December 29, 2011

SEC Modifies Definition of Net Worth Standard for “Accredited Investors” with Final Rule

The SEC has adopted a final rule that revises the net worth standard for “accredited investors.” Although the modified definition went into effect once the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted, the SEC still had to adjust its rules to this modification. Per the Dodd-Frank Act’s Section 413(a), the Securities Act of 1933's definition of “accredited investors” cannot include the value of a primary person’s residence for purposes of determining whether he/she qualifies as one based on possessing a net worth of over $1 million.

The Securities Act states that all sales and offers of securities in the US must be registered unless they are exempt from the criteria. The point of the concept of “accredited investors” is to be able to ID people that can stand the economic risk of investing in a security that is unregistered for an indefinite time frame and, should it come to it, be able to afford losing their entire investment. Because “accredited investors” are usually the only ones that are given the opportunity to invest in private offerings, the opportunity for certain people to invest and the pool of available investors is influenced by whether an investor can be considered an accredited investor.

Before Dodd-Frank, one’s main residence and its fair market value, as well as the indebtedness obtained by the residence, were factored in when calculating net worth to figure out whether or not the individual fulfilled the $1 million threshold. The Act’s Section 413(a), however, took this property out of the equation but only up to the residence’s fair market value when the securities’ sale takes place. This means that if one’s primary residence is “underwater,” it will lower the individual’s net worth according to the amount of indebtedness that goes beyond the fair market value of that person’s primary residence for purposes of determining whether or not that person is an accredited investor. The final rules also include a limited grandfathering provision letting investors that no longer qualify as “accredited investors” because of changes put into effect by Dodd-Frank to be treated as accredited for certain “follow-on” investments.

The final rule will go into effect 60 days after it is published in the Federal register.

Throughout the US, Shepherd, Smith, Edwards, and Kantas, LTD, LLP represents investors who are victims of securities fraud in recovering their losses.

Read the final rule (PDF)

SEC Adopts Net Worth Standard for Accredited Investors Under Dodd-Frank Act, SEC, December 21, 2011


More Blog Posts:
FINRA May Put Forward Another Proposal About Possible SEC Rule Regarding Fiduciary Duty, Institutional Investor Securities Blog, November 28, 2011

Advisory Performance Fee Rule Limit Adjusted by the SEC, Stockbroker Fraud Blog, July 30, 2011

Dodd-Frank Reforms Will Lower Deficit by $3.2B Over the Next Decade, Estimates CBO, Institutional Investor Securities Blog, April 8, 2011

Continue reading "SEC Modifies Definition of Net Worth Standard for “Accredited Investors” with Final Rule" »

December 27, 2011

Bank of New York Mellon To Pay $1.3M To Texas, New York, and Florida Over Auction-Rate Securities Trading Allegations

Bank of New York Mellon Corp. (BNY) has agreed to pay $1.3 million to the states of Florida, New York, and Texas over allegations that it engaged in the manipulative trading of auction-rate securities. The settlement comes following a joint probe by New York Attorney General Eric Schneiderman, the Florida Office of Financial Regulation, and the Texas State Securities Board over Mellon Financial Markets’ actions as Citizens Property Insurance Corp. of Florida’s intermediary broker in an alleged scam to lower borrowing costs. Citizens Property is run by Florida and it is the largest home insurer in the state.

ARS interest rates are reset at auctions that usually occur at 7-day or 28-day intervals. According to the Texas State Securities Board, investors made $6.7 million less in interest than they would have earned if Citizens Property hadn’t placed bids during its own auctions. Mellon Financial Markets is accused of assisting Citizens Property in manipulating auction-rate securities’ interest rates by making and accepting bids on the latter’s behalf.

In 2008, Citizens Property allegedly asked a Mellon Financial Markets representative to assist it in bidding on its own ARS while hiding this action because broker-dealers in charge of managing the securities would have otherwise turned their bids down. Citizens Property then made bids that were lower than market rates, which caused the auctions to clear at rates below what they would have been. Meantime, Mellon Financial made approximately $300,000 in fees. At least one Mellon Financial broker expressed concern about these trades to a supervisor, who allegedly failed to seek legal advice or talk about these concerns with the MFM’s compliance department.

Following the collapse of the ARS market, one broker-dealer, who suspected that Mellon Financial was making Citizens’ bids, said that orders would no longer be made for a company bidding on its own securities. Yet, according to authorities, traders kept on with this practice until Bank of New York Mellon issued the order to stop. Those involved allegedly knew that bidding for CPIC established lower clearing rates, which would prove “detrimental” to investors holding or bidding on these ARS.

Citizens Property Insurance maintains that it thought its actions were “legally permissible.” The company claims that it was “vigilant” about getting advice from outside legal counsel before taking part in the transactions.

BNY Mellon Capital Markets has said that the alleged misconduct was related to the “isolated conduct” of three persons no longer with the financial firm. Mellon Financial Markets was a separate entity when the alleged bidding scam was happening.

