January 31, 2011

SEC Staff Wants an SRO to Oversee Investment Advisers

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Earlier this month, the members of the Securities and Exchange Commission's Division of Investment Management recommended that Congress either set up at least one self-regulatory organization that oversees investment advisers, impose “user fees” to fund examinations by the Office of Compliance Inspections and Examinations, or make investment adviser oversight the Financial Industry Regulatory Authority’s responsibility. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 914, the SEC is supposed to assess itself and make recommendations for improvement.

Per the SEC’s report, there is at this time inadequate resources for examining the over 11,000 registered investment advisers—a number that will likely go down by 3,350 in July when Dodd Frank’s Section 410 goes into effect and advisers with assets under management valued at $100 million or less will have to register with the state where their main place of business is located. That said, the growth in the industry is such that by fiscal year 2021 there may be up to 13,908 registered advisors with a collective worth greater than $70 trillion.

However, while industry groups will likely endorse a more influential FINRA or a new SRO, investment advisers believe that self-regulation’s rules-based nature is not compatible with their business model and government oversight and regulation would be better for them. FINRA believes that an SRO will be able to “augment” government oversight. In the past, FINRA has expressed willingness to take on this role.

It is important that brokers and investment advisers are properly supervised to decrease the chances of investment fraud. Our investment fraud lawyers represent investors who have suffered financial losses because of investment adviser misconduct or securities fraud.

Related Web Resource:
Study on Enhancing Investment Adviser Examinations, SEC, January 2011

Office of Compliance Inspections and Examination

Division of Investment Management

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Posted In: Investment Advisers , Miscellaneous , Securities Fraud

January 29, 2011

Yet Another Securities Case Against a Financial Firm Alleged to Have Aided Enron in its Scams is Dismissed Without Liability in Texas!

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Many financial firms settled claims filed by those defrauded in the Enron debacle. Meanwhile, many more Enron securities fraud cases have been dismissed by a court system riddled with special interest influence. No financial firm has been held liable and certain individuals at those firms were held liable only to have their convictions reversed. Thus, perhaps the largest, most notorious and most brazen fraud ever perpetuated by a publicly traded firm against its own shareholders will end not with a bang, but with a whimper.

Earlier this month, securities charges against Deutsche Bank Securities Inc. were dropped in the U.S. District Court for the Southern District of Texas. The financial firm was accused of fraudulently getting two entities to buy beneficial ownership interests in Osprey Trust. The special purpose entity was allegedly secured using worthless investments bought from Enron. The plaintiffs contend that the assets were “dumped” into Osprey as part of a bigger scheme to defraud investors and manipulate Enron’s financial statements.

The court said that because the plaintiffs did not specify any affirmative misrepresentation made by a Deutsche Bank official, they did not and “cannot plead with particularity either scienter on the part of a Deutsche Bank speaker or writer or reasonable reliance … on a claimed misrepresentation.” The court also said that the financial firm’s stated motive for alleged defraud, which allegedly was for tax benefits and high fees, is a common incentive among financial firms and their officers and therefore is not enough for stating “a claim for fraud” under the laws of Texas and New York.

Related Web Resources:
Newby, et al v. Enron Corporation, et al., U.S. District Court for the Southern District of Texas

The Fall of Enron, Chron.com

Continue reading "Yet Another Securities Case Against a Financial Firm Alleged to Have Aided Enron in its Scams is Dismissed Without Liability in Texas! " »

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Posted In: Enron , Financial Firms , Oppenheimer , Securities Fraud , Texas Securities Fraud

January 28, 2011

Guilty Plea for Financial Adviser Who Used UBS Tips in $1M Healthcare Insider Trading Scheme

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Registered investment adviser Alexei Koval has pleaded guilty to three counts of securities fraud and one count of conspiracy to commit securities fraud over his role in a $1 million insider trading scheme. Koval, a registered investment adviser, allegedly acted on tips about provided by his friend Igor Poteroba, an ex-UBS Securities LLC investment banker, about the healthcare industry.

Koval admitted to U.S. District Judge Paul Crotty that he and Poteroba engaged in securities fraud between 2005 and February 2009. The two of them used coded email messages to communicate. Poteroba also provided the tips to a third person, Alexander Vorobiev.

