October 29, 2010

Ex-Employee Accuses Bank of America of Securities Fraud Involving Complex Derivatives Products

| Share

A former Bank of America employee is accusing the investment bank of aggressively recommending complex derivatives products to investors while at the same time failing to tell them of the risks involved. In a letter to Securities and Exchange Commission Chairman Mary Schapiro, the whistleblower said that the sales of these structured notes were so important to the BofA’s brokerage unit during the economic collapse that workers were threatened with termination if they warned clients against investing in the products or did not meet their quotas.

The ex-employee writes that another employee’s job was threatened after he told clients to liquidate their notes because of the possibility that BofA might become “nationalized,” which would make the notes worthless. The whistleblower claims to have been notified that aggressive sale of the notes was the only way the brokerage unit could fulfill its revenue goals at that time.

Bill Halldin, a Bank of America spokesperson, says that the investment firm has not heard about any such complaint regarding these allegations. He maintains that the investment bank has a policy abiding by "applicable laws and industry practices" when conducting business.

Broker Misconduct
Broker-dealers are obligated to notify investors of risks involved in an investment. They must also make sure that any investment that they recommend is appropriate for a client. Failure to fulfill these duties of care can be grounds for a securities fraud case.

Structured Notes
These derivative-like contracts allow investors to bet on bonds, stocks, or other securities. While some notes are “guaranteed” and promise a return on principal upon expiration, there are still those, such has Lehman Brothers’ notes, that fail to meet that guarantee. This can leave the holders to deal with the financial consequences. Banks may also stop trading the notes at any time.

Related Web Resources:
Informer: BofA hawked risky deals to customers, NY Post, October 29, 2010

Informer: Bofa Hawked Risky Deals to Customers, iStockAnalyst

Bank of America Blog Posts, Stockbroker Fraud Blog

Whistleblower Lawsuits, Stockbroker Fraud Blog

Continue reading "Ex-Employee Accuses Bank of America of Securities Fraud Involving Complex Derivatives Products " »

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

Posted In: Bank of America , Derivatives , Financial Firms , Structured Products

October 28, 2010

Imperia Invest IBC’s Assets are Frozen Following SEC Allegations of British Viatical Settlements Scam That Targeted Deaf Investors

| Share

A district court issued an emergency order this month to freeze the assets of Imperia Invest IBC. The order came after the Securities and Exchange Commission accused the internet-based investment company of operating a securities scam involving the British version of viatical settlements.

According to the SEC, Imperia Invest IBC had raised over $7 million from more than 14,000 investors located in different parts of the world with the promise that they would earn returns of just above 1% a day. More than half of the money raised came from deaf investors in the US. The agency is seeking disgorgement of fraudulent gains, penalties, an injunction from future violations, and emergency relief for investors.

The SEC claims that the investment company solicited investors through its Web site, which stated that returns could only be accessed through a Visa credit card and purchased from Imperia for a few hundreds dollars. The company, however, did not have a business tie with the credit card company. Imperia also listed bogus addresses in Vanuatu and the Bahamas.

Investors were allegedly led to believe that their money would be used to purchase Traded Endowment Policies that involved owners selling their polices prior to maturity at a discount from face value price (but at an amount that is more than the current surrender value). The SEC says that in May 2010, one investor who had paid $500 in July 2007 received statements reporting that his account was valued at almost $44 million.

Imperia allegedly tried to hide its identity by having an anonymous browser host its Web site. Payments were processed through offshore PayPal-like bank accounts in Panama, Costa Rica, and the British Islands and then funneled to accounts in New Zealand and Cyprus.

Related Web Resources:
Alleged scam bilked many in deaf community, The Salt Lake Tribune, October 7, 2010

Internet Firm Accused Of Investment Scam; Deaf Targeted, Capital.gr, October 7, 2010

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

Posted In: Securities Fraud , Viaticals

October 27, 2010

Morgan Stanley’s Motion to Bar Ex-Hedge Fund Promoter Conrad Seghers from Pursuing FINRA Arbitration in Texas Securities Case is Granted by District Court

| Share

A district court has granted plaintiff Morgan Stanley’s motion that Conrad Seghers, a former hedge fund promoter, be preliminarily barred from pursuing Financial Industry Regulatory Authority arbitration proceeding against the broker-dealer over the way over his accounts were allegedly mishandled. Judge Denise L. Cote said that Seghers waved the right to arbitrate by proceeding with his Texas securities lawsuit when he litigated with earlier action. The dispute between the investment bank and Seghers has been going on for nearly a decade.