BNY Unit Settles Auction-Rate Case, Wall Street Journal, December 23, 2011

Bank of New York Mellon Settles Auction-Rate Investigation, Bloomberg/Businessweek, December 23, 2011

BNY Mellon to pay $1.3M in Schneiderman suit, Crain's New York Business, December 22, 2011


More Blog Posts:
Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court, Stockbroker Fraud Blog, November 30, 2011

Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011

Continue reading "Bank of New York Mellon To Pay $1.3M To Texas, New York, and Florida Over Auction-Rate Securities Trading Allegations " »

December 25, 2011

Former-Chicago Bears Wide Receiver Willie Gault Sued by SEC for Securities Scam Involving the Alleged Inflation of Stock Prices

The US Securities and Exchange Commission is suing former NFL football player Will Gault for securities fraud. According to US regulators, he and several others participated in a fraud scam that involved inflating the stock price of Heart Tronics, which is a heart-monitoring device company. Other defendants in the Commission’s case include lawyer Mitchell Stein, Heart Tronics Co-CEO J. Rowland Perkins, and Stein’s driver Martin B. Carter. Investors were bilked of nearly $8 million.

Per the SEC’s complaint, between 2006 and 2008 Heart Tronics repeatedly announced that millions of dollars in (bogus) sales orders for its heart-monitoring devices had been placed. To garner investor confidence, Gault was appointed company president and Co-CEO.

Meantime, Stein, who hired promoters to promote the company’s stock online, allegedly made secret trades. The Commission says he used investors’ money to pay for private jets, a number of homes, and exotic motor vehicles.

Stein is also a defendant in a parallel criminal case filed by the US justice department. In the indictment against him, prosecutors charged him with putting out press releases promoting the fake sales, conspiring to obstruct the SEC probe, and taking part in a financial scam to artificially increase Heart Tronic’s stock price through bogus orders from nonexistent clients.

The Commission says that Perkins and Gault hardly ever asked Stein about his actions, as well as failed to fulfill their fiduciary duties. Gault and Stein are accused of defrauding one investor, in particular, who made a substantial investment in the heart-monitoring device company. That investor's money ended up in Gault’s personal brokerage account.

The SEC is accusing Carter and Stein of generating false documents to support false disclosures that were made to the public. This included sending a letter from a fictitious client in order to deceive auditors, management, and disclosure counsel, as well as sending products to a friend of Carter’s to make it seem as if an actual device was delivered.

The SEC is seeking a permanent bar against Stein, Gault, and Perkins that would prevent them from serving as corporate officers. They also want them to pay financial penalties and give back ill-gotten gains.

Gault was a former University of Tennessee football player who played for the Chicago Bears for 11 seasons. He also belonged to the US Olympic team that boycotted the Summer Games in Moscow in 1980.

Securities Fraud
If you are an investor that was defrauded by people who took advantage of you and took the money for their own personal use and gain, you may have grounds for a securities fraud case.

Ex-NFL Star Willie Gault Sued by SEC in Stock-Pumping Fraud, BusinessWeek, December 23, 2011

SEC Charges California Company, Co-CEOs, and Attorney in Series of Fraudulent Schemes Pumping Company Stock, SEC, December 20, 2011

Read the SEC Complaint (PDF)

More Blog Posts:
Three Investment Advisers Charged with Massachusetts Securities Fraud, Stockbroker Fraud Blog, December 16, 2011

Colorado Securities Fraud: Universal Consulting Resources LLC and Owner Richard Dalton to Pay $15.8M to Settle SEC Lawsuit Over Ponzi Scam, Stockbroker Fraud Blog, December 9, 2011

Former Fannie Mae and Freddie Mac Executives Face SEC Securities Fraud Charges, Institutional Investor Securities Blog, December 16, 2011

Continue reading "Former-Chicago Bears Wide Receiver Willie Gault Sued by SEC for Securities Scam Involving the Alleged Inflation of Stock Prices" »

December 22, 2011

Wells Fargo-Sponsored Survey Finds that Sense of Security About Retiring Doesn't Necessarily Come with Affluence

According to a recent Wells Fargo & Co-sponsored survey, 23% of the 800 Americans with at $100,000 in investable assets who participated reported that they don’t feel confident that they will have enough money saved by the time they retire. 75% said they felt sure that they would have enough. The ones most likely to feel confident are the ones with a written a financial plan, trust that the stock market will take care of their investments, are married, have at least $250,000 in investable assets, and/or are male. Those who felt unsure about their finances for when they retire included those who are single, female, belong to the 40-59 age group, and/or have under $250,000 in investable assets.

Some of the Other Findings from the Survey:

• 48% of those in the 25 to 49 age range want to keep working during their retirement years.
• More men (42%) than women (34%) wanted to keep working even after hitting retirement age.
• Approximately three-quarters of those that are currently working believe that having a specific amount of money matters more than what age they are when they retire.
• Women without a written financial plan and/or with investable assets of over $100,000 but under $250,000 are more likely to believe that they won’t have enough money when they retire regardless of what they do now.
• Nearly 2 in 5 Affluent Americans feel like they should significantly reduce their spending now to save up for retirement
• One-third of those surveyed worry that they won’t be able to leave their children an inheritance because their savings will have to go toward their retirement
• Four in 10 prefer to enjoy life now rather than worry: These people are usually already retired (54%), seniors belonging to 60-75 age group (51%), Democrats (47%), and parents with kids that are already legal adults (44%)
• Parents with kids under 18 (71%), adults belonging to the 40-49 age group (62%), women (65%), and seniors age 50-59 (64%) are the ones most likely to worry about what will happen when they retire.

Unfortunately, there appears to a nationwide rise in investment fraud targeting baby boomers, many who are just (or on the verge of) retiring. The Wall Street Journal reports that many of these older investors found themselves placing their money in high-risk bets to compensate for the losses they suffered during the recently financial crisis.

