July 30, 2011

Advisory Performance Fee Rule Limit Adjusted by the SEC

The Securities and Exchange Commission has issued an order raising the threshold for determining whether an investment adviser can charge performance fees to clients. The increase is because of inflation. It also executes a Dodd-Frank Wall Street Reform and Consumer Protection Act requirement.

Under the Investment Adviser Act’s Rule 205-3, investment advisers are allowed to charge performance fees if the client meets certain criteria. Two tests with dollar amount threshold are among these requirements.

Per the SEC order, an investment adviser can charge performance fees if it is managing at least $1 million for the client, or if the latter’s net worth is over $2 million. Either test has to have been satisfied at the time that the advisory contract is entered. Prior to this order, since 1998 the thresholds have been $750,000 and $1.5 million, respectively.

Under the Dodd-Frank Act, the Commission was required to set forth an order to take into account inflation by July 21, 2011. The new order will go into effect on September 19, 2011

The SEC has proposed amendments to Rule 205-3, including:
• Using the PCE Index as the inflation index to calculate the inflation adjustment rates to this rule, which would be updated every five years.

• Excluding the value of that person’s main residence and debt that the property securities when determining if someone is a “qualified client”.

• Letting an investment adviser and its clients keep existing performance fee arrangements that were set up when they entered into the advisory contract.

Investment Adviser Fraud
Unfortunately, there are investors who end up losing money because of investment advisor fraud. Our securities fraud lawyers can help you determine whether you have a case.

SEC Issues Order Raising Performance Fee Rule Dollar Limit to Adjust for Inflation, SEC, July 12, 2011

Read the SEC Rule (PDF)


Read the SEC's Final Rule on this Matter from 1998


Rules Under the Investment Advisers Act of 1940

More Blog Posts:
SEC to Up Dollar Thresholds for When an Investment Adviser Can Charge Investors Performance Fees, Stockbroker Fraud Blog, May 24, 2011

Investments Advisers Told to Look at Recent SEC Enforcement Actions When Preparing for Exams, Stockbroker Fraud Blog, April 20, 2011

No Need for New SRO Overseeing Investment Advisers, Says NASAA Official to Congress, Stockbroker Fraud Blog, April 10, 2011

Continue reading "Advisory Performance Fee Rule Limit Adjusted by the SEC " »

July 29, 2011

Houston Securities Fraud: Ex-Citigroup Broker Accused of Stealing Millions from Wealthy Mexican Investors is Barred from FINRA

The Financial Industry Regulatory Authority is barring a former Citigroup broker from membership. The sanction comes following allegations of Texas securities fraud. According to the findings, Jose Luis Vinas converted about $3.3 million from customers while he served as a registered representative for both UBS Securities and Citigroup. The clients were primarily located in Mexico and many of them do not speak English. Vinas, who is from Houston, had also worked for Bancomer Securities International.

FINRA says that Vinas had these non-English speaking customers sign blank documents that were in English. A variable credit line account was set up at his firm in their names. He then would allegedly turn in or cause to be submitted applications from these clients asking for credit line increases even though they had never asked for credit accounts or knew they existed.

The SRO is also accusing Vinas of forging or causing the forgery of client signatures on Letters of Authorization (LOAs) . He even allegedly had customers sign ones to authorize the transfer of customer funds without their knowledge or authorization. FINRA says that Vinas submitted or caused to be turned in to another member firm, verbal LOAs that were fraudulent and again turned in without client knowledge or authorization. These verbal LOAs gave him permission to wire money to their accounts. He allegedly gave false documents showing bogus balances in accounts that he had already taken the money from and closed.

Texas Securities Fraud
For a broker to steal money from an investor without authorization or conduct transactions without their authorization is Texas securities fraud. Not only could the broker be subject to criminal charges but he/she will likely be subjected to fines or sanctions. Other examples of broker misconduct that could be grounds for a Houston securities fraud case include unsuitability, omissions and misrepresentations, churning, overconcentration, failure to execute trades, breach of promise, breach of contract, failure to supervise, breach of fiduciary duty, margin account abuse, unauthorized trading, margin account abuse, and negligence.

It is also important that brokers understand the risks involved when making an investment and have an understanding of what type of arrangements they are signing up for when working with a broker-dealer. Unfortunately, there are brokers out there who do give the rest of the industry a bad name in their efforts to make a profit while disregarding their clients’ best interests. Many investors have sustained financial losses as a result.

Our Houston securities fraud law firm represents investors statewide and nationally. We also have stockbroker fraud victims located abroad. We are committed to helping our clients get their money back and we have worked on thousands of cases that have ended with successful outcomes.

