November 30, 2011

Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court

| Share

The U.S. Court of Appeals for the Second Circuit has affirmed a district court’s decision to dismiss securities fraud claims accusing Merrill Lynch & Co. of hiding its ARS practices to manipulate the market. The case had been filed by plaintiff Colin Wilson on behalf of all buyers between March 2003 and Feb. 13, 2008 that purchased ARS for which Merrill was the dealer.

Wilson contended that although until July 2007 Merrill Lynch did not allow its ARS auctions to fail, in the couple of months that followed the broker-dealer did not put in support bids during at least 34 auction-rate securities issuances. As a result, those auctions did fail. Wilson also claimed that because Merrill Lynch did not appropriately disclose the full scope of its ARS practices, the financial firm was sending out a false signal that the market was sustainable despite there being not enough of an investor demand for the instruments.

The district court threw out the Wilson’s ARS case after finding that Merrill’s disclosure did not mislead investors. Now, the appeals court is affirming. It found that if, as Wilson says, Merrill intended to put in support bids for every auction unless it decided to let certain ones fail or get out of the market in general, then the court believes that the broker-dealer gave fair disclosure of all this. The appeals court also didn’t agree with Wilson’s allegation that Merrill Lynch knew without a doubt that if it didn’t intervene an ARS auction was sure to fail.

This is the first appellate ruling involving securities class litigation over the demise of the ARS market. Upon the market's decline beginning 2007, Merrill Lynch and other large broker-dealers started letting auction-rate securities auctions fail. When they completely stopped their support, the market became illiquid. A number of investors have since filed ARS lawsuits seeking to recover their money.

Although Merrill appears to have won this case, Shepherd Smith Edwards and Kantas founder and stockbroker fraud attorney William Shepherd notes, “This is not the huge victory Merrill claims. The court did NOT find that Merrill did not engage in wrongdoing in the sale of auction rate securities (ARS) to its clients, most of whom were led to falsely believe that these ARS investments were similar to commercial paper or short-term treasury bills. This case is instead concerned with “market manipulation,” a type of securities fraud claim that is rarely brought and almost never successful. In order to win this case, among other hurdles the plaintiffs would have to demonstrate that Merrill’s practices were intentional and were intended to change the market value of the securities. Also, this decision is by the federal appeals court in New York, which mysteriously decides many cases in favor of Wall Street.”

2d Cir. Affirms Merrill Off the Hook In Investor Suit Over ARS Disclosures, BNA, November 16, 2011

Read the full opinion (PDF)


More Blog Posts:
SEC and SIFMA Divided Over Whether Merrill Lynch Can Be Held Liable for Alleged ARS Market Manipulation, Institutional Investor Securities Blog, July 29, 2011
Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011

Continue reading "Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court" »

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

Posted In: Auction-Rate Securities , Financial Firms , Merrill Lynch

November 29, 2011

LPL Financial Ordered to Pay $100K for Lack of Adequate Oversight that Resulted in Unsuitable Investments for Clients

| Share

LPL Financial must pay $100K for its improper supervision of a broker. The Oregon Division of Financial and Corporate Securities, which fined the financial firm, reports that LPL Financial has put in place better oversight procedures since the violation was discovered. LPL Financial is a LPL Investment Holdings Inc. division.

According to the state’s securities division, Jack Kleck, an LPL Financial branch manager, sold risky gas and oil partnership-related investments to almost 36 residents. A lot of these clients were elderly seniors for whom these investments were unsuitable (considering their investment goals and age). Some even lacked the mental capacity to make such investment choices.

LPL Financial is accused of committing securities law violations, including not making sure that company procedures and policy were enforced and inadequately supervising Kleck, whose securities license was taken away in 2007. He was ordered to pay a $30,000 fine.

Among the steps that LPL has taken to set up better supervisory and compliance practices are having more employees focus on these responsibilities, improving branch office exams, and increasing the pre-sale evaluation of transactions.

Our securities fraud lawyers are talking to people who sustained losses because of Kleck or another LPL Financial representative. Contact Shepherd Smith Edwards and Kantas LLP today.

Unfortunately, elderly seniors and persons who are mentally impaired are easy targets for securities fraud. These investors may not fully understand what they are getting into and they can place their trust in the wrong registered representative. Often, the risks resulting from stockbroker fraud are too much for these clients, who may want to be conservative about their investment goals in order to ensure that they have enough money to support themselves. At this point in their lives, they cannot afford any huge losses.

It is the responsibility of financial firms to properly supervise their employees so that securities fraud doesn’t take place. They must also have the proper supervisory and compliance procedures in place so that employees can execute them.

Our senior investor fraud lawyers know how devastating it can be to find out the nest egg you’ve spent your whole life growing is now gone because someone made investments on your behalf that were inappropriate.

Examples of Financial Scams that Commonly Target Seniors:
• Investment scams
• Reverse mortgage schemes
• Ponzi scams
• Internet fraud

Ways to Avoid Financial Fraud:
• Don’t sign up right way. Take the time to think about the investment and whether it would benefit you.
• Do research on the broker and the financial firm to make they are legitimate. Have they been accused of securities fraud before?
• Consult with a family member or a friend about the investment.
• Make sure you know what you are getting involved in. If you don't understand any details, ask and make sure you get answers.

