December 31, 2010

Claims over failed tax-avoidance scheme brought under Texas Securities and Federal Racketeering Laws Against Prominent Law Firm is Dismissed by Fifth Circuit

| Share

According to the U.S. Court of Appeals for the Fifth Circuit, the entities and individuals that took part in a disallowed tax avoidance scheme did not prove the reliance necessary under securities laws to hold Proskauer Rose LLP liable as a secondary actor. In Affco Investments 2001 LLC v. Proskauer Rose L.L.P, Affco LLC, Affco Investments 2001 LLC, Lewis W. Powers, Kenneth Keeling, John H. Powers, Lewis W. Powers, Shannon Ellis, Albert Gunther III, Heidi Gunther, Gretchen Linquest, and Eric Linquest claimed that they decided to take part in a tax avoidance scam solicited them by accounting firm KPMG LLP under the alleged guise that national law firms had approved the strategy.

Soon after, the IRS began giving out notices of transactions that it considered prohibited. The plaintiffs then looked to Proskauer Rose for legal advice. The law firm allegedly told them that they did not have to disclose that they were taking part in the scheme, which involved the sale and purchase of options that were roughly identical, and that the transactions were not substantially too much like the ones that were prohibited.

In 2001, the plaintiffs reported their losses from the scam on their 2001 returns without disclosing that they were taking part in the scheme. After an IRS probe, however, they ended up paying millions in back taxes, penalties, and interests. They also did not get the amnesty that was awarded to those who revealed that they had taken part in the scam.

The plaintiffs filed a securities lawsuit that made claims under Texas law, the 1934 Securities Exchange Act, and the Racketeer Influenced and Corrupt Organizations Act against the 17 entities (including Proskauer) purportedly involved in the schemes. While the other defendants have settled, Proskauer filed a motion to dismiss.

The district court dismissed the case against Proskauer and said that the Private Securities Litigation Reform Act of 1995 does not allow “civil RICO actions based on predicate acts of securities fraud.” Now the appeals court has determined that the district court acted correctly when it dismissed the securities case. The court noted that “[w]ithout direct attribution to Proskauer of its role in the tax scheme, reliance on Proskauer's participation in the scheme is too indirect for liability.”

Related Web Resources:
Read the 5th Circuit's Opinion (PDF)

Racketeer Influenced and Corrupt Organizations Act

1934 Securities Exchange Act (PDF)

Continue reading "Claims over failed tax-avoidance scheme brought under Texas Securities and Federal Racketeering Laws Against Prominent Law Firm is Dismissed by Fifth Circuit " »

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

Posted In: Texas Securities Fraud

December 30, 2010

Wall Street and its Friends in Washington Want Congress to “Crawfish” on Financial Industry Regulatory Reforms

| Share

The Committee on Capital Markets Regulation, a nonpartisan research group, is urging lawmakers to conduct oversight hearings on the way that financial reform legislation is being implemented. CCMR claims that the rulemaking process of the Commodity Futures Trading Commission, the Securities and Exchange Commission, and other regulators is “seriously flawed,” while “sacrificing quality and fairness for apparent speed, risking lengthy court challenges and poor rules.”

CCMR made its allegations in a letter to outgoing Senate Banking Committee chair Christopher Dodd (D-Conn), ranking member Sen. Richard Shelby (R-Ala.), outgoing House Financial Services Committee head Rep. Barney Frank, and ranking member Rep. Spencer Bachus (R-Ala.). CCMR says it is concerned that the Dodd-Frank Wall Street Reform and Consumer Protection Act requires a virtual full “rewrite” of current regulations for the country’s financial markets and that the specific deadlines are “overly ambitious.”

Now, the SEC has until July 2011 to write about 60 new rules—it wrote less than 10 a year in 2005 and 2006—and the CFTC has to issue almost 40 new rules—it made about 11 rules in the couple of years leading up to the economic meltdown. Also, per Dodd-Frank, the SEC has about 200 days to make a rule final. Before the financial crisis the agency would take 524 days for rule adoption from proposal to finalization. The CFTC has 238 to adopt a new rule. Previously the agency would take about 109 days. Also, whereas before, the public was given approximately over 60 days to comment on new rules, agencies on overage are now allowing about 30 days for comments.

CCMR claims that there are now conflicting rules in the asset-backed securities area and regarding over-the-counter derivatives. Recently, Bachus and House Agriculture Committee chairman-elect Rep. Frank Lucas (R-Okla.) wrote CFTC Chairman Gary Gensler and SEC Chairman Mary Schapiro about the direction and pace that swaps rulemaking was taking.

Per Shepherd Smith Edwards and Kantas Founder and Securities Fraud Lawyer William Shepherd, “No one wants to be told what to do, it is human nature, and government regulations should only occur as a ‘necessary evil.’ The test should be whether the evil regulation is better than the evil non-regulation. This one should be easy to answer! Look back at what just happened after Congress deregulated the financial industry over the past decade: Debacle! With taxpayers having to bail out the perpetrators. A little pain on Wall Street can be endured to prevent this from happening in the future. Perhaps these regulations are not perfect, but the de-regulation now in place has proven disastrous.”