There are approximately 77 million baby boomers currently live in the US. Of the 3,475 enforcement actions involving fraud in 2010, 1,241 affected investors were 50 years of age or older. According to securities regulators, this number is expected to hit a record figure this year. Enforcement actions involved free-lunch seminars, variable annuities, or the misuse of professional credentials. Common types of senior investment fraud included Ponzi scams, self-directed IRA’s containing bogus investments in gold, real estate, and oil wells, and promissory notes.

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LLP represent seniors throughout the US. We know the toll that losing your savings can take on you and your family.
Retirement Fears Jump the Wealth Gap to Strike Many Affluent Americans, Wells Fargo Retirement Study Finds, Wells Fargo, December 14, 2011

Boomers Wearing Bull's-Eyes, Wall Street Journal, December 14, 2011


More Blog Posts:

Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors, Stockbroker Fraud Blog, December 17, 2011

Texas Securities Fraud Over Sale of Allegedly Bogus Annuities to Elderly Seniors, Stockbroker Fraud Blog, December 14, 2011

LPL Financial Ordered to Pay $100K for Lack of Adequate Oversight that Resulted in Unsuitable Investments for Clients, Stockbroker Fraud Blog, November 29, 2011

Continue reading "Wells Fargo-Sponsored Survey Finds that Sense of Security About Retiring Doesn't Necessarily Come with Affluence" »

December 20, 2011

SEC Sues SIPC Over R. Allen Stanford Ponzi Payouts

In its latest effort to help investors that lost money in the $7 billion Stanford Financial Group Ponzi scam recoup their losses, the Securities and Exchange Commission is suing the Securities Investor Protection Corporation. Both have been in disagreement over whether Stanford investors qualify for protection against SIPC rules, which are supposed to back brokerage firm client accounts against failure and cover investors for up to $500,000 in losses.

The SEC has said that this coverage should apply to Stanford investors because not only was broker-dealer Stanford Group Company a part of Stanford Financial, but also clients had to set up brokerage accounts to buy the certificate of deposits that their money was placed in. Upon purchase of their CD’s, they were given papers noting that the transaction was SIPC-covered. However, the SIPC, which is not in charge of regulating brokerage firms, contends that because clients’ money was placed in supposedly safe CDs sold by Stanford Financial, investors do not get to avail of this protection.

Now the Commission is seeking a court order that would compel the investor protection corporation to start liquidating Stanford Group Company. This filing is a key step in allowing customers to start getting their money back.

The SEC claims that it is solely authorized to decide whether SIPC should get involved. This is the first time the Commission has pulled rank to force the SIPC to take specific action. If the court grant’s the SEC’s order, SPIC plans to appeal.

Federal authorities seized Stanford Financial in 2009. R. Allen Stanford is accused of running the Ponzi scam and using the money belonging more than 21,000 clients to fund his expensive lifestyle. Investors were promised improbable interest rates that were supposedly spurred by a unique investment strategy.

This week, a hearing to determine whether R. Allen Stanford is fit to stand trial is scheduled to take place. The SEC has sued R. Allen Stanford for securities fraud and he is charged with 23 criminal counts of wrongdoing. Although he remains in federal custody, his criminal trial was delayed to allow him to go into detox for his addiction to anti-anxiety meds and anti-depressants.

One of his defense attorneys claims that the medications and a traumatic brain injury that he sustained when he was beaten in jail have caused him to develop amnesia. Meantime, prosecutors are expected to argue that Stanford is pretending that he severe memory loss.

Allen Stanford's Move to Trial or Treatment Argued in Court, SF Gate, December 20, 2011

SEC, SIPC ready to rumble over Ponzi payouts, Investment News, December 20, 2011

S.E.C. Files Suit to Recoup Losses in Stanford Case, New York TImes, December 12, 2011


More Blog Posts:

Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order, Stockbroker Fraud Blog, December 5, 2011

Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 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

Continue reading "SEC Sues SIPC Over R. Allen Stanford Ponzi Payouts" »

December 19, 2011

Daniel "Rudy" Ruettiger Faces SEC Charges Over Pump-and-Dump Scam Involving Sports Drink Company

18 years after he was immortalized in the movie “Rudy,” Daniel Ruettiger and 12 others now face Securities and Exchange Commission charges. They are accused of misleading investor to get them to purchase stock in Ruettiger’s sports drink company Rudy Nutrition. Their alleged pump-and-dump scam resulted in over $11 million in illicit profits.

To settle the SEC securities charges, Ruettiger has consented to pay $382,866, while 10 of the others agreed to final judgments. By settling, they are not admitting to or denying any wrongdoing.

Per the SEC’s complaint, although Ruettiger’s sports drink company manufactured the drink called Rudy, Rudy Nutrition was actually a way for Ruettiger’s and his alleged co-conspirators to run their financial scheme. The Commission says that penny stock promoter Stephen DeCesare, who was brought in to turn Ruettiger’s company into a publicly traded one, was the main organizer of the pump stock scam. After Rudy Nutrition was given the ticker symbol RUNU, DeCesare and disbarred California attorney Kevin Quinn arranged for nominee entities to get three billion RUNU shares. The entities sold nearly one billion of them to investors through the public market. Other penny stock promoters then joined forces with DeCesare to engage in manipulative trading and fraudulent touting.

