February 29, 2012

FINRA May Surrender Proprietary BrokerCheck Lock

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The Financial Industry Regulatory Authority Inc. is thinking of giving up its proprietary lock on BrokerCheck information. This would allow for greater examination of a broker’s disciplinary data, including regulatory and arbitration actions, as well as customer complaints. The SRO is currently seeking public comment on this matter through April 6.

Opening up access to BrokerCheck data would allow commercial users to make the reports, known for being pretty dense, friendlier for users. (Some people have said that the information available is “convoluted” and uses language that can be hard for an investor to comprehend.) This could help investors more easily find information about a broker. Also, vendors might be able to establish comparison data and some complaint data on the firm-level could become accessible.

Up until this point, FINRA has been protective about keeping its disciplinary information confidential. Not only has it prevented the automatic downloading of the BrokerCheck database, but also, this information has only been available through one-off data requests by individuals.

Critics of FINRA’s closed door policy have said these limitations protect the financial industry by keeping embarrassing information about firms and brokers private. While this has allowed financial advisers with numerous complaints against them to keep such secrets quiet, invaluable information, such as whether one broker has received more complaints than another, ends up not becoming known. The SRO, however, maintains that it hasn’t been shielding the industry with its BrokerCheck restrictions.

One reason that FINRA is considering making its BrokerCheck data more easily accessible is because it has been under pressure to merge the database’s search results with the Investment Adviser Public Disclosure database. IAPD data is pubic information and can be downloaded automatically. (Last year, FINRA considered putting the two systems together into one database to be made public but now says it is more practical to keep them separate.)

It wasn’t until recently that FINRA was the only regulator to have an online tool that let investors look into the backgrounds of members of the financial services industry. It was in 2010 that the Securities and Exchange Commission widened the IAPD database to include not just investment advisor firm information, but also data about IA representatives.

Last year, as mandated by Dodd-Frank’s Section 919B, the Commission put out a study and recommendations on how to better investor access to information related to broker-dealer and investment adviser registration. AdvisorOne reports that to improve how investors can better access this type of data, the SEC is recommending that search findings for it and the IAPD databases be unified, zip code and other location indicator-related searches be implemented, and educational content to help investors navigate any unfamiliar term definitions or links be included. Dodd-Frank wants these recommendations implemented soon, and FINRA plans to have this completed by the July deadline.

FINRA to Restructure BrokerCheck, Giving Investors More Power, AdvisorOne, March 2, 2012

Finra may give up lock on BrokerCheck, InvestmentNews, March 1, 2012


More Blog Posts:
Appeals Court affirm SEC Finding that Broker Acted “Willfully” When Keeping IRS Lien Information from FINRA, Stockbroker Fraud Blog, February 24, 2012

FINRA Says Charles Schwab Corp. is Making Customers Waive Right to Pursue Class Action Lawsuits, Stockbroker Fraud Blog, February 8, 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 6, 2012

Continue reading "FINRA May Surrender Proprietary BrokerCheck Lock " »

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Posted In: FINRA , Miscellaneous

February 28, 2012

SEC Wants Proposed Securities Settlements with Bear Stearns Executives to Get Court Approval

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The Securities and Exchange Commission wants the U.S. District Court for the Eastern District of New York to approve the proposed securities settlements that it reached with Matthew Tannin and Ralph Cioffi, two former Bear Stearns & Co. portfolio managers. The SEC says the deals are “fair, adequate, and reasonable.”

The settlements are to resolve SEC allegations that the two men misled bank counterparts and investors about two hedge funds’ financial states. Subprime mortgage-backed securities exposure caused the funds to collapse in 2007 and investors lost about $1.8 billion. (Bear Stearns’ hedge funds were some of the first to fail when the housing bubble popped.)

According to federal prosecutors, Cioffi and Tannen promoted the prospects of the funds even though they knew that their portfolio and the housing market were in dire straights. In the process, they earned millions of dollars.

A jury acquitted both of them criminal charges in these matters in 2009. This was a criminal case filed separate from the SEC’s securities fraud complaint against them. The proposed securities fraud settlement with the Commission allows Tannin and Cioffi to not have to go through a second trial.

As part of the settlement, Tannin and Cioffi have agreed to pay $1 million—Cioffi’s portion would be $700,000 in disgorgement plus a fine of $100,000 and Tannin would pay $200,000 in disgorgement and a $50,000 fine. Also, Cioffi wouldn’t be allowed to associate with any municipal securities dealers, investment advisers, or other financial industry professionals for three years. The ban for Tannin would be two years. Both of them would not have to admit wrongdoing.

Federal Judge Frederic Block, who will decide whether or not to approve the securities fraud settlement, has referred to the money the two men have agreed to pay as “chump change.” He has, however, indicated that he will likely sign off on it.

That said, as our securities fraud lawyers have reported in recent blog posts, the SEC recently came under fire for allowing parties to settle securities fraud cases by paying fines that some don’t believe reflect the true damages sustained by investors and others. Critics have also taken issue with the SEC’s practice of letting financial firms, brokers, and investment advisers settle without having to admit to any wrongdoing.

In response to Block’s concerns, the SEC noted that although courts should just approve Commission settlements, they also shouldn’t replace their own judgments with what the parties involved have agreed upon. The regulatory agency says that as long as the settlements reached don’t ignore any state or federal laws that apply and fail to create a burden on judicial resources, there is no reason why a court shouldn’t approve these agreements. The SEC pointed out that the financial settlement reached with Cioffi and Tannen is in the range of what might have been arrived at had the case gone to court.