Related Web Resources:
Committee on Capital Markets Regulation

Commodity Futures Trading Commission

Securities and Exchange Commission

US Senate Banking Committee

House Agriculture Committee

Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF)

Institutional Investors Securities Blog

Continue reading "Wall Street and its Friends in Washington Want Congress to “Crawfish” on Financial Industry Regulatory Reforms " »

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

Posted In: Miscellaneous

December 29, 2010

Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities

| Share

Allstate has filed a securities fraud lawsuit against Bank of America (NYSE: BAC) and its subsidiary Countrywide Financial. The insurer claims that it purchased over $700 million in toxic mortgage-backed securities that quickly lost their value. Also targeted in the securities complaint are former Countrywide CEO Anthony Mozilo and other executives. Allstate is alleging negligent misrepresentation and securities violations.

The insurance company purchased its securities between March 2005 and June 2007. According to the federal lawsuit, as far back as 2003 Countrywide let go of its underwriting standards, concealed material facts from Allstate and other investors, and misrepresented key information about the underlying mortgage loans. The insurer contends that Countrywide was trying to boost its market share and sold fixed income securities backed by loans that were given to borrowers who were at risk of defaulting on payments. Because key information about the underlying loans was not made available, Allstate says the securities ended up appearing safer than they actually were. Allstate says that in 2008, it suffered $1.69 billion in losses due largely in part to investment losses.

It was just this October that bondholders BlackRock and Pimco and the Federal Reserve Bank of New York started pressing Band of America to buy back mortgages that its Countrywide unit had packaged into $47 billion of bonds. The bondholder group accused BofA, which acquired Countrywide in 2008, of failing to properly service the loans.

Meantime, BofA says it is looking at Allstate’s lawsuit, which it says for now appears to be a case of a “sophisticated investor” looking to blame someone for its investment losses and a poor economy.

Related Web Resources:
Countrywide Comes Between Allstate And BofA, Forbes, December 29, 2010

Allstate sues Bank of America over bad mortgage loans, Business Times, December 28, 2010

Continue reading "Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities" »

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

Posted In: Bank of America , Countrywide Financial , Financial Firms , Mortgage Backed Securities , Securities Fraud

December 28, 2010

Ex-Financial Adviser Pleads Guilty to Unauthorized Trading Involving Disabled Children’s Assets

| Share

Charles Winitch has pleaded guilty to involvement in a securities fraud scam that victimized disabled children. In the U.S. District Court for the Southern District of New York, the ex-financial adviser and “wealth manager” entered a guilty plea to the charge of wire fraud involving unauthorized trading for commissions. While federal prosecutors and United States Attorney for the Southern District of New York Preet Bharara did not name the financial firm that Winitch had been working for at the time, The New York Daily News identified him in 2008 as a stockbroker with Morgan Stanley.

WInitch is accused of taking $198,784 from a trust held by the guardians of disabled children called the Guardian Account. The trust, which is supposed to provide children with long-term income and comes from the youths’ medical malpractice settlements, was only supposed to invest in New York Municipal Bonds or US Treasury Bonds. However, Winitch made unauthorized trades in 11 accounts in the millions of dollars to generate higher commissions even though he lacked the authority or consent to take such actions. According to Bharara, Winitch and co-conspirators made about $198,000 in ill-gotten commissions. Meantime, the fund lost somewhere between $400,000 and $1 million.

Winitch’s criminal defense lawyer says that the former stockbroker did not know that the accounts contained the money of disabled kids. The ex-Morgan Stanley broker is facing up to 63 months behind bars, hefty fines, forfeiture of ill-gotten gains, and restitution.

Related Web Resources:
'Wealth Manager' Stole from Disabled Kids, Courthouse News Service, December 14, 2010

Morgan Stanley Advisor Pleads Guilty to Defrauding Disabled Children, OnWallStreet, December 17, 2010

Institutional Investor Securities Blog

Continue reading "Ex-Financial Adviser Pleads Guilty to Unauthorized Trading Involving Disabled Children’s Assets " »

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

Posted In: Broker Fraud , Financial Firms , Morgan Stanley , Securities Fraud

December 24, 2010

US Supreme Court Declines to Review Finding that Investor is Bound to Arbitration Agreement Over Disputes with Questar Capital Corp.

| Share

The US Supreme Court says that it won’t review a federal appeals court’s finding that even though an investor’s English was limited, he is still bound by a broker-customer agreement that any disputes over the handling of his account must be resolved through arbitration. The U.S. Court of Appeals for the Seventh Circuit had concluded that the issue isn’t about, per the investor’s contentions, enforceability. Rather, it is about whether a contract was formed, which it was.