Oregon fines LPL Financial $100,000 for failing to properly supervise rural broker-dealer, Oregon Live, November 22, 2011

Shepherd Smith Edwards & Kantas Investigates Claims Against LPL Financial in Light of $100k Fine for Supervisory Oversight, Globe Newswire, November 30, 2011


More Blog Posts:
LPL Financial Management and Private Equity Backers TPG and Hellman & Friedman Could Make Over $450M from IPO, Stockbroker Fraud Blog, November 19, 2010

Linsco Private Ledger Clients File FINRA Arbitration Claims Accusing Former Financial Adviser Raymond Londo of Running Multi-Million Dollar Ponzi Scam, Stockbroker Fraud Blog, April 13, 2011

Wells Investment Securities Agrees to $300,000 Fine by FINRA for Alleged Use of Misleading Marketing Materials for REIT Offerings, Institutional Investor Securities Blog, November 23, 2011


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

Posted In: Financial Firms , Inadequate Supervision , LPL Financial , Securities Fraud , Senior Investors

November 28, 2011

Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff

| Share

U.S. District Judge Jed S. Rakoff has turned down the proposed $285M settlement between the SEC and Citigroup Global Markets Inc. However, unlike with the SEC’s tentative $33M settlement with Bank of America that he rejected, eventually approving a $150 million settlement between both parties—this time, Rakoff is ordering the SEC and Citigroup to trial.

The SEC claimed Citigroup sold Class V Funding III right as the housing market fell apart in 2007 and then bet against the $1 billion mortgage-linked collateralized debt obligation. Meantime, the financial firm allegedly failed to tell clients about this conflict of interest. Investors would go on to lose nearly $700 million over the CDO, while Citigroup ended up making about $160 million.

To many observers, Rakoff’s decision doesn’t come as a surprise. He has expressed concern with the SEC’s handling of securities cases for some time. In his ruling today, Rakoff was very clear in stating that he didn’t believe the tentative agreement was “fair… reasonable… adequate, nor in the public interest.” He also called for the “underlying facts” and made it clear that the SEC’s typical boilerplate settlement, which usually involves the other party agreeing to the terms but not admitting to or denying wrongdoing, was not going to suffice.

Until now, the SEC’s settlement policy has allowed the Commission to declare a victory while letting defendants get away with not acknowledging any wrongdoing so that private plaintiffs cannot use such an outcome in litigation against them. Now, however, Rakoff wants the court and the public to actually learn whether or not Citigroup acted improperly.

Also in his opinion, Rakoff spoke about how the current settlement doesn’t do anything for the investors that Citigroup allegedly defrauded of hundreds of millions of dollars. Not only that but the SEC isn't promising to compensate the alleged securities fraud victims.

For now, the trial between Citigroup and the SEC is scheduled for July 2012. However, the Commission could decide to appeal Rakoff’s ruling and ask an appellate court to either make him accept the $285 million settlement or appoint a new judge to the case. According to the New York Times, however, this could prove challenging because a writ of mandamus would be required.

Our securities fraud law firm has had it with financial firms defrauding investors and then getting away with this type of misconduct. It is our job to help our clients recoup their losses whether via arbitration or in court.

Behind Rakoff’s Rejection of Citigroup Settlement, NY Times, November 28, 2011

Judge to SEC: Stop settling, start really suing, OC Register, November 28, 2011

Read Judge Rakoff's Opinion


More Blog Posts:
Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million, Stockbroker Fraud Blog, February 15, 2010

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Continue reading "Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff" »

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

Posted In: Citigroup , Collateral Debt Obligation , Financial Firms , SEC

November 26, 2011

MF Global Shortfall May Be More than $1.2B, Says Trustee

| Share

According to trustee James Giddens, MF Global Inc. may have a greater than $1.2B shortfall in US segregated customer accounts. Giddens has been tasked with overseeing the failed company’s liquidation.

Previously, the estimated shortfall had been $593 million. Now, however, that estimate has likely changed. Giddens says that it will take $1.3 billion to $1.6 billion dollars to distribute 60% of what should have been found in the accounts of customers. He has noted that how much of the assets he can access is not the same as the shortfall amount. Giddens is reportedly close to exhausting the money that he does control.

$5.45 billion in money from customer accounts were frozen on the last day of October, one day after an MF Global unit reported that client funds (Commodity Futures Trading Commission rules say these should have been segregated) had experienced a material shortfall. Parent company MF Global Holdings Inc. then sought bankruptcy protection.

Since then, Giddens has gained control of $3.7 billion from MF Global Inc.’s US depositories. About $520 million in cash is going back to customers while $1.5 billion in collateral has already been distributed.

The SEC, the CFTC, and the US Justice Department are looking at cash movements that took place at the financial firm before it filed for bankruptcy.

According to Bloomberg.com, former FBI director Louis Freeh is now the Chapter 11 trustee in the Mr Global Holdings Ltd. bankruptcy. The appointment comes after creditors and the company called for one person to take charge of recovering assets.

