July 20, 2010

Securities Class Action Against Morgan Stanley by Xerox and Kodak Retirees Dismissed by Appeals Court

The U.S. Second Circuit Court of Appeals in New York has upheld a lower court’s ruling to dismiss that the securities class action filed by Eastman Kodak Co. and Xerox Corp. against Morgan Stanley. The plaintiffs, retirees from both companies, are accusing the broker-dealer of advising them that if they retired early their investments would be enough to support them during retirement. They also claim that the investment bank persuaded them to open accounts that cost them the bulk of their wealth. According to the plaintiffs’ attorney, the retirees gave up job security and employment rights after they were told that if they retired early they could avail of a 10% withdrawal rate from their individual retirement accounts.

However, upon retiring, the retirees that invested lump-sum retirement benefits with Morgan Stanley experienced “disastrous” value declines. Also, they had invested with two Morgan Stanley broker, Michael Kazacos and David Isabella, that were later barred from the securities industry. Last year the broker-dealer settled FINRA charges over the two men’s activities by paying over $7.2 million.

The appeals court says that because of the 1998 Securities Litigation Uniform Standards Act, the plaintiffs are precluded from pursuing class state law claims, including misrepresentation claims. While the statute lets plaintiffs file lawsuits in state court to get around 1995 Private Securities Litigation Reform Act’s securities fraud pleading requirements, federal preemption of class actions claiming “misrepresentations in connection with the purchase or sale of a covered security” are allowed. The three-judge panel also said that because the retirees waited too long to file their securities fraud lawsuit, they cannot raise other federal securities law claims.

Related Web Resources:
Xerox, Kodak retirees lose Morgan Stanley appeal, Reuters, June 29, 2010

Morgan Stanley to Pay More than $7 Million to Resolve FINRA Charges Relating to Misconduct in Early Retirement Investment Promotion, FINRA, March 25, 2009

1998 Securities Litigation Uniform Standards Act, The Library of Congress

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Posted In: Broker Fraud , Broker-Dealers , Class Action Lawsuits , Financial Firms , Morgan Stanley , Securities Fraud

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May 28, 2010

Citigroup to Pay $1.5 M for Supervisory Violations Related to Broker’s Handling of Trust Funds

According to the Financial Industry Regulatory Authority, Citigroup Global Markets Inc. has consented to pay $1.5 million in disgorgement and fines for failing to properly supervise broker Mark Singer and his handling of trust funds belonging to two cemeteries. By agreeing to settle, Citigroup is not denying or admitting to the charges. Also, the disgorgement amount of $750,000 will be given back to the cemetery trusts as partial restitution.

FINRA says that from September 2004 and October 2006, Singer and his clients Craig Bush and Clayton Smith were engaged in securities fraud. Their scheme involved misappropriating some $60 million from cemetery trust funds. Bush and Smart were the successive owners of the group of cemeteries in Michigan that the funds are believed to have been stolen from. Smart bought the cemeteries from Bush in August 2004 using trust funds that were improperly transferred from the cemeteries to a company that Smart owned.

When Singer went to work for Citigroup as a branch manager in September 2004, he brought Bush’s cemetery trust accounts with him. FINRA says that Singer then helped Smart and Bush open a number of Citigroup accounts in their names and in the names of corporate entities that the two men controlled or owned. The broker also helped them deposit cemetery trust funds into some of the accounts, as well as effect improper transfers to third parties. Some of the fund transfers were disguised as fictitious investments made for the cemeteries.

FINRA says that Citigroup failed to properly supervise Singer when it did not respond to “red flags” and that this lack of action allowed the investment scheme to continue until October 2006. As early as September 2004, Singer’s previous employer warned Citigroup of irregular fund movements involving the Michigan cemetery trusts. Within a few months, Citigroup management also noticed the unusual activity.

Citigroup failed to “conduct an adequate inquiry” even after finding out in February 2005 that Smart may have been making misrepresentations about his acquisition of hedge fund investments that belonged to the Michigan cemetery trusts and had used the hedge funds as collateral for a $24 million credit line. Although the investment bank had received a whistleblower letter in May 2006 accusing Singer of broker misconduct related to his handling of the cemetery trusts, it still failed to restrict Singer’s activities or more strictly supervise him.

Related Web Resources:
Citi Sanctioned $1.5M By Finra In Supervisory Lapse, The Wall Street Journal, May 26, 2010

Stealing from the dead, CNN Money, August 13, 2007

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Posted In: Broker Fraud , Citigroup , FINRA , Financial Firms , Securities Fraud

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March 16, 2010

Five Years Later Ex- Knight Securities Supervisors are Exonerated? Just Call it “Par for the Course.”