Plaintiff Alfred Janiga, who is originally from Poland, had signed an agreement containing an arbitration clause when he started investing with Questar Capital Corp. (STR). Janiga’s brother Weislaw Hessek, a registered Questar representative who runs Hessek Financial Services LLC, arranged the investment relationship.

A year after he started investing with Questar, Janiga sued his brother, Questar, and Hessek Financial. While the defendants moved to have the district court stay proceedings and order arbitration, the court said mandating immediate arbitration was not possible because it was unsure whether Janiga and Questar ever had a contract.

The appeals court found that it was up to the court to first determine whether a contract existed before it could stay the complaint and order arbitration. While the district court expressed concern over whether Janiga understood the agreement he had signed, the appeals court noted that the plaintiff had voluntarily signed the contract, which includes an arbitration clause.

Janiga, in his certiorari petition, argued that his case poses a “question of federal law” of whether an arbitration agreement clause is enforceable when he never received the actual document and the terms included were never conveyed to him and that this is a matter that the US Supreme Court should resolve.

Related Web Resource:
Janiga v. Questar Capital Corp., 7th Circuit

Arbitration, FINRA

Continue reading "US Supreme Court Declines to Review Finding that Investor is Bound to Arbitration Agreement Over Disputes with Questar Capital Corp." »

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

Posted In: Financial Firms , Questar Capital Corp. , Securities Fraud

December 23, 2010

Houston Man Indicted in Alleged $17M Texas Securities Fraud

| Share

A federal grand jury has indicted Adley Husni Abdulwahab on one count of conspiracy and five counts of Texas securities fraud in connection with an alleged $17 million investment scheme involving the sale of investments issued by W Financial Group. The Houston resident, who is also facing federal charges over an alleged $100 million life insurance scheme, is in custody in Virginia.

Abdulwahab is accused of conspiring with two other men, Michael Wallens, Sr., and Michael Wallens, Jr., to defraud investors in connection with the sales of Collateral Secured Debt Obligations (CSDOs). The three men reportedly received over $17 million from the sales of the promissory notes to over 180 investors.

The three men are accused of issuing a number of misstatements to investors, such as claiming that Republic Group and Lloyd’s of London had “reinsured” the CSDOs, which were not in fact insured. Offering materials made it appear as if the investors’ money were held in insured notes, cash, automotive receivables, or corporate or government AAA bonds, when the three men were actually spending the money. For example, investor money was used to buy Wallens Sr.’s used car dealership for over $300,000, invest in a power company and building company, buy residential lots, and compensate the three men. Wallens, Sr. And Wallens, Jr. have each pleaded guilty to one count of securities fraud.

Related Web Resources:
Houston-area man indicted in W. Financial Group securities fraud matter, Justice.gov, December 15, 2010

Texan indicted in alleged $17M securities fraud, Chron/AP, December 15, 2010

The Texas Securities Act

Securities Fraud Attorneys

Institutional Investors Securities Blogs

Continue reading "Houston Man Indicted in Alleged $17M Texas Securities Fraud " »

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

Posted In: Collateral Debt Obligation , Texas Securities Fraud

December 22, 2010

Oppenheimer & Co. Ordered to Reveal Documents Related to Employee Dispute

| Share

Superior Court Judge Frances McIntyre has denied brokerage firm Oppenheimer & Co.’s request to impound hundreds of records that are key in a dispute with an ex-employee. The ex-employee is James Dever, who used to be a manager at the broker-dealer’s Boston office. Judge McIntyre found that public interest in the records “substantially outweighs” the financial firm’s interest in keep the documents in secret.

Oppenheimer has been especially invested in keeping two documents confidential. One document is ann internal memo about a 2004 audit involving the Boston branch. Dever has contended that he needs the document to prove that Oppenheimer hid facts for its own protection and so that it could blame him for the alleged financial fraud committed by broker Stephen J. Toussaint, who stole $135,000 from a couple of senior investors.

Dever says that Oppenheimer did not act upon his advice when in 2004 he pressed the brokerage firm to let go of Toussaint. The ex-Oppenheimer manager says that Oppenheimer fired him because he wouldn’t lie to regulators about the broker, who ended up in jail over a related case. Dever also says that no real audit took place in 2004, which is a claim that Oppenheimer has said is “baseless and without merit.’’

He contends that because his name is linked to the Toussaint securities case, which Oppenheimer and its Albert “Bud’’ G. Lowenthal settled with Massachusetts for $1 million, he has had a hard time finding clients and work.

The case puts to the test the confidential arbitration system that has been set up to resolve disputes within the investment industry. Whether it is an employee or a customer is in a dispute with a brokerage firm, almost all disagreements with a brokerage firm have to go to arbitration.