Bear Stearns Ex-Managers to Pay $1 Million to Settle Fraud Case, New York TImes, February 13, 2012

SEC Charges Two Former Bear Stearns Hedge Fund Portfolio Managers with Securities Fraud, SEC, June 19, 2008


More Blog Posts:
Motion for Class Certification in Lawsuit Against J.P. Morgan Securities Inc. Over Alleged Market Manipulation Scam Granted in Part by Court, Stockbroker Fraud Blog, July 23, 2010

Bear Stearns Sold to JP Morgan – One Firm’s Trash Is Another Firm’s Treasure!, Stockbroker Fraud Blog, March 17, 2008

Insurer Claims that JP Morgan and Bear Stearns Bilked Clients Of Billions of Dollars with Handling of Mortgage Repurchases, Stockbroker Fraud Blog, February 3, 2011

Continue reading "SEC Wants Proposed Securities Settlements with Bear Stearns Executives to Get Court Approval" »

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

Posted In: Bear Stearns , Financial Firms

February 27, 2012

SEC Warning to Investors: Watch Out for Fraudsters Posing As Regulators

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The Securities and Exchange Commission wants investors to watch out for scammers pretending to be SEC employees who are soliciting investments. The warning is an update of a previous alert. The Commission is issuing it once again in the wake of a rise in the number complaints about this type of fraud.

In its alert, the SEC said that it does not endorse financial solicitation offers, help in the sale or purchase of securities, or take part in money transfers. The agency also noted that it isn’t associated with any drawings, sweepstakes, lotteries, or other events involving prizes, winnings, or money windfalls.

Fraudsters have been known to solicit targets by phone, e-mail, and other means, and they are likely to ask for detailed financial and personal information. The SEC says to watch out for anyone claiming to be affiliated with the federal agency and who claims to be looking for help with a fund transfer, wants to send over an investment offer, offers to provide advise about securities or financial assistance (for an upfront fee), or tells you that you are eligible for disbursements from a class action settlement or an investor claim fund.

Unfortunately, financial fraudsters have also been known to affiliate themselves with nonexistent government agencies and international organizations to make themselves appear legitimate. Scammers will pretend to give you that organization’s phone number. In some cases, when the agency that they “represent” actually does exist, the number will likely lead to their co-fraudsters instead. Some financial may even use a regulator’s seal or make up a fake one.

If you believe that you were the victim of investment fraud, please contact our securities fraud law firm so that we can help you explore your legal options. Over the years, Shepherd Smith Edwards and Kantas, LTD LLP has helped thousands of investors recoup their losses.

To avoid becoming the victim of these types of financial scams, the SEC recommends that you:

• Make sure you are in fact dealing with real regulators. You can look online on the SEC’s Division Homepages or the Web sites of the International Organization of Securities Commissions and the North American Securities Administrators Association for their directory lists.

• Be wary any investments that are touted as having government “approval.” The SEC doesn’t assess securities offerings or approve any investment. Remember to check whether the securities being offered to you are registered with the SEC or exempt from registration requirements.

• Don’t let impressive letterheads and seals fool you. Remember, anyone can cut and paste graphics or design their own in this technology age. The same goes for fancy brochures and impressive Web sites.

• Watch out for “Recovery Room” and “Advance Fee” scams.

Investor Alert: SEC Warns of Government Impersonators, SEC (PDF)

International Organization of Securities Commissions

North American Securities Administrators Association


More Blog Posts:
SEC to Concentrate on Financial Firms Where Management is Not Doing Enough to Promote Compliance, Stockbroker Fraud Blog, February 18, 2012

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

SEC Chairwoman Defends ‘No Wrongdoing’ Settlements, Institutional Investor Securities Blog, February 27, 2012

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

Posted In: SEC Enforcement

February 26, 2012

NFA Enforcement Action Filed Naming Texas Financial Firm J Hansen Investments

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The National Futures Association has put out an emergency enforcement action against J Hansen Investments LLC and Jonathan Hansen, who is the financial firm’s principal. The Houston, Texas financial firm is a commodity pool operator and an NFA member.

NFA actions taken against JHI and Hansen are the Associate Responsibility Action and the Member Responsibility Action. The Houston financial firm and its principal are accused of failing to cooperating with NFA during a firm examination.

NFA began an unannounced exam of JHI following the latter’s submission of its yearly questionnaire. On it, the financial firm noted that it was running as a commodity pool despite the fact that it had no commodity pools listed with the NFA, never turned in a disclosure document with the association, and lacks CFTC exemptions.

Because JHI allegedly did not cooperate with NFA, the association says that it cannot verify the fund sources in the pool and client trading accounts, the fund sources in trading accounts under the names of JHI and Hansen (this is where the pool and client trading account are held), and the number of commodity pool participants.

NFA has suspended the association membership of Hansen and JHI. Both are not allowed to place trades in any accounts. They also cannot transfer or distribute from client funds.

NFA says this action goes into effect right away. The association considers the move necessary to protect clients of Hansen and JHI. Both the ARA and MRA will stay in effect until Hansen and JHI show the NFA that they meet all association requirements. Both are entitled to a hearing before the NFA should they choose to pursue one.

Commodity Pool Operator
A CPO is an organization or person that runs a commodity pool, soliciting funds for it. The funds, which are usually contributed by several individuals, are pooled together to trade futures contracts, retail off-exchange forex contracts, and options on futures, and invest in other commodity pools. Registration is mandatory unless the CPO is qualified under certain exemptions, such as those:

• That are regulated otherwise.
• Operating one or more smaller pools with under $400K in aggregate capital contributions and have no more than 15 participants/pool.
• Running pools that don’t commit more than 10% of their assets’ fair market value to set up commodity interest trading positions. Commodity interest is traded in a way that is incidental to securities trading.
• With pools only open to individuals that satisfy specific financial standards. These pools trade options on futures or futures within specific limits.
• With pools that are only open to persons meeting a certain financial standard or net worth.

