yelenosky has frozen the assets of Retirement Value LLC and appointed a receiver to take control of the New Braunfels company, which faces allegations of Texas securities fraud related to the sale of investments linked to death benefits from life insurance policies. The Texas State Securities Board, which has been conducting an undercover investigation into the company, requested the court order against the investment firm.

Retirement Value, its President Richard "Dick" Gray, and Chief Operating Officer Bruce Collins are defendants in the court action. According to the securities board, between April 2009 and February 2010 the company allegedly collected $65 million from more than 800 investors. The securities board also claims that investment firm told investors that the expected rate of return would be 16.5% payable upon maturity.

The claim contends that from the $65 million that the Retirement Value received from investors, $9.3 million was paid in commissions to unregistered sales agents. Meantime, Retirement Value, Gray and other principals in the company retained $8.4 million. Only $20.2 million was used to acquire the interests in the life insurance policies, while another third was set aside to acquire additional policies.

In March, the securities board issued an emergency cease-and-desist order telling Retirement Value to stop operations. The court’s ruling to freeze the assets requires that the judge believe it is likely that the Securities Board will succeed in demonstrating its claims. Eduardo Espinosa, of the Dallas office of the law firm K&L Gates has been appointed receiver of the company's assets.

Gray's Houston lawyer, Christopher Bebel, has said that the ruling "constitutes an absurdity" and that the securities board has no regulatory power over the sale of investment products such as those sold by Retirement Value. He also said that "the evidence will show that no wrongdoing has occurred" in the company's operations. "This is incredibly perplexing," Bebel said. "It seems clear the Texas State Securities Board is attempting to usurp the powers of the state legislature, and there is no precedent for this conduct.”

However, Houston Securities Attorney William Shepherd of Shepherd Smith Edwards & Kantas LTD LLP, a Texas securities fraud law firm that represents investors, respectfully disagrees with Mr. Bebel. “The laws of Texas and most states hold that an investment is a security under the ‘family resemblance test,’ which is similar to the analogy of ‘looking like, walking like, and quacking like a duck’, or one that is seeking to make profit based solely on the actions of others. The threshold for coverage by securities laws is quite low and, in cases that our stockbroker fraud law firm is currently handling, it is clear that the securities laws apply to investors with insurance interests. The folks at the Texas Securities Board are quite competent and I am sure that they researched this issue carefully before filing the case. Texas Commissioner Denise Crawford is also President of the North American Securities Administrators Association (NASAA). Even if Mr. Bebel is correct and these are not securities (meaning the claims cannot be maintained by the Texas Securities Board) another party could step in and pursue the claims under a variety of other laws based on the alleged actions.” The receivership would then likely be continued.

When receivers are appointed, their general function is to seek to recover whatever assets can be found so that creditors are reimbursed and investors are compensated for their losses. Unfortunately, after expenses are paid only a fraction of the losses is usually recovered. “Our firm can represent clients to look beyond the reach of a receiver to other companies and individuals who sold or assisted in the sale of the investments to a particular investor,” states Shepherd.

Meantime, it is premature to comment on whether state officials will seek criminal charges in the case. According to securities board spokesman Robert Elder, "The key is full disclosure for investors, The risks and rewards and full details of any investment need to be explained, as well as the background of the individuals selling the investments. And we allege that wasn't done in this case."

Related Web Resources:
New Braunfels firm accused of securities fraud has assets frozen, Statesman.com, May 5, 2010

Judge Appoints Receiver to Take Control of 'Life Settlement' Company Targeted by State Securities Board, Texas State Securities Board

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

Posted In: Texas Securities Fraud , Viaticals

May 8, 2010

SEC’s Handling of Credit Rating Agencies Oversight and Failure to Detect Madoff and Stanford Ponzi Scams Questioned at Senate Appropriations Financial Services Subcommittee

| Share

At a recent hearing, US Senator Richard Durbin (D-Ill), who is chairman of the Senate Appropriations Financial Services subcommittee, told Securities and Exchange Commission Chairman Mary Schapiro that he was “puzzled” by the SEC’s request for funds to start aggressive oversight of credit ratings agencies in 2011. Earlier this year, the White House asked Congress to fund the SEC $1.234 billion for FY 2011—that’s $123 million more than the actual funding received by SEC during the previous year. Noting that over the past two years Congress had already given the SEC $143 million more than what the White House had recommended, Durbin wanted to know why, if the SEC considers overseeing credit rating agencies such a “huge priority,” the agency hadn’t already devoted some of that extra money to CRA oversight.

