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" »

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

Posted In: Auction-Rate Securities , BNY Mellon Capital Markets LLC , Financial Firms , Texas Securities Fraud

December 27, 2011

Bank of New York Mellon To Pay $1.3M To Texas, New York, and Florida Over Auction-Rate Securities Trading Allegations

Bank of New York Mellon Corp. (BNY) has agreed to pay $1.3 million to the states of Florida, New York, and Texas over allegations that it engaged in the manipulative trading of auction-rate securities. The settlement comes following a joint probe by New York Attorney General Eric Schneiderman, the Florida Office of Financial Regulation, and the Texas State Securities Board over Mellon Financial Markets’ actions as Citizens Property Insurance Corp. of Florida’s intermediary broker in an alleged scam to lower borrowing costs. Citizens Property is run by Florida and it is the largest home insurer in the state.

ARS interest rates are reset at auctions that usually occur at 7-day or 28-day intervals. According to the Texas State Securities Board, investors made $6.7 million less in interest than they would have earned if Citizens Property hadn’t placed bids during its own auctions. Mellon Financial Markets is accused of assisting Citizens Property in manipulating auction-rate securities’ interest rates by making and accepting bids on the latter’s behalf.

In 2008, Citizens Property allegedly asked a Mellon Financial Markets representative to assist it in bidding on its own ARS while hiding this action because broker-dealers in charge of managing the securities would have otherwise turned their bids down. Citizens Property then made bids that were lower than market rates, which caused the auctions to clear at rates below what they would have been. Meantime, Mellon Financial made approximately $300,000 in fees. At least one Mellon Financial broker expressed concern about these trades to a supervisor, who allegedly failed to seek legal advice or talk about these concerns with the MFM’s compliance department.

Following the collapse of the ARS market, one broker-dealer, who suspected that Mellon Financial was making Citizens’ bids, said that orders would no longer be made for a company bidding on its own securities. Yet, according to authorities, traders kept on with this practice until Bank of New York Mellon issued the order to stop. Those involved allegedly knew that bidding for CPIC established lower clearing rates, which would prove “detrimental” to investors holding or bidding on these ARS.

Citizens Property Insurance maintains that it thought its actions were “legally permissible.” The company claims that it was “vigilant” about getting advice from outside legal counsel before taking part in the transactions.

BNY Mellon Capital Markets has said that the alleged misconduct was related to the “isolated conduct” of three persons no longer with the financial firm. Mellon Financial Markets was a separate entity when the alleged bidding scam was happening.

BNY Unit Settles Auction-Rate Case, Wall Street Journal, December 23, 2011

Bank of New York Mellon Settles Auction-Rate Investigation, Bloomberg/Businessweek, December 23, 2011

BNY Mellon to pay $1.3M in Schneiderman suit, Crain's New York Business, December 22, 2011


More Blog Posts:
Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court, Stockbroker Fraud Blog, November 30, 2011

Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011

Continue reading "Bank of New York Mellon To Pay $1.3M To Texas, New York, and Florida Over Auction-Rate Securities Trading Allegations " »

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

Posted In: Auction-Rate Securities , Financial Firms

November 30, 2011

Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court

The U.S. Court of Appeals for the Second Circuit has affirmed a district court’s decision to dismiss securities fraud claims accusing Merrill Lynch & Co. of hiding its ARS practices to manipulate the market. The case had been filed by plaintiff Colin Wilson on behalf of all buyers between March 2003 and Feb. 13, 2008 that purchased ARS for which Merrill was the dealer.

Wilson contended that although until July 2007 Merrill Lynch did not allow its ARS auctions to fail, in the couple of months that followed the broker-dealer did not put in support bids during at least 34 auction-rate securities issuances. As a result, those auctions did fail. Wilson also claimed that because Merrill Lynch did not appropriately disclose the full scope of its ARS practices, the financial firm was sending out a false signal that the market was sustainable despite there being not enough of an investor demand for the instruments.

The district court threw out the Wilson’s ARS case after finding that Merrill’s disclosure did not mislead investors. Now, the appeals court is affirming. It found that if, as Wilson says, Merrill intended to put in support bids for every auction unless it decided to let certain ones fail or get out of the market in general, then the court believes that the broker-dealer gave fair disclosure of all this. The appeals court also didn’t agree with Wilson’s allegation that Merrill Lynch knew without a doubt that if it didn’t intervene an ARS auction was sure to fail.

This is the first appellate ruling involving securities class litigation over the demise of the ARS market. Upon the market's decline beginning 2007, Merrill Lynch and other large broker-dealers started letting auction-rate securities auctions fail. When they completely stopped their support, the market became illiquid. A number of investors have since filed ARS lawsuits seeking to recover their money.

Although Merrill appears to have won this case, Shepherd Smith Edwards and Kantas founder and stockbroker fraud attorney William Shepherd notes, “This is not the huge victory Merrill claims. The court did NOT find that Merrill did not engage in wrongdoing in the sale of auction rate securities (ARS) to its clients, most of whom were led to falsely believe that these ARS investments were similar to commercial paper or short-term treasury bills. This case is instead concerned with “market manipulation,” a type of securities fraud claim that is rarely brought and almost never successful. In order to win this case, among other hurdles the plaintiffs would have to demonstrate that Merrill’s practices were intentional and were intended to change the market value of the securities. Also, this decision is by the federal appeals court in New York, which mysteriously decides many cases in favor of Wall Street.”