Koval, who used to work for Citigroup Asset Management (C.N), Northern Trust Bank (NTRS.O), and Legg Mason Inc. (LM.N) subsidiary Western Asset Management, says he paid money for the insider information about upcoming announcements regarding acquisitions or mergers involving Molecular Devices Corp, Guilford Pharmaceuticals Inc, Via Cell Inc, PharmaNet Development Group Inc, Indevus Pharmaceuticals Inc., and Millennium Pharmaceuticals Inc.

As part of Koval’s plea deal, he will forfeit at least $1,414,290 in illegal proceeds. He is facing fines in the millions of dollars and up to 65 years in prison. Koval is also facing civil securities fraud charges with the US Securities and Exchange Commission.

Illegal Insider Trading
The SEC describes this type of illegal trading usually refers to the selling or buying of a security that involves a breach of fiduciary trust or duty while in possession of nonpublic, material information about the security. It can involve the “tipping” of such information to others, actual trading by the person who was “tipped,” and trading by those who were in possession of the insider information.

Related Web Resources:
UBS Banker Poteroba’s Co-Defendant Koval Pleads Guilty, Business Week, January 7, 2011

Securities and Exchange Commission v. Igor Poteroba, Aleksey Koval, Alexander Vorobiev, and Relief Defendants Tatiana Vorobieva and Anjali Walter, Civil Action No. 10-civ-2667 (AKH), SEC, November 4, 2011

Insider Trading, SEC

Continue reading "Guilty Plea for Financial Adviser Who Used UBS Tips in $1M Healthcare Insider Trading Scheme" »

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Posted In: Financial Firms , Insider Trading , UBS

January 27, 2011

Do Brokers Owe a Fiduciary Duty to Clients?

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An article published this week in Slate talks about how despite what many might think, brokers in fact do not owe clients a fiduciary duty to give them the best advice possible. This could very well explain why some brokers don't believe they are really crossing the line—or, at the very least, that they can get away with it—when giving advice that isn’t necessarily bad but doesn’t take into account a client’s best interests.

In the olden days, giving a broker this much leeway made more sense. Brokers were there to sell or buy bonds and stocks and it was the investment adviser whose job it was (and still is) to give advice about financial goals and investment strategy. The latter is already upheld to a fiduciary standard requiring that he/she act in a customer’s best interests without regard to personal interest.

Now, however, the distinction between investment advisers and brokers has gotten blurrier. Brokers also now give advice and investment advisers also buy for clients the securities that they’ve recommended.

The Securities and Exchange Commission is now recommend a common fiduciary standard that would apply to both brokers and investment advisers. The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the SEC the power to set up a uniform fiduciary standard, which would hold brokers much more accountable than the current “suitability standard” that they must meet. Under the suitability standard, a broker can meet the standard just by recommending a suitable financial product to the investor even if it isn't the best one for that client.

With the current lack of a fiduciary standard for brokers, it is the investor who suffers when sustaining losses because of investing in a product that was recommended but not necessarily the most suitable. This lack of standard can also negatively impact how much a broker fraud victim can recover in arbitration or in court. For many investors, not being able to recoup their losses can mean the loss of their life savings, no early retirement, a decreased standard of living, and other consequences.

Related Web Resources:
Does Your Broker Love You?, Slate, Monday, January 24, 2011

SEC Recommends Common Standard for Brokers, Advisers, BusinessWeek, January 22, 2011

Study on Investment Advisers and Broker Dealers, SEC, January 11, 2011 (PDF)

Most Investors Want Fiduciary Standard for Investment Advisers and Broker-Dealers, Say Trade Groups to SEC, Stockbroker Fraud Blog, October 12, 2010

Continue reading "Do Brokers Owe a Fiduciary Duty to Clients?" »

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Posted In: Broker Fraud

January 25, 2011

Even as Ponzi Schemers Serve Time Behind Bars, Investors Are Left Coping with Millions in Financial Losses

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While the multi-billion dollar Stanford and Madoff Ponzi scams are among the larger fraud schemes that have dominated the news headlines, “smaller” Ponzi scams resulting in losses in the millions have cropped up throughout the US. Some of these fraudsters have been convicted and are paying for their crimes behind bars. Unfortunately, the many investors who have not recovered their lost investments are still paying a price, too.

