January 31, 2012

FINRA Investor Education Foundation and NFL Player Join Forces To Protect Pro Football Players from Investment Fraud

In an effort to help incoming National Football League members from getting their careers started on solid financial ground, the NFL and the Financial Industry Regulatory Authority Investor Education Foundation are working with each other to help educate players and their families about investment fraud. The joint efforts come in the wake of professional players finding themselves the target of financial scams.

At events held during the East/West Shrine Game in Florida last month, the NFL and FINRA Foundation planed to reach participants through video presentation and other resources regarding:

• Selecting the right financial professionals
• Checking these represenatives' backgrounds
• Becoming educated about debt.

The FINRA Foundation'x Outsmarting Investment Fraud (OIF) curriculum informs players and their parents about the psychological tactics fraudsters have been known to use to get people to make choices based on their emotions rather than logic. This curriculum has been demonstrated to lower susceptibility to financial fraud by up to 50%.

It isn’t just new NFL football players that have been targeted by financial scammers. Earlier this month, a Texas couple pleaded no contest to establishing a bogus international investing firm and bilking ex-NFL player TJ Slaughter and others of hundreds of thousands of dollars. Slaughter, who formerly played for the New England Patriots and other NFL teams, said that he was defrauded of $150,000.

Mary Alice Monteza and Alan Keith Nelson told Slaughter that their company, Castro International, only worked with rich investors and concentrated on high-yield overseas investments. Slaughter says they started avoiding him after he gave them the cash and that he began to suspect that he’d been scammed when they told him five months later that his investment of $150,000 was now worth $7.6 million but refused to give him his initial outlay.

Nelson and Monteza were accused of running a Ponzi scam. The initial charges of securities fraud and three theft counts of theft were reduced to one count of theft after the couple reached a plea deal with prosecutors.

Another ex-NFL player, Kendrell Bell, has said it was his University of Georgia college football coach that bilked him of $2M. The former Kansas City Chiefs and Pittsburgh Steelers linebacker contends that Jim Donnan persuaded him to put his money in liquidation company GLC Limited when in fact the football coach was running a scam.

GLC has since filed for bankruptcy. The company claims that Donnan made improper gains from running an alleged $70 million Ponzi scam.

No one should be targeted for investment fraud—it doesn’t matter if you are a millionaire and the person scams you thinks you can afford it. At Shepherd Smith Edwards and Kantas, LTD, LLP, our stockbroker fraud lawyers represent individual and institutional investors in recovering their losses.

FINRA Foundation and NFL Player Engagement Team Up to Assist Players Avoid Investment Fraud, Make Smart Financial Decisions, FINRA, January 27, 2012

Former NFL player Kendrell Bell says ex-UGA coach duped him, Sports Illustrated, January 27, 2012

Couple admit to scamming football pro, others, My San Antonio, January 9, 2012


More Blog Posts:
FINRA Tells Financial Firms to Heighten Supervision of Complex Products, Stockbroker Fraud Blog, February 2, 2012

SIFMA Wants FINRA to Take Tougher Actions Against Brokers that Don’t Repay Promissory Notes, Institutional Investor Securities Blog, January 17, 2012

Oppenheimer & Co. Must Buyback $6M in Auction-Rate Securities from Investor, Says FINRA Arbitration Panel, Institutional Investor Securities Blog, January 11, 2012

January 30, 2012

FINRA Tells Financial Firms to Heighten Supervision of Complex Products

The Financial Industry Regulatory Authority has put out a formal notice to stockbrokers to let them know that complex financial products must come under the focus of heightened supervision. According to the SRO, a complex product is one with numerous features that can impact its investment returns depending on different scenarios—especially if the average retail investor can’t be expected to easily comprehend what these features are and how they can lead to an investment return.

Examples of complex products:

• Investments linked to the way the markets perform, such as certain exchange-traded products that can expose investors to the volatility of the stock market and products that create leveraged or inverse exposure.

• Products with complicated formulas or limits for calculating investor gains.

• Products that have only partial or conditional principal protections.

• Products with structures that may exhibit significantly different performances than what an investor expected.

• Structured notes that come with “worst off” features and payoffs that can be impacted by a pre-specified group’s worst performance index.

• Products that have contingencies found in losses or gains—especially when multiple mechanisms are involved.

• Products with a hard to comprehend embedded derivative component.

• Asset-backed securities that are secured by a collateral pool, such as consumer credit card payments, mortgages, or future royalties on music.

It is important to note that there are number of products that don’t exhibit these traits but still warrant heightened compliance and supervision because of the risks they present. FINRA says that it is up to financial firms to engage in the enhanced oversight of complex products and ones similar to them or the types of performances they can exhibit.

Brokers should not recommend financial products that they don’t fully understand and are therefore unable to properly explain to someone else. It is also important to make sure that an investor understands the products in which he/she will be investing.

While FINRA isn’t banning complex product, it wants brokerage firms to have written policies in place that would include a customized determination regarding whether a client should be offered them for purchase. Also, those that sell complex products need to be properly trained.

FINRA wants financial firms to establish a proper system of internal controls that allows for the periodic reassessment of complex products so there is current knowledge about their performance and risk profiles, which can affect how they are sold. It also wants broker-dealers to heighten their supervision of how and to whom complex products are sold.

FINRA says that before a complex product is recommended to a retail investors, the right questions should be answered, including:

• Who is the product for?
• How will it be controlled?
• Who shouldn’t the product be offered to?
• What is the product’s investment goal?
• Are their less complex products that can fulfill the same objectives?
• What are the risks involved in investing?
• How will the financial firm and its registered representatives be compensated in exchange for offering the product?
• Are any conflicts of interest involved?
• Is the product liquid?