Meantime, US lawmakers plan to take a closer look at the relationship between ex-MF Global Holdings Ltd. Chief Executive Jon S. Corzine, who used to run Goldman Sachs Group Inc., and the credit ratings agencies (Standard & Poor’s, Moody’s Investment Services, and Fitch Ratings) that downgraded the brokerage firm as it moved toward bankruptcy. They want to see if Corzine’s start status may have influenced the rating firms.

It wasn’t until just days before MF Global filed for bankruptcy protection that Fitch and Moody’s reduced their investment grade ratings on the brokerage firm. Moody’s downgraded it to the brink of “junk” on October 24. Standard & Poor’s only downgraded its rating of MF Global after the bankruptcy filing.

Marketwatch recently reported that MF Global clients who want their money back are not taking this situation lying down. A new group, called the Commodity Customer Coalition, is now representing clients with over 7,000 MF Global accounts. Its members are ready to lobby Washington for help. BTR Trading Group principal John Roe, who started the group, says that more than $10 million of his own funds and clients’ monies are somewhere in MF Global.

If you cannot access your money in the wake of MF Global’s bankruptcy filing, please contact our stockbroker fraud lawyers today.

MF Global may come up $1.2B short, trustee says, Investment News, November 21, 2011

MF Global’s Bankruptcy Trustee Set to Be Ex-FBI Director Freeh, Bloomberg, November 26, 2011

MF Global customers taking case to Washington, MarketWatch, November 25, 2011

Rating Firms' MF Global Role to Be Explored, The Wall Street Journal, November 25, 2011


More Blog Posts:
MF Global Holdings Clients Unable to Access Their Money Following Chapter 11 Bankruptcy, Stockbroker Fraud Blog, November 16, 2011

MF Global Holdings Ltd. Files for Bankruptcy While Its Broker Faces Liquidation and Securities Lawsuit by SIPC, Institutional Investor Securities Blog, October 31, 2011

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investor Securities Blog, April 12, 2011

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

Posted In: Financial Firms , MF Global

November 23, 2011

Former Bernard L. Madoff Investment Securities LLC Employee Faces SEC Charges for Creating Fake Trades to Enable Ponzi Scam

| Share

David Kugel, who was a long time Bernard L. Madoff Investment Securities LLC (BMIS), has been charged by the Securities and Exchange Commission with fraud. Kugel is accused of making fake trades to keep Madoff’s multi-billion dollar Ponzi scam running. He has consented to settling the securities fraud charges.

The SEC claims that Kugel, who worked for Madoff for nearly 40 years, was asked by the Ponzi mastermind to turn backdated arbitrage trade information into fake trades. Kugel’s own BMIS account included backdated trades. While some of the trades imitated successful ondx made by Kugel for BMIS, others were founded on historical facts that he got from old newspapers.

Over a number of years Kugel even withdrew almost $10 million in profits from these bogus trades in his own BMIS. SEC New York Regional Office George S. Canellos claims that Kugel knew such profits were fake.

Two other people accused of setting up fake trades from the information that Kugel provided were Joann Crupi and Annette Bongiorno. Both allegedly asked him for backdated data about trades that added up to millions of dollars. They would then take the information and design trades that equaled those figures. These bogus trades showed up as trade confirmations on investors’ account statements.

The SEC filed securities charges against the two women last year. The Commission claims that Bongiorno regularly set up bogus books and records and misled investors via phone calls, trade confirmations, and account statements. She also is accused of setting up false trades in her own BMIS counts that allowed her to cash out millions of dollars more than what was put in. Meantime, Crupi was accused of deciding what accounts to cash out and which investors should receive checks as Madoff’s scam stood on the brink of collapse. The two women are facing criminal charges over their alleged involvement. They have denied any wrongdoing.

Prosecutors have filed parallel criminal charges against Kugel. On Monday, he pleaded guilty to six criminal counts, including securities fraud, conspiracy, and bank fraud. He will be sentenced in May.

Meantime, Irving Picard, who has been appointed as the trustee in charge of helping Madoff’s Ponzi victims from recouping their losses, is seeking at least $22.2 million from Kugel and his family.

Ponzi Scams
A Ponzi scheme can be described as a multi-level marketing operation. The director solicits investments while promising clients a given return rate. However, rather than paying investors from real profits, the principal from new investors is used to compensate earlier investors. Ponzi scams can result in devastating losses for investors once the money dries up.

SEC Charges Longtime Madoff Employee With Creating Fake Trades, SEC, November 21, 2011

Read the SEC Complaint (PDF)

Bernie Madoff Cronies Arrested, ABC News, November 18, 2010

More Blog Posts:
SEC Files Charges in $27M Washington DC Ponzi Scam, Stockbroker Fraud Blog, November 21, 2011

Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011

SEC Issues Emergency Order to Stop $26M “Green” Ponzi Scam, Institutional Investor Securities Blog, October 13, 2011

Continue reading "Former Bernard L. Madoff Investment Securities LLC Employee Faces SEC Charges for Creating Fake Trades to Enable Ponzi Scam" »

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

Posted In: Bernard L Madoff Investment Securities , Ponzi Scams , Securities Fraud

November 21, 2011

SEC Files Charges in $27M Washington DC Ponzi Scam

| Share

The Securities and Exchange Commission has charged Garfield M. Taylor and a number of his relatives and friends with running a DC-area Ponzi scam. The more than $27 million financial fraud targeted investors in the area.