Related Web Resources:
Judge tells Oppenheimer to reveal documents, Boston.com, December 21, 2010

Secrecy Order May Go Too Far, December 30, 2009

Continue reading "Oppenheimer & Co. Ordered to Reveal Documents Related to Employee Dispute" »

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

Posted In: Financial Firms

December 21, 2010

Analyst’s downgrade tanks Skechers’ stock (SKX). Should Wall Street analysts be immune from scrutiny?

| Share

It is often said that one critical statement to a child offsets 10 positive ones. The same effect can be found in the stock market, where an analyst’s downgrade is worth, in dollars and cents, sometimes ten times that of an upgrade. Take for example the price movement of shares of shoe company Skechers (SKX) which today fell almost 8%, over $70 million in market capitalization, after an analyst downgraded the stock.

For the most part, the law protects opinions from prosecution or law suits. But shouldn’t regulators be allowed to look behind reported opinions to determine whether action is warranted? Huge damages can result from inaccurate opinions. The best example is bond ratings by recognized services, with mega-billions recently lost on investments which had been deemed ultra-high grade. But losses can also result from negative opinions.

There is no proof, evidence or even insinuation that an analyst at Sterne Agee had any nefarious goal to cause holders of Skechers stock to lose $70 million today. Nor is there any information to link this downgrade to the short interest in Skechers’ stock, last reported at one-fourth of the stock’s float. Yet, those short the shares collectively profited by about $10 million today.

As this analyst attempts to report the future of Skechers, perhaps investors should instead look into the history of the analyst. Curiously, back in April of 2009, Stern Agee’s analyst Sam Posner downgraded Nike (NKE) stock. Not surprisingly, the stock immediately fell about 6% in value. After the shares then rose almost 25%, he upgraded Nike shares 8 months later (Nike shares are now up over 80% since the downgrade).

In fact, Stern Agee previously downgraded Skechers’ shares in February of 2009, after which the stock immediately fell 25%. Six months later, after the stock had DOUBLED in value, the stock was upgraded, followed by almost no perceptible immediate price change.

One would think that - after previously helping Skechers’ stockholders to avoid doubling their money, then causing at least some holders of Nike shares to miss 80% in profits - this company’s analyst opinions would carry little value, but even questionable bad news travels fast.

Securities regulators have their hands full and may be discouraged about the ultimate value of investigating analyst opinions, but it would certainly be sad if no one even considered the ability of share prices to be manipulated by analysts’ opinions, especially negative ones.

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

Posted In: Analysts

December 20, 2010

SEC Charges Two Ex-Wachovia Brokers Over Alleged $8 Million Elder Financial Fraud

| Share

Two former Wachovia Securities LLC brokers, Eddie W. Sawyers and William K. Harrison, have been charged by the Securities and Exchange Commission with six counts of securities fraud. The two men, who previously operated Harrison/Sawyers Financial Services, are accused of defrauding at least 42 elderly investors of their retirement savings, which resulted in some $8 million in financial losses. The SEC is seeking a permanent injunction against the two men and their representatives from further violations of securities regulations, as well as the repayment of the funds (with interest) and civil penalties.

Per the SEC, between December 2007 and October 2008, Sawyers and Harrison, who are related by marriage, pitched investments with Harrison/Sawyers Financial Services to Wachovia clients. They claimed the investments were “foolproof,” a "sure thing,” and an opportunity to make a 35% without risking their principal investment. This was not, however, the case. One couple, who Sawyers convinced that they should invest $100,000 later discovered that only $16,000 remained in their account.

The SEC claims that the two men solicited unsophisticated clients who were heavily invested in equities and mutual funds and had a conservative investment approach. Sawyers and Harrison also transferred assets to online options-trading accounts under their control.

While some online optionsXpress accounts were set up in clients’ names, others were in accounts under the name of Harrison’s spouse Deana or under both both their names. Clients did not receive statements from the group.

After getting a client’s signature on a blank-trading authorization form, Deanna Harrison would then be appointed the client’s power of attorney and agent for the accounts. In 2008, Sawyers and Harrison allegedly took out $234,000 from three client accounts as compensation for their services.

The SEC says that in a resignation letter to Wachovia, Harrison confessed to misdirecting about $6.6 million from 17 Wachovia clients to trade online. He also admitted that he ran the online trading without getting the authorization of Wachovia or the investors.

Wachovia says that the minute they discovered the alleged securities fraud, it notified its primarily regulator, cooperated with regulators and law enforcement, and took proactive steps to give clients that were impacted full restitution.