FINRA wants financial firms to consider developing procedures to oversee how well the product does after they receive approval.

If you’ve suffered financial losses because of a complex product that your investment adviser or broker recommended that was unsuitable for you, you may be able to recoup your money. Contact our stockbroker fraud law firm today.

Read FINRA's Regulatory Notice


More Blog Posts:
FINRA Vows to Step Up Internal Compliance Procedures, Stockbroker Fraud Blog, October 30, 2011

FINRA Cannot Enforce Disciplinary Actions Through the Courts, Says Federal Appeals Court, Stockbroker Fraud Blog, October 6, 2011

FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisors, Stockbroker Fraud Blog, September 13, 2011

January 29, 2012

KBS Cap Markets Non-Traded REITs May Be Too Risky for Some Retail Investors

If you have sustained losses from investing in KBS Cap Markets Non-Traded REITs or any other non-traded REITs, do not hesitate to contact the securities fraud law firm of Shepherd Smith Edwards and Kantas, LTD, LLP right away to request your free case evaluation. While publicly registered non-exchange traded real estate investment trusts have become popular in the wake of investors looking for financial products that come with attractive yields, there are certain risks involved that could prove detrimental to some. Non-traded REITs are also often accompanied by high commissions and fees, which cam prompt some brokers to push these products even if they aren’t in the best interests of a client.

REITs
An REIT is an investment firm that purchase and manages real estate and related assets. When thousands of investors financially back an REIT, this can generate a purchasing power allowing the real estate investment trust to purchase significant properties that an individual investor would not be able to afford. With non-traded REITS, performance is related to how well the real estate and related assets do. Unlike traded REITs, non-traded REITs are considered illiquid for about eight years or longer.

However, as our securities fraud law firm mentioned earlier in this blog post, there are risks involved. In addition to high fees that could potentially eat into overall returns, early share redemption can be limited, and the periodic distributions that make non-traded REITs so attractive in certain instances may have to be subsidized by borrowing funds and a return of investor principal. Other potential risks and complexities involved (more details can be found on the Financial Industry Regulatory Authority’s Web site):

• There is no guarantee on distributions, which may go beyond operating cash flow. An REITS’ Board of Directors gets to decide whether to pay any distribution. Distributions may be suspended or stopped. Also, a lot of factors can impact the composition of these payments.

• REIT status and distribution come with tax consequences.

• Valuation complexities and illiquidity can come from not being traded on public markets. Should a liquidity event occur, this doesn’t necessarily mean that your investment’s value will have risen. It may have even declined or been lost.

• Early redemption can be costly and may even be restrictive.

• Front-end fees (selling expenses and compensation, organizational costs, offering expenses, issuer costs) can take a toll.

• Unspecified properties.

• Limited diversification of portfolios.

• The inherent risks involved in investing in real estate.

In addition to queries about KBS Cap Markets Non-Traded REITs, lately our securities fraud attorneys have also been offering case evaluations to clients who invested in Apple REITs, of which David Lerner Associates was the sole underwriter, and Wells Timberland REITs and Wells REIT IIs.

We may be able to help you recoup your losses.


More Blog Posts:
Investor Complains to FINRA About Behringer Harvard Holdings, LLC-Related Real Estate Investment Losses, Institutional Investor Securities Blog, January 24, 2012

Ameriprise Must Pay $17 Million for REIT Fraud, Stockbroker Fraud Blog, July 12, 2009

David Lerner & Associates Ignored Suitability of REITs When Recommending to Investors, Claims FINRA, Stockbroker Fraud Blog, June 8, 2011

January 28, 2012

SEC Charges First Resource Group LLC in Alleged Florida Penny Stock Boiler Room Scam

The SEC is accusing First Resource Group LLC and its founder David H. Stern of violating sections of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Commission contends that they ran a boiler room scam involving penny stock companies while selling the same stocks to make illegal earnings.

First Resource and Stern allegedly hired telemarketers to make fraudulent solicitations to brokers to buy Cytta Corporation and TrinityCare Senior Living Inc. stocks. Meantime, Stern was also selling Cytta stock and TrinityCare shares to investors while buying small quantities to make it look as if actual trading activity was taking place so that investors would buy the shares.

The SEC claims that Stern and First Resources used a telephone sales boiler room to defraud investors and make inflated claims while manipulating the stocks’ price and making a profit. The Commission says they acted as unregistered brokers.

The SEC contends that Stern would give the company’s salespersons information so that they could prepare sales scripts about TrinityCare and pitch the company’s stock. He would then look at and approve scripts before they were used while providing them with a list of people to pitch to and cold call.

The Commission says that Stern even sent out a research report about Cytta to investors that falsely claimed that for ’10 – ’14, sales projections should go beyond $500 million with a pre-tax net beyond $400 million. Meantime, Salespeople for First Resource are accused of falsely claiming that TrinityCare stock will be $5-7 with in six months to a year and that in five years, the company would be worth about $500,000 million (about $40/stock).

The SEC is seeking disgorgement, in addition to prejudgment interest, permanent injunctions, and financial penalties, in addition to a penny stock bar for Stern.

Microcap Stocks
The term “Microcap stock” can be applied to companies with “micro” or low capitalization. These companies usually have limited assets. Because many of these companies don’t submit financial reports to the SEC, investing in microcap stocks can be risky. One reason for this is that there isn’t a lot of information available about them, which can make it easy for scammers to put out bogus information. A lot of microcap stocks are traded in the over-the-counter market.