The Financial Industry Regulatory Authority’s National Adjudicatory Council has dismissed the charges against former Knight Securities, L.P. CEO Ken Pasternak and John Leighton, the investment firm’s ex- Institutional Sales Desk head. The two men were accused of supervisory failures over allegedly fraudulent sales. Specifically, they allegedly inadequately supervised Leighton’s brother Joseph Leighton, who, at the time, was the firm’s top institutional sales trader. Regulators had accused Joseph of inflating the price of securities when selling them to institutional clients and keeping the extra profit.

The National Association of Securities Dealers found that the two former executives failed to take reasonable steps to make sure that Joseph was in compliance with industry standards. He settled with NASD and the Securities and Exchange Commission in 2005.

A lower FINRA panel had also ruled against two men. Pasternak was suspended from supervisory positions for two years and John was barred from supervisory roles. Both men were each ordered to pay $100,000.

Now, however, NAC is disagreeing with the lower panel, claiming that FINRA failed to establish that Joseph Leighton violated regulatory and market standards. The council also found that John Leighton did enforce Knight’s compliance procedures and that there was evidence that does not support allegations accusing Pasternak of not responding properly to “red flags” that surfaced over the way that Joseph handled his institutional client orders. However, institutional clients have come forward to testify that the pricing they received was fair. Also, in 2008, a federal judge threw out similar charges that the SEC filed against Pasternak and Joseph Leighton.

“This is another case at FINRA of the soldiers getting punished while the officers in charge ultimately get a walk,” said Shepherd Smith Edwards and Kantas founder and securities fraud lawyer William Shepherd. “The primary regulator of brokerage firms may have recently changed its name to the ‘Financial Industry Regulatory Authority’ but it remains a ‘National Association of Securities Dealers’ - a non-profit private corporation (similar to a country club) with a vested interest in seeing to it that favored members do not have to answer for misdeeds. After all, a precedent of fines or sanctions for the bosses might affect the treatment of other bosses in the future.”

Related Web Resources:
COMPLIANCE WATCH: Complying As Your Brother's Keeper, The Wall Street Journal, March 5, 2010

National Adjudicatory Council, FINRA

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Posted In: Broker Fraud , Financial Advisers , Inadequate Supervision , Knight Securities

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March 11, 2010

Stifel, Nicolaus, and Co. to Pay Back $78,000 to Missouri Investors for Broker Fraud

Stifel, Nicolaus and Co. Inc. has reached an agreement with Missouri Secretary of State Robin Carnahan over the broker fraud committed by former Stifel securities broker Girard Munsch. As part of the deal, the three Missouri investors will get back $78,000 in commissions that they paid and the broker-dealer will pay over $130,000 in payments, penalties, and costs.

Over three years, Munsch made over 500 trades in accounts owned by three Missouri investors. He has admitted that during some of the transactions, he was the only one to benefit. One investor, Marie Ganninger, says that she started investing with the former Stifel broker after her husband passed away. She chose to go with Munsch because he was the broker of one of her relatives. She will be getting back the commissions she paid.

The state of Missouri went after Stifel for failing to properly supervise Munsch and neglecting to notice or take action when he made unsuitable recommendations and excessive trades.

In 2007, the former Stifel broker entered into a consent order. He was ordered to pay $50,000 in investor restitution for broker misconduct, and his license was suspended. He retired and can no longer work as a broker in Missouri.

Please do not despair if you lost money because of broker fraud. There are legal remedies available that can allow you to recoup your investment losses.

Stifel to return $78,000 to investors, pay $130,000 in penalties, St. Louis Business, March 11, 2010

Consent order in the matter of Girard Augustus Munsch, Jr., State of Missouri

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Posted In: Broker Fraud , Financial Firms , Stifel, Nicolaus, & Co. Inc.

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December 23, 2009

Texas Securities Fraud: SEC Freezes Assets of Fourth Person Involved in Alleged $485 Million Ponzi Scheme

Earlier this month, the US Securities and Exchange Commission was able to get a temporary restraining order to the freeze the assets of Joseph Blimline, the fourth person accused of masterminding a $485 million Ponzi scheme involving Provident Royalties LLC. The SEC charged three other individuals, Brendan Coughlin, Paul Melbye, and Henry Harrison, in July. Their assets were also frozen.

In its amended complaint, the SEC alleged that Provident, owned by the four defendants, advanced approximately $93 million of investor funds to Blimline and entities that he controlled for the purchase of gas and oil interests. The fund repayments and the title, however, frequently did not go to Provident. The SEC also accuses Blimline of failing to disclose that he received the funds, was involved with Provident management, and had been sanctioned in the past by Michigan securities authorities.