FINRA Case #2009017198901, FINRA: Disciplinary and Other FINRA Actions


More Blog Posts:

Basketball Benefactor Accused of Texas Securities Fraud and Ponzi Scam that Targeted High-Profile Coaches Found Dead, Stockbroker Fraud Blog, July 19, 2011

Former Texas Securities Regulator Says Self-Regulation of Securities Industry Does Not Work, Stockbroker Fraud Blog, July 6, 2011

Texas Securities Fraud: Planmember Securities Corp. Registered Representatives Accused of Improperly Selling Life Settlement Notes, Stockbroker Fraud Blog, June 27, 2011

Continue reading "Houston Securities Fraud: Ex-Citigroup Broker Accused of Stealing Millions from Wealthy Mexican Investors is Barred from FINRA" »

July 28, 2011

Broker-Dealers are Making Reverse Convertible Sales That are Harming Investors, Says SEC

According to the Securities and Exchange Commission, the sales practices that broker-dealers engage in when structured securities are hurting investors. The SEC released this recent finding in a report this week. Structured securities products are derivatives whose value is determined from baskets of indexes, other securities, options, debt issuances, commodities, and foreign securities.

The SEC reached its conclusion after conducting a sweep examination of 11 broker-dealers. The Commission says that the financial firms may have guided clients toward complex products even though they were unsuitable for these investors. In certain instances, they also appear to have:

• Charged too high of prices
Failed to adequately reveal all risks involved
• Traded at prices that were not to the benefit of retail investors
• Committed possible supervisory deficiencies

At the heart of the SEC sweep examination were reverse convertible notes, which is a security that has an embedded put option. RCN are considered among the riskiest structured products. According to the SEC report, there were clients who purchased RCN’ even though these financial products not in line with their investor profiles or stated goals. Many of these RCN investors sustained significant financial losses.

The SEC report is recommending that broker-dealers:
• Implement procedures and controls to detect and stop structured securities-related abuses
• Reveal material facts about the structured product notes when offering them to investors
• Make sure that supervisors and registered representatives undergo specialized training before they sell structured securities
• Properly list structured securities products on client statements

It was just recently that the Financial Industry Regulatory Authority Inc. warned investors to exercise caution when evaluating whether to buy complex investment products.

Our securities fraud lawyers represent investors that have suffered financial losses because they were encouraged to purchase financial instruments that were inappropriate for them.

SEC blasts B-Ds over sales of reverse convertibles, Investment News, July 27, 2011

Staff Summary Report on Issues Identified in Examinations of Certain Structured Securities Products Sold to Retail Investors, SEC, July 27, 2011 (PDF)


More Blog Posts:

RBC Wealth Management Unit Ferris Baker Watts to Pay Investors Restitution Over Reverse Convertible Notes Allegations, Says FINRA, Stockbroker Fraud Blog, October 23, 2010

Increase of Structured Notes with Derivatives Sales Seduces Retirees, Reports Bloomberg, Stockbroker Fraud Blog, September 25, 2010

FINRA Fines H & R Block Financial Advisors (Now Ameriprise Advisor Services) over Sales of Reverse Convertible Notes (RCN), Stockbroker Fraud Blog, February 17, 2010

Continue reading "Broker-Dealers are Making Reverse Convertible Sales That are Harming Investors, Says SEC" »

July 25, 2011

$75K FINRA Arbitration Award Against Wells Fargo Advisors LLC For Defaming an Ex-Employee in Form U-5 is Confirmed by District Court

In district court, Judge Samuel Conti has confirmed a Financial Industry Regulatory Authority panel’s $75,000 arbitration award to Kenneth Schaffer against Wells Fargo Advisors, LLC. It was the financial firm that began proceedings against its former employer last year.

Schaffer accused Wells Fargo of “ending” his career when on a Form U5, which is a Uniform Termination Notice for Securities Industry Registration, the firm provided descriptions of alleged infractions that he said were misleading and had prevented him from being offered another job. He claimed that the reasons given for his firing were pretextual and that he was actually let go over health issues. Schaffer also disputed Wells Fargo's claim that he owed them money for a promissory note. While he said that the financial firm had represented the note as a “sales bonus," Wells Fargo said that after terminating Schaffer’s employment was terminated on October 1, 2009, it should receive the entire $74,617.76 that was owed on a promissory note.

The FINRA arbitration panel, however, agreed with Schaffer and found the promissory notice “unconscionable.” It said that Wells Fargo therefore could not recover on it. The panel also said that because the Form U5 Termination Explanation was of a “defamatory nature," the financial firm was liable to Schaffer for compensatory damages. The court confirmed the arbitration award, while denying Wells Fargo’s motion to vacate, and entitled Schaffer to recover legal fees.