Our Texas securities fraud lawyers represent investors throughout the state. Contact our Houston stockbroker fraud law firm today.

NFA takes emergency enforcement action against Texas firm J Hansen Investments LLC and its principal, Jonathan Hansen, NFA, Febrary 27, 2012


More Blog Posts:
Texas Man Sued by CFTC Over Alleged Foreign Currency Fraud, Stockbroker Fraud Blog, February 23, 2012

Texas Securities Fraud: SEC May Pursue Disgorgement Claim from Charles Wyle’s Estate Now that He is Deceased, Stockbroker Fraud Blog, February 9, 2012

AmeriFirst Funding Corp. Owner Convicted of Texas Securities Fraud, Stockbroker Fraud Blog, February 3, 2012

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

Posted In: Texas Securities Fraud

Tags: National Futures Association

February 25, 2012

SEC Revises Dollar Amount Thresholds Determining Whether to An Advisory Client Would Have to Pay Performance Fees

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The Securities and Exchange Commission is adopting changes to the dollar amount thresholds, under the 1940 Investment Advisers Act, that are used to determine whether an advisory clients can be made to pay a performance fee. Per the current provision, an adviser has to be managing at least $750k of the client’s money or the adviser must have reasonable grounds for believing that the client’s net worth is over $1M. However, per the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 418, the SEC has directed that inflation adjustments to the dollar amount tests would be made every five years.

Last year the SEC put out an order modifying the “qualified client” assets management test from $750K to $1M. The test for net worth was changed from $1M to $2M. On February 15, 2012, the SEC said it was adopting these amendments to the Advisers Act’s Rule 205-3.

Per the amended rule, an individual’s primary residence worth and specific debt related to property would not be included when determining the net worth calculation. The amended rule comes with a grandfather provision that lets advisers keep charging clients who were qualified clients prior to the rule change performance fees. The amendments will be in effect 90 days after they are published in the Federal Register.

In other SEC-related investment adviser news, certain affiliated advisers may be able to take advantage of a no-action decision letting multiple advisers use one registration form when preparing Commission registration documents. The registration requirement comes in the wake of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which modified exemption provisions of the Investment Advisers Act of 1940. As a result, hundreds of investment advisers must register with the SEC for the first time because they are no longer exempt.

These advisers have until March 30 to register with the SEC. However, seeing as processing takes about 45 days, February 14 is the better day to register by.

In January, the American Bar Association’s Business Law Section sent a letter asking the SEC for interpretive direction regarding whether an adviser belonging to a group of related advisers in a controlled relationship dealing with one advisory business can fulfill their registration requirements with just one registration. The letter noted that certain business models have a single structure made up of many entities that now have to register with the SEC. The structures were established so that certain liability and tax matters were addressed or so that portfolio managers could give advice to different funds according to different investment strategies and goals.

SEC Division of Investment Management Branch Chief Tram N. Nguyen, in a no-action letter, acknowledged that while Form ADV, which is for registering, is supposed to be used by just one adviser, the Commission was aware that for certain advisers, using a single form might be appropriate.

Advisers wanting to avail of the no-action later have to satisfy certain criteria. For example, each adviser who is part of a joint registration submission with the SEC has to operate under ethical code and one set of procedures and policies. They also must advise just private funds and separate qualified account clients.

Shepherd Smith Edwards and Kantas, LTD, LLP represents individual and institutional investors. Contact our securities fraud lawyers today.

SEC Tightens Rules on Advisory Performance Fee Charges, SEC, February 15, 2012


More Blog Posts:
Senate Passes Bill Banning Congressional Insider Trading, Institutional Investor Securities Blog, February 8, 2012

With Confirmation of Richard Cordray as Its Director, The Consumer Financial Protection Bureau Can Finally Get to Work, Institutional Investor Securities Blog, January 4, 2012

SEC and SIPC Go to Court to Over Whether SIPA Protects Stanford Ponzi Fraud Investors, Stockbroker Fraud Blog, February 6, 2012

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

Posted In: Investment Advisers , SEC

February 24, 2012

Appeals Court affirm SEC Finding that Broker Acted “Willfully” When Keeping IRS Lien Information from FINRA

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The U.S. Court of Appeals for the Second Circuit says that the Securities and Exchange Commission did not abuse its discretion when it determined that broker Scott Mathis “willfully” withheld information from the Financial Industry Regulatory Authority about tax liens. Mathis had submitted a petition seeking for the court to review the SEC order. However, the court, denying the request, found that there was “substantial evidence” backing up the SEC’s findings that he did in fact hold back information in a willful manner.

Between 1985 and 2002, Mathis was a principal or broker at numerous financial firms. He had submitted three Form U-4 registrations with FINRA. It was after 1996 that the IRS put in five tax liens against him. The federal agency accused him of not paying his personal income taxes over a several-year period. Mathis is accused of not noting the liens in filings with FINRA even though he is purported to have known about them.

According to the court, in 2003 FINRA asked Mathis to explain why he didn’t reveal the liens. He told the SRO he wasn’t aware that they existed or that he had an obligation to note them down on his Form U-4. FINRA then began proceedings against the broker, ultimately holding that he acted “willfully” in failing to report the tax liens. He was suspended for three months and fined $10,000.

Mathis turned to the SEC for review of the matter. The Commission determined that the broker “voluntarily” lied on his filings with FINRA and it then proceeded to bar him from the industry.