Ponzi scammer Jeremy Hart is now sentenced 9 years in prison after pleading guilty to one count of felony securities and one count of felony theft. Hart and Richard Novaria ran a Ponzi scam between July 2006 and May 2008 that defrauded investors of $3.4 million. Many of the investors were clients of Hart Financial Inc. and they had placed their money in Dreamweaver Foundation, which was run by Novaria. Although they were promised returns of 7 to 14%, no money was made and Hart used investors’ funds to pay for personal expenses.

Also recently pleading guilty to fraud, including money laundering and mail fraud, is ex-Park Capital Management Group manager Donna Jones. She served as the assistant of Brentwood financial adviser Michael J. Park. Jones has admitted to running a Ponzi scam with Park that bilked investors of PCMG funds of over $10 million. The money was supposed to have been invested in marketable securities.

More than 10 investors invested more than $10 million in the bogus PCMG investment accounts. Only $4 million has been recovered. Park has already been sentenced to 8 years in prison. Jones hasn’t received her sentence yet.

Also now behind bars is Keith Epstein of Epstein and Rich Investment Firm. He is accused of defrauding elderly members and their families of millions. Investors wrote Epstein personal checks for investments that he was supposed to make on their behalf. Instead, he deposited the funds in his personal account.

Related Web Resources:
Fort Collins man sentenced to 9 years for Ponzi scheme, Coloradoan, January 21, 2011

Assistant pleads guilty in Brentwood Ponzi scheme, Tennessean, January 21, 2011

Victims Of Ponzi Scheme Hope Others Come Forward, WNEM, January 21, 2011

Number of Ponzi Scam Collapses Increased Significantly Last Year, January 4, 2011


Continue reading "Even as Ponzi Schemers Serve Time Behind Bars, Investors Are Left Coping with Millions in Financial Losses" »

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Posted In: Ponzi Scams

January 22, 2011

Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah

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According to the US Securities and Exchange Commission, while working at Aquila Investment Management LLC, ex-portfolio managers Thomas Albright and Kimball Young allegedly defrauded the Tax Free Fund for Utah (TFFU)—a mutual fund that was heavily invested in municipal bonds. Now, the two men have settled the securities fraud charges for over $700,000. However, by agreeing to settle, Young and Albright are not admitting to or denying the allegations.

The SEC claims that without notifying the TFFU’s board of trustees or Aquila management, the two men started making municipal bond issuers pay “credit monitoring fees” on specific private placement and non-rated bond offerings. The fees, which were as high as 1% of each bond's par value, were charged to supposedly compensate Albright and Young for additional, ongoing work that they say was required because the bonds were unrated. The SEC says that credit monitoring was actually part of the two men's built-in job responsibilities and that although deal documents made it appears as if the fees (totaling $520,626 from 2003 to April 2009) had to be paid and would go to TFFU, they actually end up in a company that Young controlled and that Albright owned equal shares in.

The SEC says that after management at Aquila found out in 2009 that Young and Albright were charging these unnecessary fees, the financial firm suspended the two men right away and reported them to the agency. The agency says the two men violated their basic responsibilities as investment advisers of mutual funds when they failed to act in the fund’s best interests.

Related Web Resources:
The SEC Order Against Young (PDF)

The SEC Order Against Albright (PDF)

Tax Free Fund for Utah

Municipal Bonds, Stockbroker Fraud Blog

Continue reading "Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah " »

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Posted In: Municipal Bonds , Mutual Funds , SEC Enforcement , Securities Fraud

January 20, 2011

Texas Securities Act Control Person Claims against Merrill Lynch Pierce Fenner & Smith Inc. is Revived by Appeals Court

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The Texas Court of Appeals has reinstated the Texas Securities Act control person claims against Merrill Lynch Pierce Fenner & Smith Inc. related to its former broker Terry Christopher Bounds’s allegedly fraudulent outside sales transactions.
According to the appeals court, Bounds, who owned two “outside” direct-marketing corporations, solicited David Fernea, who is now the appellant of this Texas securities case, to buy shares in both businesses. The latter purchased 50% interest in each company.