Our stockbroker fraud lawyers are experienced in recovering our clients' losses through FINRA arbitration. We also represent investors with securities fraud lawsuits in court.

Related Web Resources:
Wells Fargo Advisors, LLC v. Shaffer, Justia Dockets

Court Confirms FINRA Award Finding Wells Fargo Defamed Employee in Form U-5, BNA Securities Law Daily, July 13, 2011


More Blog Posts:

AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients, Stockbroker Fraud Blog, May 4, 2011

NASD Form U-5 Notice of Termination Statements Are ‘Absolutely Privileged,’ Says A Divided New York Court of Appeals, Stockbroker Fraud Blog, April 9, 2007

Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery, Stockbroker Fraud Blog, May 12, 2011

July 23, 2011

Harvest Managers, Benchmark Asset Managers, and Investment Advisor to Pay $11.6 Million to Settle SEC Charges Over Allegedly Mishandled Client Funds

Following SEC charges that they used material misrepresentations and omissions to misappropriate about $8.7 million from clients, family, and friends, Sam Otto Folin, Benchmark Asset Managers LLC and Harvest Managers, LLC have agreed to pay $11.6M in disgorgement, civil penalties, and prejudgment interests to settle the securities fraud allegations. By settling, however, they are not denying or admitting any misconduct.

The SEC claims that for about eight years (about ’02 – ’10) even though all three defendants sold securities in the two firms and in Safe Haven Portfolios LLC, with the promise to investors that money would go to private and public companies that possessed goals and intentions that were “socially responsible, part of these funds allegedly were diverted to pay past investors, Folin’s salary, and both firms' expenses. Harvest and Benchmark also allegedly issued “notes” to friends, and family advisory clients that they said were safe and conservative, while promising guaranteed interest rates that were above market. They then misrepresented the notes’ value on statements.

The SEC also accuses Benchmark and Folin of forming Save Have in 2004 under the guise of offering investments to a number of portfolios. They had clients place their money in Safe Haven From ’06 – ’09. They also allegedly made Save Haven pay more than $1.7M to Harvest and Benchmark as supposed “development” expenses, which weren’t actually expenses related to Safe Haven (and were allegedly improperly amortized) and made the latter issue over $3.9 million in loans to the two investment advisory firms.

SEC Charges Philadelphia-Based Registered Investment Adviser With Fraud, Sec.gov, July 12, 2011

Recent Fraud Cases Show Investors Must Remain Vigilant, Forbes, July 13, 2011


More Blog Posts:

SEC to Up Dollar Thresholds for When an Investment Adviser Can Charge Investors Performance Fees, Stockbroker Fraud Blog, May 24, 2011

Investment Manager Accused of Securities Fraud Must Pay Defrauded Clients Over $20 Million, Stockbroker Fraud Blog, November 10, 2010

SEC Charges Investment Adviser With Allegedly Making Unsuitable Hedge Fund Recommendations to Elderly Clients, Stockbroker Fraud Blog, October 15, 2010


Continue reading "Harvest Managers, Benchmark Asset Managers, and Investment Advisor to Pay $11.6 Million to Settle SEC Charges Over Allegedly Mishandled Client Funds" »

July 21, 2011

Janney Montgomery Scott LLC to Pay $850K to Settle Securities Charges Over Alleged Failure to Prevent Inside Trading

Janney Montgomery Scott LLC has consented to pay $850,000 to resolve Securities and Exchange Commission charges that it failed to set up and enforce policies to prevent possible insider trading. The financial services firm also agreed to cease from further violations of laws that prevent the misuse of material, nonpublic information that could be used for insider trading. Even with the securities settlement, however, Janney is not admitting wrongdoing.

According to regulators, between January 2005 and July 2009, there were occasions when Janney’s Equity Capital Markets division did not enforce policies. Some of these failures, which created the risk that certain information could be used for insider trading, included:

• Failure to comply with written procedures.
• Not properly monitoring trading in securities belonging to companies that Janney’s investment bankers were advising.
• Not requiring that investment bankers obtain clearance for personal trades prior to making them.
• Failing to get yearly questionnaires identifying employees who had brokerage counts at other financial firms.
• Not reviewing these employees’ activities at these other firms.

Also per the settlement, Janney will retain an independent compliance consultant who will make recommendations about how to comply with laws pertaining to material, nonpublic information.