2d Cir. Affirms Merrill Off the Hook In Investor Suit Over ARS Disclosures, BNA, November 16, 2011

Read the full opinion (PDF)


More Blog Posts:
SEC and SIFMA Divided Over Whether Merrill Lynch Can Be Held Liable for Alleged ARS Market Manipulation, Institutional Investor Securities Blog, July 29, 2011
Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M, Stockbroker Fraud Blog, August 27, 2011

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS, Stockbroker Fraud Blog, June 2, 2011

Continue reading "Securities Claims Accusing Merrill Lynch of Concealing Its Auction-Rate Securities Practices Are Dismissed by Appeals Court" »

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

Posted In: Auction-Rate Securities , Financial Firms , Merrill Lynch

August 27, 2011

Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M

Raymond James has agreed to return $31,240,000 to Indiana investors to settle allegations that it misled them about the risks involved in the auction-rate securities market. In addition to repurchasing ARS that have been frozen since the market failed in 2008, the financial firm will also pay a $63,000 civil penalty.

When the ARS market froze, investors that had thought their investments were liquid like cash were left in the lurch because they were not able to retrieve their funds. The Indiana Securities Division has been at the helm of the efforts to investigated Raymond James and work out a settlement for all state securities regulators. Over the last few years, the states have worked hard to get all of the financial firms accused of not fully apprising investors about the ARS risks to buy back the securities.

Auction-Rate Securities
ARS are long-term investments with dividends or interest rates paid that are frequently reset through auctions that take place at specific intervals. The auctions are supposed to give a source of liquidity to investors wanting to sell their ARS.

Unfortunately, when the ARS market collapsed in early 2008, many of the auctions started to fail and investors could not get rid of their ARS holdings. This proved a problem for those that managed their ARS as a way to get easy access to cash.

While some ARS issuers did say they would redeem shares—usually at par value—some could not redeem all of their investors’ shares, which left the latter with holdings that could not be liquidated.

ARS and Hoosier Investors
The state of Indiana has also reached ARS settlements with other securities firms that allegedly misled Hoosier investors. In April of last year, 12 financial firms agreed to buyback over $370 million in ARS from these investors, while also consenting to pay over $3.5 million in fines. Financial firms that reached settlements then include:

• Goldman Sachs
• Banc of America
• Credit Suisse
• Citigroup
• JP Morgan
• Deutsch Bank
• Morgan Stanley
• Merrill Lynch
• RBC
• UBS
• Stifel Nicolaus & Co.
• Wachovia

These financial firms have also reached settlements with other US states. However, millions of dollars in ARS remain frozen and there is still more to be done to help investors regain access to their frozen funds. Our stockbroker fraud law firm continues to work hard to help recoup our clients’ money from their ARS that turned illiquid.

Securities Fraud
Investors rely on brokers and investment advisers for advice on where they should place their money. When a financial adviser misleads a client, causing the latter to put their money in investments that are inappropriate, it is the investor who loses out and has to live with the consequences of a failed investment.

State Announces $31 Million Securities Settlement, Inside Indiana Business, August 24, 2011

State finalizes auction-rate securities settlements, Indianapolis Business Journal, April 29, 2010

Auction Rate Securities: What Happens When Auctions Fail, FINRA


More Blog Posts:
Auction-Rate Securities Investigations by SEC and NY Attorney General Are Ongoing, Stockbroker Fraud Blog, April 21, 2011

Class Auction-Rate Securities Lawsuit Against Raymond James Financial Survives Dismissal, Stockbroker Fraud Blog, September 27, 2010

Credit Suisse Ordered to Pay STMicroelectronics N.V. $404M Over Improper ARS Investment, Institutional Investor Securities Blog, June 15, 2011

Continue reading "Raymond James Settles Auction-Rate Securities Case with Indiana Securities Division for $31M" »

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

Posted In: Auction-Rate Securities , Financial Firms , Raymond James

June 2, 2011

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS

The U.S. District Court for the Southern District of Texas has ruled that Credit Suisse Securities shouldn’t have to pay Luby’s Restaurants another $186,000 as part of its arbitration to the investor. The case is Luby's Restaurants LP v. Credit Suisse Securities (USA) LLC. Shepherd Smith Edwards and Kantas Founder and Texas Securities Fraud Attorney William Shepherd had this to say about the ruling: “Attorneys for each side have the opportunity to submit language to the arbitrators that it desires to be reflected in an award. In cases where the award sought is anything more than payment of a specific amount it is wise to submit such language.”

Luby's Restaurants LP bought over $30 million in auction-rate securities from Credit Suisse. The investor bought the ARS based on the financial firm's representation that the instruments were very liquid, safe, and a suitable investment.

Luby’s later filed its arbitration claim with FINRA for ARS losses. By then it had gotten back everything but $8.9 million in securities. Then, after initiating the proceedings—but prior to the arbitration hearing—Luby’s redeemed another one of its securities for less than par and lost $186,000.

The arbitration panel would go on to rule in favor of Luby’s. Credit Suisse was directed to buy back the ARS from Luby’s at par and with interest. While both parties sought to confirm the award, they were in dispute over whether the $186,000 that Luby’s lost after it filed its arbitration case should be included.

The court says that Credit Suisse does not have to pay that amount to Luby’s. The court noted that the Award doesn’t mention the additional damages that Luby’s sustained when it sold some of the securities under par during pendency of the arbitration but prior to the hearing.