Fernea claims that after he bought into the companies, Bounds refused to uphold his part of the agreement and concealed his actions with the delivery of a fake stock certificate. He also contends that the ex-Merrill Lynch broker had made misrepresentations and omissions to persuade him to buy the stock. Among the alleged omissions was failing to disclose that Bounds’s companies were involved in a consumer protection dispute with the Texas Attorney General and that the stocks that Fernea had purchased were not registered with the Texas State Securities Board. The appellant also claims that Bounds tried to secretly resell the corporations he had already bought from him to other parties.

Fernea is suing Merrill Lynch for Texas securities fraud because he says that that Bounds’s working relationship with the investment bank had played an important part in his decision to buy into the broker’s companies. He is accusing the broker-dealer of violations of its own internal polices regarding its employees’ outside transactions, violating the Texas Securities Act’s Section 33, negligent supervision of Bounds related to his outside transactions, “control person” liability under the Texas Securities Act, and violation of several NASD and NYSE internal rules.

While the appeals court initially remanded the control person claim to a lower court, it has now reinstated the claim. The court says that it is up to the plaintiff to bear the initial burden of proving control, including that the alleged control person actually had influence or power of the controlled person and that this power to influence or control the specific activity or transaction led to the violation in question. The court has found that there is evidence that Merrill Lynch’s policies gave it control or issue over the “transaction at issue.”

Related Web Resources:
Texas Securities Act

BNA Securities Daily Law

Fernea v. Merrill Lynch Pierce Fenner & Smith Inc.

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Posted In: Financial Firms , Merrill Lynch , Texas Securities Fraud

January 18, 2011

CFTC Files Charges in Alleged California Ponzi Scam Involving the Fraudulent Solicitation of $14 million in Commodity Futures

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The Commodity Futures Trading Commission is charging Increase Investments Inc., Spirit Investments, and Scott Bottolfson with securities fraud. The CFTC contends that the defendants solicited about $14 million from 30 individuals for investments in two commodity trading pools that traded options on commodity futures and commodity futures contracts. Increase and Spirit allegedly ran the pools. The commission is seeking restitution for the investment fraud victims, fines, the return of ill-gotten gains, trading and registration bans, and permanent injunctions against future violations of federal commodities laws.

The CFTC contends that from 2002 through August 2010, Bottolfson made false and misleading statements to draw in prospective investors. He is accused of promising a 20% fixed-rate return and making it appear as if the commodity futures investments were not only guaranteed, but also that they protected, risk-free, and profitable.

Investors went on to sustain about $845,000 in trading losses. About $2.97 million had been placed in the commodity pool trading accounts. The CFTC is accusing Bottolfson of allegedly misappropriating about $11 million of investors’ money to pay pool participants their “profits," as well as cover some of his personal expenses.

Shepherd Smith Edwards & Kantas LTD LLP Partner and Stockbroker Fraud Lawyer Robert Kantas says, “Our firm currently represents a group of investors in the Los Angeles area that were defrauded in a similar scheme.” If you are someone who suffered losses as a result of an investment scam, contact our securities fraud law firm immediately. We are committed to helping investors recoup their losses.

Related Web Resources:
CFTC Charges California Resident Scott Bottolfson with Operating a $14 Million Commodity Pool Ponzi Scheme, CFTC, January 11, 2011

Commodity Futures Trading Commission

Ponzi Scams, Stockbroker Fraud Blog

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Posted In: CFTC , Ponzi Scams , Securities Fraud

January 17, 2011

Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors

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The Charles Schwab Corp. has agreed to settle for $119 million Securities and Exchange Commission securities fraud charges that it misled investors about the risks involved in its Schwab YieldPlus Fund. By agreeing to settle, Schwab is not denying or admitting wrongdoing.