Quotes on microcap stock can be found through the “Pink Sheets” or the OTC Bulletin Board. In addition to there being insufficient public information about microcap stocks, these stocks usually don’t have to satisfy any minimum listing standards and they are very high risk. One reason for this is that a lot of microcap companies are new and therefore lack a solid track record. They many not even have assets or operations. Also, due to the low volumes of trades, any trade size can have a significant impact on stock price.

Since the start of 2011, the SEC has filed over 50 enforcement actions over alleged microcap stock-related misconducted and 63 orders to suspend suspicious microcap issuers’ trading.If you believe that you were the victim of a microcap stock scam, contact our stockbroker fraud law firm right away to request your free case evaluation.

Read the SEC Complaint (PDF)

Microcap Stock: A Guide for Investors, SEC


More Blog Posts:
Texas Securities Fraud: BNY Mellon Capital Markets LLC Settles Allegations of Rigged Bond Bidding for $1.3M, Stockbroker Fraud Blog, January 24, 2012

Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors, Stockbroker Fraud Blog, January 21, 2012

Merrill Lynch, Pierce, Fenner & Smith Ordered to Pay $1M FINRA Fine for Not Arbitrating Employee Disputes Over Retention Bonuses, Institutional Investor Securities Blog, January 26, 2012

January 24, 2012

Texas Securities Fraud: BNY Mellon Capital Markets LLC Settles Allegations of Rigged Bond Bidding for $1.3M

BNY Mellon Capital Markets LLC has agreed to pay the states of Texas, Florida, and New York $1.3M to settle allegations that it was involved in a bond bidding scam to reduce Citizens Property Insurance Corp. of Florida’s borrowing expenses. The Texas portion of the securities fraud settlement is $500,000, which will go toward its general revenue fund.

Per the Texas Securities Commissioner’s Consent Order, which it submitted last month, Mellon Financial Markets is accused of helping Citizens manipulate its ARS interest rate. Reducing these rates allowed Citizens to save money while costing investors that held the ARS when they ended up making $6.7M less in interest.

The Consent Order comes from a separate probe that the Texas State Securities Board had been involved in. The board found out that Citizens had sought the assistance of MFM in both the bidding on its own auctions and the concealment of this activity.

Per the Order, although an MFM broker reported the trading situation to a supervisor, the latter did not bring it to the financial firm’s compliance department or talk about it with legal counsel. As ARS interest rates went up, MFM placed bids for the debt at interest rates that were lower than going rates for similar ARS issues. The Order accuses MFM traders of understanding the consequences that would result from the way they were bidding.

Even after the ARS market failed in 2008, MFM traders continued to choose lower rates for Citizens until BNY’s compliance and legal departments stepped in to halt the process. The Texas State Securities Board determined that BNY Mellon Capital Markets’ actions involved “inequitable practices” related to securities sales. It also said that the financial firm violated regulations by not setting up, maintaining, and enforcing supervisory procedures that were reasonably designed.

Auction-Rate Securities
ARS are long-term debt issues with interest rates that are reset at auctions, which usually occur at set interval periods. The yield is a result of bidding that takes place at the auction, where investors are given an opportunity to get their funds without waiting for the debt to reach maturity. The ARS market let Citizen and other entities obtain long-term financing at interest rates that are usually connected with shorter-term investments.

Unfortunately, when the ARS market failed, investors found out that their money had become illiquid and inaccessible despite claims by financial firms that auction rate securities were safe, liquid investments.

BNY Mellon Settles with Texas Over Probe Into Rigged Bond Biddinghttp://www.ssb.state.tx.us/News/Press_Release/12-22-11_press.php, December 22, 2011

Texas State Securities Board

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

More Blog Posts:
TD Bank Ordered to Pay Texas-Based Coquina Investments $67M Over $1.2 Billion Ponzi Scheme, Stockbroker Fraud Blog, January 19, 2012

Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam, Stockbroker Fraud Blog, January 4, 2012

SEC Sues SIPC Over R. Allen Stanford Ponzi Payouts, Stockbroker Fraud Blog, December 20, 2011

Continue reading "Texas Securities Fraud: BNY Mellon Capital Markets LLC Settles Allegations of Rigged Bond Bidding for $1.3M" »

January 23, 2012

Jury Trial Begins in Ponzi Scammer Allen Stanford’s Criminal Case

Two-and-a-half years after he was arrested for allegedly running a $7 billion Ponzi scam, the criminal trial of Allen Stanford has begun. The Texas financier is charged with 14 counts of fraud, conspiracy to commit money laundering, and conspiracy. He denies any wrongdoing.

Stanford is accused of issuing $7 billion in fraudulent CDs through his Antigua-based Stanford International Bank to investors in over a hundred nations. He then allegedly defrauded them.

Even since his arrest these investors have not recovered any of their money. According to Reuters, a guilty conviction won’t necessarily help his Ponzi victims recoup their losses. Hopefully, however, the Securities and Exchange Commission’s lawsuit against the Securities Investor Protection Corp. will remedy this.

The SEC wants SIPC, the broker industry-funded fund, to accept the securities claims made by Stanford’s victims. Meantime, SIPC maintains that it has no jurisdiction over the Stanford case. (Also, this week, arguments over that lawsuit will begin in federal court, and Judge David Hittner, who is presiding over the criminal case against Stanford has overruled a motion by the government to keep the decision in the SIPC v. SEC case off-limits.)

The prosecution says that Stanford promised investors that they would get higher returns if they bought CDs through the Antigua bank (compared to the returns coming from US bank CDs). The money from these CD sales was then used pay off earlier investors and financially support Stanford’s other businesses. He also allegedly used investors’ money to pay for expensive vehicles, luxury residences, and women.