Taylor and his partners allegedly defrauded about 130 investors between 2005 and 2010. The scam fell apart when the money dried up as a result of trading losses and the interest payments that were made to investors.

According to the Commission, Taylor convinced mainly middle-class clients to refinance their houses and use their money, including their retirement and savings, to invest in promissory notes that were put out by his two companies, which were supposedly taking part in low-risk trading options. He touted returns of up to 20% and provided investors with false assurances that their investments were protected by either a “covered call” trading strategy or a “reserve account.”

To keep new investor money coming, Taylor is said to have persuaded current investors and others to refer prospective clients to him in exchange for commission fees that were calculated according to how much the new investors put in. Although he is not a licensed securities broker, Taylor convinced a number of investors to give him access to their brokerage accounts and he used this privilege to make trades. He promised them a portion of the profits.

The SEC contends that contrary to his promises, Taylor actually was taking part in risky options trading, which then resulted in the financial losses. He also allegedly took $5 million to pay relatives and friends and cover his kids’ education.

Also charged with securities fraud bu the SEC (allegations against the parties vary, but include: violation of federal securities’ laws anti-fraud provisions, offering registration requirements, and broker-dealer registration requirements):

• Gibraltar Asset Management Group LLC
• Garfield Taylor Inc.
• Maurice G. Taylor. He is Taylor’s sibling and is Gibraltar’s chief investment officer
• Randolph M. Taylor. Taylor’s sibling who was Gibraltar’s VP of organizational development.
• Benjamin C. Dalley. He formerly served as VP of operations at Gibraltar.
• Jeffrey A. King. Taylor’s brother-in-law and Gibraltar’s former COO and President.
• William B. Mitchell. He was a senior executive at both companies

These individuals and entities, along with Taylor, are accused of jointly putting together a Gibraltar PowerPoint presentation that contained false and misleading statements and giving these to prospective clients. The SEC says the documents misrepresented the financial firm’s options trading strategy, the protections offered, the expected return rate, and degree of risk involved. Institutional investors and charities, including a Baptist church, were even pursued as prospective clients.

The SEC is seeking enjoinment from future violations, the payment of penalties, and disgorgement.

SEC Charges Perpetrator of Washington-Area Ponzi Scheme, SEC, November 18, 2011

Read the SEC's Complaint


More Blog Posts:
Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011

SEC Charges Filed in $22M Ponzi Scam that Targeted Florida Teachers and Retirees, Stockbroker Fraud Blog, August 29, 2011

SEC Issues Emergency Order to Stop $26M “Green” Ponzi Scam, Institutional Investor Securities Blog, October 13, 2011

Continue reading "SEC Files Charges in $27M Washington DC Ponzi Scam" »

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

Posted In: Ponzi Scams , SEC Enforcement

Tags: Washington DC

November 19, 2011

Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit

| Share

A federal court has decided that Oppenheimer municipal bond fund holders can go ahead with their securities fraud complaint against Oppenheimer Funds. The plaintiffs of In re Oppenheimer Rochester Funds Group Securities Litigation are alleging federal securities law violations. Funds involved included:

• AMT-Free Municipals Fund
• Rochester National Municipals Fund
• AMT-Free New York Municipals Fund
• Rochester Fund Municipals
• California Municipal Fund
• Pennsylvania Municipal Fund
• New Jersey Municipal Fund

The shareholders of seven municipal bonds had their securities fraud lawsuits consolidated into one case in two years ago. They are claiming that the Oppenheimer Funds neglected to reveal in their registration and prospectus statements that risks were being taken that weren’t in line with their declared strategy and investment goals. The investors argued that even as the funds explicitly said that preserving capital was a clear investment goal, the true objective was one of “high-risk, high-return.” Seeing as certain market conditions were foreseeable, the shareholders believe this placed their capital at great, undisclosed risk, which did come to fruition during the credit crisis of 2007-2008. This is when the Funds’ holding in highly leveraged, complex securities set off cash reserve and payment duties that required for the assets be sold under conditions that most likely were not to the funds’ advantage. The plaintiffs say that because of this, the funds underperformed compared to other municipal bond funds.

They are also claiming that the significant drop in the Funds’ shares’ values can be linked to the deviations between the stated and actual objectives. After investors were notified in October and November 2008 via prospectus supplements of what the Funds’ investments true liquidity risks were, share prices then went crashing. The net asset value of the 7 funds dropped by about 30-50% that year while similar municipal bonds only went down by 10-15%.

The defendants moved to dismiss the consolidate case, claiming that the investors’ losses were triggered by the credit crisis and not because of what was written (or not included) in the funds’ prospectuses. They also argued that they were making a forward-looking statement when they made the “preservation of capital” a goal and had adequately disclosed the risks involved.

In the U.S. District Court, District of Colorado, the federal judge turned down the Defendants’ motion to toss out the consolidated lawsuits. Judge John L. Kane, Jr. also rejected their claim that federal securities laws exempts mutual funds from liability because drops in those funds’ value are a result of corresponding downturns in the funds’ investments’ value and not of statements (whether true or false) in their prospectuses.