In 2008, the YieldPlus Fund dropped to $1.8 billion in assets after a peak of $13.5 billion in 2007. The decline happened because, rather than sticking with its stated policy, the fund invested over 25% of assets in private-issuer mortgage-backed securities. According to SEC Division of Enforcement Associate Director Antonia Chion, Schwab promoted the fund as a cash alternative that was supposed to be just slightly riskier than a money market fund even though at one point half the assets were in securities with credit quality and maturity that were very different from the type of investments that money market funds make.

Per the fund’s 1999 registration statement, YieldPlus was to only invest no more than 25% of its assets in one industry. The SEC contends that without obtaining shareholder approval, in 2006 Schwab changed the statement to say that it no longer thought of mortgage-backed securities as an industry. Last year, Schwab agreed to pay $200 million to settle with plaintiffs over the Schwab YieldPlus Fund.

The SEC has also filed a securities fraud complaint against Schwab executives Randall Merk and Kimon Daifotis over the offering, managing, and selling of the Schwab fund. Both men say that they will contest the allegations.

Related Web Resources:
Schwab to Pay $119 Million to Settle SEC Probe Over Misleading Statements, Bloomberg, January 11, 2011

Schwab Settles SEC Charges Over Allegations it Misled YieldPlus Fund Investors for $119M, ThirdAge, January 12, 2011

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim, Stockbroker Fraud Blog, December 6, 2010

Read the SEC Complaint against Merk and Daifotis (PDF)

Schwab Agrees to Pay $200 Million in Fund Settlement, Bloomberg BusinessWeek, April 20, 2010

Continue reading "Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors " »

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Posted In: Charles Schwab , Financial Firms , SEC Enforcement , Securities Fraud

January 13, 2011

Broker Settles SEC Charges He Defrauded Elderly Nuns

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Broker Paul Chironis has agreed to settle charges that he defrauded the Sisters of Charity. The US Securities and Exchange Commission is accusing the broker of churning of millions of dollars in mortgage-backed securities in the congregation of elderly nuns’ two accounts. One account supports the nuns’ charitable efforts. The other helps take care of nuns living in nursing homes.

The SEC says that Chironis defrauded the nuns between January 2007 and January 2008. The accounts that he allegedly churned held mostly mortgage-backed securities that Freddie Mac, Fannie Mae, and Ginnie Mae had issued, as well as closed-end bonds. The SEC contends that the broker charged the nuns’ account undisclosed and excessive markups and markdowns in riskless principal transactions.

The federal agency says that Chironis’s actions violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. By agreeing to settle, Chironis is not admitting to or denying the charges. He has, however, consented to a permanent bar from the securities industry. He also has agreed to disgorge $250,000 in illegal gains and pay a $100,000 civil penalty. The money, which will be put in a Fair Fund, will be distributed to the congregation of nuns.

Churning
Churning is an act of securities fraud that involves a broker making excessive trades to make commissions and other revenue regardless of whether such transactions fulfills the clients' investment objectives. Our securities fraud lawyers can help you determine whether you were a victim of churning.

Related Web Resources:
SEC Settles With Broker for Allegedly Defrauding Bronx Nuns, Wall Street Journal, January 6, 2011

Broker Accused of Defrauding Elderly Nuns Settles Case With SEC, SEC, January 6, 2011

Read the SEC Litigation (PDF)


Continue reading "Broker Settles SEC Charges He Defrauded Elderly Nuns" »

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Posted In: Broker Fraud , SEC Enforcement , Securities Fraud

January 11, 2011

R. Allen Stanford’s Criminal Trial Over $7 Billion Ponzi Scam Delayed So He Can Detoxify from Medication Addiction

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U.S. District Judge David Hittner has postponed the criminal trial of Texas financier R. Allen Stanford so that he can undergo detoxification from his medication addiction. Three psychiatrists had testified that he is incompetent to stand trial after getting hooked on anti-depressant and anti-anxiety medications.

