Posted On: June 24, 2013

Financial Firms Securities News: Bear Stearns Can Bid for $160M Insurance Coverage, Deloitte Pays NY $10M, Fraud Sentences Against Two Ex-Brokers Are Affirmed

Bear Stearns Allowed $160M Insurance Settlement Coverage Bid
The New York Court of Appeals said that JP Morgan Chase & Co’s (JPM) Bear Stearns & Co. (BSC) can go ahead with its attempt to obtain insurance coverage for the $160 million it disgorged in an SEC case over alleged wrongdoing involving mutual fund practices. Justice Victoria Graffeo says the evidence presented is not a decisive repudiation of Bear Stearn’s claim that the payment amount was largely determined by the profits of others and therefore the case cannot be dismissed at this time.

The SEC accused Bear of helping certain clients, mostly big hedge funds, take part in deceptive market timing and late trading, which let them reap profits of hundreds of millions of dollars at cost to mutual fund shareholders. The financial firm settled by consenting to pay $160 million in disgorgement and $90 million in civil penalties.

Deloitte FAS to Pay $10M Settlement to NY
Deloitte Financial Advisory Services will pay $10M to New York State and make a number of modifications to its financial consulting practices. The firm reached this agreement with the New York State Department of Financial Services and comes in the wake of a probe into its consulting work at Standard Chartered Bank. The DFS found that not only did Deloitte fail to show it had the autonomy needed to serve as a consultant, but also it disclosed the confidential information of some clients to Standard Chartered. Steps will be implemented to ensure that Deloitte is independent from its clients and isn’t tied to them because of fee payments.

The state wants this to settlement serve as a model for consulting firms that are approved or retained by the DFS. As part of the settlement, Deloitte FAS has consented to suspend its consulting work with financial institutions that the state regulates.

Prison Sentence Against Ex-Broker in Pump-and-Dump Scam is Affirmed
The U.S. Court of Appeals for the Tenth Circuit is affirming the 151-months prison sentence issued to ex-stockbroker Richard Clark who was convicted of 14 criminal counts in a “pump-and-dump” scam involving penny-stock company shares. The financial scheme was run by ex-securities lawyer George D. Gordon. The 10th circuit said that the lower court did not make a mistake when it imposed the prison term.

Clark unsuccessfully tried to appeal, arguing that placing a caveat on his real property was a violation of his constitutional rights, his Speedy Trial Act rights were violated, and there wasn’t enough evidence against him. He also spoke out against the decision by the lower court to not appoint another counsel or a substitute lawyer that was knowledgeable in complex securities issues.

Seventh Circuit Affirms Former Broker 78th-Month Prison Term for Fraud
The U.S. Court of Appeals for the Seventh Circuit has affirmed the 78-month prison term of an ex-stockbroker that misappropriated $2.8 million in customer money over four years. Brokerage firm owner Robert Loffreddi offered clients mutual funds, CDs, and other investments, but instead of investing their money, he used the funds for himself.

Loffreddi pleaded guilty to mail fraud but argued that while his pre-sentence report determined that there were 14 victims of his fraud (the district court gave him a sentence that was at the top of the guidelines range), there actually was just one. He says that the parent brokerage firm was the victim because it was forced to repay 12 of the clients.

Citing United States v. Panice, the appeals court said that even if they are reimbursed losses, such victims still sustain losses until that time, and this counts them as victims for purposes of sentencing.

J.P. Morgan Securities Inc. v. Vigilant Insurance Co., NY Courts

NY's Agreement with Deloitte FAS (PDF)

United States v. Clark, Justia

United States v. Loffredi


More Blog Posts:
“Ask and It Shall Be Received": Securities Brokers Can Wipe Complaints and Even Legal Claims Off Their Public Records, Stockbroker Fraud Blog, June 20, 2013

Cayman Islands LLC Must Replead CLO Securities Case Against Deutsche Bank, Institutional Investor Securities Blog, June 24, 2013