Stanford and three of ex-company executives are accused of trying to cover up their wrongful actions through bogus bank records and with bribes to auditors and regulators in the form of Super Bowl tickets, other perks, and money (over $3 million). The Ponzi scam collapsed in 2008 when his bank ran out of funds and investors stopped receiving payments.

Meantime, Stanford’s defense attorneys are arguing that he wasn’t running a Ponzi scam. They claim that Stanford’s investment operation was legitimate.

His legal team is instead blaming the financial scheme on former Stanford International Bank CFO James M. Davis, who has already pleaded guilty to charges of securities fraud, wire fraud, conspiracy to commit mail fraud, and conspiracy to obstruct a SEC investigation. Davis, who struck a plea deal in his criminal case, is expected to testify for the prosecution during Stanford’s trail.

Stanford, who has been behind bars for the last two-and-a-half years, was declared fit for trial in December. His case had been delayed so he could recover from a medication addiction and from injuries he sustained after he was involved in a jail brawl.

If you are an investor that suffered losses as a result of the Stanford Ponzi scam or any other financial scheme, do not hesitate to contact our securities fraud lawyers right away.

Prosecutors say Texas financier Stanford, stole investors’ money in $7 billion Ponzi scheme, The Washington Post, January 24, 2012

Stanford trial starts, cold comfort for investors, Reuters, January 24, 2012


More Blog Posts:
Multibillion-Dollar Stanford Securities Fraud Scam Has Investors Contacting Houston Stockbroker Fraud Lawyers for Help, Stockbroker Fraud Blog, February 19, 2009

Ex-SEC Lawyer to Settle DOJ Charges Accusing Him of Inappropriately Representing Ponzi Fraudster Allen Stanford, Stockbroker Fraud Blog, January 12, 2012

Securities Fraud Lawsuit Names NRP Financial Inc. in $150M Minnesota Ponzi Scam, Stockbroker Fraud Blog, January 10, 2012

January 21, 2012

Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors

Last month, a US judge refused Citigroup’s request to overturn a $54.1M arbitration award that a Financial Industry Regulatory Authority arbitration panel had ordered the financial firm to pay investors Gerald D. Hosier, Jerry Murdock Jr. and Brush Creek Capital. The award was the largest amount ever granted to individuals in a securities arbitration proceeding.

Following Citigroup’s request that a United States district court toss out the award, details from what were confidential proceedings have been unsealed. According to the New York Times, documents viewed by the arbitrators show that on a scale of 1 to 5, with 5 signifying the highest risk (usually only assigned to products that potentially carried the risk of an investor losing everything), Citigroup rated these investments as having a 5 rating for risk. Is it no wonder then that investors could and would go on to lose 80% of what they had investments.

The investments, which were municipal arbitrage portfolios, are known as ASTA/MAT. Citigroup Global Markets sold them through MAT Finance LLC.

Per internal e-mails, after the investments began declining in value in early 2008, when Citigroup wealth management head Sallie Krawcheck asked for the MAT’s risk rating,” She was told that it was “3-5.” Also, customers were never told about the 5 rating that their investments were previously given. The Times also reported that during a conference call involving brokers whose clients had sustained losses, the portfolio manager was directed to not discuss internal guidelines, which contained different information than what was in the prospectus that investors had received.

Citigroup eventually would offer to buy back the investments at a discount price but only if investors agreed to not file a securities fraud lawsuit against the financial firm. (Brokers have said they felt pressured by Citigroup to get investors on board with this. For example, a memo with the heading “Fund Rescue Options “noted that if the broker’s client let Citigroup repurchase the instruments, this would not be noted in his/her U-5 regulatory record. If, however, the client chose to sue, then this would appear in the broker’s U-5.)

In their securities fraud case, Claimants accused Citigroup of failure to supervise, fraud, and unsuitability. After the FINRA arbitration panel ordered them to pay the investors, Citigroup argued that panel members had ignored the law and contended that despite verbal statements made to investors, the latter had signed agreements acknowledging that the risk of losing everything was a possibility. Judge Christine Arguello would go on to affirm the FINRA panel’s decision. While the majority of the award was compensation for the claimants’ investment losses, about $17 million was for punitive damages.

Secrets of a Sales Machine, NY Times, January 14, 2012

Citigroup Slammed With $54 Million Award by FINRA Arbitrators in MAT/ASTA Case, Forbes, April 12, 2011


More Blog Posts:
Citigroup Request to Overturn $54.1M Municipal Bond Arbitration Ruling Denied by Judge, Institutional Investor Securities Blog, December 27, 2011

Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest, Stockbroker Fraud Blog, January 20, 2012

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2012

Continue reading "Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors " »

January 20, 2012

Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest

FINRA says that Citigroup Global Markets will pay a fine of $725K for not disclosing specific conflicts of interest during public appearances made by research analysts and in research reports. By settling, Citigroup is not denying or admitting to the charges although it has, however, consented to an entry of the findings.

According to the SRO, in research reports published between 1/07 and 3/10, the financial firm did not disclose possible conflicts of interest that existed in certain business connections, including the facts that the financial firm and its affiliates:
• Received revenue or investment banking from certain companies
• Had an at least 1% or more ownership in companies that were covered
• Managed public securities offerings
• Made a market in certain covered companies’ securities

Also, FINRA says that Citigroup research analysts did not reveal these same conflicts when bringing up the covered companies during public appearances.

As a result of these alleged failures to disclose, FINRA contends that Citigroup kept investors from knowing of possible biases in the research recommendations that it made. FINRA says that such disclosures are essential in order to make sure that investors are given all of the information they need when making decisions about investments.