Stanford, the ex-head of Stanford Financial Group, is accused of running a $7 billion Ponzi scam. He, his companies, and other ex-executives, allegedly bilked investors through Stanford International Bank Ltd’s sale of certificate deposits. Stanford has been indicted on 21 criminal counts of wrongdoing. The US Securities and Exchange Commission also has a Texas securities fraud case against Stanford. Others who were named defendants in that case: Stanford International Bank (SIB), which is located in Antigua, Stanford Group Company (SGC), an investment adviser and broker-dealer located in Houston, Stanford Capital Management, an investment adviser, Stanford Financial Group chief investment officer, Laura Pendergest-Holt, and SIB chief financial officer James Davis.

Stanford has been in federal custody without bail because he is considered a flight risk. According to Stanford’s criminal defense team, prison doctors gave him the meds.

Psychiatrist Victor Scarano, who was retained by Stanford’s team, was among those who testified. He said that for a year Stanford has been taking 3 milligrams of clonazepam daily and that this has caused the 60-year-old to feel drowsy and suffer from lack of energy. He has also had a difficult time concentrating on his tasks. Usually, the normal dosage for this anti-anxiety drug is 1 milligrams a day and for no more than two weeks. Stanford is also taking the anti-depressant mirtazapine.

Scarano contends that Stanford sustained a traumatic brain injury when a prisoner assaulted him in September 2009. The psychiatrist believes that Stanford will need anymore from three to six months to kick his anti-anxiety drug addiction. Meantime, federal prosecutor Andrew A. Warren has suggested that Stanford faked his symptoms.

Prosecutors believe that Stanford can receive the treatment he needs while in federal prison, but Stanford’s criminal defense team wants him hospitalized at a private facility in the Houston area. His lawyers want his criminal trial delayed for two years so that they have enough time to prepare his defense.


Related Web Resources:
Read the SEC's complaint (PDF)

Judge orders Stanford get drug treatment, Houston Chronicle, January 11, 2011

Financier Is Described as Addicted to Medicine, NY Times, January 7, 2011

Stanford Group. Co., Stockbroker Fraud Blog, February 22, 2009

Texas Securities Fraud, Stockbroker Fraud Blog

Continue reading "R. Allen Stanford’s Criminal Trial Over $7 Billion Ponzi Scam Delayed So He Can Detoxify from Medication Addiction" »

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Posted In: Ponzi Scams , Texas Securities Fraud

January 10, 2011

Morgan Stanley Failed to Disclose Financial Adviser’s Felony Charge to FINRA, Claims Car Accident Victim’s Attorney

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According to Harold Haddon, the civil attorney for car accident victim Dr. Steven Milo, Morgan Stanley (MS) failed to disclose to the Financial Industry Regulatory Authority that financial adviser Martin Erzinger had been charged with a felony. Securities firms have 30 days from the time anyone working for them is charged with a felony to file a “Form U4” notifying FINRA.

Erzinger, who works with approximately $1 billion in accounts, was charged with a felony after he struck bicyclist Steven Milo in a car crash last July and then fled the collision site. Milo sustained serious injuries in the traffic crash. In December, the Morgan Stanley Smith Barney financial adviser struck a plea agreement. The felony charge against him was dropped and he pleaded guilty to misdemeanors. Erzinger claimed that at the time of the auto accident, he was suffering from undiagnosed sleep apnea, fell asleep at the steering wheel, and did not realize that he had hit anyone with his vehicle.

Erzinger was sentenced to community service and probation. Judge Fred Gannett also ordered him to tell FINRA about the felony charge. Attorney Haddon, however, says the court-ordered disclosure, which was submitted on December 22, doesn’t meet requirements because it only reveals that Erzinger was charged with a felony crime that was later dropped but does not mention the financial adviser’s misdemeanor guilty pleas or the sentence he must now serve.

Milo had opposed the plea agreement. Dow Jones Newswires reports that in court, Milo’s father-in-law Tom Marisco, who founded Marisco Funds and used to manage Janus mutual funds, blamed Morgan Stanley for not making the disclosures, which are mandatory. Morgan Stanley, however, says it contacted FINRA about the issue last July and believes that it satisfied all reporting requirements.

FINRA spokesperson Nancy Condon says the only way to notify FINRA about a reporting requirement is to electronically submit a Form U4.