Insider Trading and Securities Fraud Enforcement Act of 1988
Under this act, firms must implement policies and procedures to prevent insider trading from happening and ensure that employees are aware of these immediately upon hiring. These policies and procedures have to be formal.

It is a firm's responsibility to ensure that these policies are followed. They must conduct reviews of employees and proprietary trading, while monitoring employee trading that doesn’t involve the firm. If a firm suspects possible insider trading, it must immediately investigate the allegations.


Related Web Resources:

Janney Montgomery Scott To Pay $850K To Settle SEC Charges, RTT News, January 11, 2011

Janney Montgomery Scott settles SEC charges, Bloomberg/Business Week/AP, July 11, 2011

SEC Charges Janney Montgomery Scott Failed to Maintain and Enforce Policies to Prevent Misuse of Material, Nonpublic Information, SEC, July 11, 2011


More Blog Posts:
“Poohster” Consultant Found Guilty of Insider Trading, Stockbroker Fraud Blog, June 23, 2011

3 Hedge Funds Raided by FBI in Insider Trading Case, Stockbroker Fraud Blog, November 23, 2010

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investors Securities Blog, April 19, 2011

Continue reading "Janney Montgomery Scott LLC to Pay $850K to Settle Securities Charges Over Alleged Failure to Prevent Inside Trading " »

July 20, 2011

Ex-Morgan Stanley Trader’s $25k Settlement Over Alleged Concealment of Proprietary Trades is Inadequate, Says SEC Commissioner Aguilar

Jennifer Kim, an ex-Morgan Stanley (MS) trader, has consented to a $25,000 settlement to resolve SEC allegations that she hid proprietary trades that that went above and beyond the financial firm’s risk limits. The alleged misconduct resulted in approximately $24.5m in losses for Morgan Stanley. SEC Commissioner Luis Aguilar, however, is calling the terms of her settlement “inadequate.” In his written dissent, he said that Kim also should have been charged with committing antifraud provisions violations.

Kim and Larry Feinblum, who was her supervisor, are accused of employing “fake” swap orders a minimum of 32 times to conceal their risks. The swap orders they entered into were ones that they intended to cancel soon after. This let them trick the monitoring systems, which recorded lower net risk positions. This alleged maneuvering allowed them to employ a trading strategy that would let them profit from the difference in prices between foreign and US markets.

In December 2009, Feinblum, who lost $7m in a day, told his supervisor about how he and Kim had concealed their positions and went above risk limits. Feinblum, who no longer works for Morgan Stanley, has settled the related securities claims against him for $150,000.

As part of her settlement, Kim agreed to a minimum three-year bar from the brokerage industry. She also consented to cease and desist from future records and books violations.

Even in settling, Feinblum and Kim are not denying or admitting wrongdoing.

Ex-Morgan Stanley Trader Settles SEC Claims Over Hiding Risk, Bloomberg, July 12, 2011

Ex-Broker to Pay $25K Over Risky Trades; Aguilar Objects to Penalty as 'Inadequate', BNA Securities Law Daily, July 14, 2011

SEC Order Against Kim (PDF)

SEC Commissioner Aguilar's Dissent (PDF)


More Blog Posts:

Ex-Morgan Stanley Trader to Settle SEC Unauthorized Swaps Trading Claims for $150,000, Stockbrroker Fraud Blog, June 13, 2011

Morgan Stanley to Pay $500,000 to Resolve SEC Charges that it Recommended Unapproved Money Managers to Clients, Stockbroker Fraud Blog, July 27, 2009

Broker Settles SEC Charges He Defrauded Elderly Nuns, Stockbroker Fraud Blog, January 13, 2011


Continue reading "Ex-Morgan Stanley Trader’s $25k Settlement Over Alleged Concealment of Proprietary Trades is Inadequate, Says SEC Commissioner Aguilar" »

July 19, 2011

Basketball Benefactor Accused of Texas Securities Fraud and Ponzi Scam that Targeted High-Profile Coaches Found Dead

David Salinas, a well-known University of Houston and Rice athletics benefactor, was found dead in his home over the weekend. The Galveston County medical examiner’s office is calling the 60-year-old’s death a suicide. Salinas’ death comes amidst allegations of Texas securities fraud, including his suspected involvement in a Ponzi scam that allegedly victimized high-profile athletics coaches. Select Asset Management, a Houston financial services firm that worked with Salinas, notified its clients that the US Securities and Exchange Commission has subpoenaed information from its files, as well as from those of J. David Financial Group, which is a Salinas business.