Related Web Resources:
Former Wachovia brokers charged with defrauding elderly customers in Surry, losing $8 million, Winston-Salem Journal, December 17, 2010

SEC accuses 2 NC brokers of defrauding clients, Bloomberg/AP, December 16, 2010

Wachovia, Stockbroker Fraud Blog

Institutional Investor Securities Blog

Continue reading "SEC Charges Two Ex-Wachovia Brokers Over Alleged $8 Million Elder Financial Fraud " »

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

Posted In: Financial Firms , SEC Enforcement , Securities Fraud , Wachovia

December 18, 2010

Why Whistleblowers Should Act Quickly and Consult Competent Legal Counsel

| Share

The U.S. Court of Appeals for the Ninth Circuit has affirmed that an ex-Nordstrom Inc’s (JWN) technology official’s complaint that her firing violated the Sarbanes-Oxley Act's whistleblower protections is untimely. According to Judge Milan D. Smith Jr., SOX’s 90-day limitations period started running on plaintiff Carole Coppinger-Martin’s last day on the job and not when she discovered that her termination by Nordstrom was in alleged retaliation for reporting potential Securities and Exchange Commission violations. The decision affirms an administrative law judge’s ruling.

Coppinger-Martin was hired as the business information systems strategic planning group chief technical architect for Nordstrom in 1999. Per the court, during the summer of 2005, she told her immediate supervisor that she thought that Nordstrom's information systems had “security vulnerabilities” that exposed the company to the possible SEC violations. Soon after making her report, Coppinger-Martin was given an unfavorable review. In November of that year, Nordstrom told her that it was eliminating her job responsibilities, there were no other opportunities for her within the company, and that they were terminating her employment in January 2006. Coppinger-Martin worked for the company until April 21, 2006.

On July 19, a Nordstrom employee allegedly told her that other workers were attending to her former job duties. It was then that she realized that she may have been let go for notifying senior management about her SEC concerns.

On October 13, Coppinger-Martin submitted a SOX whistleblower claim to the Occupational Safety and Health Administration, which denied her relief. While asked that an administrative law judge hear case, Nordstrom moved to have the case dropped as untimely on the grounds that the 90-day limitations period started running either in November 2005, when she was told that she was being let go, or on April 21, 2006, which was her last day on the job.

Coppinger-Martin argued that the 90-day limitations period did not start running until July 19 when she first found out that her job duties had not been eliminated. She attributed Nordstrom’s alleged hiding of the facts behind its retaliatory motive to her accrual date of claim.

In affirming the ALJ’s finding, the 9th Circuit noted that it has held in the past that a plaintiff’s claim accrues upon finding out about the actual injury and not when a “legal wrong” is suspected. The court concluded for Coppinger-Martin, this would have been when she found out that she was fired.


Related Web Resources:
Coppinger-Martin v. Solis

Sarbanes-Oxley Act

Institutional Investor Securities Blog

Continue reading "Why Whistleblowers Should Act Quickly and Consult Competent Legal Counsel" »

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

Posted In: Whistleblower Lawsuits

December 16, 2010

A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices' Confidential Data

| Share

Federal prosecutors have arrested four people on insider trading charges related to the alleged revealing of secrets about Apple Inc.’s iPhone and other technology products to hedge funds looking for a trading advantage. Those arrested included Primary Global Research executive James Fleishman and “expert consultants” Mark Anthony Longoria from Texas, Walter Shimoon from California, and Manosha Karunatilaka of Massachusetts. All of the defendants are charged with wire fraud. The three “expert consultants” are also charged with conspiracy to commit securities fraud and wire fraud.

According to prosecutors, Fleishman arranged it so that Primary Global Research clients, such as hedge funds, could talk to the consultants, who gave them highly confidential information about Apple sales forecasts, new iPhone product features, and a secret project that was to become the iPod. Primary Gold Research allegedly paid consultants over $400,000 to engage in these phone conversations.

The case is an offshoot of an investigation into Galleon Funds founder Raj Rajaratnam and more than 20 others. Rajaratnam has pleaded not guilty to securities fraud. He claims that he only traded information to which the public also had access. Wiretaps were used to build the Galleon Funds case and this insider trading case.

According to the complaint, Flextronics International Limited business development senior director Shimoon illegally gave out insider information about the iPhone that had been given to Flextronics employees. The company and Apple had worked together on charger and camera components for both the iPod and iPhone. Shimoin was also caught on wiretaps saying he would obtain secrets about sales involving Research In Motion Ltd., which is the company that manufacturers Blackberries.

Texan Longoria is accused of giving out confidential information about Advanced Micro Devices, where he used to work as a supply chain manager. Another Primary Global Research consultant, ex- Dell global supply manager Daniel Devore, has pleaded guilty to conspiracy and wire fraud charges. Devore has said that Primary Gold Research paid him approximately $145,000 to provide insider information to company employees and clients about Dell.

Related Web Resources:
Insider trading case focuses on Apple's secrets, Victoria Advocate/AP, December 16, 2010

Four more arrests in insider trading case involving Primary Global Research, SFGate, December 16, 2010

Texas Securities Fraud, Stockbroker Fraud Blog

Insider Trading, Stockbroker Fraud Blog

Continue reading "A Texan is Among Those Arrested in Insider Trading Crackdown Involving Apple Inc., Dell, and Advanced Micro Devices' Confidential Data" »

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

Posted In: Insider Trading , Texas Securities Fraud

December 15, 2010

Securities Fraud Lawsuit Seeks to Recover $49M From 96 Independent Broker-Dealers Liable Over Sales of Tenant-In-Common Exchanges

| Share

The trustee for the DBSI Inc. bankruptcy is suing 96 independent broker-dealers for securities fraud related to suspect tenant-in-common exchanges that were sold to investors. James Zazzali is seeking about $49 million in commissions earned.