Related Web Resources:
$186K Under Arbitration Award, BNA Securities Law Daily, May 31, 2011

Luby's Restaurants LP v. Credit Suisse Securities (USA) LLC, Justia

More Blog Posts:
Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award, Stockbroker Fraud Blog, April 5, 2010

Texas Securities Commissioner's Emergency Cease and Decease Order Accuses Insignia Energy Group Inc. of Misleading Teachers, Stockbroker Fraud Blog, May 23, 2011

Goldman Sachs and Wells Fargo Investments Repurchase $26.9M in Auction-Rate Securities from New Jersey Investors, Institutional Investors Securities Blog, May 25, 2011


Continue reading "District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS" »

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

Posted In: Arbitration , Auction-Rate Securities , Credit Suisse , Financial Advisers , Texas Securities Fraud

April 21, 2011

Auction-Rate Securities Investigations by SEC and NY Attorney General Are Ongoing

The Securities and Exchange Commission and the New York Attorney General’s office are still investigating whether auction-rate securities market participants knew they were misleading investors about the complexity and liquidity of debt instruments leading up to the market collapse in 2008. Officials for both agencies told BNA about the ongoing probes last month.

It was these misrepresentations to investors that prompted the Financial Industry Regulatory Authority to issue a concept proposal that, should it become a rule, would hold research analysis and reports that analyze debt securities accountable to FINRA requirements. A federal regulator told BNA that the SRO is concerned about misrepresentations that may have been made to retail investors as early as in late 2007 when, even as institutional investors were buying less ARS—causing the market to lose liquidity—ARS sellers were being pushed by underwriters to get retail clients to buy the securities under the guise that the bonds were very liquid and like cash. Also, underwriters and others allegedly knew that the market conditions were headed toward illiquidity despite their claims that the instruments were highly liquid.

The New York Attorney General’s office reported that says that as of last month, financial institutions have agreed to repurchase $60 billion of the ARS. The financial firms have also agreed to pay about $597 million in fines. Among the investment banks that the SEC has reached settlement agreements with are Citigroup Inc. (C), Wachovia Securities LLC, Royal Bank of Canada subsidiary RBC Capital Markets Corp., UBS AG, Merrill Lynch & Co., TD Ameritrade Online Holding Corp. (AMTD, Bank of America Corp. (BAC), and Deutsche Bank AG.


Related Web Resources:
SEC, New York Continuing ARS Probes;
Retail ARS Risk Behind FINRA Proposal, BNA, March 23, 2011

Auction Rate Securities, SEC


More Blog Posts:
Class Auction-Rate Securities Lawsuit Against Raymond James Financial Survives Dismissal, Stockbroker Fraud Blog, September 27, 2010

Securities Fraud Lawsuit Against Calamos Investments Filed on Behalf of Calamos Convertible Opportunities and Income Fund Shareholders, Stockbroker Fraud Blog, September 17, 2010

Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute, Institutional Investor Securities Blog, September 1, 2010

Continue reading "Auction-Rate Securities Investigations by SEC and NY Attorney General Are Ongoing " »

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

Posted In: Auction-Rate Securities , SEC

September 27, 2010

Class Auction-Rate Securities Lawsuit Against Raymond James Financial Survives Dismissal

In the U.S. District Court for the Southern District of New York, U.S. District Judge Lewis A. Kaplan has allowed some of the investor claims in the class action auction-rate securities lawsuit against broker dealer Raymond James Financial Inc. (RJF) and its broker-dealer subsidiary to proceed. This is the first ARS class action case filed since the auction rate securities market failed in 2008 to survive a dismissal motion. The case can now go to the discovery stage.

Kaplan, who had dismissed an earlier lawsuit in this case, let the plaintiffs move forward with their ARS case on the claim that Raymond James & Associates Inc. (RJA) violated antifraud provisions between November 2007 and February 13, 2008. A claim against RJF was allowed to proceed because of its “operational and management control” of RJA during this time. Other claims were dismissed.

Investors had filed the initial class action in April 2008 against RJA, RJF, and Raymond James Financial Services Inc. (RJFS), another Raymond James broker-dealer subsidiary. The plaintiffs contended that between April 8, 2003 and February 13, 2008, the two subsidiaries told financial advisers that ARS were extremely liquid, short-term investments that could work well for any investor with at least $25,000 and with as little as a week to invest. However, when the ARS market failed, over $300 million in ARS became illiquid. Per Kaplan, RJA sold $2.3 billion of ARS, underwrote $1.2 billion, and was the auction dealer for over $725 million.

ARS cases filed by individual investors have been faring better than class-action ARS lawsuits. Of the class-action and group complaints filed against some 19 underwriters and broker-dealers since the ARS market failed, Bloomberg.com reports that Citigroup, Deutsche Bank AG, and at least six other financial firms have managed to get the lawsuits thrown out by judges ruling that the complaints failed to meet pleading requirements. Some plaintiffs were told to refile their lawsuits and provide more details.

Raymond James Auction Rate Class-Action Fraud Suit Is First to Be Upheld, Bloomberg, September 8, 2010

Court Clears Lawsuit Against Raymond James, FA-Mag.com, September 9, 2010

Continue reading "Class Auction-Rate Securities Lawsuit Against Raymond James Financial Survives Dismissal" »

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

Posted In: Auction-Rate Securities , Class Action Lawsuits , Financial Firms , Raymond James

September 17, 2010

Securities Fraud Lawsuit Against Calamos Investments Filed on Behalf of Calamos Convertible Opportunities and Income Fund Shareholders

Calamos Asset Management, Inc., the Calamos Convertible Opportunities and Income Fund (NYSE: CHI), Calamos Advisors LLC, current trustees, and one former Fund trustee are now the defendants of a putative class action securities complaint purportedly submitted on behalf of a class of common fund shareholders. The securities fraud lawsuit is alleging breach of fiduciary duty, the aiding and abetting of that breach, and unjust enrichment related to the redemption of auction rate preferred securities (ARPS) after the ARS market collapsed in 2008.