Coaches that invested with or gave testimonials to Salinas include Baylor coach Scott Drew, ex-Rice coach/current Texas A & M- Corpus Christi coach Willis Wilson, ex-Arizona coach Lute Olson, Texas Tech coach Billy Gillispie, Nebraska coach Doc Sadler, and others. According to Chron.com, one ex-NCAA coach is claiming that Salinas asked him for a “significant” amount of money to invest. In return, Salinas would direct players from Houston Select to the coach’s school. The former coach says he refused to get involved.

Salinas is the founder of Houston Select Basketball. Players that have contributed include Joseph Jones from Texas A & M, Dexter Pittman from Texas and NBA’s Miami Heat, Demetri Goodson from Gonzaga, Jawann McClellan from Arizona, and Cartier Martin from Kansas State and the Washington Wizards.

J David Insurance Group, which is also a Salinas business, is associated with Select Asset Management. The latter company’s CEO Brian Bjork is a Houston Select Founder, while its vice president Greg Muse is secretary of Houston Athletics Foundation, which is a nonprofit corporation that raised donations for University of Houston Athletics. Salinas served as the foundation’s director.

Our Houston securities fraud lawyers represent investors throughout Texas who have lost money in Ponzi scams and as a result of other kinds of financial fraud.

Related Web Resources:
Basketball benefactor found dead, Chron.com, July 19, 2011

Tom Penders talks about Salinas scandal, ESPN, July 19, 2011

Houston Select Basketball


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Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area, Stockbroker Fraud Blog, March 2, 2011

Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle, Stockbroker Fraud Blog, March 8, 2011

Michael Kenwood Capital Management, LLC Principal Pleads Guilty to Securities Fraud Involving Ponzi Scam, Institutional Investor Securities Blog, March 17, 2011

Continue reading "Basketball Benefactor Accused of Texas Securities Fraud and Ponzi Scam that Targeted High-Profile Coaches Found Dead" »

July 16, 2011

Holding Brokers to Investment Adviser Accountability Standards is a Bad Idea, Say Some Wall Street Executives

At the Securities Industry and Financial Markets Association conference on Wednesday, brokerage executives cautioned against imposing the standards of accountability for investment advisers on brokers. Rather than extending the Investment Advisers Act of 1940 to broker-dealers, this year’s SIMFA chair John Taft said that it would be better to create a new standard. Taft is also the head of Royal Bank of Canada’s US brokerage.

Right now, brokers and investment advisers are upheld to separate standards—even though many investors don’t realize that the two belong to different groups. As fiduciaries, investment advisers must prioritize their clients’ interests above that of their own or that of their financial firm. It wasn’t until 2008’s financial crisis when investors lost money on financial instruments that were lucrative for brokers that the call for a higher standard for these representatives grew louder.

At a conference panel, he said that imposing investment adviser accountability standards would not only be bad for the industry, potentially preventing some sales such as IPOs, but also he that this could harm investors.

Will brokers get their way on this? According to Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Lawyer William Shepherd, the answer is, likely, yes:
“Decades ago, the difference between a ‘stock broker’ and ‘investment advisor’ was that stock brokers simply charged commissions to execute trades. At the time, there was also no online trading so investors could not do-it-themselves. In fact, May 1, 1975 (unaffectionately called “May Day") was the first day stock commissions became negotiable. As commissions eventually eroded to just a few dollars per trade, stock brokerage firms migrated to higher charges on hidden-fee products, options, high volume trading, etc.

More recently, ‘stock brokers’ have dropped that moniker and simply become ‘investment advisors’ (whether called ‘financial consultants’, or whatever). Now that Wall Street’s agents have actually become investment advisors, and should be subject to the Investment Advisor Act of 1940, they instead want to escape the law, which has for 70 years been successful in regulating investment advisors. Why? Simply because they do not want to be responsible to their clients for cheating them.”

Related Web Resources:

Brokers say adviser standards could harm markets, Reuters, July 13, 2011

Is Wall Street Ready for Mayday 2?, The New York Times, April 28, 1985

Securities Industry and Financial Markets Association


More Blog Posts:

Do Brokers Owe a Fiduciary Duty to Clients?, Stockbroker Fraud Blog, January 27, 2011

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

House and Senate Negotiators Can’t Seem to Agree on Fiduciary Standard in Financial Regulatory Reform Bill, Stockbroker Fraud Blog, June 17, 2010

Continue reading "Holding Brokers to Investment Adviser Accountability Standards is a Bad Idea, Say Some Wall Street Executives" »

July 13, 2011

Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors

Steven T. Kobayashi has pleaded guilty to money laundering and wire fraud. The former UBS financial adviser is accused of bilking his private investment fund investors. As part of his plea agreement, he will pay $5,431,600 in restitution and serve a 65-month prison term.