In his securities fraud complaint, Zazzali, who is a retired Supreme Court of New Jersey justice, claims that DBSI’s TIC deals were part of a $600 million Ponzi scam. The lawsuit contends that the following companies made the most commissions from selling DBSI:

• Berthel Fisher & Company Financial Services Inc.
• QA3 Financial Corp.
• DeWaay Financial Network LLC,
• The Private Consulting Group
• Questar Capital Corp.

22 of the broker-dealers named as defendants are no longer in business. Zazzali contends that the commissions were fraudulent transfers by DBSI and that due to the Ponzi nature of the enterprise, old investors benefited from funds put in by new investors. The trustee believes that the broker-dealers should return investor payments and commissions, which should be distributed to DBSI creditors.

The Securities and Exchange Commission has not filed securities fraud charges against DBSI. Other private placement issuers, such as Provident Royalties and Medical Capital Holdings, were charged by the regulator last year. Provident Royalties’ receiver sued over 40 broker-dealers this year in an effort to obtain claw-back in principal and commissions from firms that sold private placements.

TICs are a form of real estate ownership involving two or more parties with fractional interests in a property. DBSI Inc. was one of the biggest distributors and creators of the product until it defaulted on investor payments and filed for Chapter 11 bankruptcy protection in November 2008. Before then, independent broker-dealers actively sold DBSI TICs. The financial product grew in popularity in 2002 after the Internal Revenue Service issued a ruling that let investors defer capital gains on commercial real estate transaction involving property exchanges.

Related Web Resources:
Sour real estate deals land B-Ds in hot water, Investment News, December 12, 2010

Something in common: Firms that sold TICs from DBSI, Investment News, December 15, 2010

Iowa brokerages included in lawsuit, DesMoines Register, December 14, 2010

Institutional Investors Securities Blog

Continue reading "Securities Fraud Lawsuit Seeks to Recover $49M From 96 Independent Broker-Dealers Liable Over Sales of Tenant-In-Common Exchanges " »

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

Posted In: Broker-Dealers , Private Equity FIrms , SEC Enforcement , Tenant-In-Common Exchanges

December 13, 2010

Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients

| Share

Sanjeev Jayant Kumar Shah, a former Smith Barney financial services adviser, has pleaded guilty to one count of securities fraud and three counts of wire fraud over his involvement in a securities scam to bilk clients of Citibank and his firm. Shah was charged with diverting about $3.25 million from a foreign bank client and fabricating documents that he claimed were from bank representatives.

He is also accused of falsely saying that the transfers were required for bond purchases and that he would send statements showing these purchases. Prosecutors say that he attempted to cover up the scam by telling clients that a computer mistake had kept the bonds from showing up online bank statements and that had had bought the bonds for the bank.

The securities fraud charge comes with a 20 year maximum penalty plus a fine. Each wire fraud charge carries a maximum 30 years in prison penalty and also a fine.

Shah was at Citigroup unit Smith Barney for 3 ½ years. Citigroup says that it was the one that brought the case to the attention of the Department of Justice.

Securities Fraud
Our securities fraud lawyers are committed to helping our clients recover their financial losses. The most common investor claims against brokers and investment advisers can involve issues such as:

• Unsuitability
• Registration violations
• Margin account abuse
• Unauthorized trading
• Breach of fiduciary duty
• Breach of contract
• Failure to execute trades
• Overconcentration
• Negligence
• Churning
• Misrepresentation and omissions
• Failure to supervise

Read the guilty plea, Justice.gov, November 24, 2010 (PDF)

Former Smith Barney adviser admits $3 million fraud, Reuters, November 24, 2010

Former Smith Barney adviser admits $3 mln fraud, CNBC, November 24, 2010

Continue reading "Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients" »

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

Posted In: Citigroup , Financial Firms , Smith Barney - Citigroup

December 10, 2010

SEC Report Applauds Internal Reforms While Admitting to Control Problems

| Share

In her “Message from the Chairman,” Securities and Exchange Commission head Mary Schapiro celebrated the SEC’s performance related to internal reforms over the past year. Her note was included in the agency’s FY 2010 Performance and Accountability Report. Schapiro applauded the SEC’s changes to its examinations and enforcement programs. She said that revisions will strengthen the agency’s ability to protect investors, encourage capital formation, and promote markets that were fair, efficient, and orderly. Other improvements for the year that Schapiro highlighted:

• The Office of Compliance and Inspections and the Enforcement Division both enhanced their abilities to fulfill their regulatory duties.

• Enhanced technology and an ambitious regulatory agenda.