Oppenheimer Rochester Funds Lose Dismissal Bid, Face Trial, Bloomberg/Business Week, October 25, 2011

Oppenheimer Muni Bond Investors May Sue Over Alleged Misstatements in Prospectuses, BNA Securities Law Daily, October 26, 2011


More Blog Posts:
8/31/11 is Deadline for Opting Out of $100M Oppenheimer Mutual Funds Class Action Settlement, Stockbroker Fraud Blog, August 17, 2011

Oppenheimer Champion Income Fund Resulted In Significant Financial Losses for Investors from Citigroup, UBS, Merrill Lynch, and Other Large Financial Firms, Stockbroker Fraud Blog, August 16, 2010

Chase Investment Services Corporation Ordered by FINRA to Pay Back $1.9M for Unsuitable Sales of Floating-Rate Loan Funds and UITs, Institutional Investor Securities Blog, November 19, 2011

Continue reading "Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit" »

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

Posted In: Financial Firms , Oppenheimer , Securities Fraud

November 16, 2011

MF Global Holdings Clients Unable to Access Their Money Following Chapter 11 Bankruptcy

| Share

The Wall Street Journal reports that in the wake of MF Global Holdings Ltd. filing for bankruptcy protection, about 33,000 of the securities firm’s clients are finding that they can’t access their cash until trustee James Giddens gives them permission. Giddens is the trustee overseeing the liquidation of MF Global Holdings' broker-dealer unit, MF Global Inc.

Giddens had asked court permission to move about 60% of the $869 million that has been frozen—that’s about $520 million. He is hoping that if the court says, then the distributions would soon follow. However, a spokesman for Giddens has warned that because of MF Global’s financial woes, customers might not be able to get all of their money back.

MF Global Holdings sought Chapter 11 protection last month after a number of credit downgrades and a steep drop in its stock price. Some $600 million also appears to have gone missing. While this bankruptcy is not considered as big a debacle as that of Lehman Brothers Holdings, for traders, investors, and brokers that sold and bought derivatives via MF Global, the repercussions have been devastating.

The MF Global clients whose accounts have been frozen are now unable to make trades or pay for their bills. While Giddens has approved the transfer of accounts that were involved in active trades on the day that MF Global filed for bankruptcy, he froze accounts that only had cash.

Meantime, criminal investigators and federal regulator are still trying to find out what happened to the missing $600 million in customer money. The CFTC is spearheading the search for the AWOL funds, while the SEC is concentrating on a separate MF Global unit. Even the Federal Bureau of Investigation is involved.

According to the New York Times, in all the craziness leading up to bankruptcy filing, MF Global did not register all transactions in its books. It is now up to regulators to figure this out, one dollar at a time. Questions have been raised as to whether MF Global mixed client monies with its own funds, which would have been improper.

Even though MF Global received an extension to access $8M that JPMorgan Chase & Co. held through November 30, discussions to keep MF Global running while in bankruptcy have stopped, at least for now. MF Global’s bankruptcy among the largest the country has seen.

MF Global had issued huge bets on European sovereign debt and may have been doctoring its records before submitting its quarterly reports. Do not hesitate to contact our stockbroker fraud law firm if you invested in MF Global 6.25% Senior Notes due 2016, which dropped in value after the bankruptcy.

With MF Global Money Still Missing, Suspicions Grow, Dealbook, November 16, 2011

Purgatory for MF Global Customers, The Wall Street Journal, November 16, 2011


More Blog Posts:
MF Global Holdings Ltd. Files for Bankruptcy While Its Broker Faces Liquidation and Securities Lawsuit by SIPC, Institutional Investor Securities Blog, October 31, 2011

Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011

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

Posted In: Financial Firms

November 15, 2011

AARP Offers Older Investors 5 Warning Signs for Avoiding the Next Major Ponzi Scam

| Share

The AARP has issued a fraud protection bulletin warning investors how to avoid becoming the victim of whoever happens to be peddling the next Ponzi scheme. Unfortunately, older investors are among the favorite prey of financial fraudsters. According Investor Protection Trusts CEO Don Blandin, one in five people in the 65 and over age group have already been exploited. Millions more are at risk.

To help investors, AARP has put out a description of five red flags warning of a possible financial scam:

1) The broker-adviser tells you that you wouldn’t be able to access your money during a “lock-up” period.

2) You feel pressure to invest now due to limited space or for some other reason. Give yourself time to do your own due diligence, make sure that the investment is legitimate, or seek the advice of others.

3) Sales pitches with a news hook. The North American Securities Administrators Association reports that in the last year alone, the leading financial frauds involved precious metal investments and distressed real estate, both involved topics that made headlines.

4) Investors that are being targeted belong to a group whose members may be possibly cognitively impaired, including elderly seniors that live alone (in particular, women).

5) Questionable marketing tactics, such as direct mail, telemarketing, and affinity pitches.

In the AARP’s bulletin, Louis Straney, a securities fraud expert who wrote the Investor’s Guide to Loss Recovery, says that it always a good idea to talk to a third party when considering an investment proposal. He also warns that just because the party making the proposal has a fancy office doesn’t mean that the investment is a legitimate one. He also recommends inquiring about an investment adviser’s qualifications and background.