In the securities fraud lawsuit filed by Christopher Brown, Calamos Holdings LLC founder John Calamos Sr. is accused of allowing the investment firm and its management team to benefit from investors’ losses. Brown’s complaint is a refiling of a lawsuit filed in federal court last July. That complaint was withdrawn earlier this month and the claims resubmitted in state court.

Brown contends that Calamos and others were aware they were breaching their fiduciary duty when they let fund advisers benefit while investors sustained financial losses in the “multiple millions of dollars.” Brown wants all losses restored.

He claims that even as the ARS market failed, a burden was not placed on the Calamos Convertible Opportunities and Income Fund, which held auction market preferred shares. However, in June and August, Calamos managers allegedly redeemed some of the funds’ holdings, which were replaced with debt financing that was “less favorable.” Brown says that because this advanced the interests of the managers, the funds’ investment advisors and affiliates but not the interests of common shareholders, it was a breach of fiduciary duty.

Brown is seeking class-action status for any investors in the fund since March 19, 2008. He wants a judge to prevent Calamos trustees from earning fees from the fund or acting as advisers.

Related Web Resources:
Calamos Investments Statement on ARPS Lawsuit for Convertible Opportunities and Income Fund, Centredaily.com, September 15, 2010

Calamos founder sued by investor who claims bad fund management, Chicago Business, September 14, 2010


Continue reading "Securities Fraud Lawsuit Against Calamos Investments Filed on Behalf of Calamos Convertible Opportunities and Income Fund Shareholders" »

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

Posted In: Auction-Rate Securities , Calamos Investments , Class Action Lawsuits , Financial Firms , Securities Fraud

September 4, 2010

Raymond James Loses Texas Auction Rate Securities Case and is Ordered by FINRA to Pay Couple $925K

Raymond James and Associates Inc. and financial advisor Larry Milton must pay Rex and Sherese Glendenning $925,000, says a Financial Industry Regulatory Authority panel. The Texas securities case involved an auction-rate securities dispute. brokerage firm advisor Milton has been accused of misrepresenting that the ARS the couple invested in was extremely liquid.

The Glendennings opened their Raymond James (NYSE: RJF) account in 2008 right before the ARS market failed. They claim that Milton, who had invested $1.4 million of their funds in an ARS that consisted of sewer revenue bonds, did not tell them that there was an inherent possibility that the securities might fail. Instead, they allege, he lead them to believe that the ARS could be easily sold. You can imagine their dismay when Raymond James refused their request to repurchase the ARS at full value.

The Gleddenings are not the only ones that the broker-dealer has been ordered to compensate. In just the last two months, Raymond James has been ordered to buy back $3.5 million in ARS from investors. A FINRA panel ordered the brokerage firm to repurchase $2.5 million in ARS from investor Greg Merdinger, who claims that not only was he told that auction-rate securities were safe and very liquid (even more than market funds), but also he contends that no one apprised him that there was an illiquidity risk. Raymond James affiliates Raymond James & Associates Inc. and Raymond James Financial Services Inc. were ordered to make the ARS repurchase.

Related Web Stories:
FINRA: Raymond James must pay $925,000 to couple, Reuters, August 25, 2010

Raymond James faces $2.5 million payback ruling, Tampa Biz, July 26, 2010


Related Blog Posts:
Raymond James Ordered to Buy Back $2.5M in ARS by FINRA, Stockbrokerfraudblog.com, July 28, 2010

Raymond James and RBC Capital Markets Fined $1.4 Million in Total Over Improper Stock Lending Activities, Stockbrokerfraudblog.com, June 22, 2009


Continue reading "Raymond James Loses Texas Auction Rate Securities Case and is Ordered by FINRA to Pay Couple $925K " »

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

Posted In: Auction-Rate Securities , FINRA , Financial Firms , Raymond James , Texas Securities Fraud

August 10, 2010

UBS Ordered to Pay Auction-Rate Securities Investor Kajeet Inc. $81 Million

A Financial Industry Regulatory Authority arbitration panel has ordered UBS Financial Services Inc. to pay investor Kajeet Inc. $80.8 million for failed auction-rate securities. The brokerage firm disagrees with the decision and intends to file a motion to have the claim vacated.

Although Kajeet had only invested $8 million in ARS through UBS, the company, which markets cell phones for kids, contends that because its securities were frozen, a “domino effect” resulted and it ultimately lost $110 million. Also, Kajeet was forced to significantly cut its 60-person work team and it lost a key distribution deal with a national retail chain.

UBS had previously resolved ARS-related charges with an agreement that it would pay a $150 million fine and buy back $18.6 billion of the securities. The brokerage firm was one of a number of broker-dealers that agreed to repurchase over $60 billion in ARS from investors because they had allegedly misrepresented the securities as safe investments. When the $330 million ARS market froze in February 2008, UBS had over $35 billion in ARS that were held by some 40,000 customers.