Related Web Resources:
Lewis: Simple question tough for Morgan Stanley to answer, Denver Post/Dow Jones, January 8, 2010

Financial manager Martin Erzinger to accept plea bargain in Vail hit-and-run, 9News, November 2010

Form U4 Checklist, FINRA

Institutional Investors Securities Blog

Continue reading "Morgan Stanley Failed to Disclose Financial Adviser’s Felony Charge to FINRA, Claims Car Accident Victim’s Attorney" »

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Posted In: FINRA , Financial Firms , Morgan Stanley

January 7, 2011

ALJ to Determine Whether to Revoke Registration of STS-Advisors Ltd. and Investment Adviser Representative Richard Lewis Bruce Over Alleged Texas Securities Fraud

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A hearing will be held next month to determine whether the investment adviser registrations of STS-Advisors Ltd. and Richard Lewis Bruce with the Securities Commissioner of Texas should be revoked and a cease and desist order issued over allegations of securities fraud. STS and Bruce reportedly gave investment advice to STS-STATS, L.P., and from April 2003 through December 2005 24 investors put more than $2,130,000 into STS Fund. Unfortunately, many of the investors their entire investments.

Last September, an inspection of STS revealed that the respondents had taken out money from the STS Fund beyond the fees and expenses that were allowed. These unauthorized withdrawals allegedly took place between at least June 2007 through September 2010 and even as the STS Fund lost value. The alleged withdrawals may have contributed to the fund’s losses.

For example, even though the STS Fund’s monthly ending balance never went above $721,000 between June 2007 and September 2010, the respondents allegedly took out nearly $400,000 during this time. Also, during the quarter that ended last September, the STS Fund’s value was just over $10,000 but respondents allegedly withdrew $9,000.

Related Web Resources:

Texas Securities Fraud

Texas State Securities Board

Read the Docket (PDF)

Continue reading "ALJ to Determine Whether to Revoke Registration of STS-Advisors Ltd. and Investment Adviser Representative Richard Lewis Bruce Over Alleged Texas Securities Fraud " »

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Posted In: Financial Firms , STS-Advisors Ltd. , Texas Securities Fraud

January 6, 2011

Securities America Inc. to Pay $1.2M in Compensatory and Punitive Damages Over Allegedly Fraudulent Medical Capital Notes

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A Financial Industry Regulatory Authority arbitration panel has ordered Securities America Inc. and broker Randall Ray Talbott to pay an investor nearly $1.2 million in damages over the sale of allegedly fraudulent Medical Capital notes. Claimant Josephine Wayman had charged the respondents with a number of actions, including securities fraud, deceit, breach of fiduciary duty, industry rules violation, financial elder abuse, and negligence. Ameriprise Financial Inc. owns Securities America.

The award includes $734,000 in compensatory damages, $250,000 in punitive damages, and $171,000 in expert witness and legal fees. Punitive damages are not common in FINRA arbitration awards.

Dozens of other claimants are pursuing securities claims against Securities America over the sale of private placements prior to the financial collapse in 2008. The securities divisions of Montana and Massachusetts are among those suing the broker-dealer. Meantime, Securities America has said that Medical Capital Holdings Inc., which issued the private placements, is the one that should be held liable for investors’ financial losses.

From 2003 to 2008, dozens of independent broker dealers sold private Medical Capital notes, with Securities America considered the biggest seller at nearly $700 million. The private placements raised $2.2 billion. Unfortunately, many of the medical receivables that were supposed to be underlying the notes were in fact non-existent. Medical Capital has been accused of running a Ponzi-like scam and using newer investors’ funds to pay promised returns to older investors. Securities America has said that it did not act inappropriately when selling the MedCap notes.

Medical Capital is bankrupt and $1.1 billion of investors’ funds are gone. In 2009, the Securities and Exchange Commission charged Medical Capital with securities fraud.