According to the court, a number of hedge funds and related entities run by Seghers and his associates opened accounts with Morgan Stanley in 1999. In 2001, Seghers and his partners accused the broker-dealer of serious errors that allegedly caused the funds’ value to sustain huge financial hits. A major investor in a Segher hedge fund would go on to file a Texas securities fraud complaint against the fund promoter, the funds, and his partners.

The following year, a number of the funds sued Morgan Stanley in court. The Texas securities dispute went to NASD (now FINRA) arbitration and the case was eventually settled.

When Seghers sued Morgan Stanley for $35 million in federal court over the investment bank’s allegedly fraudulent misstatements that led to the funds to drop in value, the lawsuit was dismissed as untimely under the Texas limitations period of four years. Seghers chose not to appeal the ruling.

However, not long after, one of the funds founded by Seghers that had traded assets through the Morgan Stanley accounts filed NASD arbitration proceedings accusing the investment bank of breach of contract and fraud related to the same alleged misconduct as the federal district court action. A court in New York dismissed the case as untimely.

This April, Seghers commenced a FINRA arbitration against Morgan Stanley. In July, the investment bank filed a complaint seeking declaratory judgment that the hedge fund promoter waived his right to arbitrate because of his earlier lawsuit, as well as due to the fact that the Texas arbitration was time-barred. The court granted Morgan Stanley’s motion.

Related Web Resources:
Morgan Stanley & Co, Inc., Leagle

Arbitration and Mediation, FINRA

Continue reading "Morgan Stanley’s Motion to Bar Ex-Hedge Fund Promoter Conrad Seghers from Pursuing FINRA Arbitration in Texas Securities Case is Granted by District Court " »

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

Posted In: FINRA , Morgan Stanley , Texas Securities Fraud

October 26, 2010

NASAA Recommends Best Practices After Finding Brokers Deficient in Five Areas

| Share

The North American Securities Administrators Association says that broker-dealer compliance programs throughout the country tend to exhibit deficiencies in several key areas:

• Registration and licensing
• Sales practices
• Operations
• Supervisions
• Books and records

Failure to follow written procedures and policy for supervision, variable product suitability, and advertising sales literature are considered the three most commonly noted problem areas.

NASAA issued its findings based on the 567 deficiencies in these five areas that were discovered by regulators in 30 states during 290 examinations that took place between January 1 and June 30. NASAA president and North Carolina deputy securities administrator David Massey says that the organization is flagging the deficiencies to assist brokers in reducing the risk of regulatory violations.

To remedy the deficiencies, NASAA is offering 10 best practices, including those that involve broker-dealers:

• Updating and enforcing written supervisory procedures.
• Developing standards and criteria that can effectively determine which investments are suitable for each client.
• Documenting “red flags” and resolving these promptly.
• Establishing a “meaningful” audit plan that includes unannounced visits and a follow-up plan.
• Obtaining regulatory approval of sales literature and ads before using them
• Setting up procedures that can prevent and detect unauthorized private securitization transactions.
• Ensuring that registered representatives’ outside business activities are reviewed before they take place.
• Effective monitoring of both hard copy and electronic correspondence.
• Acknowledging receipt of complaints and updating of a registered representative’s Form U-4.
• Conducting a thorough investigation of the allegations.

Investors that have lost money because of securities fraud or broker mistakes may be able to recoup their losses with the help of an experienced stockbroker fraud law firm.

Related Web Resources:
State Securities Regulators Offer Series of Compliance Best Practices, NASAA, October 12, 2010

Securities and Exchange Commission

Continue reading "NASAA Recommends Best Practices After Finding Brokers Deficient in Five Areas " »

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

Posted In: Miscellaneous , NASAA

October 23, 2010

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge

| Share

A federal judge has approved the $75 million securities fraud settlement reached between Citigroup and the US Securities and Exchange Commission. The investment bank had been accused of misleading investors about billions of dollars in possible losses from their exposure to high risk assets involving subprime mortgages. The SEC says that although holdings exceeded $50 billion, the broker-dealer had told clients that they were at $13 billion or lower.

