May 31, 2011

District Court Wants to Know Why FINRA Arbitration Panel Denied Freecharm Ltd.’s Securities Fraud Claim Against One Atlas Financial Group LLC

Judge Marcia G. Cooke of the U.S. District Court for the Southern District of Florida is asking why a Financial Industry Regulatory Authority arbitration panel denied Freecharm Ltd.’s breach of fiduciary duty and fraud claims against Atlas One Financial Group LLC. Cooke wants to know about the panel’s reasoning so it can make a ruling regarding the parties’ conflicting motions to modify, confirm, or vacate the award.

The court says that, Freecharm Ltd. began arbitration proceedings against associated entity Atlas One Financial Group LLC and three individuals in 2009. Freecharm accused Atlas of committing Florida statutory violations, breach of fiduciary, fraud, negligence, and other wrongdoings linked to the alleged excessive and/or unauthorized trading in a number of securities accounts.

After the FINRA panel entered an award denying Freecharm’s claims “in their entirety,” Freecharm then submitted a motion to modify or vacate, while Atlas put forward its own motion to have the award confirmed.

Freecharm is claiming that the panel went beyond its powers, exhibited partiality, ignored the law and the facts, and was prejudiced in refusing to see that Atlas allegedly concealed discovery documents. Freecharm is also challenging the credibility of certain witness testimony and discovery documents.

Although the district court has acknowledged that the FINRA panel’s decision deserves “considerable deference,” it also has found that in this instance the award does not “expressly state” the reason Freecharm’s claims were entirely denied. The court says that it needs more information so it can identify the possible evidence for the panel’s logic, as well as determine what principal of law the arbitrators allegedly disregarded. District courts are authorized to remand a case to an arbitration panel for the purpose of getting clarification about the panel’s intent when “in making an award evidences a manifest disregard of the law.”

Related Web Resources:
In Weighing Motion to Confirm, Court Asks Arbitrators to Clarify Basis of Award, Alacra Store, May 25, 2011
Atlas One Financial Group, LLC et al v. Freecharm Limited, Justia Dockets


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Continue reading "District Court Wants to Know Why FINRA Arbitration Panel Denied Freecharm Ltd.’s Securities Fraud Claim Against One Atlas Financial Group LLC" »

May 30, 2011

SEC and FINRA Alerts Retail Investors About Structured Notes with Principal Protection

FINRA and the SEC’s Office of Investor Education and Advocacy has put out an alert called Structured Notes with Principal Protection: Note the Terms of Your Investment. The purpose of the alert is to let investors know about the risks involved in investing in this type of note while providing information that will allow them to better understand how the notes work.

These notes usually put together zero-coupon bond that doesn’t pay interest until maturity with a derivative product that has a payoff tied to an underlying asset, benchmark, or index that may consist of commodities, currencies, and spreads between interest rates. The investor can take part in a return tied to a specific change in the underlying asset’s value. That said, investors should be aware that the way these notes may be structured could cap or limit their upside exposure to the underlying asset, benchmark, or index.

Investors with structured notes with principal protection that hold them until they mature will usually get a return of at least part of their investment even if there is a decline in the underlying benchmark, index, or asset. However, protection levels aren’t all the same. Some products are guaranteed just 10%, and all guarantees are dependent on the company that made it and its financial strength.

The SEC and FINRA want investors to know that structured notes with principal protection can have complex pay-out structures, which can make it hard to accurately determine their potential for growth and their risk. Investors should also know that their principal could get tied up for up to 10 years and they may end up not making a profit on their initial investment.

The Alert recommends asking a number of questions before investing in a structured note with a principal protection:
• Is this product appropriate considering your investment objectives?

• What are the risks involved?

• What type of principal protection is offered?

• What are the conditions of the protection?

• Are there additional costs?

• How long is your money going to be tied up?

• Are you allowed to liquidate or sell prior to the maturity date?

• Is a call feature provided?

• Are there limits to possible gains?