According to a Special Report from InvestorProtection.org, financial abuse fraud is the 21st century crime. Sometimes the victims are part of a fraud scam targeting multiple seniors. On other occasions, incidents of financial abuse involve one particular target. One need only look at the case of socialite Brooke Astor. While she suffered from Alzheimer’s her son sought to steal her $187 million fortune. That said, one doesn’t have to be as rich as Astor to be targeted. Elderly seniors are defrauded of almost $3 billion a year and this doesn’t include the cases that go unreported.

Throughout the US, our stockbroker fraud lawyers represent elderly investors that have lost money because of broker or investment adviser misconduct. For many elderly people, the loss of their investments is the depletion of their live savings and the end to the security they sought to provide for themselves. Financial fraud of the elderly is a crime and it is also elder abuse.

There may be a way to recover your losses. Contact our stockbroker fraud law firm. Our AARP securities lawyers are dedicated to helping investors get their money back.

Fraud Protection: Avoid the Next Madoff, AARP, November 8, 2011

The Crime of the 21st Century, Investor Protection

Seniors, FBI


More Blog Posts:
Two Texas Men Sentenced For $100 Million Life Settlement Scam that Bilked Over 800 Investors, Stockbroker Fraud Blog, October 4, 2011

Elder Investors Suffering From Alzheimer’s Make Perfect Targets for Securities Fraud, Stockbroker Fraud Blog, September 8, 2011

Wedbush Securities Ordered by FINRA to Pay $2.8M in Senior Financial Fraud Case Over Variable Annuities, Stockbroker Fraud Blog, August 31, 2011

SEC Issues Emergency Order to Stop $26M “Green” Ponzi Scam, Institutional Investors Securities Blog, October 13, 2011

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

Posted In: Securities Fraud , Senior Investors

November 12, 2011

Hedge Fund Manager Raj Rajaratnam Ordered by SEC to Pay $92.8M Penalty for Insider Trading

| Share

In the U.S. District Court for the Southern District of New York, the Honorable Jed S. Rakoff has ordered Raj Rajaratnam to pay a record $92.8 million penalty for insider trading. This is the largest amount any individual has been ordered to pay for this type of securities fraud.

It was just last month that Rajaratnam, the billionaire Galleon Group, LLC co-founder, was sentenced to 11 years in prison and ordered to pay $10 million for his financial scam that garnered $63.8M in illegal gains. He also was forced to forfeit $53.8M. A jury had convicted Rajaratnam of multiple counts of securities fraud and conspiracy for using illegal tips to make trades before news about mergers, earnings, forecasts, and spinoffs became public.

Along with the fines from the criminal case, the penalty for the civil case ups the total of monetary sanctions that Rajaratnam has been ordered to pay to over $156.6 million. The SEC’s civil action also permanently enjoins him from violating sections of the Securities Act of 1933, the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5.

It was in 2009 that the SEC charged Rajaratnam and several others in the insider trading scam. More defendants were named later that year, as well as in 2010. The case against them was part of a wider insider trading probe that has now charged 29 entities and individuals. Securities in over 15 publicly traded companies were involved resulting in more than $90 million in illicit profits or losses avoided.

Last month, the SEC was able to get a final judgment by consent against Galleon Management. The hedge fund is permanently enjoined from violating the federal securities laws’ antifraud provisions. It is also jointly and severally liable for what Rajaratnam has been ordered to pay.

Also in October, the SEC charged Rajat K. Gupta for providing insider trading tips to Rajaratnam. Gupta, who used to be the global head at McKinsey & Co., was on the boards of Procter and Gamble and Goldman Sachs at the time.

Alleged tips included confidential information about P & G and Goldman’s respective quarterly earnings and a $5 million investment that the latter was planning to make in Berkshire Hathaway. These latest charges come now, after the SEC dismissed charges in an earlier administrative proceeding against Gupta for the same alleged misconduct. Gupta also recently pleaded not guilty to insider trading charges, including multiple counts of securities fraud and one count of conspiracy to commit securities fraud.

The New York Times reports that in the last two years, the US government charged 56 people with insider trading. 51 of these individuals have either been convicted or pleaded guilty.

With Gupta’s Arrest, Insider Inquiry Goes Beyond Wall St., NY Times, October 26, 2011

SEC Brings New Charges against Raj Rajaratnam, SEC, October 26, 2011

More Blog Posts:
Galleon Group LLC Co-Founder Raj Rajaratnam Sentenced to 11 Years in Prison Over Insider Trading Scam, Stockbroker Fraud Blog, October 13, 2011

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

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Continue reading "Hedge Fund Manager Raj Rajaratnam Ordered by SEC to Pay $92.8M Penalty for Insider Trading " »

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

Posted In: Hedge Funds , Insider Trading

November 11, 2011

Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme

| Share

The CFTC has been able to get a permanent injunction and default judgment against former Houston resident Jeffery Alan Lowrance and First Capital Savings and Loan. As restitution for their involvement in an alleged off-exchange foreign currency Ponzi scam, both will pay $1.2 million in restitution and a civil monetary penalty of $3.3 million. They have been permanently banned from commodity-related activities.