Our securities fraud lawyers continue fight for clients’ right to recover their losses from the ARS market collapse. We want to remind you of the special arbitration procedure that has been set up to allow clients with frozen ARS that couldn’t access their funds to claim “recovery of consequential damages.” The procedure does not allow investment firms to contest liability claims that are based on the argument that brokers issued misrepresentations when they caused investors to think that reselling the assets would be easy.

Related Web Resources:
UBS to Pay $81 Million in Auction-Rate Case, The Wall Street Journal, August 5, 2010

FINRA arbitrators order UBS to pay $81 million, Reuters, August 4, 2010

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

Posted In: Arbitration , Auction-Rate Securities , FINRA , Financial Firms , Securities Fraud , UBS

July 28, 2010

Raymond James Ordered to Buy Back $2.5M in ARS by FINRA

A Financial Industry Regulatory Authority arbitration panel is ordering Raymond James & Associates Inc. and Raymond James Financial Services Inc. to buy back $2.5M in auction-rate securities from an investor. Greg Merdinger has accused Raymond James Financial Inc. of failing to warn him about the risks associated with ARS. In 2009, he filed a claim accusing the broker-dealer of breach of both contract and fiduciary duty.

Merdinger claims that from October 2006 to February 2008, Raymond James & Associates Inc. recommended that he purchase the securities while claiming that they were more liquid than money market funds, which Merdinger wanted to invest in until he was persuaded otherwise. He contends that Raymond James never told him that the ARS could become illiquid and that even into February 2008, when the market froze, Raymond James continued to advise him to buy the securities. One more purchase was even made.

Raymond James Financial’s General Counsel, Paul Matecki, has been quick to note that the broker-dealer has provided evidence that it did not know that the ARS market was at risk of failing before February 2008 when it did collapse. He also claims that there is no evidence indicating that any of its employees knew that the securities would fail.

However, Merdinger’s securities lawyer says there are copies of emails showing that Raymond James Financial managers knew the ARS market was experiencing difficulties way before it collapsed. Early last year, Raymond James chief executive and chairman issued a letter, filed with the Securities and Exchange Commission, apologizing to clients for the role the investment bank played in their ARS buys.

In addition to the $2.5M ARS repurchase, Merdinger has been awarded 5% interest on the amount until Raymond James buys back the securities. He is also to receive an additional $86,000.

Related Web Resources:
Raymond James faces $2.5 million payback ruling, BizJournals, July 27, 2010

Raymond James Ordered To Buy Back $2.5M in Auction-Rates, WSJ, July 26, 2010

Tom James apologizes for auction rate security purchases, BizJournals, January 5, 20009

Continue reading "Raymond James Ordered to Buy Back $2.5M in ARS by FINRA" »

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

Posted In: Auction-Rate Securities , FINRA , Financial Advisers , Financial Firms , Raymond James

April 5, 2010

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award

U.S. District Judge Deborah Batts says that Credit Suisse Group AG must pay STMicroelectronics NV the rest of the $431 million arbitration award owed for unauthorized auction-rate securities-related investments. FINRA had issued the securities fraud award last year.

STMicroelectronics NV says that Credit Suisse invested in high risk securities, including ARS with collateralized debt obligations, for the company when the investment bank was only supposed to invest in student loans backed by the US government. The European-based semiconductor maker sued Credit Suisse when the ARS’ value dropped. STMicro accused the broker-dealer of securities fraud, unjust enrichment, breach of contract, failure to supervise, and breach of fiduciary duty.

A FINRA panel ruled in favor of STMicro, awarding the company $400 million in compensatory damages, $3 million in expert witness and legal fees, and $1.5 million in financing fees, while directing Credit Suisse to pay 4.64% on the illiquid ARS in STMicro’s account until the fees and damages were paid.

Credit Suisse sought to vacate the FINRA award and argued that a panel arbitrator had been prejudicial toward the investment bank. The broker-dealer also accused the panel of disregarding the law. The court, however, decided that Credit Suisse’s claims were meritless. The remaining balance owed to STMicroelectronics is approximately $354 million, including $23 million in interest.

Earlier this year, Credit Suisse broker Eric Butler received a 5-year prison sentence for selling subprime securities to investors. His fraudulent actions cost them over $1.1 billion.

Since the ARS market meltdown in February 2008, at least 19 broker-dealers and underwriters have been sued. Regulators forced some of them to repurchase billions of dollars worth of auction-rate securities.

Our Shepherd Smith Edwards and Kantas founder and Stockbroker fraud lawyer William Shepherd says, “One issue which investors face when they are required to arbitrate is that they have little hope of appealing the arbitrators’ award if he/she lose. However, this works both ways: It is also very difficult for the brokerage firm to appeal as well, and few even try. Thus, an investor can finish a case, win, and get paid in about a year. In court, the process can drag out for 5 years or more."

Credit Suisse Ordered to Pay STMicroelectronics Award, BusinessWeek/Bloomberg, March 24, 2010

STMicroelectronics Sues Credit Suisse Over Securities, NY Times, August 7, 2008

FINRA Awards STMicroelectronics $406 Million Against Credit Suisse Securities (USA) LLC, STMicroelectronics, February 16, 2009

Continue reading "Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award " »

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

Posted In: Auction-Rate Securities , Credit Suisse , Financial Advisers

March 5, 2010

Oppenheimer Holdings Inc. Settles Massachusetts Auction-Rate Securities Allegations

Oppenheimer Holdings Inc. has settled a securities fraud-related administrative complaint filed against it by the state of Massachusetts for auction-rate securities sales to local residents. The broker-dealer will redeem 60 of the accounts with ARS. The other 10 accounts will be offered “enhanced liquidity.”