• Are there tax implications?

• How does the pay-out structure work?

• What are your other investment options?


Usually, investors with structured notes with principal protection that hold them until they mature will usually get a return of at least part of their investment even if there is a decline in the underlying benchmark, index, or asset. However, protection levels aren’t all the same. Some products are guaranteed just 10%, and all guarantees are dependent on the company that makes it and its financial strength.

The SEC and FINRA want investors to know that structured notes with principal protection can have complex pay-out structures, which can make it hard to accurately determine their potential for growth and their risk. Investors should also know that their principal could get tied up for up to 10 years and they may end up not making a profit on their initial investment.

Related Web Resources:
SEC, FINRA Warn Retail Investors About Investing in Structured Notes with Principal Protection, SEC, June 2, 2011

Structured Notes with Principal Protection: Note the Terms of Your Investment


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Continue reading "SEC and FINRA Alerts Retail Investors About Structured Notes with Principal Protection" »

May 29, 2011

Muni Debt Reform: SEC to Proceed with Field Hearing in Alabama

According to House Financial Services Committee Chairman Rep. Spencer Bachus (R-Ala.), the Securities and Exchange Commission will proceed with a field hearing in Birmingham, Alabama. The hearing is to let the SEC more fully comprehend Jefferson County, Alabama’s experience as it comes up with policies to enhance disclosure and transparency in municipal finance markets.

Currently, Birmingham, which is the largest city in Jefferson County, is still trying to avoid filing a $4 billion sewer bonds bankruptcy stemming from county officials’ alleged corruption and fraud. The SEC hopes that the hearing will help it in the development of policies to improve disclosure and transparency in municipal finance markets.

Already, the SEC and the Justice Department have filed fraud charges against Jefferson County officials, including ex-mayor Larry Langford, who was convicted in 2009 for taking kickbacks involving the refinancing of county bonds that were for the funding of the reconstruction of the aged sewer system. Charged with alleged involvement in the pay-to-play scam are ex-J.P. Morgan Chase (JPM) managing directors Charles LeCroy and Douglas MacFaddin. JP Morgan Chase has already settled the SEC’s securities charges over the financial fraud, which allowed the financial firm to obtain the rights to some of the sewer bond offerings. It paid Jefferson County $50 million and dropped a $647 million termination fee claim.

Bachus has said that he doesn’t believe that any taxpayer, locality, or ratepayer should have to undergo the same experience as the sewer financing fiasco and the impact it has had. If Jefferson County were to file for bankruptcy, it would be the largest municipal bankruptcy in history.

Related Web Resources:
Congressman Bachus: SEC to Hold Field Hearing on Municipal Debt Reform , Bachus House

Bond Debacle Sinks Jefferson County, Bloomberg Businessweek, November 8, 2009


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SEC to Examine Muni Bond Market Issues During Hearings in Texas and Other States, Stockbroker Fraud Blog, February 9, 2011


Continue reading "Muni Debt Reform: SEC to Proceed with Field Hearing in Alabama " »

May 27, 2011

Winell Associates Inc., Maxi Partners GP, and Howard Winell Settle CTFC Charges Accusing Them of Misappropriating Funds and Unauthorized Trading of Over $5.2M

Howard Winell, Winell Associates Inc., and Maxie Partners GP LLC have agreed to pay over $5.2 million to settle Commodity Futures Trading Commission charges accusing them of taking part in unauthorized trading and misappropriating funds related to a commodity futures and options pool. By settling, the respondents are not denying or admitting the allegations. They have, however, agreed to a permanent ban from both trading and registering with the CFTC.

The agency says that in 2005, Winell and the two firms solicited and pooled about $20 million from approximately 25 participants to trade commodity futures and options on commodity futures through Maxie Partners LP, which is a commodity pool. In May 2007, one of the largest participants in the pool asked to redeem about $7 million. The agency says that while the respondents segregated that amount to meet this request, before the redemption was issued the pool suffered substantial losses and had margin calls of about $4 million issued by futures commission merchants that held the pool’s trading accounts. The CFTC says that to keep on trading and meet the margin calls, Winell had to transfer those segregated funds back to the pool’s trading accounts. About $3.8 million of the participant’s money was lost.