Per the criminal charges, beginning in 2006 Kobayashi, who regularly made financial trades authorized by clients whose account he had access to, started transferring some of these funds into his own bank accounts without the investors’ “knowledge or authorization.” In some instances, clients gave their authorization because they were told the withdrawals were necessary to make investments. On other occasions, he forged their signatures on authorization forms.

Earlier this year, the ex-UBS adviser settled SEC securities fraud charges. The agency says that Kobayashi set up Life Settlement Partners LLC, which is a fund that invested in life settlement polices. He was able to raise millions of dollars for the fund from his UBS customers. However, he also started using the money to pay for prostitutes, expensive cars, and pay off gambling debts.

The SEC says that to try and pay back the fund and investors before they discovered his misconduct, he convinced several other UBS clients to liquidate securities and transfer to the proceeds to entities under his control. This allowed him to steal more money from the investors. Kobayashi settled the SEC charges without denying or admitting to them.

Related Web Resources:

Ex-UBS Adviser Pleads Guilty To Charges He Bilked Private Fund Investors, BNA Securities Law-Daily, June 10, 2011

Ex-UBS Advisor Faces Criminal Charges, in Life Settlement Case, On Wall Street, March 3, 2011

SEC CHARGES FORMER UBS FINANCIAL ADVISER WITH DEFRAUDING LIFE SETTLEMENT FUND INVESTORS, SEC.gov, March 3, 2011


More Blog Posts:

Texas Securities Fraud: Planmember Securities Corp. Registered Representatives Accused of Improperly Selling Life Settlement Notes, Stockbroker Fraud Blog, June 27, 2011

Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress
, Stockbroker Fraud Blog, August 8, 2010

AIG Trying to Get More Investors to Buy Life Settlements, Institutional Investor Securities Blog, April 26, 2011

Continue reading " Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors" »

July 11, 2011

GSA Expected to Take Over SEC Leasing System Following Flawed $551M Deal, Says Chairman Schapiro

According to US Securities and Exchange Commission chairman Mary Schapiro, the General Securities Administration will likely take over the SEC’s leasing space system following the agency’s $550 million deal for 900,000 square feet of office space that it ended up not needing. Schapiro made her statements during testimony before a House subcommittee that oversees public buildings. The subcommittee has been looking at the deal.

The SEC made a 10-year deal to rent space at the Constitution Center in DC. The agreement was reached after the 2010 Dodd-Frank Act suggested that the SEC would need to hire hundreds of new employees because of its new tasks. However, the SEC never received the entire $1.3 billion that the reform bill had authorized for this year and the agency had to tell the property owner that it didn’t need the leased space.

Schapiro said she leased the space after she was notified that there were no other leasing options and that the price was right. It was just weeks later that she realized that the SEC couldn’t afford that degree of expansion. Last fall, the agency backed out of about 600,000 of the square feet it had leased. Two other agencies ended up taking most of that space. Meantime, the rest of the space has not been subleased and the landlord is now claiming the agency owes it almost $94 million in damages.

Last May, SEC Inspector General H. David Kotz made available the findings of his offices's probe into the deal. According to Investment News, Kotz said the agency’s analysis had been “deeply flawed and unsound" and that he wants to ensure that SEC officials who were responsible are held “appropriately accountable.” Schapiro and the SEC recently told Kotz about how they intend to fix the system.

Our securities fraud law firm represent clients throughout the US and abroad. We represent individual investors and larger investors with losses up to hundreds of millions of dollars.

Related Web Resources:
Schapiro says GSA will take over SEC leasing after $557M mistake, Investment News, July 6, 2011

UPDATE: Lawmakers Criticize SEC For Lease On Space Never Used, The Wall Street Journal, June 16, 2011

SEC Office of Inspector General

General Securities Administration


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Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle, Stockbroker Fraud Blog, March 8, 2011

SEC IG Investigating Whether Examiners Were Told by Regional Official to Ignore "Red Flags" Indicating Massive Fraud, Institutional Investors Securities Blog, December 11, 2010

Goldman Sach’s $550 Million Securities Fraud Settlement Not Tied to Financial Reform Bill, Says SEC IG, Institutional Investors Securities Blog, October 27, 2010


Continue reading "GSA Expected to Take Over SEC Leasing System Following Flawed $551M Deal, Says Chairman Schapiro" »

July 9, 2011

JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions

JPMorgan Chase & Co. will pay $211 million to settle charges that its JP Morgan Securities LLC Division rigged dozens of bidding competitions for reinvesting the proceeds from municipal bond transactions to win business from local and state governments. The settlement is for complaints that the US Securities and Exchange Commission, the Justice Department, the Internal Revenue Service, 25 state attorneys general, and bank regulators had filed against the investment bank. JPMorgan has also agreed to give back approximately $129.7 million to the municipalities that were harm.