The SEC says that promoters involved in the pump-and-dump scam took part in manipulative trading so that Rudy Nutrition’s stock price would artificially inflate. Meantime, investors who were allegedly given misleading statements and false information through press releases about the company, as well as via promotional materials, were sold unregistered shares.

The misleading statements and bogus information were sent to millions via mailers, online chat rooms, and videos posted on the Internet. In less than four week, RUNU was trading 3 million shares (up from 720 shares). Within 14 days RUNU’s stock price went from a quarter to $1.05.

In September 2008, the SEC suspended trading because RUNU was delinquent with its periodic filings. This brought the pump-and-dump scam (the alleged fraudsters were conspiring to put out another two billion shares that they would dump at the end of the month) to a halt. The Commission took back Rudy Nutrition securities’ registration in November 2008.

Other participants slapped with SEC charges:
• Rocky Brandonisio, Rudy Nutrition President
• Stephen DeCesare, penny stock promoter
• Kevin Quinn, attorney and business consultant
• Kevin Kaplan, Rudy Nutrition CFO
• Pawl Dynkowski, stock promoter
• Mehmet Mustafoglu, Rudy Nutrition consultant
• Gregg Mulholland, stock promoter
• Joseph Padilla, ex-registered representative at Scottsdale Capital Advisors and stock promoter
• Andrea Ritchie, registered representative with Scottsdale Capital Advisers
• Gary Yocom, registered representative with Thomas Anthony and Associates
• Angelo Panetta, stock promoter
• Chad Smanjak, stock promoter

Pump-and-Dump Scams
Usually involves stocks that are promoted and then sold when the price goes up enough due to a rise in interest because of the endorsement. This allows those involved in running the pump and dump scheme to make a significant short-term profit.

SEC Complaint (PDF)


More Blog Posts:

FBI Arrests Texas Leader of Pump-and-Dump Scheme, Stockbroker Fraud Blog, March 23, 2011

Ex-Gilford Securities Broker Indicted in International Stock Fraud Scam Involving Pump and Dump of Israeli and Chinese Securities, Stockbroker Fraud Blog, February 19, 2011

Pump & Dump Scam Alleged in $600 Million Lawsuit Against Law Firm Baker & McKenzie, Institutional Investor Securities Blog, April 13, 2011

Continue reading "Daniel "Rudy" Ruettiger Faces SEC Charges Over Pump-and-Dump Scam Involving Sports Drink Company" »

December 17, 2011

Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors

To settle Financial Industry Regulatory Authority securities fraud allegations against one of its brokers, Wells Fargo Advisers will pay a $2M fine, as well as repay an unspecified amount to elderly clients that were defrauded. Over 21 senior investors were reportedly targeted by Alfred Chi Chen, who sold them reverse convertible notes even though the majority of them were retired and/or had never invested in this type of complex instrument. A number of investors were in their 80’s and 90’s.

FINRA says that Chen made over $1M in commissions even as the investors sustained losses. He also is accused of not giving discounts on Unit Investment Trust (UIT) transactions even when clients were eligible. As part of its settlement, Wells Fargo will pay restitution to those that should have but did not get the discounts and those that were sold unsuitable investments.

FINRA Executive Vice President and Chief of Enforcement Brad Bennett said that Wells Fargo did not review the reverse convertible transactions to make sure that they were suitable and that investors were harmed as a result. The SRO also determined that Wells Fargo did not give certain clients that were eligible breakpoint and rollover and exchange discounts when they bought UITs because the financial firm’s procedures and systems were not sufficient to properly monitor unsuitable reverse convertibles and ensure that clients got the discounts for which they were eligible. (Discounts should be offered on UIT sales when purchases go beyond certain thresholds or involve termination or redemption proceeds from another UIT during the initial offering period.)

By agreeing to settle, Wells Fargo is not admitting to or denying FINRA’s allegations.

The SRO has filed a separate complaint against Chen, who allegedly exposed clients to risks that were not in line with their investment profiles. As of June 2008, 172 of the accounts he worked with held reverse convertibles. 148 accounts had concentrations over the 50% of their total holdings. 46 accounts had concentrations of over 90%.

Reverse Convertibles
These interest-bearing notes involve repayment of principal connected to an underlying asset’s performance. The specific terms of reverse convertibles may vary. An investor risks loss if the underlying asset’s value drops under a certain maturity level or during the reverse convertible’s term.

It is important for many elderly investors that their investments not expose them to too much risk. For an elderly senior to lose his/her life savings because a financial firm or broker behaved irresponsibly, committed securities fraud, or made an avoidable mistake is unacceptable.

Wells to pay $2M to settle claims broker sold unsuitable investments to seniors, Investment News, December 15, 2011

Wells Fargo Fined by Finra Selling Structured Notes to Aged, Bloomberg, December 15, 2011


More Blog Posts:

Broker-Dealers are Making Reverse Convertible Sales That are Harming Investors, Says SEC, Stockbroker Fraud Blog, July 28, 2011

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

Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank, Institutional Investors Securities Blog, December 8, 2011

Continue reading "Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors" »

December 16, 2011

Three Investment Advisers Charged with Massachusetts Securities Fraud

Massachusetts securities regulators have filed three actions accusing investment advisers of defrauding investors of millions. The cases come as the state is getting ready to oversee even more investment advisers in 2012.