The SRO said that the reason Citigroup did not provide the required information is that the database for identifying and creating disclosures experienced technical difficulties and/or was inaccurate. FINRA also cites a lack of proper supervisory procedures that could have prevented such inaccuracies and disclosure failures. However, Citigroup did self-report a number of the deficiencies and has taken remedial steps to remedy them.

A financial firm can be held liable when failure to disclose key facts about an investment leads to an investor sustaining financial losses. In many instances, such omissions are made to hide or diminish the risk involved in the investment. While some omissions are intentional, others can occur due to inadequate supervision or the lack of proper systems and procedures to make sure such failures to disclose don’t happen.

It is a broker’s obligation to fairly disclose all the risks involved in a potential investment. (Misrepresenting material facts is another way that risks are concealed and investors end up losing money.

It doesn't matter whether malicious intent was involved. If a broker-dealer concealed OR failed to disclose key information related to your investment and you suffered financial losses on your investment, you may have a securities fraud case on your hands that could allow you to recover your losses.


Citi settles with Finra over alleged conflicts at its brokerage, Investment News, January 20, 2012

Finra Fines Citigroup $725,000 For Alleged Research Violations, The Wall Street Journal, January 18, 2012

Financial Industry Regulatory Authority

More Blog Posts:
Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2011

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2011

Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling, Institutional Investor Securities Blog, November 30, 2010

Continue reading "Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest" »

January 19, 2012

TD Bank Ordered to Pay Texas-Based Coquina Investments $67M Over $1.2 Billion Ponzi Scheme

A jury has decided than TD Bank must pay Coquina Investments $67M for playing an assisting role in attorney Scott Rothstein’s $1.2 billion Ponzi scam. Coquina Investments is located in Corpus Christi, Texas. TD Bank is the US arm of Toronto-Dominion Bank.

The Texas securities lawsuit, filed by Coquina, contends that TD Bank officers had an “active role” in the Ponzi scam. They allegedly helped keep the fraud going by meeting with victims to make it appear as if legitimate business was actually taking place. For example, investors would meet with Frank Spinosa, who was then a TD Bank vice president.

Rothstein would tell investors that they were purchasing stakes in settlements involving sexual and employment discrimination cases that his law firm Rothstein Rosenfeldt Adler, PA had already gathered evidence for or confronted potential defendants. Apparently, the cases and the settlements were all bogus.

Per the Texas Ponzi fraud complaint, Rothstein would use TD Bank to pay investors their money from the bogus settlements and provide them with documents used to hide the truth, keep them involved in the scam, and get them to reinvest. Documents were also used to bring in new investors. Meantime, earlier investors were paid with the money brought in by new investors. Coquina’s legal team maintains that the Ponzi scam could not have existed without TD Bank’s help.

Shonda Smith, the foreman of the jury that issued the verdict, said that jury members were surprised at how much the bank allowed to go through it without doing anything to put a halt to the different transactions. TD Bank, however, maintains that it did nothing wrong. It is adamant that even though it served as Rothstein Rosenfeldt Adler’s bank it was Rothstein that actually bilked investors.

Of the $67 million verdict, $32 million is for compensatory damages and $35 million is for punitive damages. Meantime, there are groups of investors that have filed their securities fraud cases against TD Bank over its involvement in Rothstein’s Texas Ponzi scam.

Rothstein pleaded guilty to racketeering, money laundering, and fraud in 2010. He admitted to running the Ponzi scam between 2005 and 2009. He has also said that Level 3 Capital Fund, Centurion Structured Growth LLC, and Platinum Partners Value Arbitrage helped keep his financial scheme afloat during the last few months by agreeing not to disclose to potential investors that he hadn’t made payments to the three hedge funds (that were planning to give him and his team a positive credit rating.) Rothstein then used new investors’ funds to pay back the hedge funds.

The funds are disputing Rothstein ‘s claims and are suing TD Bank. Rothstein has been sentenced to 50 years behind bars for his crimes.

To schedule your free case evaluation to find out whether you have grounds for a Texas securities fraud lawsuit, contact our Ponzi fraud attorneys today. Shepherd Smith Edwards and Kantas, LTD LLP represents investors throughout the state.

Toronto-Dominion Loses $67 Million Jury Verdict Over Rothstein Fraud Role, Bloomberg, January 18, 2012

TD Bank Aided Rothstein Fraud, Investors’ Lawyer Tells Jury, BloombergBusinessweek, January 17, 2012

Rothstein pleads guilty, South Florida Business Journal, January 27, 2010


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

January 18, 2012

$78M Insider Trading Scam: "Operation Perfect Hedge” Leads to Criminal Charges for Seven Financial Industry Professionals

Criminal charges have been filed against seven men over their alleged involvement in a $78 million insider trading scam. More arrests stemming from "Operation Perfect Hedge,” conducted by the US Department of Justice and the Federal Bureau of Investigation, are likely. US Attorney for the Southern District of New York Preet Bharara has described the defendants as friends that established a criminal club with the intent of making a profit.

According to the criminal complaint, four of the men were charged with conspiracy to commit securities fraud and conspiracy fraud. The co-conspirators allegedly made close to $78 million. $61.8 million in illegal profits was trades between 2008 and 2009 involving a single stock, and $15.7 million was from Nvidia Corp.-related trades.

High-level executives at some of the country’s largest hedge funds were involved. One of the people arrested was Anthony Chiasson, who co-founded Level Global Investors. Because of insider information that a hedge fund analyst allegedly gave him about a soon-to-be issued announcement regarding Dell Inc.’s 2008 earnings for the first two quarters, he and others at the hedge fund were able to earn about $57 million in illegal trading profits. (The $53 million that Chiasson is accused of pocketing is the largest single illegal trade to be ever cited in a criminal case in Manhattan federal court.)