It is wrong for brokers and financial advisers to misappropriate funds when doing their job. If you believe that you have suffered financial losses because of broker misconduct, do not hesitate to contact our stockbroker fraud lawyers immediately.

Related Web Resources:
Howard Winell and Winell Associates fined USD5.2m for fraud, HedgeWeek, May 3, 2011

CFTC Sanctions New York Resident Howard Winell and His Companies, Winell Associates, Inc., and Maxie Partners GP, LLC, More than $5.2 Million for Fraud, CFTC, May 2, 2011

Commodity Futures Trading Commission

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Continue reading "Winell Associates Inc., Maxi Partners GP, and Howard Winell Settle CTFC Charges Accusing Them of Misappropriating Funds and Unauthorized Trading of Over $5.2M" »

May 25, 2011

Day Trader Pleads Guilty to Securities Fraud Charges Related to Insider Trading Scam

Day trader Daniel Corbin has pleaded guilty to a securities fraud charge accusing him of conspiring to make illegal trades based on confidential tips from the wife of an ex-Lehman Brothers salesman. He was one of five people indicted over this insider trading scam in 2008 and the last to plead guilty.

Corbin says that it was his partner, Jamil Bouchareb, who gained access to the material non-public information about Veritas DGC Inc. The information came from ex-Lehman Brothers salesman Matthew Devlin whose wife Nina Devlin worked at the public relations company Brunswick Group LLC at the time and had access to information about mergers and other deals. Devlin gave away that information without her consent.

Following the insider tip, Corbin and Bouchareb used their joint account to purchase 2,500 shares of the company on September 1, 2006. On September 5, 2006, Compagnie Generale de Geophysique SA purchased Veritas DGC. Corbin and Bouchareb made a $16,000 profit from the trade.

In federal court last week, Corbin told the US Magistrate Judge that he suspected that the information Bouchareb obtained wasn’t public but still went along with his partner. Bouchareb was among those who were indicted and pleaded guilty, as did Devlin, who pleaded guilty to one count of securities fraud and four counts of conspiracy over the improper sharing of information, ex-Lehman salesman Frederick Bowers, and tax attorney Eric Holzer, who used to work at Paul Hastings Janofsky & Walker LLP.

Our stockbroker fraud lawyers represent clients that have sustained financial losses because of insider trading, stockbroker fraud, and other forms of broker misconduct, including margin account abuse, unsuitability, churning, misrepresentation and omissions, failure to execute trades, unsuitability, failure to supervise, breach of fiduciary duty, breach of promise/contract, margin account abuse, negligence, unauthorized trading, and registration violations.

Trader Daniel Corbin Pleads Guilty in New York Federal Court, Bloomberg Businessweek, May 16, 2011

Florida Trader Pleads Guilty in '06 Insider-Trading Scheme, The Wall Street Journal, May 16, 2011


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May 24, 2011

SEC to Up Dollar Thresholds for When an Investment Adviser Can Charge Investors Performance Fees

The Securities and Exchange Commission says it will raise the dollar thresholds that would need to be met before an investment adviser can charge a client a performance fee. The monetary thresholds are related to two tests under the 1940 Investment Advisers Act that let investment advisers charge performance-based fees to “qualified clients.”

Under the Act’s Rule 205-3, advisers can charge performance fees in certain circumstances: The investment adviser needs to be managing at least $750,000 for the client or the advisers must reasonably believe that the client’s net worth is over $1.5 million. Shepherd Smith Edwards & Kantas LTD LLP founder and securities fraud lawyer William Shepherd says, “Sharing in performance is dangerous because the advisors can afford to take large risks with ‘other people’s money’ - risks that the investor may not be able to afford. A combined life savings of $750,000 is not a large sum for retirees, and what does it even mean to ‘reasonably believe’ someone has a net worth of $1.5 million?”