US District Judge Ellen Segal Huvelle had initially refused to approve the settlement and questioned why only two Citigroup executives were being held accountable for the alleged misconduct. Last month, she said she would accept the agreement but only with certain conditions in place.

Under the approved accord, Citigroup must maintain an earnings committee and a disclosure committee for three years. A number of bank officials will also have to certify the accuracy of the earnings scripts and press releases. The revised settlement clarifies that the $75 million penalty is part of a Fair Fund pursuant to Section 308 of the Sarbanes-Oxley Act of 2002. The penalty will be distributed to investors that sustained financial losses because of Citigroup’s alleged misconduct.

Broker-dealers and their representatives can be held liable for misrepresenting or not presenting all material facts to an investor about his/her investment if that client ends up sustaining financial losses. By agreeing to settle, Citigroup is not denying or admitting to the allegations.

Related Web Resources:
Judge OKs Citigroup-SEC Accord on Mortgages, ABC News, October 19, 2010

Judge approves Citi's $75M settlement with SEC, Bloomberg Businessweek, October 19, 2010

Read the SEC Complaint (PDF)

Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million, Stockbroker Fraud Blog, August 3, 2010

Continue reading "Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge" »

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

Posted In: Citigroup , Financial Firms , Mortgage Backed Securities

October 23, 2010

RBC Wealth Management Unit Ferris Baker Watts to Pay Investors Restitution Over Reverse Convertible Notes Allegations, Says FINRA

| Share

The Financial Industry Regulatory Authority and the RBC Wealth Management-acquired Ferris, Baker Watts LLC have agreed to settle charges that the latter engaged in the unsuitable sales of reverse convertibles to elderly clients in the 85 and over group, well as in the inadequate supervision of such notes to retail customers. By agreeing to settle, the investment firm is not agreeing with or denying the allegations.

The alleged misconduct took place prior to RBC acquiring Ferris, Baker Watts. As part of the settlement, the brokerage firm will pay close to $190,000 in restitution to 57 account holders for financial losses related to their purchase of reverse convertibles.

FINRA says that between January 2006 and July 2008, Ferris, Baker Watts allegedly sold reverse convertible notes to about 2,000 retail investors while failing to properly supervise and guide its supervising managers and brokers on how to determine whether their recommendations of the notes were suitable for clients. The investment firm is also accused of not having a system in place that could effectively monitor, detect, and handle possible reverse convertible over-concentrations.

In its release announcing the settlement, FINRA cites one example involving Ferris, Baker Watts selling five reverse convertibles in the amount of $10,000 each to an 86-year-old retired social worker. These notes represented between 15% to 25% of her investment portfolio at different times. FINRA says that for another client, the investment firm sold five notes to a 20-year-old who was making under $25,000 a year. This investment was 51% of the client’s retirement account.

Related Web Resources:
FINRA Orders Ferris, Baker Watts to Pay Nearly $700,000 for Inappropriate Sales of Reverse Convertible Notes, FINRA, October 20, 2010


Finra fines RBC Wealth unit over brokers' sales of 'unsuitable' investments, Investment News, October 20, 2010

Continue reading "RBC Wealth Management Unit Ferris Baker Watts to Pay Investors Restitution Over Reverse Convertible Notes Allegations, Says FINRA " »

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

Posted In: FINRA , Ferris, Baker Watts, Inc. , Financial Firms , RBC Capital Markets Corp. , Reverse Convertibles , Senior Investors

October 22, 2010

BP Oil Spill Payouts Recipients May Be Targeted by Investment Scam Fraudsters, Says SEC

| Share

The Securities and Exchange Commission is warning small businesses and individuals to watch out for fraudsters out there that may be targeting the recipients of BP oil spill payments with investment opportunities that promise high returns at little or no risk or involve complex or secretive strategies. Because of their tendency to share information with each other and the high level of trust that exists among its members, professional organizations, ethnic communities, religious groups, and other close-knit affinity groups may be likely targets.