According to the order, Lowrance and First Capital Savings and Loan fraudulently solicited at least three dozen to get involved in forex trading. The two of them allegedly falsely claimed that they were successful traders and promised up to 4.15% monthly returns on their investments. They also are accused of publishing bogus client account statements that showed supposed monthly profits on the financial firm’s Web site. The court said that not only did both Lowrance and First Capital fail to put the money clients gave them into forex trading accounts, but also, they allegedly misappropriated the funds to set up a religious newspaper, support Lowrance’s personal expenses and the expenses of his family members, and pay supposed profits to existing investors. The order mandates that any entity or person that provided Lowrance and his company with domain registration or web hosting services now pull offline any of their Web sites that are soliciting clients to trade forex or commodity futures.

It was the U.S. Attorney’s Office for the Northern District of Illinois that indicted Lowrance for running a $25 million financial scam. In July, the SEC charged him with running a multimillion-dollar Ponzi scheme that defrauded hundreds of investors. Lowrance allegedly raised about $21 million. The investors he targeted lived in over two dozen US states. He enticed investors by claiming to share their Christian values and government views.

The SEC complaint contends that Lowrance and his financial firm told investors they were guaranteed a “predictable” income each month, along with returns as high as 7.15%. Certain clients even received bogus credit letters. Even though by 2008 Lowrance and his company had lost all of the investors funds, between June 2008 and February 2009 he still solicited at least another $1 million from at least three dozen investors.

The SEC is alleging violations of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and the Securities Act of 1933. It is seeking penalties, disgorgement, and other relief.

Court Orders Jeffery A. Lowrance and His Company to Pay More than $4.5 Million for Operating Foreign Currency Ponzi Scheme, CFTC

SEC CHARGES OPERATOR OF $21 MILLION FOREX PONZI SCHEME, SEC, July 15, 2011

Read the indictment (PDF)


More Blog Posts:
Texas Securities Fraud: SEC Moves to Freeze Assets of Stewardship Fund LP, Stockbroker Fraud Blog, November 5, 2011

Money Laundering Charges Filed Against of Houston Criminal Defense Lawyer Accused of Defrauding Defendants of Over $1M, Stockbroker Fraud Blog, October 28, 2011

Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011

Continue reading "Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme" »

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

Posted In: CFTC , Ponzi Scams , Texas Securities Fraud

November 10, 2011

SEC and DOJ Charge Two Florida Men With Free Riding Securities Scam

| Share

Two Florida men are accused of defrauding investors and broker-dealers by allegedly not telling them that they didn’t have enough money or securities to pay for their stock trades. The US Justice Department is charging Scott Kupersmith with securities fraud and wire fraud, while the Securities and Exchange Commission is charging him and Frederick Chelly with involvement in a front-running scam to trade free of risk at the expense of broker-dealers.

The U.S. Attorney for the District of New Jersey claims that Kupersmith engaged in free riding, which happens if a client sells or purchases securities in a brokerage account while lacking the money or securities to cover the trades. Kupersmith and his associates are believed to have facilitated the securities scam by setting up several brokerage accounts at financial firms in New Jersey and outside the state.

In addition to falsely representing himself as having a personal net worth of approximately $5 million, Kupersmith is also accused of made it appear as if he ran a Manhattan hedge fund with assets of up to $20 million. These misrepresentations allowed him to raise about $500,000 of investor monies, which he then used to cover personal expenses or pay principal and interest payments to earlier investors in this Ponzi-like scam.

The SEC says that Kupersmith and Chelly’s scam caused financial fraud allowed them to make $600K in illegal trading profit while broker-dealers lost more than $2 million as a result. The Commission says that the two men presented themselves as private investors or money managers.

They allegedly set up a number of accounts for corporate entities under their control in brokerage firms while buying/selling the same amount of the same stock in various accounts. Often, this would happen during the course of one day and with the intention of making money from the changes in stock price. The SEC says that Kupermith and Chelly would take the profits from the trades but that when substantial losses were likely, they wouldn’t pay able to cover sales they had asked for, which caused broker-dealers to take the losses.

The two men also falsely made it appear as if they had assets with a third-party custody bank even though they didn’t own the stock that they were selling and often didn’t have enough money to pay for the stock that they did buy. Share sale proceeds were then used to buy the same shares.

The two men used Delivery Versus Payment/Receipt Versus Payment accounts at the broker-dealers to trade. Te financial firms offered these accounts to the two men because they were under the impression that Kupersmith and Chelly had the money to cover their trades.

Read the SEC's Complaint (PDF)


More Blog Posts:
Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M, Stockbroker Fraud Blog, November 8, 2011

Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011

Banco Espirito Santo S.A. Settles for $7M SEC Charges Alleging Violations of Investment Adviser, Broker-Dealer, and Securities Transaction Registration Requirements, Institutional Investors Securities Blog, November 5, 2011

Continue reading "SEC and DOJ Charge Two Florida Men With Free Riding Securities Scam" »

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

Posted In: SEC Enforcement , Securities Fraud

November 8, 2011

Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M

| Share

The Securities and Exchange Commission says that Annabel McClellan has settled for $1M insider trading allegations that she and her husband gave relatives confidential information about merger deals. Annabel is the wife of Arnold McClellan, who used to be a partner at Deloitte Tax LP where he was head of the mergers and acquisitions teams.

