Posted On: November 15, 2012

Securities Roundup: FINRA Tells Broker Dealer to Cease-a-Desist Its Allegedly Fraudulent Sales, SEC Supports Creation of Variable Annuities Summary Prospectus, & US Supreme Court Hears Amgen & Comcast Appeals to Shut Down Class Action Lawsuits

FINRA has filed a temporary cease-and-desist order barring WR Rice Financial Services Inc. and Joel I. Wilson, its owner, from taking part in allegedly fraudulent sales activities and the conversion of assets or funds. The SRO is also filing a securities complaint accusing both the Michigan based-brokerage firm, Wilson, and other registered representatives of selling over $4.5 million in limited partnership interests to approximately 100 investors while leaving out or misrepresenting material facts.

Per the broker fraud case, the broker-dealer and Wilson got investors to participate by promising them that their funds would be placed in land contracts in Michigan on residential real estate and that the interest rate they would get would be 9.9%. The money was instead allegedly used for unsecured loans to companies under Wilson’s ownership or control.

In other securities news, the SEC’s Division of Investment Management director Norm Champ recently stated that the Commission’s report on retail investors and their financial literacy gives basis for creating a summary prospectus for variable annuities. Speaking via teleconference at the American Law Institute-Continuing Legal Education Group conference on life insurance products on November 1, Champ reported that investors in the study agreed that the mutual fund summary prospectuses were user-friendly. He expressed optimism that a summary prospectus for variable annuities could give significant disclosures and related benefits if designed and implemented well and that the framework used for the mutual fund summary prospectus should prove to be an effective model.

The variable insurance industry wants its own summary prospectus. According to research from the Insured Retirement Institute, 95% of investors would prefer this also rather than the 150-300 pages in documents that are sent to them. Some also said that having a variable annuity summary prospectus might make them more inclined to buy.

Also earlier this month, the US Supreme Court heard appeals involving two class action securities fraud complaints in which the defendants are seeking to shut down the lawsuits against them. The cases are Amgen V. Connecticut Retirement Plans and Trust Funds and Comcast v. Behrend.

Biotech firm Amgen Inc. is combating claims that alleged misstatements it made about two of its anemia medications artificially inflated its stock price. At issue is whether the plaintiffs should have demonstrated at an earlier stage in the case that Amgen’s claims about meds Epogen and Aranesp did, in fact, impact the share price. In the Comcast case, the plaintiffs are accusing the cable provider of unfairly upping its prices in certain parts of the Philadelphia area because of its monopoly there. In this lawsuit, too, the justices are considering whether the plaintiffs should have proven more of their case sooner. The outcomes of both securities lawsuits could have a huge impact on similar class action litigation in the future.

In 2011, the justices had upped the bar for certain class action cases when it ruled in favor of Wal-Mart in the case against tit involving up to 1.6 million of its female workers who claimed they were victims of sexual discrimination. The Supreme Court decided that there were too many plaintiffs in too many Wal-Mart jobs to have as plaintiffs in one lawsuit.

FINRA Files Cease-and-Desist Order Against WR Rice Financial Services and its Owner Joel Wilson for Fraudulent Conduct, FINRA, November 5, 2012

Supreme Court Could Impose New Restrictions On Class Actions, Forbes, November 14, 2012

SEC Officials Support Summary Prospectus For Annuities But Give No Timeline for Action, Bloomberg/BNA, November 2, 2012


More Blog Posts:

California Securities Lawsuit Claiming Negligent Misrepresentation Over Allegedly Flawed Bond Offering Documents May Proceed, Says District Court, Stockbroker Fraud Blog, November 13, 2012

FINRA Provides Guidance As It Opens Up Arbitration Process to Investment Advisers, Stockbroker Fraud Blog, November 9, 2012

Federal Sentencing Judges Cannot Later Reopen Fraud Cases to Add Restitution, Rules Fifth Circuit, Institutional Investor Securities Blog, November 13, 2012