JP Morgan Securities is accused of making at least 93 secret deals with companies that take care of the bidding processes in 31 states. The arrangement let the investment bank see competitors’ offers.

According to regulators, between 1997 and 2005, members of JPMorgan’s municipal derivatives desk made misrepresentations and omissions in the secret deals, which impacted the prices the governments ended up paying while jeopardizing the tax-exempt position of billions of dollars worth of securities in the billions. This alleged misconduct also undermined JP Morgan’s competitors, who, along with the financial firm, are supposed to offer cities and states the opportunity to bid for competitive interest rates when they invest their tax-exempt proceeds from municipal bonds in municipal reinvestment products. JPMorgan is accused of also sometimes turning in nonwinning bids on purpose to meet tax requirements.

While The New York Time reports that by agreeing to settle JPMorgan Chase is not denying or admitting to wrongdoing, Yahoo reports that the financial firm has admitted to the illegal conduct and agreed to cooperate with the Justice Department’s probe as long as it wasn’t prosecuted. JPMorgan, however, did blame the illegal activity on ex-employees at a division that is no longer in operation.

To settle, JPMorgan will pay $51.2 million to the SEC, $35 million to the Office of the Comptroller of the Currency, $50 million to the IRS, and $75 million to a number of state attorneys general. It also reached a settlement with the Federal Reserve Bank of New York.

Related Web Resources:

JPMorgan Settles Bond Bid-Rigging Case for $211 Million, NY Times, July 7, 2011

JPMorgan pays $211M to settle bid-rigging charges, Yahoo, July 7, 2011


More Blog Posts:

JP Morgan Chase Agrees to Pay $861M to Lehman Brothers Trustee, Stockbroker Fraud Blog, June 28, 2011

Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011

UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond Market, May 16, 2011

Continue reading "JPMorgan Chase to Pay $211M to Settle Charges It Rigged Municipal Bond Transaction Bidding Competitions " »

July 8, 2011

Fisher Investments Inc. Ordered to Pay Retired Investor $376,075 Over Breach of Fiduciary Duty

Fisher Investments Inc., which is a financial firm operated by Kenneth Fisher, has been ordered to pay $376,075 to a senior investor for breach of fiduciary duty. Fisher is a Forbes magazine columnist.

According to Bloomberg News, which obtained the interim arbitration award document, Fisher Investments liquidated investor Sharyn Silverstein’s bond portfolio and placed the entire proceeds in stocks. Per Karen Willcutts, the JAMS arbitrator for the case, Fisher not only pressured the 64-year-old retiree into investing, but also, it persuaded her to hand over all of her fixed-income securities so that they could be placed in equities.

The award document says that rather than making sure that the investments were appropriate for Silverstein and her husband’s financial situation and investment goals, Fisher gave Silverstein the same recommendation it gives most of its clients, which is “100 percent equities benchmarked to the MSCI World (MXWO) Index.” The Silversteins told their investment counselor that they were worried about the 100% stock allocations recommendation and they asked Fisher to stop handling their account for the moment. A Fisher salesperson then reportedly called Silverstein to express disapproval about the couple’s wanting to pause and said there would be a fee. Silverstein then decided to let the financial firm keep managing her count. The couple expressed similar concerns the next year and once again they were given assurances about their assets.

Silverstein, who invested with Fisher between September 2007 and October 2008l lost approximately $376,075 of her $876,357 investment. Aside from the award, she also may get back attorney’s fees, interest, and other expenses.


Related Web Resources:

Kenneth Fisher’s Firm Told to Pay $376,000 on Retiree Investment Losses, Bloomberg, July 7, 2011

Fines, Awards Slapped on JP Morgan, Fisher Investments, Merrill Clearing, AdvisorOne, July 8, 2011

JAMS

Ken Fisher


More Blog Posts:

Houston Securities Arbitration: FINRA Panel Orders Penson Financial Services, Inc. to Pay Boushy North Investments, Ltd. $500,000, Stockbroker Fraud Blog, June 11, 2011

FINRA Panel Orders Wedbush Securities to Pay $233,000 in Securities Fraud Damages, Stockbroker Fraud Blog, March 28, 2011

Morgan Keegan & Co. Inc. Must Pay $250K to Couple that Lost Investments in Hedge Fund with Ties to Bernard L. Madoff Investment Securities, Stockbroker Fraud Blog, March 16, 2011