Mathis went to the Second Circuit, contending that the 1934 Securities Exchange Act does not support the way the SEC interpreted “willful” in his case. He pressed his argument that a “willfulness” finding needed the determination that he knew he was violating a specific regulation or rule.

The court rejected his argument and found that if Mathis purposely turned in an application to register with a FINRA member while knowing that the form held information that was materially false, then he is subject to statutory disqualification. The court pointed to the SEC’s finding, which it says has standing because Mathis did not note the liens on a National Securities Annual Certification. Also, the Form U-4s include reminders and warnings that filings must be updated with new information. It wasn’t until after FINRA began its inquiry that the forms were revised.

In rejecting Mathis’s challenge of the materiality of information regarding the tax liens, the court said it was not difficult to support the SEC’s determination that by leaving out the info about the tax liens, the broker had “significantly altered” the information available to FINRA, employers, regulators, and investors.

Shepherd Smith Edwards and Kantas, LTD, LLP is a securities fraud law firm that represents investors throughout the US.

2nd Cir. Affirms SEC's Finding That Broker ‘Willfully' Withheld IRS Lien Info From FINRA, BNA, February 14, 2012

FINRA Hearing Panel Fines, Suspends Investprivate's Chairman and CEO for Failure to Disclose Tax Liens, Customer Complaints, FINRA, March 24, 2008


More Blog Posts:
FINRA Says Charles Schwab Corp. is Making Customers Waive Right to Pursue Class Action Lawsuits, Stockbroker Fraud Blog, February 8, 2012

FINRA Investor Education Foundation and NFL Player Join Forces To Protect Pro Football Players from Investment Fraud, Stockbroker Fraud Blog, January 31, 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

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

Posted In: FINRA , Securities Fraud

February 23, 2012

Texas Man Sued by CFTC Over Alleged Foreign Currency Fraud

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The Commodity Futures Trading Commission is suing Texas resident Christopher Cornett for alleged solicitation fraud, issuing false account statements, misappropriation of participants’ funds, and not registering in connection with an off-exchange foreign currency fraud. The CFTC filed its complaint on February 2 in the U.S. District Court for the Western District of Texas.

The CFTC contends that between June 2008 through October 2011, the Texas resident approached prospective clients to try to get them to put money in a pooled investment in forex. He played the role of operator and manager of the pool that was referred to with different names, including ICM, ITLDU, IFM, LLC, and International Forex Management, LLC. Cornett is accused of falsely soliciting these prospective participants and making false claims to them that he never had a losing month or year while engaging in forex trading.

Cornett was allegedly able to solicit about $7.07 million between June 2008 and September 2010. Pool participants were able to redeem about $1.64 million. Meantime, he lost about $4.17 million of the funds’ money. During this period of over two years, Cornett allegedly had only one month that was profitable while engaged in forex trading with the pool funds. He is also accused of misappropriating about $1.26 million and falsely reporting the pool’s profits, account balances, and losses to participants.

The CFTC says that between October 2010 and October 2011, the Texas resident allegedly was able to solicit another $6.95 million from those participating in the pool and that the latter were only able to redeem about $2.22 million. Cornett also is accused of transferring about $1.81 million of the money to accounts at three foreign firms while losing everything except for about $1,600 in forex trading. Cornett also allegedly moved about $1.56 million of the funds to another three foreign firms. Even though he was required to register as a commodity pool operator, Cornett didn’t yet still acted in that role. The CFTC wants disgorgement, restitution, civil monetary penalties, a permanent injunction, and registration and trading bans against him.

Forex Fraud
The CFTC is in charge of investigating allegations of foreign currency trading fraud. It is also supposed to take action to shut such scams down. Forex fraud can be perpetuated by financial firms and affiliates, as well as by unregulated firms.

Signs of a possible forex currency trading scheme (from the CFTC):

• It sounds too good to be true
• Claims of a “get rich quick” investment
• Guarantees that your investment will definitely result in profits
• The downplaying of risks involved
• Margin trading or interbank market trading
• Having to send or transfer money by mail or online
• Ethnic communities are targeted as possible clients
• Challenges in getting the company’s performance or background records

Our Texas securities fraud lawyers represent victims of all types of financial fraud scams.

CFTC Charges Texas Resident Christopher B. Cornett in Foreign Currency Fraud Action, CFTC, February 8, 2012

Read the Complaint (PDF)


More Blog Posts:
Texas Securities Fraud: SEC May Pursue Disgorgement Claim from Charles Wyle’s Estate Now that He is Deceased, Stockbroker Fraud Blog, February 9, 2012

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

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

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

Posted In: CFTC , Foreign Currency Scam , Texas Securities Fraud

February 21, 2012

ISS Probes Allegations that a Boston Employee Sold Shareholder Information

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ISS, a shareholder advisory firm, has placed an employee on administrative leave following allegations that this person sold the confidential voting information of clients in exchange for gifts and cash. MCSI is the parent company of ISS, which advises large shareholders on how to vote their shares while helping them use ProxyExchange.

MSCI CEO Henry A. Fernandez says that the firm decided to conduct its own probe even though the Securities and Exchange Commission has not contacted them about this matter. In papers filed with the SEC, Fernandez noted that client information confidentiality is key to the business and is addressed not just in the ISS Regulatory Code of Ethics, but also is part of employee training.

It was on February 12 that the New York Post reported that a whistleblower complaint had been filed with the SEC accusing the Boston office employee of giving shareholder voting information to corporate boardrooms. The lawsuit claims that the employee provided the information to proxy-solicitation firms working for corporate boards that were seeking to influence the biggest shareholders on executive compensation and profitable mergers. The alleged tipster is accused of using his personal e-mail address to provide the solicitors with the confidential data up to weeks ahead of time. (For example, the Post said that for an upcoming meeting, the ISS employee provided information about upcoming votes from BlackRock and Vanguard. Both companies, however, have refused to confirm whether or not this is true due to a policy to keep voting confidential.)