If a federal judge approves the securities fraud settlement, the SEC will dismiss the claims against Arnold. By agreeing to settle, Annabel is not denying or admitting to the securities charges.

Per the SEC, Annabel used confidential information that she got from her husband to tip her brother-in-law James Sander and her sister Miranda. These family members then allegedly used this knowledge to make trades before the transactions (usually involved pending acquisitions and mergers) were announced to the public. This allowed them to make millions in illicit profits.

In addition to the civil penalty, Annabel has agreed to permanent enjoinment from violating Securities Exchange Act of 1934’s Section 10(b) and Rule 10b-5 thereunder. She also earlier pleaded guilty to obstructing the SEC’s probe into the insider trading scam after admitted to making false statements related to the investigation. Annabel maintains that her husband knew nothing about her activities.

The McClellans were charged with insider trading by the SEC last year following a parallel probe by the Commission, the Financial Services Authority (FSA), the Department of Justice (DOJ, and the Federal Bureau of Investigation (FBI). According to the SEC’s complaint, at least seven times between 2006 and 2008, Arnold McClellan revealed confidential information to his wife, who then passed on what she knew to Miranda and James in London.

James, who owns a trading company, would then buy derivative financial instruments. He also took financial positions in US companies that were acquisition targets. When Arnold would find out that some of the deals were not certain, James would liquidate his positions. The Commission says that the trades were closely timed with phone calls made between the two sisters, as well as in-person visits between the couples. By 2008, James allegedly made over £1.5 million from the tips and his financial firm’s clients and colleagues made over £10 million.

Insider Trading
Insider trading hurts the stock market, affects investor confidence, and causes financial harm to the companies whose confidential information was used to benefit a few. Insider trading is a breach of fiduciary duty or another kind of relationship of confidence and trust. The person tipping, the one being tipped, and anyone who has access to the insider information that makes the trade can be charged with insider trading.

Read the SEC Complaint Against the McClellans, SEC

Wife of former Deloitte partner to pay $1 million, SFGate, October 18, 2011

FSA, SEC and DoJ investigation leads to two people being charged by the SEC with insider dealing in the U.S., Financial Services Authority, December 1, 2010


More Blog Posts:
Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Dallas Mavericks Owner Mark Cuban's Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 28, 2011

Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011

Continue reading "Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M" »

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

Posted In: Insider Trading , SEC Enforcement , Securities Fraud

November 5, 2011

Texas Securities Fraud: SEC Moves to Freeze Assets of Stewardship Fund LP

| Share

The SEC has gotten emergency order to freeze the assets of James G. “Jay” Temme and Stewardship Fund LP, which he owns. Both are accused of Texas securities fraud, including making false statements to investors that their money was being used to purchase and restructure pools of home mortgages that weren’t performing.

Since 2008, Temme, a Texas resident, and his company allegedly obtained at least $35M from investor groups. At least 31 entities and individual investors were involved in about 16 partnerships. Investors were those who had obtained interests in limited partnerships purportedly set up to invest in non-performing residential mortgages and real properties. Temme allegedly gained their trust by cultivating relationships with others that would vouch for him.

The SEC says that Temme would tell investors that the money was going toward buying “tapes” of nonperforming mortgages. The nonperforming mortgages were then supposed to be turned into performing loans. The buys were supposedly obtained at a discount and returns were to be either determined by principal plus interest payments from homeowners or from the reselling of the underlying properties or mortgages.

Unfortunately, contends the Commission, some of the mortgages that Temme claimed to own were not his. He allegedly generated false documents, issued financial transactions that were not authorized, used the money of new investors to pay off those that had invested earlier, and falsely promised certain investor groups that loans were bought on their behalf. He and Stewardship have also been accused of telling investors that the money that was used to compensate other investors instead going into the purchase of certain properties or mortgages.

Previous attempts to freeze Temme’s assets in the past were reportedly disregarded by him, and he would set up other bank accounts and seek funds from other investors even as others filed securities fraud cases against him. Allegations against Temme and Stewardship include failure to pay promised returns, not properly advising investors about their investments, misappropriating of investor funds, and misrepresenting how the investment proceeds were to used.

The SEC is charging Securities Exchange Act of 1934 and Securities Act of 1933 antifraud provisions. It is seeking:

• Preliminary injunction
• Final judgment that includes the permanent enjoining from future violations of the federal securities laws
• Financial penalties
• Disgorgement of ill-gotten gains
• Prejudgment interest

Read the SEC Complaint

SEC Wins Asset Freeze in Alleged Mortgage Restructuring Scheme, Bloomberg, October 18, 2011


More Blog Posts:
Money Laundering Charges Filed Against of Houston Criminal Defense Lawyer Accused of Defrauding Defendants of Over $1M, Stockbroker Fraud Blog, October 28, 2011

Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011

Dallas Mavericks Owner Mark Cuban's Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 18, 2011

Continue reading "Texas Securities Fraud: SEC Moves to Freeze Assets of Stewardship Fund LP" »

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

Posted In: Texas Securities Fraud

Call for a Free Consultation
(800) 259-9010

Contact Us

The code above is for the protection of your information.

Browse

  • Topics
  • By Date
  • Search
Topics
By Date
Search

Legal Blogs