One of the securities fraud actions filed is against unregistered adviser John B. Wilson, who regulators want to ban from the securities industry for life. Wilson is accused of defrauding 25 investors who gave him over $1.5M. The funds were placed in JBW Capital LLC.

Wilson lost over 90% of the funds in 2 trades he made during one month in ‘08. He has admitted to having a trading addiction.

In the second Massachusetts securities case, RIA Daniel A. McKenna allegedly raised over $1M from investors over a 17-year period. He did this by selling shares in Principle Profits Asset Management. In fact, the shares were worthless. He also allegedly persuaded investors to lend his company money, which he never paid back.

Meantime, state regulators are accusing another RIA, Sean Michael O'Brien and Andover Equity Investment Group LLC of using clients’ money to pay for his own expenses, charging “exorbitant” fees, and issuing untrue statements to investigators. For example, he allegedly told the state that TD Ameritrade Holding Corp. division "thinkorswim," which was his custodian broker-dealer, never asked him about his advisory fees. (His management fee was 15.54% even though the average for the industry is .5%-2%.) However, it turns out that TD Ameritrade asked O’Brien about the fees and eventually terminated his use of the company’s platform.

The state wants investors to get their money back. Regulators also want to take back the registrations of both O’Brien and McKenna.

Currently, there are 739 RIA’s under Massachusetts’ watch. Per the Dodd-Frank Wall Street Reform and Consumer Protection Act, which mandates that midsize investment advisers go from federal to state supervision next year, another 200 more RIA’s will fall under the state’s watch. (Midsize advisers have assets ranging from $25M and $100M).

Referring to these latest securities actions, Massachusetts Secretary of the Commonwealth William Galvin said that they show the state’s willingness to go after investment advisers that have violated securities laws.

Our stockbroker fraud lawyers represent investors throughout the US. If you believe that a registered investment adviser or broker-dealer may have defrauded you, please contact our securities fraud law firm. You may have a Massachusetts securities claim on your hands.

Over the years, Shepherd Smith Edwards and Kantas LTD LLP has helped thousands of investors throughout the US to recoup their investment. Your first consultation with us is free.


Massachusetts Signals Strict Oversight Of Investment Advisers, The Wall Street Journal, December 14, 2011

Massachusetts charges three advisers with varying flavors of fraud, Investment News, December 18, 2011


More Blog Posts:
Colorado Securities Fraud: Universal Consulting Resources LLC and Owner Richard Dalton to Pay $15.8M to Settle SEC Lawsuit Over Ponzi Scam, Stockbroker Fraud Blog, December 9, 2011

LPL Financial Ordered to Pay $100K for Lack of Adequate Oversight that Resulted in Unsuitable Investments for Clients, Stockbroker Fraud Blog, November 29, 2011

Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order, Stockbroker Fraud Blog, December 5, 2011

Continue reading "Three Investment Advisers Charged with Massachusetts Securities Fraud " »

December 15, 2011

SEC Charges Father and Son with Utah Securities Fraud In Alleged $220M Ponzi Scam Over Purported Real Estate Investments

The SEC has charged Wendell A. Jacobson and his son Allen R. Jacobson with securities fraud. The two men allegedly ran a $220M Ponzi scam under the guise of selling investments in their real estate business. The Commission claims that father and son violated sections of the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.

The Jacobsons are accused of presenting investors with a chance to place their money in LLC in return for partial ownership in apartment communities that were located in a number of states. The two men, who belonged to Church of Jesus Christ of Latter-Day Saints, solicited other members to invest.

The father and son claimed to have bought apartment complexes at discount prices. They said they would renovate the units, enhance management, and resell properties in 5 years. Investors were told they would be paid their shares in monthly rentals and the future resales.

Per the securities complaint, the father and son team got over $220M from about 225 investors. Securities were sold as investment contracts. No registration statement was submitted to the SEC, which is required under federal securities law.

The Utah securities scam was operated under the umbrella company Management Solutions, Inc. The SEC says the two men behaved as unregistered brokers who made false claims when they told investors that their investment’s principal was safe. They also allegedly misrepresented how the money would be used. Meantime, investors were told that they would get 5-8% annual returns and resale profits.

In fact, says the SEC, not only were the LLCs sustaining major losses, but also the Jacobsons were using investor money to pay for their personal and business expenses. They were also using new investors' money to and pay earlier investors. The Jacobsons used the Ponzi scam to cause investors, who were getting “returns,” to think that the LLCs were making a profit.

Beginning last year, investors were told that properties were sold and they had made a profit when no sales actually occurred. Instead, the “sales” were used to move investors from and into specific properties.

The SEC is seeking disgorgement of ill-gotten gains, financial penalties, and prejudgment interest.