A shareholder’s votes are supposed to remain private unless he/she chooses to make it known. One reason for this is that shareholders don’t want to experience retaliation in the event that they decide to vote against management. By gaining access to the votes in advance, companies can better strategize on how to get the outcome they want. Sometimes a decision can be so close that just a few votes in favor of/against can make a world of difference.

Shepherd Smith Edwards and Kantas LTD LLP Founder and Stockbroker Fraud Lawyer William Shepherd applauded the whistleblower complaint: “This is exactly how the new ‘Wall Street whistleblower’ law is supposed to work. Improper use of this information would almost certainly not have been reported without this law.”

According to the SEC’s Boston Regional Office, ever since new whistleblower rules were enacted last year, it has received close to seven tips a day. The office’s director, David Berger, noted that unlike in the past, these tips are “sworn… verified.” Financial statements, corporate disclosure, and market manipulation are the topics that have gotten the most tips. Although none of the whistleblowers have yet to receive their percentage of compensation from having stepped forward and notified the government of alleged wrongdoing, Berger says that this is just because not enough time has passed since the lawsuits were filed to allow for the requirements that have to be first fulfilled before the payments can go through.

Advisory firm employee leaking shareholder voting data, whistleblower claims, New York Post, February 12, 2012

Advisory firm probes charge that worker sold shareholder info, Boston Herald, February 17, 2012


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

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

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

Continue reading "ISS Probes Allegations that a Boston Employee Sold Shareholder Information " »

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

Posted In: Whistleblower Lawsuits

February 18, 2012

SEC to Concentrate on Financial Firms Where Management is Not Doing Enough to Promote Compliance

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According to Securities and Exchange Commission's Office of Compliance Inspections and Examinations director Carlo di Florio, the federal agency will be concentrating “intently” on financial firms with senior management and boards that are failing to set the right tone when it comes to getting behind key control and risk functions to promote compliance. Di Florio addressed his statements to those attending the Compliance Outreach Program for investment companies and investment advisers. Although the gathering was SEC-organized, he noted that the views he was expressing are his own.

The SEC wants boards and management to support compliance—especially as they are responsible for setting a company’s tone and culture. Di Florio said that a chief compliance officer needs the support and involvement of management and the board in order to be effective. He noted that the SEC’s national examination manual has been given to OCIE staff. The manual establishes key standards and policies for the group.

In the last 18 months, the OCIE has undergone restructuring to streamline its processes, set up practices that are being implemented across regional offices, and engaged in greater coordination with other divisions in the SEC. Exams are also now more concentrated on risk.

Other changes include the setting up of a Risk Assessment and Surveillance unit that will identify the financial firms, products, and practices that are the most high-risk. Working groups also have been created in the areas of fixed income products and municipal securities, equity market structure and trading, sales and marketing practices, new and structured products, microcap fraud, and valuation.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, OCIE has been given greater responsibility over municipal advisors, swap market participants, hedge funds, and other firms. For example, while the SEC has been able to examine the average investment adviser every 11 years, the agency hopes to conduct these exams more frequently so that clients are better protected. SEC Commissioner Elisse Walter, who spoke at the same event as Di Florio, said that commission staff are recommending the setting up of at least one self-regulatory body to oversee registered investment advisers (ideally FINRA would be involved) and making the industry pay “user fees” to fund OCIE examinations.

Our stockbroker fraud lawyers have seen way too many investors lose out because the financial firm they entrusted with their money was not in compliance, committed securities fraud, or was negligent in some other way. We are here to help our clients recoup their losses.

Shepherd Smith Edwards and Kantas, LTD LLP represents investors in arbitration and litigation. We work with clients located throughout the US, as well as some investors living abroad who suffered losses because of a US-based financial firm.

We would be happy to offer you a free consultation to help you determine whether you have a securities fraud claim on your hands.

Speech by SEC Staff: Remarks at the Compliance Outreach Program, SEC, January 31, 2012

SEC: Senior Management and Boards That Fail to Support Compliance Face Most Scrutiny, AdvisorOne, January 31, 2012


More Blog Posts:
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

Despite Tougher Investigations, SEC is Still Letting Wall Street Firms Avoid Punishments for Financial Fraud, Institutional Investor Scurities Blog, January 29, 2012

Continue reading "SEC to Concentrate on Financial Firms Where Management is Not Doing Enough to Promote Compliance" »

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

Posted In: SEC Enforcement

February 14, 2012

Bank of America Subpoenaed by Massachusetts Over Bryn Mawr CLO II Ltd. and LCM VII Ltd. CLOs that Cost Investors $150 Million

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Massachusetts securities regulator William Galvin is subpoenaing Bank of America Corp. over two collateralized loan obligations that led to investors to lose $150 million. Galvin is trying to determine whether the financial firm knew it was overvaluing the portfolios’ assets so it could remove the loans from its books.

The state is looking to obtain records and documents from Banc of America Securities LLC related to two CLOs—Bryn Mawr CLO II Ltd. and LCM VII Ltd—that were sold in 2007. (Merrill Lynch and Bank of America Securities joined forces in 2008 when they were merged in an acquisition).

It was in 2006 that Bank of America had about $400 million of commercial loans from small banks. The following year, loans were put together as securities packages that were bought by investors.

Galvin has been taking a hard look at the way banks structured and sold debt products—especially mortgage-backed securities—leading up to the 2008 economic collapse. Galvin says his office is also interested in taking a closer look at other entities.