The SEC says that now it will issue an order to revise rule 205-3’s dollar amount tests to $1 million for assets under management and $2 million for net worth. It also proposed amendments to the rule, including:

• Excluding the individual’s primary residence when determining net worth.
• Providing a method to figure out future inflation adjustments of the dollar amount tests.
• Modifying the rule’s transition provisions to factor in account performance fee arrangements that were allowed when the client and the adviser entered into their contract.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 418, the SEC has until July 21, 2011 to adjust for inflation the dollar amount tests under Rule 205-3 of this year and after every five years from then on. The act has also directed the SEC to adjust under 1933 Securities Act the net worth standard of an “accredited investor” so that it doesn’t include that individual’s primary residence.

Related Web Resources:
SEC Issues Notice of Plan to Adjust Adviser Performance Fee Dollar Thresholds, BNA Securities Law Daily, May 13, 2011

SEC Publishes Notice Regarding Inflation Indexing of Performance Fee Rule, SEC.gov, May 10, 2011

1940 Investment Advisers Act

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Continue reading "SEC to Up Dollar Thresholds for When an Investment Adviser Can Charge Investors Performance Fees" »

May 23, 2011

Texas Securities Commissioner's Emergency Cease and Decease Order Accuses Insignia Energy Group Inc. of Misleading Teachers

According to the Texas State Securities Board, Insignia Energy Group Inc. and its affiliate IEG Permian Basin LLC have violated state law because they are not registered to sell Texas securities. The Texas Securities Commissioner, which is accusing the Dallas-area emergency company of targeting laid-off teachers in the fraudulent sale of gas and oil interests, has put out an emergency cease and desist order against Insignia. The state is also accusing both companies of issuing misleading statements to potential investors.

Per the order, Insignia and IEG must cease from selling securities until they are registered with the state of Texas. The securities board is also is asking for the cessation of deceptive statements.

The state contends that Insignia is telling Texas school workers, including retired and current teachers, that investing in the oil and gas interests will “replace” income during a period of impending layoffs. Insignia is also allegedly encouraging these potential investors to spend their retirement money on these supposedly “safe" investments that the state’s securities commissioner says are actually very risky.

These prospective clients were offered interests in the Sabine Partnership, which is supposed to develop well prospects in Louisiana. The investors were to receive limited partnership interests that are the equivalent of 10% of the underlying working interest, as well as 7.3% of the underlying net revenue interest in the partnership. The order says that Insignia is claiming that investors who put in $21K will get at least $5K in returns a month, while those who put in $45K will get back a minimum of $15K monthly.

Our Texas securities fraud lawyers are here to help investors recoup their losses.

Related Web Resources:
Energy company targeting teachers in scam, Texas officials say, Yahoo/Reuters, May 16, 2011

Hot air? Oil and gas company allegedly misled teachers, Investment News, May 16, 2011


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Continue reading "Texas Securities Commissioner's Emergency Cease and Decease Order Accuses Insignia Energy Group Inc. of Misleading Teachers " »

May 19, 2011

Five Ex-Brooke Executive Settle SEC Fraud Charges Accusing Them of Concealing Financial Firm’s Deteriorating Finances

Five of the six former Brooke executives accused of securities fraud have settled the charges filed by the US Securities and Exchange Commission. According to the SEC, the defendants misrepresented the deteriorating financial condition of Brooke, which eventually filed for bankruptcy. The agency says they employed “virtually any means necessary” to hide Brooke’s financial state, which included liquidity crises that occurred almost every week. The SEC also contends that Aleritas’s loan losses, which was in the hundreds of millions of dollars, caused a number of regional banks to fail.

Among those that settled are brother Robert and Leland Orr. Robert formerly served as Brooke Corp. chairman, while Leland was chief executive. The other three who settled were former Aleritas executives Michael S. Lowry and Michael S. Hess and former Brooke Capital and Brooke Corp. CFO Travis W. Vrbas. A sixth executive, former Brooke executive Kyle Garst, is contesting the securities fraud allegations.