The insider tip on Dell’s earnings also led to $1M in illegal profits for another hedge fund and $3.8 million at a third one. Meantime, an investment firm was able to use the insider information to prevent about $78,000 in financial losses.

Also arrested were Sigma Capital Management analyst Jon Horvath, hedge fund portfolio manager Todd Newman, who used to work at Diamondback Capital Management LLC, and analyst Danny Kuo. Sandeep Goyal, who is a former Dell employee, has already pleaded guilty to conspiracy to commit securities fraud and securities fraud. He had gotten the insider information from other Dell employees after he started working at a global asset management firm as an associate analyst. According to authorities, a hedge fund even paid Goyal $175,000 for insider information about Dell.

Two people identified as co-conspirators were Jesse Tortora, who allegedly used tip information from Goyal to tip others and Spyridon (Sam) Adondaki, the Level Global Investors analyst who is accused of tipping Chiasson, who was his manager.
In the past few years, the government has taken more aggressive measures to fight insider trading. These latest arrests raise the number of people arrested in its recent crackdown to 63. 56 convictions have resulted thus far.

'Corruption on grand scale' in insider trading case, CNN, January 18, 2012

7 charged in $78M record-setting inside trade case, Fox News/AP, January 18, 2012


More Blog Posts:
Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam, Stockbroker Fraud Blog, January 4, 2012

Hedge Fund Manager Raj Rajaratnam Ordered by SEC to Pay $92.8M Penalty for Insider Trading, Stockbroker Fraud Blog, November 12, 2011

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

Continue reading "$78M Insider Trading Scam: "Operation Perfect Hedge” Leads to Criminal Charges for Seven Financial Industry Professionals" »

January 12, 2012

Ex-SEC Lawyer to Settle DOJ Charges Accusing Him of Inappropriately Representing Ponzi Fraudster Allen Stanford

Spencer Barasch, a former Securities and Exchange Commission attorney, will reportedly settle the civil charges filed against him by the Department of Justice by paying a $50,0000 fine. He is accused of inappropriately representing Allen Stanford, the ex-billionaire who is facing trial for masterminding a $7B Ponzi scam. Per the planned settlement, Barasch will settle the DOJ charges by paying a $50,000 fine.

It was in 2010 that SEC Inspector General David Kotz issued a report finding that while Barasch was still at the commission he played a part in decisions that were made to quell investigations of Stanford. After Barasch vacated his post at the SEC, he made several attempts to try to represent Stanford. Although the SEC refused each request, Barasch eventually ended up providing Stanford with about seven billable hours in legal counsel.

Federal conflict of interest laws permanently bar ex-government lawyers from appearing in front of or communicating with the US government in certain situations. However, to bring a criminal conflict-of-interest case prosecutors have to prove that the ex-employee contacted the government on behalf of the defendant. As there has been no evidence that this occurred in the matter of Barasch representing Stanford, this is likely why the DOJ opted to pursue a civil case.

Barasch is also expected to settle the Security and Exchange Commission’s disciplinary action against him by consenting to a 6-month ban from being able to practice in front of the commission. He will likely settle this without admitting to or denying wrongdoing.

Meantime, prosecutors are continuing to prepare their criminal case against Stanford, who allegedly bilked thousands of investors when he persuaded them to purchase CDs from his bank in Antigua. He was arrested in 2009. Stanford continues to deny the charges.

Jury selection is scheduled to begin later this month in the criminal trial against him. This week, however, two of Stanford’s lawyers asked a judge to let them quit the ex-billionaire’s case. Robert Scardino and Ali Fazel say that budget limitations are preventing them from doing their job as his defense team. A court has frozen Stanford’s assets.

In addition to the criminal case filed case against Stanford, he also faces SEC civil charges, along with Stanford International Bank (SIB), investment adviser Stanford Capital Management, investment adviser and broker-dealer Stanford Group Company (SGC), Stanford Financial Group (SFG), and two senior company officials. According to regulators, the defendants misrepresented certain CDs as safe investments. Meantime, client’s money was placed in illiquid equities and real estate instead of diversified liquid assets.

Exclusive: Ex-SEC lawyer said to settle Stanford-linked case, Chicago Tribune, January 10, 2012

Ex-SEC Enforcer Settles Stanford Ethics Dispute With U.S., Bloomberg, January 13, 2012


More Blog Posts:
Securities Fraud Lawsuit Names NRP Financial Inc. in $150M Minnesota Ponzi Scam, Stockbroker Fraud Blog, January 10, 2012

SEC Sues SIPC Over R. Allen Stanford Ponzi Payouts, Stockbroker Fraud Blog, December 20, 2011

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

Continue reading "Ex-SEC Lawyer to Settle DOJ Charges Accusing Him of Inappropriately Representing Ponzi Fraudster Allen Stanford" »

January 10, 2012

Securities Fraud Lawsuit Names NRP Financial Inc. in $150M Minnesota Ponzi Scam

A Minnesota securities fraud lawsuit, filed by court-appointed receiver R.J. Zayed, contends that because NRP Financial Inc. allegedly failed to properly supervise former broker Jason Bo-Alan Beckman, the brokerage firm ended up assisting in one of the largest Ponzi scams that the state has ever experienced. The $150M financial fraud raised $47.3M from at least 143 clients. Over 900 investors sustained losses as a result of the scam.