Massachusetts’ subpoena on Friday comes a day after Bank of America, Citigroup Inc., Wells Fargo & Co., JP Morgan Chase & Co., and Ally Financial Inc. agreed to settle for $25 billion allegations accusing them of engaging in abusive mortgage practices. The agreement was reached with federal agencies and 49 states (not Oklahoma) and is considered the largest federal-state settlement ever. All five banks will also pay the Federal Reserve $766.5 million in penalties.

The deal resolves allegations that the banks robo-signed thousands of foreclosure documents without properly reviewing the paperwork, engaged in deceptive practices when offering loan modifications, did not offer other options prior to closing on borrowers who had mortgages that were federally insured, and submitted improper documents in bankruptcy court.

Also as part of this securities settlement, Bank of America will pay $1 billion to settle a separate probe into allegations that it and its Countrywide Financial unit engaged in wrongful and fraudulent conduct. The $25B settlement is designed to provide mortgage relief and give $2,000 to about 750,000 borrowers whose homes ended up foreclosing after home values dropped 33% from what they were worth in 2006.

Per other terms of the settlement, the bank is to provide $17 billion in loan modification and principal reduction to delinquent borrowers whose homes are at risk of foreclosure. $3 billion is included for borrowers that are up-to-date on mortgage payments but cannot refinance because they owe more than what their home is worth. The banks have also agreed to new servicing standards.

Massachusetts Subpoenas Bank Of America Over CLOs, Fox Business, February 10, 2012

U.S. banks agree to $25 billion in homeowner help, Reuters, February 9, 2012


More Blog Posts:
FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011

Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011

Bank of America to Pay $335M to Countrywide Financial Corp. Borrowers Over Allegedly Discriminating Lending Practices, Institutional Investor Securities Blog, December 21, 2011

Continue reading "Bank of America Subpoenaed by Massachusetts Over Bryn Mawr CLO II Ltd. and LCM VII Ltd. CLOs that Cost Investors $150 Million" »

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

Posted In: Bank of America , Collateralized loan obligations , Financial Firms

February 10, 2012

Investors of Highland Floating Rate Funds File Securities Fraud Claims and Lawsuits Over Poor Performance

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If you are an investor who sustained financial losses from the Highland Floating Rate Advantage Funds, please contact the securities fraud law firm of Shepherd Smith Edwards and Kantas, LTD, LLP right away and ask for your free case evaluation.

Unfortunately, the Highland Floating Rate Funds, which have produced negative returns over five years, continue to be a source of dismay for investors. Funds include the Class Z Shares (Symbol: XLAZX), Class C Shares (Symbol: XLACX), and Class A Shares (Symbol: XSFRX).

Per Highland sales collateral, the Highland funds are purported to use leverage to up the yield potential while aiming for credit risk management and capital reservation. Many of the investors that chose to back the Highland Floating Rate Funds did so because they thought that a greater return was offered without the downside of substantial risks. However, a reason that the funds didn’t do well is that the loans they were invested in had been rated as “junk” or lower than investment grade.

Last year, the Highland Floating Rate Fund and the Highland Floating Rate Advantage Fund became the Highland Floating Rate Opportunities Funds (Class C shares, B shares, Class Z Shares, and Class A Shares). Also known as “leveraged loans” to borrowers, these bonds possess a certain amount of debt relative to equity.

It wasn’t too long ago that FINRA put out an alert to investors cautioning against the chasing of returns in floating-rate funds, which have grown in popularity over the last 12 years. Despite their low-risk interest rates, floating rate funds come with a more significant credit risk. Also, portfolios tend to welcome borrowers with a higher default rate than bonds that are investment grade. The SRO warns that while chasing returns may seem like an easy way to make more money, as opposed to going with a more traditional investment, this is not always the wisest choice.

FINRA has said that rather than basing the decision to invest on an investment’s potential return, an investor also needs to look at what is behind an investment’s yield. Knowing how the investment works, fully comprehending the risks involved, and being aware of the fees involved are also essential.

Please contact Shepherd Smith Edwards and Kantas, LTD, LLP to discuss your Highland Floating Rate Funds-related losses today. There may be a way to recoup your losses. There is a possibility that your broker downplayed the risks of investing in these funds, failed to make sure you understood the risks involved, or recommended this investment even though it was not suitable for you.

To schedule your free case evaluation with an experienced securities fraud attorney, contact us online or call (800) 259-9010 today.

The Grass Isn’t Always Greener—Chasing Return in a Challenging Investment Environment, FINRA

Are 'Floating-Rate' Funds Safe?, Smart Money, August 23, 2011


More Blog Posts:
FINRA Says Charles Schwab Corp. is Making Customers Waive Right to Pursue Class Action Lawsuits, Stockbroker Fraud Blog, February 8, 2012

SEC and SIPC Go to Court to Over Whether SIPA Protects Stanford Ponzi Fraud Investors, Stockbroker Fraud Blog, February 6, 2012

Two Ex-Credit Suisse Executives Plead Guilty to Mortgage-Backed Securities Fraud, Institutional Investor Securities Blog, February 7, 2012

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

Posted In: Highland Floating Rate Funds

February 9, 2012

Texas Securities Fraud: SEC May Pursue Disgorgement Claim from Charles Wyle’s Estate Now that He is Deceased

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Now that Texas insider trading defendant Charles Wyly has passed away, the Securities and Exchange Commission may decide to pursue disgorgement from his estate. In the U.S. District Court for the Southern District of New York last month, Judge Shira Scheindlin said that the SEC’s bid for disgorgement survives Wyly’s death because this type of claim is remedial (preventing the alleged wrongdoer from financially benefiting from the alleged violations) and not punitive.