SEC Halts Father-Son Ponzi Scheme in Utah Involving Purported Real Estate Investments, SEC, December 15, 2011

Mormons fleeced in $220M investment scam: SEC, Investment News, December 16, 2011


More Blog Posts:

Colorado Securities Fraud: Universal Consulting Resources LLC and Owner Richard Dalton to Pay $15.8M to Settle SEC Lawsuit Over Ponzi Scam, Stockbroker Fraud Blog, December 9, 2011

Former Bernard L. Madoff Investment Securities LLC Employee Faces SEC Charges for Creating Fake Trades to Enable Ponzi Scam, Stockbroker Fraud Blog, November 23, 2011

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

Continue reading "SEC Charges Father and Son with Utah Securities Fraud In Alleged $220M Ponzi Scam Over Purported Real Estate Investments" »

December 14, 2011

Texas Securities Fraud Over Sale of Allegedly Bogus Annuities to Elderly Seniors

Two men are accused of Texas securities fraud involving the sale of bogus annuities to the elderly. The authorities arrested Leon Randy Sinclair III, a 53-year-old Houston man, on charges of theft by deception, misapplication of fiduciary property, and money laundering. Sinclair and his San Antonio-based business partner, Luther Pierce Hendon, allegedly transferred money from the investment policies into their own bank accounts.

Dozens of elderly persons were reportedly bilked out of their life savings while the two men allegedly stole millions of dollars. The elderly clients were sold charitable gift annuities that they thought would go toward their savings for the future. Unfortunately, per the criminal complaints filed against Hendon and Sinclair, the money they were investing actually went to the two men.

Annuities

An annuity is a contract with an insurance company that allows the participant to fulfill his/her long-term goals and retirement objectives. In exchange for either a number of payments or a lump-sum amount, the insurer starts paying you periodically either right away or sometime in the future.

Usually, an annuity offers tax-deferred earnings growth and a death benefit that will pay a designated beneficiary a specific minimum figure. Three kinds of annuities are:

Indexed Annuities: The insurer credits you with a return determined by changes in an index.

Fixed Annuities: The insurer agrees to pay you a minimum interest rate while your account grows. The insurance company also is to pay specific, periodic payments into your account.

Variable Annuities: You can opt to invest your payments in different kinds of investments. The Securities and Exchange Commission regulates this type of annuity.

Annuity Fraud
Annuity fraud occurs when the agent that is selling misrepresents/fails to disclose key facts about the investment.

Unfortunately, the elderly are among the favorite targets for many of those intentionally seeking to commit annuities fraud. This type of investment is very appealing to people wanting to retire early or who are in search of a fixed income. It is easy for an elderly investor to mistakenly think that this type of investment is safe when, in fact, certain kinds of annuities are incredibly risky.

According to MetLife Inc. in June, older Americans are bilked of $2.9 billion annually by relatives, businesses, and strangers. At Shepherd Smith Edwards and Kantas, LTD, LLP, our Houston stockbroker fraud lawyers work hard to help our clients that have been the victim of elder financial abuse recoup their losses.

We know how hard you’ve worked to save for your future, as well as provide some financial security for your family. Losing your retirement and/or life savings can take a devastating toll on a bilked investor. Serious emotional and health complications can result, in addition to the financial troubles that can arise. There may be a way to recoup your losses.

Houstonian accused of selling bogus annuities to elderly, Chron.com, December 14, 2011

Annuities, SEC.gov


More Blog Posts:

Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order, Stockbroker Fraud Blog, December 5, 2011

Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 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

December 10, 2011

$1.2 Billion of MF Global Inc.’s Clients Money Still Missing

According to the Commodity Futures Trading Commission, the whereabouts of $1.2M in MF Global Inc. customer funds are still unknown. Lawmakers at a Senate Banking Committee meeting grilled the CFTC officials earlier this week.

Speaking before the panel on Tuesday, CFTC Commissioner Jill Sommers said that the agency still has yet to find all the money. The CFTC began its investigation into MF Global’s collapse after holding company MF Global Holding filed its Chapter 11 bankruptcy petition on October 31. Sommers reported that there are dozens of CFTC staffers working on finding the missing funds.

Meantime, former MF Global head Jon Corzine has said that he, too, doesn’t know where the money went. He issued an apology to employees, customers, and investors who have had to deal with the fallout from brokerage firm’s collapse. Since MF Global announced it was seeking bankruptcy protections, thousands of clients have seen their assets frozen.

One suspicion is that MF Global used clients’ money to make significant investments in European sovereign debt. In remarks that were prepared for a U.S. House of Representatives Agriculture Committee last week, CME Group Inc. Executive Chairman Terrence Duffy accused MF Global of misusing hundreds of millions of dollars in client funds and moving the cash to broker-dealer’s own accounts. Duffy noted that this is a violation of the Commodity Exchange Act. CME was an MF Global regulator. The futures exchange operator claims that during a phone call the brokerage firm admitted to making these transfers.

CFTC Chairman Gary Gensler has recused himself from the probe into MF Global. He sees his business ties to Corzine as a conflict. Corzine was the chairman of The Goldman Sachs Group Inc. when Gensler worked there.

However, CFTC ethics officials, who are aware of their connection, don't see this as a problem. At the Senate Banking Committee hearing on Tuesday, Republicans accused Gensler of shirking his duties.

When MF Global sought Chapter 11 bankruptcy protection, the firm left behind over $2 billion in debt. JP Morgan Chase, with over $1.2 billion in corporate bonds, and Deutsche Bank, with $1 billion in bonds, are two of its larger unsecured creditors.

Our stockbroker fraud lawyers at Shepherd Smith Edwards & Kantas, LLP are investigating MF Global Holdings LTD. If you were an MF Global customer who believes you may have a securities claim, we want to hear from you. This is not the type of case you want to pursue without an experienced securities fraud law firm representing you.

Unfortunately, investors do lose money because of broker misconduct. There is no reason why you should have to suffer because of other people’s negligence and mistakes.