Beckman worked as an NRP rep between 2005 and 2008. Last year, he was charged with 13 felony counts related to the alleged financial scheme, including the criminal charges of conspiracy to commit mail and wire fraud, mail fraud, aiding and abetting wire fraud, mail fraud, and money laundering. He also is accused of stealing $7M from Global Advisors LLC, which he owns.

Minneapolis money manager Trevor Cook is the supposed chief architect of the Minnesota Ponzi scam. (He is serving a 25-year prison after pleading guilty to tax evasion and mail fraud.) Involving foreign currency arbitrage, investors were allegedly told that yearly returns of up to 12% would be earned with little, if any, risk to their principal if they bought into the program. Beckman made representations about the currency program between 2006 and 2009.

Per the Ponzi fraud lawsuit, the scam would have ended sooner if only NPR Financial had properly supervised Beckman, denied transfer of investors’ funds to bank accounts maintained on behalf of shell entities, looked into improper transfers of clients’ monies that Beckman had made, and refused to let him hide his actions behind its name and reputation. A lot of the parties that invested were clients of Oxford Private Client Group LLC, which is not only a NRP Financial branch, but also it is partly owned by Cook and Beckman.

Oberlin Financial, which preceded NRP, is accused of having known
way back in April 2006 that Beckman had another business involving trading currencies. NPR also allegedly was aware that Beckman used marketing collaterals that made an inflated claim that there was $3.5B in assets under management.

National Retirement Partners Inc., which is NRP Financial’s parent, sold its assets to LPL for $27M. When the deal was taking place, LPL touted the buy as a way to get into the retirement and pension market. However, according to an LPL Investment Holdings spokesperson, the company is not named in the securities complaint and has not been liable in this case. The broker-dealer was not one of the assets that LPL Holdings bought from NRP.

B-D that sold assets to LPL played role in $150M scam: Lawsuit, Investment News, January 6, 2012

Patrick Kiley, two others indicted in Trevor Cook ponzi scheme, CityPages, January 6, 2011


More Blog Posts:
SEC Sues SIPC Over R. Allen Stanford Ponzi Payouts, Stockbroker Fraud Blog, December 20, 2011

SEC Charges Father and Son with Utah Securities Fraud In Alleged $220M Ponzi Scam Over Purported Real Estate Investments, Stockbroker Fraud Blog, December 15, 2011

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

Continue reading "Securities Fraud Lawsuit Names NRP Financial Inc. in $150M Minnesota Ponzi Scam" »

January 7, 2012

Despite Reports of Customer Satisfaction, Consumer Reports Uncovers Questionable Sales Practices at Certain Financial Firms

According to Consumer Reports, many of online readers are “very satisfied” with the services rendered by almost all 13 major brokerage firms in the US. 7,327 online subscribers took part in the survey to respond to questions about their own experiences between October 2010 and October 2011. Customer service, website advice, phone service, and financial advice were among the criteria evaluated.

USAA Brokerage Services was at the head of the list after having received the highest scores for customer satisfaction. Scottrade Inc. and Vanguard Brokerage Services tied for second. The other financial firms, ranking in the order that follows, are Charles Schwab, TD Ameritrade, Etrade, Fidelity Brokerage Services, WellsTrade (Wells Fargo), Merrill Edge/Bank of America, and Morgan Stanley Smith Barney LLC. The last three financial firms scored under the 80-point mark, which means that clients gave them an overall ranking of “fairly well satisfied” (but not “very satisfied").

Also according to Consumer Reports, active investors can breathe a sigh of relief about the quality of support and service they are likely to receive at these large US brokerage firms. Several of the broker-dealers are even likely to offer investors free, basic investment plans. (That said, Consumer Reports warned that investors need to be aware that there are limitations to these kinds of plans in order to maximize any benefits.)

Despites such positive investor feedback, Consumer Reports says that its staff members, who acted as undercover researchers when they visited financial firms in New York and Washington, discovered that some broker-dealers continued to engage in questionable sales practices. For example:

• One staffer was shown a chart demonstrating a portfolio’s performance. However, the potential impact of key fees was not highlighted.
• Another staffer was guided toward a complex annuity product even though the financial adviser didn’t know a lot about her.
• One “empty nester” was directed toward a set of funds without being given any other options.
• Another tester, age 60, was advised to put half of his funds in cash and bonds even though he intended to retire in a year and had about a million dollars in investible assets, as well as a significant pension.

As an investor, you should be able to rely on the brokerage firm you work with for sound, customized advice that fits your specific investment needs. Unfortunately, this isn’t always the case and every year, there are those that will suffer unnecessary financial losses because they were told to place their funds in investments that were inappropriate for them or were never designed to meet their financial goals, or they were given insufficient information about the degree of risk involved (which they could never have afforded in the first place.)

Consumer Reports: Should brokerage clients be as content as they are?, Consumer Reports, January 5, 2012

Where to put your money, Consumer Reports, February 2012


More Blog Posts:
Former Brookstreet Securities Broker Who Promoted Subprime Mortgages Commits Suicide, Institutional Investor Securities Blog, January 7, 2012

Securities and Exchange Commission Charges Investment Adviser with Committing Securities Fraud on Linked In, Stockbroker Fraud Blog, January 6, 2012

Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam, Stockbroker Fraud Blog, January 4, 2012

Continue reading "Despite Reports of Customer Satisfaction, Consumer Reports Uncovers Questionable Sales Practices at Certain Financial Firms " »

January 6, 2012

Securities and Exchange Commission Charges Investment Adviser with Committing Securities Fraud on Linked In

The SEC has charged investment adviser Anthony Fields with selling bogus securities on LinkedIn and other social networking sites. The alleged financial fraud has prompted the agency to put out two alerts warning of the risks that advisory firms and investors must contend with in the social media era.