By agreeing to settle the ex-Brooke executives are not admitting to or denying the allegations. The Orr brothers have consented to disgorge profit and pay fines, but the court has yet to determine the figures. Lowry has agreed to $214,500 in disgorgement, $24,004 in prejudgment interest, and a $175,000 penalty. Hess is to pay a $250,000 penalty. Vrbas has consented to a $130,000 penalty.

The SEC has also accused two Brooke affiliates, insurance agency franchisor Brooke Capital Corp. and lender Aleritas Capital Corp., of securities fraud. The fallout from the alleged fraud has had a “devastating” effect on the livelihood of “hundreds of insurance franchisees.”

Related Web Resources:
Five former Brooke execs settle SEC fraud charges, Reuters, May 4, 2011

Financial Firm Execs Misled Investors, 
SEC Contends; Five of Six Settle Charges, BNA Securities Law Daily, May 5, 2011


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Continue reading "Five Ex-Brooke Executive Settle SEC Fraud Charges Accusing Them of Concealing Financial Firm’s Deteriorating Finances " »

May 18, 2011

Ambac Financial Group, Insurers, and Bank Underwriters to Pay $33M to Settle Securities Lawsuits Alleging Concealed Risks Related to its Bond-Insurance Business

Ambac Financial Group Inc. (ABKFQ), a number of its bank underwriters, and its insurers will pay $33 million to settle securities lawsuits accusing the bond insurer of concealing the risks it engaged in when it guaranteed risky mortgage debt. Ambac will pay $2.5 million, four insurance companies will pay $24.5 million, and the banks that will pay $5.9 million include Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), UBS AG (UBS), J.P. Morgan Chase & Co. (JPM), Merrill Lynch Pierce Fenner & Smith Inc. (now part of Bank of America Corp. (BAC)), HSBC Holdings PLC (HBC), and the former Wachovia, (now part of Wells Fargo & Co. ( WFC)). A federal court has to approve the proposed settlement. The lead plaintiffs of the securities fraud case are The Public Employees' Retirement System of Mississippi, the Public School Teachers' Pension and Retirement Fund of Chicago, and the Arkansas Teachers Retirement System. The investors covered those that purchased Ambac stock and bonds between October 25, 2006 and April 22, 2008.

It was in 2008 that the housing market crisis revealed the trouble that Ambac, an insurer of instruments related to risky mortgages, was in. Investors had accused Ambac of both giving misleading information to the market to inflate the prices of its securities and concealing the full scope of its involvement in the subprime loan debacle. They claim that the bond insurer and its officials made it appear as if the company was only insuring the transactions that were “safest,” when it was actually looking to profit by guaranteeing billions in high risk collateralized debt obligations and residential mortgage debt, as well as writing credit default swaps to protect investors in the debt against default.

Documents filed in the US Bankruptcy Court in Manhattan reports that the holding company in bankruptcy has $1.6 billion in unresolved debts. Financial guarantee insurer Ambac Assurance Corp., which is its chief asset, has $300 billion in potential exposure.


Related Web Resources:
Ambac, banks settle investor suits for $33 mln, Reuters, May 6, 2011

Ambac Financial In $27.1M Deal To Settle Securities Lawsuits, Dow Jones, May 9, 2011

The Public Employees' Retirement System of Mississippi

Public School Teachers' Pension and Retirement Fund of Chicago

Arkansas Teachers Retirement System


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Continue reading "Ambac Financial Group, Insurers, and Bank Underwriters to Pay $33M to Settle Securities Lawsuits Alleging Concealed Risks Related to its Bond-Insurance Business" »

May 13, 2011

Texas-Based AIG’s Largest Private Shareholder Says US Will Likely Sell Its Shares in the Insurer At Lower Price than Expected

Bruce Berkowitz, who is the Texas-based American International Group Inc.’s largest private shareholder, says he thinks the US government will sell its shares in the insurer at $27 to $29—that’s lower than the insurer’s “book value” and definitely lower than what he paid for most of his position. Berkowitz, who is the manager of the $17.5 billion Fairholme Fund, is the owner of approximately $1.2 billion in AIG stock. This week, the government said it would sell 300 million AIG shares to the public.