• OCIE’s risked-focused, national exam program that has been designed in a manner to maximize limited resources.

Schapiro said that the agency’s structural and cultural changes, as well as its investment in human and technological capital would not only create “immediate performance gains,” but also they set up an “infrastructure” supportive of the SEC’s additional duties that the Dodd-Frank Wall Street Reform and Consumer Protection Act has bestowed upon the agency.

In SEC chief financial officer Kenneth Johnson’s message, which was also included in the agency’s report, he said that the commission had identified two material weaknesses in internal controls over financial reporting. The first one is in information systems as a result of issues involving user access controls, patch management, security management, and configuration management. The second one is related to accounting processes and financial reporting and is a result of combined deficiencies involving filing fees, financial reporting, disgorgement, budgetary resources, required supplementary information, and penalty transactions. Johnson said that the SEC is aiming to strengthen its security over its financial data by shifting to a new financial service system by a federal shared service provider.

2010 Performance and Accountability Report, SEC

In Report, SEC Hails Internal Reforms, Acknowledges Internal Control Problems, BNA Securities Law Daily, November 17, 2010


Related Web Resource:
US Securities and Exchange Commission

Institutional Investor Securities Blog

Continue reading "SEC Report Applauds Internal Reforms While Admitting to Control Problems" »

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

Posted In: SEC Enforcement

December 9, 2010

The “New” SEC is Acting Just Like The “Old” SEC by Protecting the Securities Industry from Responsibility for its Actions

| Share

The Securities and Exchange Commission has announced a proposal to temporarily extend a rule that facilitates certain proprietary trading by entities that are registered as both broker-dealers and investment advisers. The proposed extension would move Rule 206(3)-3T’s expiration date by two years, from December 31, 2010 to December 31, 2012. It would also would allow the SEC to complete a study mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Rule 206(3)-3T gives dually registered firms another way to satisfy consent and disclosure requirements that they would otherwise only be able to meet on a transaction-by-transaction basis. Having just the one option would limit the availability that non-discretionary advisory clients would have to certain securities.

The extension would give the SEC the time that it needs to study the regulatory issues related to dual registrants' principal trading. Dodd-Frank is requiring the SEC to look at any divergent regulations between investment advisers and brokers and use rulemaking to fix gaps so as to better protect investors. The agency has until January 21, 2011 to notify Congress of its findings.

Dodd-Frank’s Section 913 has generated a lot of debate because it could allow for most broker-dealers to be considered fiduciaries under the 1940 Investment Advisers Act. Right now, brokers don’t have to meet the fiduciary standard that investment advisers must satisfy even though both offer similar services. However, instead of holding brokers to the statutory fiduciary standard, the SEC might end up obligating them to fulfill various consent and disclosure requirements at the start of a retail relationship.

Shepherd Smith Edwards & Kantas LTD LLP Founder and Securities Fraud Attorney William Shepherd thinks that it is time to hold brokers responsible to a fiduciary standard: “The only educational requirement to become a licensed securities broker is four months of on-the-job training and the passing of a half-day test. Yet, on average, securities brokers at major firms are paid more than doctors, lawyers and other professionals who must often attain seven or eight years of higher education. Many clients entrust securities brokers with their life savings, retirement assets, and their financial life blood. Why shouldn't these brokers and the firms required to supervise them be held responsible if the investors are ripped-off? Financial advisers perform the same function but have a fiduciary duty to investors, simply meaning they must put the client’s interest first when advising them. Why should securities brokers be held to a different standard and not be allowed to lull investors into trusting them, while selling their victims the highest commission products that they can find without regard to the client’s best interest? In fact, most state laws currently hold that when a broker is recommending securities to an unsophisticated investor, the broker has a fiduciary duty to that client. What the SEC is trying to do is to pass a rule that makes brokerage firms LESS RESPONSIBLE than they are at present. These endless tactics perpetrated by securities regulators, at the behest of Wall Street, and are yet another type of bail-out move by the Securities Cartel that controls this nation.”

Related Web Resources:
Read the Proposed Rule (PDF)

1940 Investment Advisers Act

Institutional Investor Securities Blog

Continue reading "The “New” SEC is Acting Just Like The “Old” SEC by Protecting the Securities Industry from Responsibility for its Actions " »

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

Posted In: Broker-Dealers , Investment Advisers , SEC , SEC Enforcement

December 7, 2010

Texas Lawyer Pleads Guilty to Involvement in Alleged $100M Life Settlement Scheme

| Share

Texas attorney Russel Mackert has pleaded guilty to charges related to his involvement in an alleged $100 million life settlement fraud scheme that targeted over 800 investors. A number of the investors that Mackert scammed were retirees.

The Department of Justice says that Mackert, who was the attorney for a number of A & O entities, issued material misrepresentations, such as false statements, to investors about A&O Resource Management Ltd. and the related entities. This included making misstatements about the use of and safekeeping of investors’ money and the risks involved with the company’s products. Mackert is accused of marketed over $100 million of fraudulent investments to over 800 victims in the United States and Canada. Investors suffered over $19 million in financial losses.