Schapiro responded by saying that not only is the SEC extremely committed to “aggressive" CRA oversight (and wants to examine all such agencies regularly) but that the agency had already begun this process. However, Securities Fraud Lawyer William Shepherd considers Shapiro’s statement “strange,” especially as it was “made by someone who, prior to taking over at the SEC, was in charge of the National Association of Securities Dealers, Inc (now called the Financial Industry Regulatory Authority). Under Ms. Shapiro, the NASD had the duty to regulate registered financial firms and was on the front line to govern the actions at the Madoff securities firm, as well as Bear Stearns, Lehman Brothers, and, for that matter, Goldman Sachs." Mr. Shepherd is the founder of Shepherd Smith Edwards & Kantas LTD LLP, a stockbroker fraud law firm.

Durbin and Sen. Susan Collins (R-Maine) also questioned Schapiro about oversights that took place during the investigations into ponzi masterminds Allen Stanford and Bernard Madoff illegal activities, the status of its whistleblower program, the role of the SEC’s new chief compliance officer, and the fates of the staffers who were caught watching porn while on the job.

Schapiro said that 15 of the 20 SEC staffers that were implicated in an inspector general’s report for failing catch Madoff’s ponzi scam are no longer with the agency. The remaining five will be subject to “fair” and “appropriate” disciplinary responses. She also provided details on new efforts that the SEC is implementing to make sure that illegal activities such as those that Stanford and Madoff practiced will most certainly be detected in the future. Schapiro also talked about new, “across the board” leadership and a committee that lets staffers submit tips if it appears that certain colleagues have failed to take specific actions.

Related Web Resources:
Senators Say No to SEC Self-Funding, The Wall Street Journal, April 28, 2010

S.E.C. Employees' Porn Problem, CBS, April 23, 2010

Senate Appropriations Financial Services subcommittee

US Securities and Exchange Commission

Continue reading "SEC’s Handling of Credit Rating Agencies Oversight and Failure to Detect Madoff and Stanford Ponzi Scams Questioned at Senate Appropriations Financial Services Subcommittee " »

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

Posted In: Credit Ratings Agencies , SEC

May 7, 2010

RBC Capital Markets, Olympus Securities, and Three Other Broker-Dealers Settle FINRA Accusations of Selling “Unregistered” Penny Stock

| Share

RBC Capital Markets Corp., Equity Station Inc., Fagenson & Co. Inc., Olympic Securities LLC, and Alpine Securities Corp. have consented to pay $385,000 to settle Financial Industry Regulatory Authority that they sold collectively over 7.5 billion in “unregistered” penny stock in Universal Express Inc. shares and made about $8.4 million as a result. By settling, the broker-dealers are not agreeing to or denying the securities fraud accusations.

FINRA says that “in each instance” the investment firm’s clients deposited certificates that consisted of huge blocks of thinly traded securities and then liquidated the positions right away. The firms conducted the sales even after a 2004 Securities and Exchange Commission complaint accused Universal Express of illegally issuing over 500 M shares in unregistered stock to be distributed to the public. The SEC claimed the company’s leaders put out bogus press releases and false and misleading statements to promote the sale of the unregistered stock.

According to FINRA:

• RBC Capital Markets reported making $68,000 in commissions from the unregistered stock sale. The broker-dealer has consented to a $135,000 fine.

• Equity Station made $13,575 in commissions. The investment firm is fined $25,000.

• Fagenson & Co. has agreed to a $165,000 fine and made $44,000 in commissions.

• Olympic Securities is fined $20,000 after making $5,200 in commissions.

• Alpine Securities is fined $40,000 for earning $13,575 in commissions.

FINRA says that even with numerous red flags, all five firms did not take the necessary actions to find out whether selling the securities would violate violating federal registration requirements. FINRA contends that when the five broker-dealers conducted the majority of the illegal unregistered stock sales the SEC had either began or won its case against Universal Express, which was eventually sanctioned almost $22 million.

Related Web Resources:
FINRA Fines Five Firms $385,000 for Sale of Unregistered Securities, Other Violations Relating to Penny Stocks, FINRA, April 27, 2010

Regulatory Notice 09-05, FINRA

SEC wins case against Universal Express, CEO, Business Journal, March 2, 2007

Continue reading "RBC Capital Markets, Olympus Securities, and Three Other Broker-Dealers Settle FINRA Accusations of Selling “Unregistered” Penny Stock" »

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

Posted In: Alpine Securities , Equity Station , FINRA , Fagenson & Co. , Financial Firms , Fraudulent Trading , Olympic Securities , RBC Capital Markets Corp.