At the end of March, AIG’s book value was approximately $47.66 a share. It’s stock is currently trading at a deep discount to that figure. AIG share prices have gone down as of late—they hit a $50 plus high at the start of the year when warrants that the company issued were factored in—because of anticipation that the Treasury Department would start selling its 92.1% stake in the insurance giant during a large share offering. The US has so many AIG shares because it intervened with a $182 billion bailout after the insurer was hit by the financial crisis in 2008.

The Treasury had paid $47.5 billion for approximately 1.66 billion AIG shares. Break-even price was $27.70/share. If investors are wanting to pay lower than this, the government might decide to share a smaller amount of shares to start. Closing price of AIG shares on Tuesday was $29.62, meaning the US’s 300 million shares were worth approximately $8.89 billion.

If demand for the shares turns out to be high, the US could make a profit. Approximately $4.3 billion in AIG shares are held by investors other than the US government.

Our Texas securities fraud lawyers represent institutional and individual investors throughout the state.

Related Web Resources:
AIG Price: Bad News For A Big Investor, Wall Street Journal, May 10, 2011

Business in Brief: AIG, Inside Bay Area, May 12, 2011


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May 12, 2011

Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery

FINRA is fining Wells Fargo Advisors LLC $1 million over the allegations that the financial firm did not deliver mutual fund prospectuses within the three days (as required by federal securities laws) and delays in the updating of material information about former and current representatives. Wells Fargo has agreed to the fine.

Per FINRA, about 934,000 clients who bought mutual funds two years ago were affected when Wells Fargo did not deliver prospectuses within three days of the transactions. Prospectuses were given to clients anywhere from one to 153 days late. The SRO contends that even after a 3rd provider notified the broker-dealer about the delay, Wells Fargo allegedly did not take corrective action to remedy the problem.

FINRA also says that the financial firm did not abide by the SRO’s rules when it wasn’t prompt in reporting required information about its representatives, both past and present. Securities firms must make sure that the information on their representatives' applications for registration on Forms U4 are current in FINRA’s CRD (Central Registration Depository). Termination notices, known as Forms U5, must also be updated. Financial firms have 30 days from finding out about a “significant event” to update the forms. Examples of such events are customer complaints, formal investigations, or an arbitration claim against a representative. FINRA says that Wells Fargo did not update 7.6% of its Forms U5 and about 8% of its Forms U4 between 7/1/08 and 6/30/09. This resulted in almost 190 late amendments.

By agreeing to settle, Wells Fargo is not denying or admitting to the securities charges. The broker-dealer has, however, consented to the entry of FINRA’s findings.

Related Web Resources:
FINRA Fines Wells Fargo Advisors $1 Million for Delays in Delivering Prospectuses to More Than 900,000 Customers, FINRA, May 5, 2011

FINRA fines Wells Fargo $1M for prospectus delays, Forbes/AP, May 5, 2011

CRD, Financial Industry Regulatory Authority


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Continue reading "Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery" »

May 9, 2011

SEC ALJ Finds Several Brokers Liable for Unlawful Penny Stock Sales

A Securities and Exchange Commission administrative law judge has found several brokers liable for their alleged involvement in the unlawful sale of penny stocks to investors. In re Bloomfield, the SEC had filed securities charges against Robert Gorgia, Ronald S. Bloomfield, Victor Labi, John Earl Martin Sr. and Eugene Miller. Labi, Martin, and Bloomfield were Leeb Brokerage Services registered representatives, while Miller and Gorgia were president and chief compliance officer. Leeb is no longer in operation.