The SEC sued Charles and his brother Samuel Wyly in 2010, charging the Dallas siblings with insider trading and violating federal securities laws. The two men were accused of making over $550 million while making trades with the stocks of public companies that they served on as board members. They allegedly used hidden entities abroad to hide their trading and ownership of the securities.

The Commission accused the brothers of setting up subsidiary companies and trusts in the Cayman Islands and the Isle of Man to sell over $750M in stock in a number of companies that were public. Companies that they involved in their Texas securities scam included Sterling Software Inc., Scottish Annuity & Life Holdings Ltd., Michaels Stores Inc., and Sterling Commerce Inc. They allegedly made an unlawful gain of over $31.7 million after committing an insider trading violation related to one of the companies.

Also facing civil charges over the SEC’s Texas securities fraud case were broker Louis J. Schaufele III and the brothers’ lawyer, Michael C. French, who also belonged on the boards of three of the companies mentioned above. According to the Commission, the Wylys and their lawyer knew, or should have known, what their legal duties were as public company directors and over 5% beneficial owners. Per the law, these persons have to report trading and holdings in their companies’ securities to the SEC. The three of them also should have known that these disclosures are key for investors when they are deciding whether to invest.

The SEC accused the brothers and French of making it appear as if all of the Wylys’ trading and holdings only involved what they traded and held in the US. By not letting potential investors and shareholders know about this material information, the Wylys sold over 14 million issuer securities shares over 13 years for gains totaling over $550 million that were undisclosed.

Charles Wyly died in August 2011 at the age of 77. According to police, he died when an SUV struck his Porsche in Colorado where he has a home.

SEC Disgorgement Claim Survives Death of Insider Defendant, Bloomberg/BNA, January 31, 2012

SEC SUES SAMUEL E. WYLY AND CHARLES J. WYLY FOR FRAUD, Bloomberg, July 29, 2010


More Blog Posts:
AmeriFirst Funding Corp. Owner Convicted of Texas Securities Fraud, Stockbroker Fraud Blog Post, February 3, 2012

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

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

Continue reading "Texas Securities Fraud: SEC May Pursue Disgorgement Claim from Charles Wyle’s Estate Now that He is Deceased " »

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

Posted In: Texas Securities Fraud

February 8, 2012

FINRA Says Charles Schwab Corp. is Making Customers Waive Right to Pursue Class Action Lawsuits

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The Financial Industry Regulatory Authority has filed a complaint against Charles Schwab Corp. The SRO says the online brokerage is in violation of FINRA rules because it makes clients waive their rights to pursue class actions against it.

Per a new provision added to over 6.8 million customer account agreements, Charles Schwab clients are now not allowed to begin or join class-action complaints against the financial firm. Customers must also agree that arbitrators won’t be given authority to consolidate claims from different parties, as this would set up a class-action situation.

Over 50,000 clients have opened accounts with the financial firm since it implemented this new limitation. Now, FINRA wants an expedited hearing. The SRO is concerned that the class action waiver will cause millions of Schwab clients to mistakenly think they cannot bring or take part in an already existing class action complaint against the brokerage firm. Also, FINRA has specific rules about the conditions that financial firms can place on clients, and the SRO says this provision is a definite violation.

In an attempt to counter FINRA’s claims, on February 1, Schwab submitted a declaratory judgment action in district court. It wants a determination that agreements, such as the class action waiver, are enforceable. It has noted the US Supreme Court’s recent opinions interpreting the Federal Arbitration Act. For example, Schwab says that in in AT&T Mobility LLC v. Conception, the court said that the FAA preempts statutes or cases that mandate access to procedures regarding class action. The brokerage firm also pointed to the court’s ruling in Compucredit Corp. v. Greenwood, in which it ruled that solely a congressional mandate that was clear could preclude enforcing an arbitration agreement under the FAA. The brokerage firm believes that this matter should be resolved in federal court. It has vowed to combat any disciplinary action that FINRA attempts to impose against it.

At Shepherd, Smith, Edwards and Kantas, LTD, LLP, our stockbroker fraud lawyers represent institutional and individual clients with individual securities claims and lawsuits against investment advisers and financial firms. While filing a class action may seem like the less stressful, easier option, you have a greater chance of recouping more, if not all, of your losses if you file an individual securities fraud case.

However, this does not mean that you should have your right to file or join a class action complaint taken away from you. Unfortunately, brokerage firms can commit certain acts of misconduct that may cause investors to unnecessarily suffer financial losses. You should know that you could be able to get back some, if not all, of your money.

Our stockbroker fraud law firm has helped thousands of investors successfully pursue securities fraud lawsuits and claims against financial firms. Your first case evaluation with Shepherd Smith Edwards and Kantas, LTD, LLP is free.

Schwab new client-waiver spurs FINRA complaint, Reuters, February 1, 2012

FINRA Files Complaint Against Schwab for Asking Customers to Sign Waiver, AdvisorOne, February 1, 2012

Read the FINRA Complaint


More Blog Posts:
Charles Schwab & Co. Defendant in Class-Action Securities Fraud Lawsuit Filed on Behalf of Schwab Total Bond Market Fund Investors Over CMOs and Mortgage-Backed Securities, Stockbroker Fraud Blog, September 7, 2010

Schwab to Distribute $3.5 Billion to Its Shareholders by Buying Back Over 100 Million Shares, Stockbroker Fraud Blog, July 11, 2007

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

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

Posted In: Arbitration , Charles Schwab , FINRA , Financial Firms

February 6, 2012

SEC and SIPC Go to Court Over Whether SIPA Protects Stanford Ponzi Fraud Investors

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The US Securities and Exchange Commission is asking District Judge Robert Wilkins to make the federal Securities Investor Protection Corp. set up a claims process for the Ponzi fraud victims of R. Allen Stanford. These investors had purchased $7.2B in certificates of deposit that allegedly ended up being bogus. The SEC is suing SIPC in an attempt to get it to pay Stanford’s investors for their losses.