Continue reading "Fisher Investments Inc. Ordered to Pay Retired Investor $376,075 Over Breach of Fiduciary Duty" »

July 6, 2011

Former Texas Securities Regulator Says Self-Regulation of Securities Industry Does Not Work

According to Ex-Texas State Securities Board Denise Voigt Crawford, giving oversight of nearly 12,000 investment advisers to the Financial Industry Regulatory Authority to cut costs is a bad idea and one for which investors will end up paying the price. FINRA is Wall Street’s self-funded regulator. Already charged with overseeing brokers, it is now pushing to take over the U.S. Securities and Exchange Commission’s role as adviser regulator.

Crawford says that having FINRA oversee the industry’s activities doesn’t make sense when FINRA is the industry. She also points out that since the SRO was established in 2007, it hasn’t been successful in protecting investors, while imposing fines that are usually a fraction of the damages they sustained from securities fraud and other misconduct. Last year, FINRA fined members just $43 million while the SEC imposed over $1 billion in penalties.

Also, according to U.S. Securities and Exchange Commission data, investors who received FINRA arbitration awards usually got under half of what they initially sought. In 2010, FINRA ordered that harmed investors get $6 million in restitution, while the SEC ordered that investors recover $1.82 billion. However, through May of this year, FINRA had already ordered that investors who sustained losses get recoup $9.8 million. The SRO believes that it is ideally suited to do the job for a number of reasons, including its technological capabilities and resources and the fact that most advisers are already affiliated with broker-dealers.

FINRA says that it responded to all 3,208 complaints submitted by customers last year, and, when required investigated the allegations. This year, the SRO accelerated its enforcement efforts. Also, compared to 2010, FINRA has upped the fines it levied by 118% and made 463 disciplinary actions between January and May 2011.

Our Texas securities fraud lawyers
Related Web Resources:

Investors May Lose as Congress Saves Money on Adviser Oversight, Bloomberg, June 27, 2011

Industry blasts move that would expand Finra's authority over advisers, InvestmentNews, October 30, 2009

Texas State Securities Board

FINRA


More Blog Posts:

No Need for New SRO Overseeing Investment Advisers, Says NASAA Official to Congress, Stockbroker fraud Blog, April 10, 2011

FINRA Will Customize Oversight to Investment Adviser Industry if Chosen as Its SRO, Stockbroker fraud Blog, April 8, 2011

Financial Services Institute Wants FINRA to Serve as SRO for RIAs, Stockbroker fraud Blog, January 3, 2011

July 5, 2011

Most Investors Ignore Prospectus for Variable Annuities, Reports IRI

According to the Insured Retirement Institute, the majority of consumers don’t read the prospectus that accompanies a variable annuity purchase. IRI, which issued its report last week, also found that:

• 94% of consumers would like to get a prospectus summary that is shorter and is available either online or per their request. Most variable annuity prospectuses are 100 to 300 pages long.
• 59% of consumers said they would more likely discuss the product with their investment adviser if they were given a prospectus that was shorter and easier to understand.
• 78% of those surveyed say they rarely or never read their prospectuses.
• 5% said they always read their prospectuses.
• 87% of annuity contract owners hardly ever look at their prospectuses when they have questions about their purchase.
• Information about expenses and fees and the summary/highlights section are the parts of the prospectus that customers are most likely to read.
• 88% of respondents read the parts of the prospectuses that report on account deductions (commissions, sales loads).
• 59% of variable annuity owners look at the section on contract benefits.
• 6% read the death benefits section.

Following the release of the IRI’s report, FINRA CEO and Chairman Robert Ketchum spoke at the Insured Retirement Institute Government, Legal, and Regulatory Conference about the importance of moving away from account statements that are so packed with information that investors end up not reading the document.

Our stockbroker fraud lawyers are here to recoup our clients’ investment losses caused by securities. Contact Shepherd Smith Edwards & Kantas LTD LLP today.


Related Web Resources:

EXCLUSIVE IRI REPORT: CONSUMER DEMAND FOR VA SUMMARY PROSPECTUS CONTINUES TO GROW, Insured Retirement Institute, June 27, 2011

Read the IRI Report (PDF)


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

SEC Says Prime Capital Services, Inc. Defrauded Elderly Investors in Florida with “Free” Lunch Seminars and Unsuitable Variable Annuity Sales, Stockbroker Fraud Blog, August 10, 2009

Living Benefits” Annuity May Be Riskiest Product Ever Sold by Insurance Industry, Stockbroker Fraud Blog, December 3, 2008