Mackert has admitted to facilitating the false sale of A & O and making up a fictional person to play the role of the company’s representative. He also has admitted that he failed to let investors know that most of their investments were being used for purposes totally unrelated to the buying and maintaining of life settlement portfolios. He smuggled the cashiers’ checks outside the country in an attempt to open offshore bank accounts for hiding the ill-gotten gains.

The criminal charges against Mackert include smuggling $10 million in undeclared cashier’s checks outside the US and criminal information alleging conspiracy to commit mail fraud. Mackert is facing a maximum 5 years behind bars on the smuggling conviction and 20 years on the conspiracy charge. He also faces a $250,000 fine for each count.

Related Web Resources:
Lawyer in A&O Case Enters Guilty Plea in $100M Scam, The Life Settlements Report, November 24, 2010

Lawyer for A&O Entities Pleads Guilty for His Role in $100 Million Fraud Scheme Involving Life Settlements, US Department of Justice, November 23, 2010

Life Settlements, Stockbroker Fraud Blog

Institutional Investor Securities Blog

Continue reading "Texas Lawyer Pleads Guilty to Involvement in Alleged $100M Life Settlement Scheme" »

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

Posted In: Life Settlements , Texas Securities Fraud

December 6, 2010

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim

| Share

The US District Court has approved an amendment to the proposed Charles Schwab Corporation Securities Litigation settlement. The Supplemental Notice of Proposed Settlement of Class Action has been sent to the affected class members, which includes those who may have held Schwab YieldPlus Fund shares on September 1, 2006 and gotten more of them between May 31, 2006 and March 17, 2008. Shares may have been obtained through a dividend reinvestment in the Fund or through purchase. Affected class members cannot have been a resident of California on September 1, 2006.

The Supplemental Notice notes that there has been a clarification in the release claims’ scope that affected class members will be giving Schwab if they decide to take part in the settlement. More claims than those in the federal securities class litigation are now included in the amended release. Class members now have another chance opt out of the class action complaint.

Exclusion Deadline: Your notice of exclusion must be postmarked no later than January 14, 2011 and cannot be received after January 21, 2011.

Objection Deadline: Postmark must also be no later than January 14, 2011 and received no later than January 21, 2011.

There will be a fairness hearing on February 11, 2011.

For those that decide to proceed with the class, you don’t need to do anything to stay eligible. Class members will get the compensation for the federal securities claims that they were notified about in the previous notice about the settlement.

Filing an Individual Securities Claim Against Charles Schwab
For those of you that do choose to be excluded from the Charles Schwab class action case and any related benefits, you can file your own Section 17200 and/or federal securities claims and/or other possible claims. Filing an individual claim may allow a claimant to recover more than if he/she had stayed with the class action case. Individual investment fraud claims also take less time to resolve than do lengthy class action cases. Our stockbroker fraud lawyers represent clients with securities fraud cases against Charles Schwab.

To explore your legal options, contact our securities fraud law firm today.

Related Web Resources:
Read the Supplemental Notice

Schwab Yield Plus Settlement Frequently Asked Questions

Charles Schwab, Stockbroker Fraud Blog

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

Posted In: Charles Schwab , Class Action Lawsuits , Financial Advisers , Securities Fraud

December 2, 2010

Federal and State Securities Acts’ Anti-Waiver Provisions Did Not Bar International Forum Selection Clause’s Enforcement, Says Texas Court of Appeals

| Share

The Court of Appeals of Texas has held that in a shareholder agreement regarding the purchase of company stock, the federal and state Securities Acts anti-waiver provisions did not bar the enforcement of an international forum selection clause. The parties had consented to the exclusive jurisdiction of courts in Ontario, Canada to adjudicate any disputes stemming from or related to the shareholder agreement or/and the purchase, sale or holding of company common shares. Securities laws were only impacted where parties exercised their rights to voluntarily take part in a contract mandating that lawsuits be brought in courts and under another country’s laws. Also, public policy was in strong favor of enforcing forum selection clauses.

Commenting upon the ruling, Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Attorney William Shepherd noted: “The vast majority of securities loss claims filed in the past 20 years have been decided in arbitration. With international arbitration forums becoming more prevalent as economies globalize, this change was inevitable. It is very important for investors to hire attorneys with experience in securities arbitration to seek recovery of securities losses. Over the past 20 years, our firm has represented thousands of investors nationwide – and worldwide – in securities arbitration.”

Related Web Resources:
Young v. Vault.X Holdings, Inc.

Arbitration and Mediation, FINRA

Continue reading "Federal and State Securities Acts’ Anti-Waiver Provisions Did Not Bar International Forum Selection Clause’s Enforcement, Says Texas Court of Appeals" »

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

Posted In: Securities Fraud , 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