According to Massachusetts Secretary of State William Galvin, who had sought to make the investment firm repurchase up to $55.5 million in ARS that were sold in the state, 85% of Oppenheimer’s Massachusetts customer accounts will be completely redeemed over one year.

Galvin contends in his complaint that Oppenheimer misrepresented ARS and the ARS market when marketing to clients. He says that although company’s employees sold their ARS when they found out that the market was collapsing, they failed to notify investors about the unfolding crisis.

Galvin will submit a cease-and-desist order and findings against the broker-dealer over its unethical and dishonest conduct and the failure to properly supervise agents when they marketed and sold ARS. The redemptions will take place in three steps.

Oppenheimer also recently settled its ARS case filed by New York State Attorney General Andrew Cuomo on behalf of investors in his state, as well as throughout the US, for $31 million.


Related Web Resources:
Oppenheimer Settles Massachusetts Auction-Rate Case (Update3), BusinessWeek, February 24, 2010

Oppenheimer, Cuomo reach $31M agreement, LegalNewsline.com

William Francis Galvin, Secretary of the Commonwealth of Massachusetts

Continue reading "Oppenheimer Holdings Inc. Settles Massachusetts Auction-Rate Securities Allegations" »

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

Posted In: Auction-Rate Securities

February 25, 2010

Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty

As part of a deal to settle ARS insider trading allegations by New York Attorney General Attorney Cuomo, former UBS AG executive David Shulman has agreed to pay $2.75 million. Shulman is accused of finding out through nonpublic, material information that the investment bank’s student loan auction rate securities program was in trouble and that there was a possibility that future auctions involving the student ARS would fail. Yet he allegedly violated New York securities regulations when he proceeded to sell more ARS.

On December 13, 2007, two days after finding out about the ARS risks, Shulman, who supervised the ARS trading desk, sold $1.45 million in personal holdings of student loan ARS to the desk. He was suspended in July 2008.

Shulman has not denied or admitted to the document’s findings. However, as part of the agreement with Cuomo, he is subject to a retroactive 30-month suspension from working as a registered broker-dealer.

In the wake of the ARS market collapse in February 2008 that left so many investors, who were misled into believing their investments were as liquid as cash, with frozen securities, Cuomo remains committed to investigating broker-dealers’ auction-rate securities marketing and sales practices. Many of the investment firms that sold the ARS did so despite allegedly knowing that the securities were in danger of failing.

Since August 2008, Cuomo has gotten 12 financial service firms to agree to repurchase $61 billion of ARS at par. As part of their securities fraud settlements, the broker-dealers are paying $597.3 million in penalties.

Related Web Resources:
Former UBS Muni Chief Settles Probe for $2.75 Million, BusinessWeek, February 18, 2010

Attorney General Cuomo Announces $2.75 Million Insider Trading Settlement with Former UBS Top Executive David Shulman, Office of the NY Attorney General, February 18, 2010

Continue reading "Ex-UBS AG Executive to Settle ARS Insider Trading Allegations Made by NY Attorney General Cuomo with $2.75 Million Penalty" »

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

Posted In: Auction-Rate Securities , Financial Firms , Insider Trading , UBS

November 28, 2009

Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court

Braintree Laboratories Inc. is asking the U.S. Court of Appeals for the First Circuit to keep its auction-rate securities lawsuit against the brokerage division of Citigroup Inc. in court. A federal court had ordered the proceedings into arbitration.

Last April, the pharmaceutical company sued Citigroup for securities fraud, accusing the investment bank of misrepresenting $33.2 million in ARS as “liquid,” government-supported “money market” investments that could be sold following seven days notice when Citigroup allegedly knew that the investments were auction-rate securities that were illiquid, subject to failed auctions, and not redeemable until 2030.

Braintree also contends that Citigroup used misleading and false descriptions to prevent clients and regulators from finding out that it was still selling these “toxic instruments.” The pharmaceutical company is accusing Citigroup of destroying key evidence related to the alleged fraud.

Braintree purchased the ARS from Citigroup between June and August ’08. The ARS market froze in early 2008.

Citigroup has agreed to give back $7.5 billion to individual clients, charities, and small businesses that suffered ARS losses when the market collapsed. The broker-dealer is also promising to put its best efforts toward liquidating some $12 million in ARS that were purchased by institutional investors, including retirement plans, by the end of 2009.

As Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd points out, “Most securities firms have agreed to repurchase Auction Rate Securities from smaller investors, but our firm is representing many large investors who remain in ‘ARS limbo.’ It is very important for these investors to hire skilled attorneys to protect their rights before time limits expire to take action! We have found many firms are dragging out discussions with investors but only paying those who take legal action.”


Related Web Resources:
ARS Investor Fights To Keep Citigroup In Court, Law 360, November 11, 2009

Citi sued over auction-rate securities, Reuters, April 17, 2009

Continue reading "Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court" »

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

Posted In: Auction-Rate Securities , Citigroup , Financial Advisers

November 13, 2009

Stifel Financial Corp. Sees 73% 3rd Quarter Earnings Rise and Completes Purchase of 56 UBS Financial Services Inc. Branches

Even as Stifel Financial Corp. continues to deal with securities fraud lawsuits and claims accusing the broker-dealer of misrepresenting the risks associated with investing in auction-rate securities, the company exhibited a 73% increase in 3rd quarter earnings due to a growth in transaction revenue.