Regulators: $1.2B of MF clients' money still missing, Investment News, December 6, 2011

Corzine sorry, puzzled by missing MF Global money, Reuters, December 8, 2011

MF Global files for bankruptcy protection, CNN Money, October 31, 2011


More Blog Posts:

MF Global Shortfall May Be More than $1.2B, Says Trustee, Stockbroker Fraud Blog, November 26, 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

SEC’s Office of the Whistleblower Received 334 Tips During FY 2011, Stockbroker Fraud Blog, December 8, 2011


December 9, 2011

Colorado Securities Fraud: Universal Consulting Resources LLC and Owner Richard Dalton to Pay $15.8M to Settle SEC Lawsuit Over Ponzi Scam

The Securities and Exchange Commission says that it has resolved its Colorado securities fraud lawsuit against Universal Consulting Resources LLC (UCR) and the financial firm’s owner, Richard Dalton. Per the agreement, both will pay $15,842,948, including a $7,549,458 penalty, over allegations that investors were given materially misleading and false information about the Diamond Program and the Trading Program, which are investment contracts.

According to the United States District Court for the District of Colorado, which is where the judgments were entered, Dalton told investors they would get yearly profits of 48-120%. In actuality, he was running a Ponzi scam.

The SEC contends that Dalton raised about $17 million from 130 investors located in 13 US states. He told Trading Program investors that their money would be held in an escrow account with an American bank and that a European trader would use the account’s value to get leveraged funds to buy and sell bank notes. Under the Diamond Program, profits were supposed to come from the trading of diamonds.

In actuality, Dalton used $2.5 million of investor funds for personal expenses. New investors’ money was also used to pay existing investors their investment “profits.”

UCR and Dalton are permanently enjoined from further violations of:

• Securities Act of 1933, sections 17(a) and 5
• Securities Exchange Act of 1934, section 10b
• Rule 10b-5 thereunder

Dalton also is enjoined from violating Exchange Act Section 15(a).

Named as a relief defendant is Marie Dalton, who is Richard’s wife. The SEC claims that she used more than $900,000 in investor money to buy a home in Colorado. The court has ordered her to disgorge $115,000 in investor money.

A few months ago, the couple was charged in criminal court with conspiracy, interstate transportation of stolen funds, and wire fraud.

Ponzi Scams

With hardly (if any at all) actual earnings made, Ponzi scams can collapse suddenly when the money from new investors starts to dry up or too many current investors decide to pull out. Most Ponzi schemes work for as long as they do because investors believe that they are making a real profit rather than just being given other people’s investment money.

According to the SEC, the Daltons stopped issuing payments to investors when they found out they were under investigation. They then continued to tell investors that their payments were coming but had been delayed. For example, investors were led to believe that a plane transporting diamonds was forced to land Holland. Another excuse that investors were given is that 18,000 diamonds turned out to be fake.

SEC RESOLVES FRAUD-BASED LAWSUIT AGAINST DENVER-AREA COMPANY AND ITS OWNER, SEC, December 2, 2011

Golden couple accused of Ponzi scheme, arrested, Business Journal, September 30, 2011


More Blog Posts:

Former Bernard L. Madoff Investment Securities LLC Employee Faces SEC Charges for Creating Fake Trades to Enable Ponzi Scam, Stockbroker Fraud Blog, November 23, 2011

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

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

Continue reading "Colorado Securities Fraud: Universal Consulting Resources LLC and Owner Richard Dalton to Pay $15.8M to Settle SEC Lawsuit Over Ponzi Scam " »

December 8, 2011

SEC’s Office of the Whistleblower Received 334 Tips During FY 2011

The Securities and Exchange Commission's Office of the Whistleblower says it has already received 334 tips since becoming operational in August 12. The office issued its fiscal year 2011 report last month.

Per the report, between August 12 and September 30, which was when FYI 2011 ended, most of the complaints received by the office involved the areas of:
Market manipulation
Offering fraud
• Corporate disclosures and financial statements

The SEC’s whistleblower office received complaints from 37 states—the most, at 34, came from California—and a number of foreign countries, with the majority from China and the United Kingdom. Officials say that the quality of the tips they’ve been receiving has gotten better.

The SEC’s Office of the Whistleblower has not given out any awards yet. One reason for this is that the 90-day reward application period for applicable cases is not yet over. Eligible tipsters are those that provided information that led to securities cases resulting in monetary sanctions of over $1 million.

According to a survey conducted by one employment and labor law firm, S & P 500 senior executives and top officers at other organizations are worried about this bounty program and its monetary incentive that could convince the more reluctant whistleblowers to come forward. 73% of respondents said that they considered retaliation and whistleblowing to be emerging risk areas. Many said that even as the number of whistleblower tips will likely go up, their companies are only moderately prepared to deal with these claims.

Under Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 922, if the following circumstances apply, the SEC must pay 10-30% of any money the government to the whistleblower:

• The whistleblower voluntarily gave the insider information
• The information is original, comes from the tipster’s independent analysis or knowledge, and didn’t come to the Commission from any other source
• The information allows the SEC to bring a successful enforcement action
• Monetary sanctions are more than $1 million. Penalties, interest, disgorgement and any other monies are part of this consideration.

Meantime, the Government Accountability Office says in its new report that it found that the financial statements belonging to the SEC's Investor Protection Fund for FY 2010 and 2011 were materially fair. Whistleblower bounties are paid from that fund.