The SEC contends that the defendants let customers regularly deliver blocks of privately obtained penny stocks shares into their Leeb accounts. The clients would then sell the securities to the public through unregistered securities transactions.

While Martin, Labi, and Bloomfield allegedly did not conduct reasonable inquiry prior to allowing the public sale of the stock and violated securities law registration requirements, the other two men are accused of failing to reasonably supervise the registered representatives. The SEC claims that the men let the unlawful penny stock sales occur without doing enough to investigate whether they were “facilitating illegal underwriting.” As a result, the defendants allegedly caused Leeb’s failure to submit Suspicious Activity Reports that are mandated under the Bank Secrecy Act.

ALJ Brenda P. Murray noted that the securities fraud resulted in significant financial losses for the investing public. She ordered the three stockbrokers to pay $1.39M in disgorgement. The three brokers were also ordered to pay a $100,000 civil penalty and cease and desist from future misconduct. Miller, who settled the securities charges against him last year, has agreed to supervisory suspension, a cease and desist order, and a $50,000 penalty.


Related Web Resources:

SEC Litigation (PDF)

Brokers Found Liable on Charges They Aided Unlawful Penny Stock Sales, BNA - Securities Law Daily, Alacra Store, April 28, 2011


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May 6, 2011

Commodity Options Fraud Charges by CFTC Prompts District Court to Freeze Assets and Records of 20/20 Trading Co. Inc. & 20/20 Precious Metals Inc.

Following the Commodity Futures Trading Commission’s decision to charge 20/20 Precious Metals Inc. and 20/20 Trading Co. Inc. with commodity options fraud and other violations, the U.S. District Court for the Central District of California has frozen the assets and records of the defendants. The commission contends that since 2006, the defendants defrauded prospective clients and customers of at least $4M.

Also named as defendants are Bharat Adatia, Todd Krejci, and Sharief McDowell. They and 20/20 Precious Metals are accused of unlawfully offering, entering, or confirming leveraged copper and palladium transactions. The three employees and 20/20 Trading allegedly committed fraud related to purported leveraged metals transactions.

The CFTC also claims that from 1/1/2006 through 10/2009, 20/20 Trading, McDowell, and Adatia made fraudulent solicitations to the public to sell and buy commodity options through 20/20 Trading while failing to disclose that the complex trades they were recommending made the chances of profit not likely if not impossible. Of the nearly $3.8M that 20/20 customers are said to have lost, about 63% of that went to 20/20 Trading commissions. Over $1.9M was lost by almost half of 20/20 Trading customers, who used individual retirement account funds to open accounts.

After 20/20 Trading closed in October 2009, Adatia established 20/20 Precious Metals. The CFTC says that Adatia closed 20/20 Trading after finding out that the National Futures Association was looking at the company for possible NFA rule violations. The agency says that as customers deposited over $1 million, 20/20 Precious Metals made over $400,000 in commissions.

Related Web Resources:
CFTC Files Anti-Fraud Action against California Companies 20/20 Trading Company, Inc. and 20/20 Precious Metals, Inc. and their Employees, Bharat Adatia, Sharief McDowell and Todd Krejci, CFTC, April 28, 2011

Read the CFTC Order (PDF)


More Blog Posts:
Commodities Industry Fears being held to Regulatory Standards of Securities Industry, Stockbroker Fraud Blog, February 4, 2011

CFTC Files Charges in Alleged California Ponzi Scam Involving the Fraudulent Solicitation of $14 million in Commodity Futures, Stockbroker Fraud Blog, January 18, 2011

Texas Securities Fraud: M25 Investments Inc., M37 Investments LLC, and Two Individuals Must Pay $16.2M Over Alleged Forex and Ponzi Scams, Stockbroker Fraud Blog, November 8, 2010

Continue reading "Commodity Options Fraud Charges by CFTC Prompts District Court to Freeze Assets and Records of 20/20 Trading Co. Inc. & 20/20 Precious Metals Inc." »

May 5, 2011

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008

Last week, a whistleblower lawsuit claiming that taxpayers were defrauded when the federal government bailed out American International Group was unsealed. The complaint accuses the Houston-based AIG and two banks of taking part in speculative and fraudulent transactions that resulted in losses worth billions of dollars. They then allegedly convinced the Federal Reserve Bank of New York to bail them out with two rescue loans for AIG that were used to unwind hundreds of failed loans.