Its profit posted at $22.1 million, an increase from earlier this year when it’s posted profit was $12.8 million. Net revenue hit $289.7 million—a 32% increase. Principal transaction revenue went up 81%, hitting $123.2 million. Commissions went up to $90.9 million—that’s a 2.5% increase.

Stifel has been working to turn its business into a full-service investment bank and its subsidiary, Stifel, Nicolaus, & Co., recently completed its buy of 56 UBS Financial Services Inc. branches, which it purchased for at least $46 million. Stifel says the deal should increase the company’s earnings within the first year.

Stifel Nicolaus has retained support staff and 495 financial advisers in the branches. The investment bank has converted some 144,000 accounts with some $16.2 billion in assets under management. This includes money market accounts ($1.7 billion) Reg U and Reg T loans ($204.4 million), and FDIC-insured balances.

UBS was paid $29 million in cash for the financial advisers and branches. It also received $17 million for employee forgivable loans and net fixed assets. UBS is also expected to receive a contingent earn-out payment based on the performances of its financial advisers, now with Stifel, over the first two years.

Our securities fraud lawyers continue to represent clients with ARS claims against broker-dealers that misled them about the risks associated with these investments.


Related Web Resources:
Stifel Financial 3Q Profit Climbs 73%; Results Top Views, Wall Street Journal, November 9, 2009

Stifel, Nicolaus Buys UBS, Dealbreaker, March 23, 2009

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

Posted In: Auction-Rate Securities , Financial Firms , Stifel, Nicolaus, & Co. Inc.

October 3, 2009

Colorado Sues Stifel, Nicolaus for Misrepresenting Auction-Rate Securities to Investors

The Colorado Securities Division is suing Stifel, Nicolaus & Co. for securities fraud. State regulators are accusing the broker-dealer of making false assurances to investors about auction-rate securities.

In its Colorado securities fraud complaint, the securities division accused Stifel Nifel, Nicolaus of violating the Colorado Securities Act by allowing investors to think that their ARS-investments would always be liquid, failing to properly supervise sales team members, and making unsuitable investment recommendations to clients.

The Division claims that Stifel, in the role of underwriter, knew that there were liquidity risks linked to ARS but never let its sales force know about them. Stifel brokers allegedly compared ARS to money market funds on a regular basis and sold them as if they were appropriate for cash management purposes. Investors were told they would always be able to access their funds as if it were cash. However, when the ARS market collapsed in February 2008, the Colorado investors that purchased auction-rate securities were unable to get their funds or sell their bonds.

The ARS lawsuit against Stifel, Nicolaus seeks to have the broker-dealer suspended in Colorado. The complaint comes on the same day that the Indiana Securities Division filed its securities fraud lawsuit against Stifel, Nicolaus & Co.

ARS are long-term bonds. They are dependent on the success of a periodic auction for short-term liquidity. The fallout continues from the ARS market collapse and state securities regulators continue to take action against broker-dealers. Our securities fraud law firm has remained diligent in our efforts to help ARS investors whose funds were frozen. Broker-dealers and their employees must be held accountable for securities fraud. Our investment fraud lawyers are committed to helping our clients recover their financial losses.

Colorado securities regulators file complaint against Stifel, Nicolaus, Business Journal, October 1, 2009

Read the press release announcing the charges filed by Colorado Dep't of Regulatory Agencies (DORA), Division of Securities against Stifel, Nicolaus

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

Posted In: Auction-Rate Securities , Financial Firms , Stifel, Nicolaus, & Co. Inc.

September 2, 2009

Disgruntled Investors Continue to File Securities Fraud Litigation Against Merrill Lynch Even Eight Months After Its Acquisition by Bank of America Corp.

The plaintiffs of some 166 of the 221 cases filed against Merrill Lynch & Co. since January 1, 2009 are alleging securities fraud-related violations. This means that Bank of America Corp, which acquired the broker-dealer at the beginning of the year, has assumed responsibility for the outcome of these civil cases. Some of these investor fraud claims were filed as late as last month.

Some cases discuss Merrill’s involvement in the marketing, underwriting, and selling of securitizations, or asset-backed securities. Other cases delve into Merrill’s dealings in the auction-rate securities market. A number of the securities fraud cases against Merrill are class action lawsuits. Merrill Lynch is the lead defendant in many of the cases and one of several financial firms named in the other complaints.

Some of the Securities Fraud Cases Against Merrill Lynch:
Gordon v. Royal Bank of Scotland Group plc.: Merrill Lynch and several other financial firms are accused of misrepresenting or omitting key information in offering documents when participating in securitization underwriting.

Public Employees Retirement System of Mississippi v. Merrill Lynch & Co. Inc.: Merrill is accused of violated specific sections of the 1933 Securities Act when it allegedly made bogus statements in registering and offering documents connected to asset-backed securities.

Teva Pharmaceutical Industries Ltd. v. Merrill Lynch & Co. Inc.: The pharmaceutical company plaintiff contends that it lost $5 million when investing in ARS that the broker-dealer structured and sold.

Ginsberg v. Merrill Lynch & Co. Inc.: This class action claim accuses Merrill of failing to tell shareholders that the firm was significantly exposed to collateralized debt obligations and other high-risk financial products. The plaintiffs claim that senior management at Merrill Lynch let bogus information go out during conference calls and in registration statements and news releases.