The SEC says that one way to avoid becoming involved in this type of investment fraud is to ask lots of questions and then double check the with the agency or an unbiased source. Also. it is important to make sure that the investment is registered and the seller is licensed.

According to SEC Chairman Mary Schapiro, “We are on the lookout for any securities scams in the Gulf area.” Following Hurricane Katrina, the SEC discovered a number of scams targeting individuals that were compensated by their insurance companies. Fraud schemes included promoters claiming that their companies were taking part in clean-up efforts, trading programs that made false promises of high returns, and Ponzi scams.

SEC Warns of Potential Investment Scams Targeting Recipients of BP Oil Spill Payouts, SEC, October 13, 2010

Investor Alert - BP Payout Recipients: Be on the Lookout for Investment Scams

Continue reading "BP Oil Spill Payouts Recipients May Be Targeted by Investment Scam Fraudsters, Says SEC" »

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

Posted In: SEC , Texas Securities Fraud

October 21, 2010

CFTC Judge Says Colleague Biased Against Investors with Complaints

| Share

According to Commodities Future Trading Commission Judge George H. Painter, his colleague, Judge Bruce Levine, is biased against investors that file complaints. Painter, 83, claims that Levine has a secret deal with former CFTC Chairwoman Wendy Gramm that he would never issue a ruling that favored a complainant.

Painter made these allegations as he was preparing to retire. He is one of two administrative law judges that preside over investor complaints at the CFTC. He requested that his pending cases not be assigned to Levine.

Painter says that Levine makes pro se complainants endure a “hostile procedural gauntlet" until eventually, they are willing to withdraw their case or “settle for a pittance." Levine has not commented on the allegations. However, according to a Wall Street Journal story that was published 10 years ago, Levine has never ruled in favor of an investor.

Painter is recommending that the CFTC bring in another administrative judge. He has six cases pending before him. Their total claims exceed $1 million.

Stockbroker Fraud Lawyer William Shepherd said, "We have been suspect of commodities reparations proceedings for some time, but WOW!” Shepherd noted. "Other avenues are available, including commodities arbitration and court in Chicago. Some cases may also be decided in securities arbitration when the participants are dually licensed. It is essential that an aggrieved investor hire a law firm with experience, including the knowledge of how to choose the most appropriate forum."

Meantime, the WSJ is reporting that Painter issued rulings at the CFTC while his wife was battling alcoholism and mental illness and that he did so as recently as February. In August, a psychiatrist wrote that the judge was suffering from a “profound” disability that has rendered him unable to make responsible decisions. His wife, CFTC lawyer Elizabeth Ritter, is seeking guardianship over him. The couple are in the middle of a divorce. The judge’s attorney denies that his client is suffering from Alzheimer’s.

Case Sheds Light on Judge, The Wall Street Journal, October 21, 2010

Commodity Futures Trading Commission judge says colleague biased against complainants, The Washington Post, October 19, 2010

Commodities Future Trading Commission

Continue reading "CFTC Judge Says Colleague Biased Against Investors with Complaints" »

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

Posted In: CFTC

October 16, 2010

| Share

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

Posted In: Financial Firms , Securities Fraud , Valentine Capital Asset Management

October 15, 2010

SEC Charges Investment Adviser With Allegedly Making Unsuitable Hedge Fund Recommendations to Elderly Clients

| Share

The Securities and Exchange Commission has charged investment adviser Neal Greenberg with securities fraud and breach of fiduciary duty related to the making of recommendations and marketing of hedge funds to investors. According to the SEC, Greenberg, who was the CEO of Tactical Allocation Services LLP and also the portfolio manager of Agile Group LLC, made unsuitable recommendations to clients, many of whom were elderly and/or retired or close to retirement, when he suggested that they invest in the hedge funds run by his firms.

The SEC contends that the investment adviser issued misstatements when he said that the hedge funds were suitable for older and conservative clients, many of whom were seeking low-risk investments that came with significant capital protection. For example, Greenberg allegedly “falsely stated that the Agile hedge funds” were low risk, highly diversified, and offered liquidity when in fact, the funds, which held approximately $174 million from over 100 clients, were non-diversified in their holdings and used leverage. Greenberg also is accused of claiming that the Agile funds “used leverage” in a manner that did not “significantly increase” their risk profile. Yet, says the SEC, for 2007 and 2008 the risk disclosures in private placement memoranda for the hedge funds from Agile contradicted the “false and misleading” misrepresentations made by Greenberg.