According to the SEC, Fields used social media sites to offer over $500 billion in fake securities. He used Platinum Securities Brokers and Anthony Fields & Associates, which are his two proprietorships, to make numerous fraudulent offerings. He also allegedly provided misleading and untruthful information about Anthony Fields & Associates’ clients, assets under management, and operational history on the company’s Web site and in filings submitted to the Commission. The SEC claims that Fields did not maintain the necessary records and books, gave the impression that he was a broker-dealer even though he is not SEC-registered, and failed to implement appropriate compliance procedures and policies.

With retail investors turning to LinkedIn, Facebook, Twitter, YouTube, and other online networks to get information about investing, the risks of becoming exposed to fraud are growing. The SEC’s Office of Investor Education and Advocacy is offering investors a number of tips to avoid financial scams online, including:

• Be careful of unsolicited investment opportunities—especially from someone you don’t know.
• Be wary of any investment opportunity that sounds too good to be true.
• Watch out for “guaranteed returns” – there is no such thing.
• Consider it a “red flag” if you experience any pressure to invest or buy immediately.
• Watch out for affinity scams, which usually target group members.
• Make sure that your privacy is always protected online.
• Ask lots of questions about any investment opportunity.
• Do your due diligence.
• Don’t provide your Social Security number, any account information, or other sensitive data to or on social media Web site.
• Watch out for “friend” requests from financial service providers that you don’t know—remember, once you let them “in,” you are giving them access.
• Pick a solid password and don’t use the same one for multiple accounts.
• Deactivate file sharing.
• Be careful when using public computers or Wi-Fi that is accessible to others.
• Arm your computer with a firewall and antivirus software.
• Log out of your social networking accounts when you are not using them.
• Watch out for unfamiliar links sent to you—especially if you don’t know the sender.
• Make sure your mobile device is secure.

Examples of investment scams that have been known to use the Internet and social media:
• Market manipulation schemes
• Pump-and-dump scams
• Fraud marketed through spam e-mail or online investment newsletters
• High yield investment program scams
• Fraud offerings made online

SEC Charges Illinois-Based Adviser in Social Media Scam Agency Issues Alerts on Social Media Risks for Investors and Firms, SEC, January 4, 2012

Read the SEC's Investor Alert (PDF)

Read the SEC's investor bulletin on understanding your accounts (PDF)


More Blog Posts:

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

Lancer Management Group LLC Hedge Fund Manager Acquitted of Charges He Ran Market Manipulation Scam, Institutional Investor Securities Blog, May 5, 2011

Barclays Capital Ordered by FINRA to Pay $3M Fine For Alleged Subprime Mortgage Securitization-Related Misrepresentations, Institutional Investor Securities Blog, December 23, 2011

Continue reading "Securities and Exchange Commission Charges Investment Adviser with Committing Securities Fraud on Linked In " »

January 4, 2012

Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam

The Securities and Exchange Commission has filed Texas securities fraud charges against Life Partners Holdings Inc. and three of the company’s senior executives over their alleged involvement in a life settlement scam. Life Partners, which is a Nasdaq-traded company, makes nearly all of its revenue from the life settlements it brokers.

According to the SEC, CEO and Chairman Brian Pardo, CFO David Martin, and general counsel and president Scott Peden misled shareholders when they failed to reveal a significant risk, which was that Life Partners was materially underestimating the estimates for life expectancy that it was using to determine how to price transactions. The estimates have a critical effect on company profit margins, revenues, and shareholder profits.

The Commission contends that Life Partners, Pardo, Peden, and Martin took part in improper accounting and disclosure violations, which allowed the company’s books to become overvalued while making it appear as if there was a steady stream of earnings coming from the life settlement transactions that were being brokered.

Peden and Pardo are also charged with insider trading. The SEC claims that the two men sold about $300,000 and $11.5M, respectively, of Life Partners stock at prices that were inflated even though they had material, non-public information disclosing that the company had relied on short life expectancy estimates to make revenue.

In a statement issue by the SEC's Division of Enforcement Director Robert Khuzami, the agency is claiming that Life Partners also deceived shareholders by retaining a medical doctor to designate baseless life expectancy estimates to underlying insurance policies. Dr. Donald T. Cassidy, who lacks actuarial training and had no previous experience in assigning life expectancy estimates, began working with Life Partners in 1999. (The Commission claims that Pardo and Peden neglected to perform substantial due diligence on the doctor’s qualifications to do this job. They also are accused of telling him to use a methodology created by a former underwriter, who is one of the company’s owners.)

Beginning fiscal year 2007 through fiscal year 2011’s third quarter, Life Partners allegedly understated impairment costs related to life settlement investments and prematurely recognized revenue. The company is also accused of improperly accelerating revenue recognition starting from the closing date until when it got a non-binding agreement with the policy owner to sell the life settlement. Because Life Partners used these Dr. Cassidy’s life expectancy estimates in its impairment calculations, millions of dollars in impairment costs were understated.

The SEC wants the repayment of bonuses and profits from stock sales.

Life Settlements
These usually involve the selling and buying of fractional interests of life insurance policies in the secondary market. For a lump sum amount, life insurance policy owners sell investors their policies. The amount that is offered is supposed to factor in the life expectancy of the insured and the policy’s terms and conditions. The longer the insured is expected to life, the more the investor has to pay in premiums. Policies owned by persons expected to not life as long cost more.

SEC fraud case could give new life to life settlements controversy, Bloomberg/Investment News, January 4, 2012

SEC Charges Life Settlements Firm and Three Executives with Disclosure and Accounting Fraud, SEC, January 3, 2012

SEC Complaint


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 "Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam" »