If you are a former Merrill Lynch investor and you believe you were the victim of securities fraud, our stockbroker fraud law firm would be happy to offer you a free case evaluation.


Related Web Resources:
Gordon v. Royal Bank of Scotland Group plc, S.D.N.Y., 09-cv-00704, 1/28/09

In re: Merrill Lynch & Co. Inc., Auction Rate Securities (ARS) Marketing Litigation, Justia Docket

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

Posted In: Auction-Rate Securities , Bank of America , Broker Fraud , Class Action Lawsuits , Collateralized Mortgage Obligations , Financial Firms , Merrill Lynch

August 21, 2009

Will Two Former Credit Suisse Group AG Brokers Convicted of Securities Fraud Get More Lenient Sentences Because of Industry’s “Culture of Corruption?”

A federal judge says that when sentencing former Credit Suisse Group AG brokers Eric Butler and Julian Tzolov, he will consider the fact that they committed their securities fraud crimes while working in the securities industry's “culture of corruption.” He also asked defense and government attorneys to touch upon this issue when they submit their sentencing recommendations.

Earlier this week, a jury found Butler found guilty of conspiracy and securities fraud for his involvement in an alleged scheme to mislead investors about auction-rate securities so that higher commissions could be generated. Butler faces a maximum 45 years in prison.
.
According to the government, Butler and Tzolov changed securities’ names on communications with investors so that clients wouldn’t find out that federally guaranteed student loans were not backing their investments. Instead, they put the funds in riskier products that were connected to ARS. Investors lost close to $1 billion when the ARS market collapsed.

Butler’s attorney, however, says the failed market, not his client, is at fault for the investors' losses. Butler plans to appeal the verdict.

Tzolov was arrested last month in Spain. He was under house arrest in New York City in May but fled the country. Tzolov pleaded guilty to securities fraud, conspiracy, visa fraud, wire fraud, and bail-jumping charges. Tzolov then testified for prosecutors in the criminal case against Butler.

While commenting on these recent developments, Ann Woolner, on Bloomberg.com, noted that just because federal regulators weren’t paying attention to misconduct on Wall Street doesn’t make it okay for brokers to lie to their clients—it just makes it easier for them to not get caught. She also commented that while people don’t die from white collar crimes, securities fraud can cause a great deal of suffering for investors who were robbed.

While the two former Credit Suisse brokers shouldn’t be punished because of the shortcomings within the securities industry, the “culture of corruption” argument shouldn’t be the reason to shorten their prison sentences. Just because everyone’s doing it doesn’t make it okay.

Related Web Resources:
Wall Street ‘Corruption’ Might Buy Crook a Break: Ann Woolner, Bloomberg.com, August 21, 2009

Broker Convicted in Auction-Rate Case, Wall Street Journal, August 19, 2009

Former Wall Street broker pleads guilty to fraud, MSNBC, July 22, 2009

Continue reading "Will Two Former Credit Suisse Group AG Brokers Convicted of Securities Fraud Get More Lenient Sentences Because of Industry’s “Culture of Corruption?” " »

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

Posted In: Auction-Rate Securities , Broker Fraud , Credit Suisse , Financial Firms

August 20, 2009

Wachovia Securities Ordered by Pennsylvania Securities Commission to Repurchase $325 Million in Auction-Rate Securities

Wachovia Securities, LLC and related entities will offer to refund $324.6 million in auction-rate securities from Pennsylvania investors. The Pennsylvania Securities Commission announced the ARS repurchasing agreement on August 11. Wachovia must also pay the commonwealth a $2.52 million assessment for the part the broker-dealer played in the ARS market.

According to Robert Lam, the commission chairperson, Wachovia failed to properly supervise its agents that dealing with investors over the sale of auction-rate securities, as well as engaged in business practices that were “unethical or dishonest.” Commissioner Steven Irwin said Wachovia sold and marketed ARS as liquid investments even though they were long-term investments that were involved in a complicated auction process. The auction-rate securities market failed in 2008.

Right before the ARS market went downhill, over 1,300 Pennsylvania retail investors held ARS that they had purchased from Wachovia. Now, the broker-dealer will repurchase the ARS.

The Pennsylvania commission is investigating other firms over any alleged misconduct committed that caused investors to get stuck with frozen ARS that they had been told were liquid, similar to cash. The commission has made it clear that they will not allow members of the securities industry to take part in dishonest or unethical business practices.

Wachovia sold more than $12.8 billion in ARS to investors throughout the US. Securities regulators in different states have pushed for Wachovia and other brokerage firms, such as Wells Fargo, Citigroup, Bank of America, and UBS to buyback the frozen auction-rate securities that investors were left with after the market dropped. Broker-dealers are accused of misrepresenting ARS to clients and that despite knowing that the market was about to collapse continuing to sell ARS to investors.

Related Web Resources:
Pennsylvania Securities Commission Orders Wachovia to Refund Over $300 Million to More Than 1,300 for Auction Rate Securities, Earth Times, August 11, 2009

Wachovia to Buy Back $325 Million in ARS, Wall Street Journal, August 11, 2009

Continue reading "Wachovia Securities Ordered by Pennsylvania Securities Commission to Repurchase $325 Million in Auction-Rate Securities" »

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

Posted In: Auction-Rate Securities , Financial Firms , Wachovia

Call for a Free Consultation
(800) 259-9010

Contact Us

The code above is for the protection of your information.

Browse

  • Topics
  • By Date
  • Search
Topics
By Date
Search

Recent Entries

Legal Blogs