The SEC is also accusing Greenberg of failing to make sure that adequate compliance procedures and policies were put in place for determining whether certain investments were suitable for clients' specific needs. The commission says Greenberg failed to tell clients that they were going to have to pay management and performance fees on the leveraged part of their investments. Between 2003 and 2006, investors paid about $2 million in these undisclosed fees.

Related Web Resource:
Read the SEC Order Against Greenberg (PDF)

Continue reading "SEC Charges Investment Adviser With Allegedly Making Unsuitable Hedge Fund Recommendations to Elderly Clients" »

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

Posted In: Investment Advisers , SEC Enforcement , Securities Fraud

October 12, 2010

Most Investors Want Fiduciary Standard for Investment Advisers and Broker-Dealers, Say Trade Groups to SEC

| Share

The North American Securities Administrators Association, the Consumer Federation of America, the Investment Adviser Association, the Financial Planning Association, AARP, and the National Association of Personal Financial Advisors have sent a letter to Securities and Exchange Commission Chairman Mary Schapiro asking that the agency examine a recent national survey that shows that the majority of investors don't know the differences between investment advisers, brokers, and financial planners. ORC/Infogroup conducted the survey for the trade groups.

1,319 investors were polled. Per the survey, investors appear to “overwhelmingly believe” that representatives who provide investment advice should disclose conflicts of interest and act in clients’ best interests. Many of them are wrong in their belief that investment advisers, broker-dealers, and insurance agents are currently held to a fiduciary standard.

Among the Survey’s Other Findings:
• More than three out of five investors are under the wrong impression that there is no difference between an investment adviser and a stockbroker.

• About 1/3rd of investors are not clear about the role that stockbrokers play or what services that they offer.

The group told Schapiro that per the survey’s findings, a common standard should apply to investment advice that is given, regardless of whether the recommendation is made by an investment adviser or a broker-dealer. They say that the “principles-based fiduciary duty that applies under the [1940 Investment] Advisers Act” should be the standard. Per the survey, many investors feel that a fiduciary standard should also apply to insurance agents that sell investments.

Related Web Resources:
Investment Adviser Association

SEC Chairman Mary L. Schapiro

North American Securities Administrators Association

The Consumer Federation of America

Financial Planning Association

AARP

National Association of Personal Financial Advisor

ORC/Infogroup

Continue reading "Most Investors Want Fiduciary Standard for Investment Advisers and Broker-Dealers, Say Trade Groups to SEC " »

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

Posted In: Broker-Dealers , Investment Advisers

October 11, 2010

Broker-Dealers Press Clients to Settle Arbitration Claims, Says Illinois Securities Regulator

| Share

According to Illinois securities regulator Tanya Solov, brokerage firms are driving investors with securities arbitration claims against them to settle their cases. Solov says that they are doing this by barraging investors with discovery information requests. Solov was quoted at the yearly North American Securities Administrators Association Inc. meeting.

Solov said that broker-dealers’ discovery practices end up making the FINRA arbitration process more costly for investors. Such tactics, says Solov, are compelling investors to settle their securities cases rather than go into litigation. She also noted that while broker-dealers keep pressing investors into coming up with discovery material, many investment firms, when faced with a discovery request by an investor, have been known not to provide the information.

William Shepherd, a securities fraud attorney and the founder of Shepherd Smith Edwards & Kantas LTD LLP, represents many clients with securities cases against brokerage firms. He noted the challenges his investment fraud firm has had when trying to obtain discovery information for his clients: “Our firm responds in kind, fighting hard for discovery from the firms as well. We have invested in the latest technology to be able to process millions of documents and search these for clues. We do not let abusive requests thwart our goal and we protect our clients from such abuses. We refuse to be bullied by large financial firms who think they can run over investors and their attorneys. These firms now know we are ready, willing and able to fight them and most have abandoned such tactics against us.”