The SEC’s amendment complaint charges the four men with violating the Securities Act of 1933 (Section 17a) and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC is seeking preliminary and permanent injunctions, financial penalties, disgorgement of ill-gotten gains, and prejudgment interest.

Director and officer bars are also being sought against the four defendants for allegedly committing Texas securities fraud. 36 affiliated entities are named as relief defendants for disgorgement purposes.


Related Web Resources:
SEC OBTAINS ASSET FREEZE OF JOSEPH S. BLIMLINE FOR HIS INVOLVEMENT IN THE PROVIDENT ROYALTIES $485 MILLION NATIONWIDE OFFERING FRAUD, SEC, December 4, 2009

SEC Accuses Provident Royalties in $485 Million Ponzi Scheme, Bloomberg, July 7, 2009

Securities Act of 1933 (PDF)

Continue reading "Texas Securities Fraud: SEC Freezes Assets of Fourth Person Involved in Alleged $485 Million Ponzi Scheme" »

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Posted In: Broker Fraud , Ponzi Scams , SEC Enforcement , Texas Securities Fraud

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November 25, 2009

FINRA Bars Former Piper Jaffray & Co. Broker from Industry for Insider Trading

The Financial Industry Regulatory Authority is barring a former Piper Jaffray & Co. broker from the securities industry. The broker was accused of insider trading. He has agreed to the ban and has settled the FINRA charges without denying or admitting wrongdoing.

From 2007 until this July, the broker worked in Piper Jaffray & Co.’s investment banking department. Piper Jaffray was the confidential adviser of SoftBrands while the company considered potential buyers. Those at the advisory firm with access to information about the acquision were not allowed to buy SoftBrands shares. Yet on June 4 and 5, this broker bought 27,161 SoftBrands shares. On June 12, when SoftBrands announced its acquisition by Golden Gate Capital and Infor Global Solutions—an $80 million transaction. SoftBrands’s stock price almost doubled.

The shares at issue, previously bought at $.42 and.$.45 per share, were then sold at $.89 per share resulting in a profit of $11,955 on the transactions.

FINRA accused the broker of not only engaging in insider trading but also of using an undisclosed securities account at another broker-dealer so Piper Jaffray & Co. wouldn’t find out he was trading in SoftBrands stock.

FINRA says that its market regulation department is committed to “surveilling the markets” for insider trading and acting quickly to sanction wrongdoers by making them leave the securities industry.

The broker's name is being withheld at the request of his attorney who stated that the broker has paid a heavy price because of the actions in question and now wants to move on with his life outside the securities industry.

Our stockbroker fraud law firm represents many investors who have suffered losses because of improper actions by financial firms and their agetns, including also margin account abuse, misrepresentations, omissions, improper trade executions or failures to execute, breach of fiduciary duty or some other form of misconduct.

Related Web Resources:
FINRA Bars California Broker for Insider Trading, FINRA, November 4, 2009

Insider Trading, Securities and Exchange Commission

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

Posted In: Broker Fraud , Financial Firms , Insider Trading , Piper Jaffray

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November 5, 2009

Stifel, Nicolaus & Co. and AXA Advisors Broker Charged in Ponzi Scheme Victimizing Church Members

Former Stifel, Nicolaus & Co. and AXA Advisors broker Kenneth Neely has pled guilty to one count of mail fraud for setting up a Ponzi scheme that targeted at least 16 investors. Yesterday, Missouri Secretary of State Robin Carnahan announced that she has shut down the scam.

The 56-year-old St. Peters, Missouri broker got his clients to invest in a bogus St. Charles real estate investment trust. He promised high return rates and “no risk,” raising over $640,000 in investor funds. Federal prosecutors say clients paid about $3,000/share or unit.

At the time Neely was committing securities fraud (from 2001 – July 2009) he worked for broker dealers AXA Advisors and Stifel, Nicolaus & Co. He told clients to make checks payable to him and his wife.

Missouri Securities Law makes it illegal for a broker to “sell away,” which involves selling investments off a firm’s books.

Neely has 30 days to respond to Missouri’s cease-and-desist order. Federal brokers have barred him from working as a broker. Investor victims that lost some $400,000 included people that belonged to his church, friends, relatives, and acquaintances. Some people lost their savings because of the Ponzi scheme. Nealy used some of the money to pay for his personal expenses and debt.

Neely’s sentencing is scheduled for January 2010. He faces up to 20 years in prison, restitution, and up to $250,000 in fines.