SIPC is a nonprofit corporation that gets its funding from the brokerage industry. It is supposed to insure clients against losses resulting from broker theft.

The Commission contends that per the Security Investor Protection Act's Section 16(b), these investors are protected because the money they deposited at Stanford International Bank Ltd. in Antigua to buy the CD’s was considered to have been deposited with Stanford Group Co., which is a SIPC member. The Commission wants the nonprofit corporation, to begin liquidation proceedings in federal court in Texas.

More than $1B in securities fraud claims from thousands of claimants related to the Stanford Ponzi fraud would likely be filed if the judge were to approve the SEC’s request.

The issue here is whether the clients who were victimized by the Stanford Ponzi scam are eligible to have SIPC cover the losses they sustained. SIPC says no. The group doesn’t believe that the Stanford Investments meets the criteria set up by federal law over who can qualify for payouts from such losses.

Attorneys for SIPC claims that the SEC is trying to set up a liquidation proceeding without there having to be a judicial review regarding whether the law would consider Stanford’s investors “customers.” SIPC wants the judge to order the SEC to refile its complaint, allow for discovery, and then determine this point.

Meantime, Stanford’s criminal trial is underway in Texas. Prosecutors are accusing him of bilking investors by getting them to invest in $7B in fake CDs while he used their funds to support his business and pay for an extravagant lifestyle. Stanford has denied any wrongdoing.

At his trial last week, former Stanford Financial Group Co. CFO James M. Davis testified against Stanford. Davis’s testimony against Stanford is part of the plea deal that he struck. Not only was Stanford Davis’s former boss, but also the two were once roommates at Baylor University.

According to Davis, Stanford told executives to falsify investment returns and that his boss threatened to terminate their employment if they ever reported that he borrowed over $2B from his Antigua bank to pay for his extravagant quality of life. Davis, who pleaded guilty to helping Stanford defraud investors, is facing up to three decades behind bars.

SEC Asks Federal Judge to Order SIPC Payout Plan for Stanford Investors, Bloomberg, January 24, 2012

SEC Suit Pursues Payouts by SIPC, Wall Street Journal, December 13, 2011

Allen Stanford Was ‘Chief Faker,’ Ex-Finance Chief Testifies, Bloomberg, February 6, 2012


More Blog Posts:
Jury Trial Begins in Ponzi Scammer Allen Stanford’s Criminal Case, Stockbroker Fraud Blog, January 23, 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 "SEC and SIPC Go to Court Over Whether SIPA Protects Stanford Ponzi Fraud Investors" »

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

Posted In: Ponzi Scams , Stanford Group Co.

February 3, 2012

AmeriFirst Funding Corp. Owner Convicted of Texas Securities Fraud

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The former COO of AmeriFirst Acceptance Corp. and AmeriFirst Funding Corp. was recently convicted of multiple counts of Texas securities fraud and mail fraud for his involvement in bilking over 500 investors of over $50 million. A lot of the victims of Dennis Woods Bowden were retirees.

Per evidence that was given at trial, the 58-year-old executive and Jeffrey Charles Bruteyn, who was AmeriFirst’s managing director, made available Secured Debt Obligations (SDOs) as promissory note offerings to raise millions of dollars from investors in Florida and Texas. A lot of these clients, who were no longer employed, had hoped to place their money in investments that were safe.

While Bruteyn, who was convicted of nine counts of Texas securities fraud, directed brokers to sell the securities, it was Bowden who deceived and misled and defrauded them by signing the documents that were given to investors and misrepresenting/not disclosing material facts about the securities and the risks involved. For example, he falsely represented to investors that:

• A commercial bank was guaranteeing investors’ investments Interest in certain kinds of collateral was secured by the investors’ principal
• Insurance had been bought to protect investors’ money
• The SDO’s issuers were also acting as the fiduciary of investors.

In fact, all of these “facts” were untrue. Instead, Bowden served as “fiduciary” and spent investors’ money on things they had not approved or even known about.

Senior Financial Fraud
Unfortunately, senior financial fraud continues to be a huge problem in Texas and elsewhere in the US. The state of Texas even recently started running public service announcements to warn investors to be wary of “free lunch” seminars that promise free meals but were, in fact, an excuse to “hard sell” attendees into making investments that may not be appropriate for them. The PSAs also are reminding seniors to check the background of anyone they decide to go into an investment opportunity with—even if the other person is a friend, a fellow community member, or a co-worker.

Unfortunately, retirees continue to be the favorite targets for many seeking to bilk investors. With many of these elderly seniors no longer having a regular source of income, becoming the victim of Texas securities fraud can have devastating consequences, making it difficult for the victims to afford the care they may need or maintain the quality of life they have worked so hard to give themselves.

Contact our Texas securities fraud law firm today. At Shepherd Smith Edwards and Kantas, LTD, LLP we are dedicated to helping our clients recoup their losses. Your first consultation with one of our Dallas securities fraud lawyers is free. Contact us online or call (800) 259-9010.

CEO of Dallas-based AmeriFirst found guilty of securities fraud for swindling $50 million from retirees, The Dallas Morning News, December 22, 2011

Defendant Deceived Investors About Supposed Fraud Scheme That Involved More Than 500 Victims and More Than $50 Million, Justice.gov, December 21, 2011


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

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

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

Posted In: Senior Investors , Texas Securities Fraud

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