Related Web Resources:
B-Ds bullying clients to settle arbitration cases: Regulator, Investment News, September 27, 2010

North American Securities Administrators Association

Arbitration and Mediation, FINRA

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

Posted In: Arbitration , Broker-Dealers

October 8, 2010

Lincoln Financial Advisors Corp. Ordered by FINRA to Pay $4.43M Over Alleged “Selling Away” Scheme to Investors

| Share

A Financial Industry Regulatory Authority panel has ordered Lincoln Financial Advisors Corp. to pay $4.43 million in damages and interest to about 22 investors that had accused brokerage manager Scott B. Gordon of “selling away.” The panel wrote in its decision that the brokerage firm was “negligent” in failing to prevent Gordon from using an outside business to raise money from investors. The alleged misconduct took place for almost a year.

“Selling away” involves a broker soliciting clients to purchase securities not offered by his/her broker-dealer and without the brokerage firm’s approval. Regulators consider “selling away” to be a violation of securities laws.

Gordon became software-development company Healthright Inc.’s chief executive in 2005 and ran the company from his Lincoln Financial office. Two Healthright investors sent a written complaint to Lincoln the following year.

A request by Gordon to the brokerage firm that he be able to conduct outside business activity was not approved or denied. In 2006, Grant Gifford, who is a Healthright investor and a claimant in the securities fraud case, discovered alleged misstatements and omissions that Gordon had made. In 2008, FINRA barred Gordon from the securities industry.

Except for Gifford, who lent money to Healthright in his personal capacity, all the other investors in the securities case against Lincoln were part of Healthright Partners, LP.

Related Web Resources:
Finra Panel Orders Lincoln to Pay $4.3 Million to Investors, The Wall Street Journal, October 7, 2010

Lincoln Financial hit with hefty arbitration award over selling away, Investment News, October 5, 2010

Activity Away From Associated Person's Member Firm, FINRA

Continue reading "Lincoln Financial Advisors Corp. Ordered by FINRA to Pay $4.43M Over Alleged “Selling Away” Scheme to Investors" »

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

Posted In: Financial Firms , Selling Away

October 7, 2010

FINRA Wants to Make All-Public Arbitration Panel for Investors Permanent

| Share

The Financial Industry Regulatory Authority says it wants investors with securities claims against broker-dealers to have the right to an arbitration panel that doesn’t include industry representatives. FINRA will file its proposal with the Securities and Exchange Commission for approval.

Under the new rule, investors would have the option of choosing between a panel comprised of one industry arbitrator and two public arbitrators and a panel made up of three public arbitrators. FINRA is hoping this will create a greater perception of fairness in the mandatory arbitration system, which it oversees.

During the last two years, FINRA has run a pilot program that gave investors the option between the two types of panels. The program was created to test whether all-public panels gave investors a fairer shake in their disputes with broker-dealers. 14 investment firms took part in the program. According to FINRA, investors chose to have their securities case heard by an all-public panel 60% of the time. 50% of the time they chose the panel that included one industry member. The pilot has been extended for another year. As of September 28, nearly 560 cases have been part of this program.

Now that the Dodd-Frank Wall Street Reform and Consumer Protection Act has been enacted, the SEC can limit or ban mandatory arbitration clauses, which can be found in contracts between broker-dealers and their clients. Investor advocates are hoping for this.

Related Web Resources:
Finra asks SEC to OK all-public panels for arbitration disputes, Investment News, September 28, 2010

FINRA Proposes to Permanently Give Investors the Option of All-Public Arbitration Panels, September 28, 2010

Number of FINRA Arbitration Claims Rose in 2009 Following Market Crisis, Stockbroker Fraud Blog, January 13, 2010

Continue reading "FINRA Wants to Make All-Public Arbitration Panel for Investors Permanent" »

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

Posted In: Arbitration , FINRA

October 6, 2010

Morgan Keegan to Pay $9.2M to Investors in Texas Securities Fraud Case Involving Risky Bond Funds

| Share

In a Texas securities case, FINRA arbitration panel has ordered Morgan Keegan & Co., a Regions Financial Corp., to pay 18 investors $9.2M for losses related to risky bond funds. The investors contend that the investment firm committed securities fraud when it convinced them to invest in certain funds that included high-risk “subprime” mortgage assets. Clients also claimed that they were persuaded to automatically reinvest dividends in the funds.