The GAO also said that in FY 2011 the SEC made significant steps forward in terms of remediating material weaknesses in its internal control for financial reporting, information systems, and account processing. Although these issues are not material anymore, the GAO felt that they should still be addressed in its report. The four areas where the significant deficiencies existed were:

• Budgetary resources
• Information security
• Accounting processes and financial reporting
• Filing fees and registrant deposits

The Securities and Exchange Commission's Office of the Whistleblower FYI 2011 Report

Companies Anticipate Rise in Whistleblower Claims According to Littler Survey, 96 Percent of Senior Executives Reveal Growing Concern, Littler, November 14, 2011

Securities and Exchange Commission’s Financial Statements for Fiscal Years 2011 and 2010, GAO (PDF)


More Blog Posts:
Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008, Stockbroker Fraud Blog, May 5, 2011

SEC Looking at Other Ways to Communicate with Whistleblowers, Institutional Investor Securities Blog, September 14, 2011

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


Continue reading "SEC’s Office of the Whistleblower Received 334 Tips During FY 2011" »

December 5, 2011

Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order

William Erik Byrne, who is unregistered securities advisor, admits that he sold $389,000 in investment and promissory notes to investors even after he received a cease and desist order from the Texas State Securities Board in 2005. He also is accused of giving out investment advice to clients even though he was not authorized.

State regulators also filed a Texas securities complaint against Byrne for selling unregistered variable annuities from Hampton Insurance Co. Ltd. Not only were none of the VAs were filed with the Texas Department of Insurance, but also, Hampton Insurance was not under that department's supervision.

Byrn says that between 2006 and 2009 he sold investments to clients without telling them that Texas regulators had ordered him to stop or why. State officials also say that Byrne failed to tell investors that previous clients hadn’t been paid according to the terms of their contracts.

Working with a Registered Adviser
State and federal laws require that investment advisers and broker-dealers and their representatives be registered. Registration is usually with a state securities agency or the Securities and Exchange Commission. Unfortunately, there are those that don't follow this requirement and try to get away with this.

As an investor, you want to make sure that the representative and/or financial firm you want to work with is registered. Otherwise, if there is a problem later on, such as a broker-dealer or investment adviser going out of business, there may not be a way for you to recoup your losses even if a court or arbitrator rules in your favor.

You should also do your own research. You can find out whether an investment adviser is correctly registered by reading its Form ADV registration form. This form also should let you know whether the investment adviser has had any previous run-ins with regulators or past problems with other clients.

Unregistered and Registered Securities
Although it is typically illegal to sell unregistered securities, there are exemptions. You can get Form ADV from the investment adviser, the regulatory body the adviser is registered with, or by going to the Investment Adviser Public Disclosure Web site.

Read the Enforcement Actions Against Byrne

Rule 144: Selling Restricted and Control Securities, SEC

Texas State Securities Board

Investment Adviser Public Disclosure Web

More Blog Posts:
Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 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

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

Continue reading "Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order " »

December 2, 2011

Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal

Raymond James Financial Services has paid the $1.79M Dallas securities arbitration award plus interest it owes to Hurshel Tyler and the estate of his wife Mildred. They filed their claim with the Financial Industry Regulatory Authority. Both were in their 80’s.

They contend that they were advised by an ex-Raymond James representative to take their $3.5M in bond funds and place them in variable life insurance and variable annuities. Unfortunately, the life insurance policy was tied to $2M in improper loans, interest obligations, and ongoing tax that made it difficult to return the financial product to the brokerage firm. Tyler and Mildred’s estate claim that the stockbroker, Daul Davis, made a recommendation to them that was unsuitable.

Davis not only advised the Tylers to liquidate their municipal bond portfolio and make the new investments, but also, unknown to the couple, he moved them from one variable annuity to another, which cost them a significant surrender fee and commission. The Tylers’ Texas stockbroker lawyer says that by making the couple’s son the new annuity’s annuitant, the financial firm and Davis earned over twice the commission than if Hurshel Tyler had been the annuitant. (Usually, the annuitant and annuity owner are the same person. However, the insurance company that was involved only offered a 3.25% commission for annuitants over 80 years of age, while the commission for someone younger than that was 7.5%)

A FINRA arbitration panel sided with Tylers. The couple had sought to recoup their money, but instead panel members instead awarded them with compensatory damages.

Raymond James went on to appeal that decision. The broker-dealer argued that the couple should have given the annuities back. They also contended that they shouldn’t have to pay the couple’s $250K in legal fees because Florida, which is where the financial firm is based, doesn’t allow for this type of award.

Although Raymond James has gone ahead and paid the arbitration award, the broker-dealer maintains that the payment is unjust. The financial firms claims that not only did the couple make over $800,000 while the accounts were under its watch, but also, any losses they sustained occurred after they moved the accounts to a different broker-dealer. Raymond James says that despite disagreeing with the FINRA panel’s ruling, it has gone ahead and paid what it considers an “erroneous award” because in the long run doing so now would be less costly than continuing to contest it.

This Texas securities arbitration award is the largest one that Raymond James has ever had to pay.

Raymond James Pays Highest Arbitration Award in History, LifeHealthPro, November 30, 2011

After appeal fails, RJ forks over $1.8M to 87-year-old client, Investment News, November 30, 2011


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

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

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

Continue reading "Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal" »