May 5, 2010

Goldman Sachs Fined $450,000 by NYSE Regulation for Short Sale Rule Violations. Are they being persecuted?

| Share

It was announced by Reuters News today that regulators at the New York Stock Exchange have fined Goldman Sachs Execution & Clearing Corp. $450,000 in connection with roughly 385 orders to "short" equity securities for clients that resulted in "fail-to-deliver" positions without first borrowing or arranging to borrow the securities as collateral. The nearly 400 infractions occurred in a seven week period in December 2008 – January 2009.

So that timely delivery of the shares sold can be made to buyers, a rule has existed for decades that says investors cannot sell securities short unless arrangements have been made to borrow such securities. Stock shares can be made available to lend by anyone who owns those shares. For example, when margin agreements are signed at a brokerage firms by investors, the agreement contains language which allows their securities to be rented to those seeking to sell the shares short, (The rent charged is almost always kept by the firm.) This can happen at the same brokerage firm or arrangements can be made by one firm to lend available securities to another firm to transact short sales for itself or its clients.

There are have been many examples of "short squeezes", some undoubtedly intentional, in which shares are either not available to meet borrowing demand, or shares previously lent are reclaimed. This caused short sellers to have to scramble to find shares or be "bought in" on the open market. In some situations in the past, the law of supply and demand for shares has caused the price of the stock to rise to two or three times its pre-squeeze price, wiping out the short sellers. Thus, rampant short selling had its own unique deterrent.

It is up to the brokerage community to police the borrowing rule. Through computers, availability of shares can be very easily learned before a short sale is executed. In the "heydays" of day trading firms during the 1990's, day traders would seek to "block up" shares in advance of a short sale to avoid the delay of locating shares when the desired price was reached. (There were some tricks used to try to accomplish this while not telegraphing to professional traders and specialists that short sales were eminent, but we will not attempt a full explanation of these at this time.)

As part of the deregulation which occurred prior to the market crash of 2008-2009, while short sale regulations remained in place, the hard rule of making certain that shares are available at the time the short sale is executed was modified to allow firms to simply act in "good faith" to attempt to locate the shares. As wild flections were occurring in the stock markets during the crash, professional traders often reaped huge profits on short sales. The “good faith” crack in the door for those selling short grew to an open door policy of simply not enforcing this and other short sale rules. While the term "naked shorts" became a part of the culture, this was nevertheless simply deregulation by non-enforcement of the borrowing rule.

There has been no information revealed as to whether the Goldman’s admission of some 400 borrowing rule violations over a 7 week period is indicative of thousands of such violations by Wall Street during the years regulators were looking the other way. However I - for one - would not be shocked to learn that this is a mere "drop in the bucket" of the total borrowing violations which actually occurred. If Goldman claims it is being singled-out on this one, that is likely the truth. However, I quickly learned as a teenager that the defense of "everyone else is doing it" was not going to work with my regulators.

Continue reading "Goldman Sachs Fined $450,000 by NYSE Regulation for Short Sale Rule Violations. Are they being persecuted? " »

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

Posted In: Goldman Sachs , Margin Accounts , NYSER

May 4, 2010

Broker Settles Texas Securities Fraud Charges by SEC that She Misappropriated Customers’ Money

| Share

Susan G. Slovak has agreed to pay $25,000 to resolve Securities and Exchange Commission charges that she committed Texas securities fraud. Slovak, a former registered representative from Corsicana, is accused of misappropriating hundreds of thousands of dollars belonging to three customers.

According to the SEC, Slovak took more than $330,000 from an 83-year-old client. The commission says that she liquidated securities that were in this elderly man's account, moved the money to her own accounts, and used the funds to pay for her own expenses. The SEC also says that in 2008, Slovak misappropriated about $144,000 from two other people’s accounts and moved those funds into the elderly client’s brokerage account.

Slovak reportedly told her supervisor Beth Chapman about her misconduct in August 2008. The branch manager is said to have responded by directing Slovack to buy back the securities in the clients’ accounts. In order to do this, Slovak allegedly made material misstatements and omissions to compliance staff. She also told one of the clients that she’d accidentally taken out the money.

