Securities Roundup: Court Says Investors’ American Funds Securities Litigation Claims Were Timely, Nasdaq Proposes $62M Fund to Repay Facebook IPO Participants, Indictment Made in Alleged Muni Bond Rigging Plot, & Investment Advisers Could Pay User Fees

According to the US Court of Appeals for the 9th Circuit, a lower court was in error when it dismissed on the grounds of timeliness investors’ putative securities fraud class action lawsuit accusing the American Funds mutual fund family of charging marketing and management fees that were too high and giving brokers improper kickbacks. Now, the plaintiffs have the opportunity to amend their case to remedy scienter pleading-related deficiencies.

The district court had found the investors’ securities claims untimely because it said that the defendants provided evidence establishing that the media and regulatory agencies had already looked at the alleged financial scam in question at least three years before the plaintiffs filed their securities complaint. The appeals court, however, said none of the sources (from 2003 and 2004) that had implied that the defendants acted with the intent to deceive could have caused a plaintiff that was “reasonably diligent” to discover this intention (if it even existed). Because of this, the 9th circuit said that the two-year statute of limitations didn’t start running more than two years before the complaint was filed, which means that the lower court made a mistake when it said the case was time-barred.

In an unrelated securities fraud case, this one involving criminal charges, federal officials indicted ex-financial services executive Phillip Murphy over an alleged conspiracy to manipulate the bidding process for multiple finance contracts, including those involving municipal bonds. He is charged with one count of wire fraud, two counts of conspiracy, and one can of conspiring to falsify bank records.

The US Justice Department contends that Murphy was involved in a conspiracy with CDR Financial Products (Rubin/Chambers, Dunhill Insurance Services Inc.) to increase the size and quantity of investment agreements from different municipalities that were awarded to the firm with whom he was employed. Per the indictment, he won the investment agreements because CDR manipulated the bidding process.

Murphy allegedly would make losing bids for certain investment agreements and pay (or make sure that) CDR and other brokers got kickbacks. Prosecutors say that, as a result, Murphy put the bonds’ tax-exempt status in peril.

In other securities news, Nasdaq Stock Market LLC has submitted a proposal to the SEC that would allow it to establish a $62 million fund to pay back qualifying members that suffered losses due to technical glitches involving Facebook’s (FB) IPO in May. Nasdaq said cash would be the form of payment and the accommodations would be issued within six months upon the proposal’s approval.

Under certain conditions, the proposal would accommodate orders involving sells priced at $42 price or lower that either failed to execute or were executed at a lower price, buys priced at $42 or lower that were executed and not confirmed right away, and buys in this same price range that were not just executed, albeit not confirmed right away, but also that efforts had been made to cancel them. Nasdaq said that claims involving this latter category would get a 30% reduction.

Meantime, In an effort to enhance investment adviser oversight, Rep. Maxine Waters (D-CA) has unveiled a bill that, if approved, would give the US Securities and Exchange Commission the authority to make investment advisers pay user fees, which would allow for additional and more frequent exams as long as the regulator raises their level of activity relative to the last fiscal year. Right now, the SEC only examines 8% of the approximately 11,000 registered advisers each year. Waters believes that more oversight over investment advisers is essential, seeing as they manage the assets of millions of investors each year. Water’s Investment Adviser Examination Improvement Act of 2012 is co-sponsored by Rsep. Michael Capuano (D-MA) and Rep. Barney Frank (D-MA).

In re American Funds Securities Litigation
(PDF)

Investment Adviser Examination Improvement Act of 2012

Nasdaq boost Facebook compensation plan to $62 million, Reuters, July 21, 2012


More Blog Posts:

FINRA, SEC Need to Employ Better Oversight Over Investor Education Funds, Says District Court, Stockbroker Fraud Blog, July 30, 2012

Reform the Municipal Bond Market, Says the SEC
, Institutional Investor Securities Fraud Blog, July 31, 2012

Govt. Not Prepared for Next Inevitable Financial Crisis, Says Ex-SEC Chair, Institutional Investor Securities Fraud, July 30, 2012

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