The complaint focuses on the two emergency loans of about $44 billion that AIG received in October 2008 (The remaining $138 that it got in bailout funds are not part of this case). The money went toward settling trades involving complex, mortgage-linked securities. Some of the AIG-guaranteed securities were underwritten by Goldman Sachs and Deutsche Bank. Both financial institutions join AIG as defendants in this case. The two loans were extended to buy the troubled securities and place them in Maiden Lane II and Maiden Lane III, both special-purpose vehicles, until AIG’s crisis subsided.

The plaintiffs, veteran political activists Nancy and Derek Casady, contend that the rescue loans were improper because the government made them without obtaining a pledge of high-quality collateral from AIG. They maintain that the Fed board does not have the authority to “cover losses of those engaged in fraudulent financial transactions.”

Their whistleblower lawsuit was filed under the False Claims Act. This federal law lets private citizens sue on behalf of government agencies if they know of a fraud that occurred. Plaintiffs are able to attempt to recover money for the government and its taxpayers. Plaintiffs usually receive a percentage if their claim succeeds.

According to the New York Times, senior fed officials have admitted to taking unusual actions in 2008 because the global financial system was on the verge of falling apart.

Related Web Resources:
Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies, The New York Times, May 4, 2011

False Claims Act, Cornell University Law School


Related Web Resources:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011

Texas Securities Fraud: FINRA Suspends Pinnacle Partners Over Failure to Comply with Temporary Cease and Desist Order Involving “Boiler Room” Operation, Stockbroker Fraud Blog, April 19, 2011

SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011

Continue reading "Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008" »

May 4, 2011

AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients

Missouri Secretary of State Robin Carnahan says that A.G. Edwards & Sons LLC will pay $755,000 to settle charges over improper annuity sales. The financial firm allegedly sold variable annuities without the necessary documentation to elderly clients. The Missouri’s Securities Division, AG began its investigation because an 18-year-old Missouri resident reported noticing irregularities after the liquidation of a variable annuity.

Per the investigation’s findings, AG Edwards, now known as Wells Fargo Advisors after Wachovia Corp. acquired it and the latter was later acquired by Wells Fargo & Co. (WFC), sold the annuities to elderly clients but failed to maintain proper records of transactions. This lack of proper documentation prevented the annuity sales, which occurred between July 2006 and June 2007, from being in compliance with company policy and state law.

At least 31 Missouri investors were affected by this oversight. They will receive $381,993. The Missouri Investor Education and Protection Fund will get $375,000. The Missouri’s Securities Division will be reimbursed the $50,000 it cost to probe the investor complaint.

In a release issued last month, Carnahan said that she appreciated AG Edwards’s willingness “to work with my office.” She also reminded investors that if they believe their investment is at risk, they can always contact her office for help. Meantime, Wells Fargo Advisors says it is pleased that these “legacy issues” have been resolved.

Related Web Resources:
Carnahan Secures $380,000 for Missouri Seniors, Robin Carnahan, Missouri Secretary of State, April 19, 2011

Poor Record-Keeping Costs A.G. Edwards $755k, Annuity News Journal, April 29, 2011

AG Edwards pays $755,000 to end annuities probe, STL Today, April 20, 2011


More Blog Posts:
Protect Yourself from Texas Securities Fraud by Making Sure that the Company or Agent that Sells You Annuities Has a Valid Insurance License, Stockbroker Fraud Blog, March 13, 2010

Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC, Stockbroker Fraud Blog, October 17, 2009

Continue reading "AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients" »