Related Web Resources:
Securities America and Rep to Pay Over $1 Million in FINRA Fraud Case, AdvisorOne, January 5, 2011

Arbitrators hit Securities America, rep with $1.2 million in damages, legal fees over MedCap, Investment News, January 3, 2011

Financial Industry Regulatory Authority

Securities America

Continue reading "Securities America Inc. to Pay $1.2M in Compensatory and Punitive Damages Over Allegedly Fraudulent Medical Capital Notes " »

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Posted In: Ameriprise - Securities America , FINRA , Financial Firms , Ponzi Scams , Securities America

January 4, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses

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A Financial Industry Regulatory Authority arbitration panel says that UBS Financial Services Inc. must pay $2.2 million to CNA Financial Corp. Chief Executive and Chairman Thomas F. Motamed for losses that he and his wife Christine B. Motamed sustained from investing in Lehman Brothers structured products. The Motameds, who filed their claim against the UBS AG (UBS, UBSN.VX) unit and ex-UBS brokers Judith Sierko and Robert Ashley early in 2009, are alleging misrepresentation, breach of fiduciary duty, and other charges.

This is the largest award involving UBS-sold Lehman structured products. However, the Motameds’ securities fraud case is just one of many against UBS over its sale of about $1 billion in Lehman-related structured investment products to US clients. Many of the claimants contend that the broker-dealer failed to properly represent the investments. As part of this arbitration case, UBS must also pay 6% yearly interest on the $2.2 million to the Motameds from April 4, 2008 until payment of the award is complete. The ruling is supposed to represent rescission of the Motameds’ structured products purchase.

UBS reportedly has not won even one case over the Lehman structured products where the claimant had legal representation. Just a few months ago, UBS AG was ordered to pay $529,688 to another couple over their Lehman structured notes purchase. Steven and Ellen Edelson bought the notes while under the impression that they were “principal protected” when in fact the securities did not have such protection.

The award is the largest involving Lehman structured products purchased through UBS, which has expressed disappointment over the panel’s ruling. The broker-dealer maintains that the losses sustained by the Motameds are a result of Lehman Brothers’s failure and not UBS’s handling of the products.

To Pay $2.2 Mln To CNA Chief for Lehman-Related Losses, The Wall Street Journal, December 23, 2010

UBS Must Pay Couple $530,000 for Lehman Brothers-Backed Structured Notes, Institutional Investors Securities Blog, November 5, 2010

Continue reading "UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses" »

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Posted In: Financial Firms , Lehman Brothers , UBS

January 3, 2011

Financial Services Institute Wants FINRA to Serve as SRO for RIAs

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The Financial Services Institute wants the Financial Industry Regulatory Authority to be the main watchdog over registered investment advisers. FSI, which represents 126 broker-dealers’ interests, endorsed FINRA in a letter to the Securities and Exchange Commission. Many of the broker-dealers that FSI represents are also RIAs.

FSI believes that not only has FINRA shown the ability to “equitably” distribute enforcement, examination, technology, and surveillance resources, but also, that the latter is knowledgeable about “the overlapping nature” of the services and financial products that both investment advisers and broker-dealers may offer. Coordinated Capital Securities, Inc. and 2010 FSI chair and president Mari Buechner believes that having a regulatory structure that puts the same emphasis on examining broker-dealers, investment advisers, and their affiliated financial advisers will improve investor protection.

Currently, pursuant to Section 914 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC is analyzing the need for improved oversight of investment advisers. Already, FINRA closely scrutinizes broker-dealers, while the SEC has acknowledged that insufficient resources prevents it from regularly inspecting over 11,000 registered advisers.

However, extending FINRA’s reach over investment advisers has generated controversy. FSI is the first business group to support giving FINRA this role. FINRA Chief Executive Officer Richard Ketchum wrote to the SEC last November noting that not only does there need to be an SRO for investment advisers, but also that his organization is willing to take on the part. Meantime, the North American Securities Administrators Association and the Investment Adviser Association continue to remain wary of both extending self-regulation and FINRA’s authority.

If you suspect that broker fraud or investment adviser fraud may have caused you to sustain financial losses, contact our securities fraud law firm today.

Related Web Resources:
Financial Services Institute Endorses FINRA as SRO for Investment Advisers, Financial Services, December 20, 2010

FINRA

Investment Advisers, Stockbroker Fraud Blog, December 9, 2010

Institutional Investors Securities Blog

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

Posted In: FINRA , Investment Advisers

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