This is the biggest award that an arbitration panel has awarded in a Morgan Keegan case involving six bond funds that were heavily involved in mortgage-related holdings. The funds dropped in value significantly in 2007 and 2008. Hundreds of securities claims against the brokerage firm followed. Last July, Regions Financial announced that Morgan Keegan had recorded a $200M charge for probable costs of the bond fund lawsuits.

Arbitrators in Houston made the ruling in the Texas securities case. Included in the total sum was $1.1M in legal fees that, per state law, will be paid to investors. All of the investors involved were clients of Russell W. Stein, a Morgan Keegan broker. Stein is no longer with the broker-dealer. Regulatory filings indicate that he is currently employed with Raymond James Financial Inc. unit Raymond James & Associates Inc.

Stein and his wife were original claimants in this Texas securities fraud case. They too had invested in the bond funds. Their claims are now part of another case involving a group of other investors. Morgan Keegan is considering appealing the FINRA arbitration panel’s decision.

Related Web Resources:
Morgan Keegan to pay bond fund investors $9.2 mln, Reuters, October 6, 2010

Morgan Keegan Must Pay $9.2Mln To Investors - Panel, Wall Street Journal, October 6, 2010

Morgan Keegan Ordered by FINRA Panel to Pay Investor $2.5 Million for Bond Fund Losses, Stockbroker Fraud Blog, February 23, 2010

Morgan Keegan Again Ordered by Arbitrators to Pay Bond Fund Losses to Investors, Stockbroker Fraud Blog, October 27, 2009

Financial Industry Regulatory Authority

Continue reading "Morgan Keegan to Pay $9.2M to Investors in Texas Securities Fraud Case Involving Risky Bond Funds " »

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

Posted In: Bond Funds , Financial Firms , Morgan Keegan , Regions Financial Corporation , Subprime Mortgage , Texas Securities Fraud

October 5, 2010

$2.6M Texas Securities Fraud Settlement: Hedge Fund Adviser Settles SEC Allegations Involving Violations Related to Improper Public Stock Offering Participation After Short Selling

| Share

Carlson Capital L.P. has agreed to pay over $2.6 million to resolve charges that it wrongly participated in 4 public stock offerings after short selling the same securities. The Texas securities fraud charges were brought by the Securities and Exchange Commission against the a Dallas-based hedge fund adviser. By agreeing to settle for $2,653,234, Carlson Capital is not denying or admitting to the allegations of securities misconduct.

According to the SEC, the Texas hedge fund violated Rule 105 four times and lacked adequate procedures and policies to keep the firm from taking part in the relevant offerings. During one occasion, Carlson Capital allegedly violated the rule even though the portfolio manager that purchased the offering shares and the one that sold short the stock were not the same person. The SEC determined that Rule 105’s "separate accounts" exception, which allows the purchase of an offered security in an account that is “separate” from the account used through which the same security was sold short, did not apply in this case. The SEC also found that the portfolio manager that sold short the stock during the restricted period had been given information indicating that the other portfolio manager was planning on buying the offerings.

Rule 105 of Regulation M
This rule helps prevent short selling, which can lower the proceeds received by shareholders and companies by artificially depressing the market price not long before the company issues its public offering price. Rule 105 is there to make sure that the natural forces of supply and demand, and not manipulation, sets the offering price. The short sale of an equity security during the restricted period and the purchase of the same security through the offering are prohibited.

During the SEC’s investigation into the allegations, Carlson Capital implemented remedial steps, including putting into place an automated system that assists in the review of the firm’s previous short sales prior to it taking part in offerings.


Related Web Resources:
SEC Charges Dallas-Based Hedge Fund Adviser for Participating in Stock Offerings After Selling Short, SEC.gov, September 23, 2010

SEC Order Against Carlson Capital L.P. (PDF)

Continue reading "$2.6M Texas Securities Fraud Settlement: Hedge Fund Adviser Settles SEC Allegations Involving Violations Related to Improper Public Stock Offering Participation After Short Selling " »

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

Posted In: Hedge Funds , 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