The SEC is accusing Slovak of violating the antifraud provisions of the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934. The SEC is accusing Chapman of misleading compliance staff about Slovak’s alleged misappropriation of client funds and failing to properly supervise and respond appropriately to Slovak’s Texas securities fraud. Chapman has agreed to settle SEC’s administrative charges for $25,000 and a bar from supervisory roles.

By agreeing to settle, Slovak and Chapman are not denying or admitting to the allegations against them. Slovak has also consented to the entry of a permanent injunction that bars her from violating Section 206 of the Advisers Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as well as to an administrative order prohibiting her from associating with dealers, brokers, or investment advisers.

Related Web Resources:
SEC Charges Texas Registered Representative With Misappropriating Hundreds of Thousands of Dollars from Three Customers, Texas Securities Fraud, April 23, 2010

Read the SEC Complaint (PDF)

Continue reading "Broker Settles Texas Securities Fraud Charges by SEC that She Misappropriated Customers’ Money" »

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

Posted In: Texas Securities Fraud

May 3, 2010

Ranking Broker-Dealers According to Highest Average AUM Per Rep

| Share

Below you will find Investment News' list of the average assets under management per rep at the biggest independent broker-dealers. The information was compiled from data that came from the investment firms that took part in a yearly survey.

Ranked in the Top 10 were:

1. Wells Fargo Advisors Financial Network, with a $48,322,148 average AUM/rep
2. Commonwealth Financial Network, with a $39,208,423 average AUM/rep
3. Raymond James Financial Services Inc., with a $36,046,959 average AUM/rep
4. First Allied Securities Inc., with a $30,315,640 average AUM/rep
5. Uvest, a unit of LPL Investment Holdings Inc., with a $29,505,358 average AUM/rep
6. FSC Securities Corp., a unit of Advisor Group, with a $28,705,827 average AUM/rep
7. Ameriprise Financial Services Inc., with a $28,511,100 average AUM/rep
8. VSR Financial Services Inc., with a $28,089,888 average AUM/rep
9. M Holdings Securities Inc. (M Securities), with a $27,684,707 average AUM/rep
10. Securities America Inc., with a $27,418,520 average AUM/rep

“The average commission on money under management is about one percent (except for bond accounts which is lower), which means that brokers in the $50 million under management should generate about $500,000 in gross commissions per year (they receive 30% to 60% of this), says Shepherd Smith Edwards and Kantas Founder and Securities Fraud Lawyer William Shepherd. “Considering that one doesn’t even need a high school diploma to become a financial advisor, making an average income of $150,000 to $300,000 is not bad at all. Last time I looked, brokers at the large financial firms, on average, made a little less than doctors, but far more than lawyers. Seven years of education does not do much for professionals does it?”

Related Web Resources:
Ranking Broker-Dealers According to Highest Average AUM Per Rep, Investment News,

National Association of Independent Broker Dealers

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

Posted In: Broker-Dealers , Miscellaneous

May 1, 2010

Texas Securities Fraud: Commodity Futures & Options Service, Inc. is Permanently Barred from the NFA

| Share

Commodity Futures & Options Service, Inc., a Houston-based introducing broker, has been permanently barred from the National Futures Association. The ban stems from an NFA complaint filed last year and a settlement offer submitted by the Texas broker and Bryan L. Wright, one of its principal who also was barred from the association (for five years). If he wants to reapply for membership after the ban, he will have to pay a $10,000 fine.

According to the NFA Hearing Panel, which issued the bars, CF & O failed to maintain the mandatory minimum adjusted net capital, did not submit telegraphic notice that it was under the requirement, neglected to keep accurate financial records, as well as records that correctly identified CF & O’s capital sources, did not list specific individuals and entities as CF & O principals, and, along with Wright, inadequately supervised the Houston broker’s operations.

Prior to the Bar, CF & O had been a member of the NFA since April 1988.

With law offices in Dallas and Houston, our Texas securities fraud law firm represents investment fraud victims throughout the the state. We also have stockbroker fraud law offices in other US states and abroad to service our other clients.

Related Web Resources:
Read the Complaint (PDF)

National Futures Association

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

Posted In: Texas Securities Fraud

Call for a Free Consultation
(800) 259-9010

Contact Us

The code above is for the protection of your information.

Browse

  • Topics
  • By Date
  • Search
Topics
By Date
Search

Legal Blogs