Related Web Resources:
Carnahan Uncovers Ponzi Scheme in Saint Charles, SOS.Mo.Gov, November 4, 2009

St. Peters broker admits Ponzi scheme, St. Louis Business Journal, November 4, 2009

FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme, Stockbroker Fraud Blog, August 3, 2009

Continue reading "Stifel, Nicolaus & Co. and AXA Advisors Broker Charged in Ponzi Scheme Victimizing Church Members" »

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Posted In: AXA Advisors , Broker Fraud , Financial Firms , Ponzi Scams , Stifel, Nicolaus, & Co. Inc.

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October 20, 2009

Elder Securities Fraud: FINRA Bars Former Broker From Industry

The Financial Industry Regulatory Authority has barred former broker Sergio M. Del Toro from the industry for allegedly defrauding an elderly investor, age 90, of over half a million dollars. Del Toro has agreed to the bar but is not admitting to or denying wrongdoing.

FINRA says that between 2004 and 2006, Del Toro recommended that the elderly investor, who died in 2006, invest $511,000 in 3rd Dimensions Inc, a speculative, development-stage company. FINRA is accusing Del Toro of promising to buy back at $400,000 the securities that the senior investor had bought for $351,000 if the latter was dissatisfied. The elderly client bought additional stock at Del Toro's suggestion. The former broker received about $76,650 in commissions.

FINRA claims that not only did the client pay $3-$4 for 3rd Dimension stock, which was not appropriate given the investor’s financial situation and age, but also, Del Toro allegedly did not have any reasonable grounds for valuing the stock at those prices when he sold them to his client.

FINRA claims Del Toro knew 3rd Dimension was making little if no revenue at the time and did not notify the two broker-dealers that he was registered with about his activities.

Elder Financial Fraud
Unfortunately, elderly senior investors can be easy prey for brokers that are willing to take advantage of them. It can be devastating to have your life savings (that you worked so hard for and hoped could cover your retirement or be passed on to your children and grandchildren) stolen from you by a financial professional.

Elder investment fraud is a crime. It is also a form of elder abuse when the victim is an older senior investor.

Related Web Resources:
FINRA Bars Former New York Broker for Defrauding Elderly Investor of More Than $500,000, FINRA, October 8, 2009

Elder Financial Abuse, National Committee for the Prevention of Elder Abuse


Continue reading "Elder Securities Fraud: FINRA Bars Former Broker From Industry " »

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Posted In: Broker Fraud , Securities Fraud , Senior Investors

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September 28, 2009

UBS Securities, Citigroup Global Markets, and Deutsche Bank Securities Agree to FINRA Sanction Over Vonage IPO

Citigroup Global Markets, Deutsche Bank Securities, and UBS Securities have agreed to pay fines for Financial Industry Regulatory Authority sanctions over their handling of Vonage LLC stock's initial public offering in 2006. FINRA says that the firms’ failure to adequately supervise communications with customers cost investors hundreds of thousands of dollars. By agreeing to settle, none of the broker-dealers are agreeing to or denying wrongdoing.

The three firms acted as the Vonage offering’s lead underwriters. A “directed share program” was included. Clients used accounts with the broker-dealers to purchase about 4.2 million shares.

An external company designed and administered a Web site for DSP participants that the firms’ clients used to communicate about the IPO. According to the SRO, however, inadequate supervision and the failure to follow procedures regarding outside sourcing and directed share programs resulted in the broker-dealers being unable to respond appropriately or take effective action when certain clients obtained misinformation about their orders.

By the time customers were finally notified that shares were allocated to them, the Vonage stock price had dropped significantly compared to the offering price. In addition to paying the higher price, investors sustained financial losses when the stocks were sold.

UBS, Citigroup, and Deutsche Bank have agreed to fines totaling $845,000. UBS will pay a $150,000 fine and a maximum of $118,000 to 26 clients who are potentially eligible. In addition to its $175,000 fine, Citigroup will pay 284 potentially eligible customers a maximum of $250,000. Deutsche Bank will pay 59 potentially eligible clients a maximum of $52,000, plus its $100,000. Customers are to be compensated the difference between Vonage stock’s price when clients found out they had been allocated shares and the $17/share IPO price that they paid.


Related Web Resources:
FINRA Fines Citigroup Global Markets, UBS and Deutsche Bank $425,000, Orders Customer Restitution for Supervisory Failures in Vonage IPO, FINRA, September 22, 2009

Citi, UBS, Deutsche Fined Over Vonage IPO

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Posted In: Broker Fraud , Citigroup , Deutsche Bank , Financial Firms , UBS

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September 24, 2009

Regions Bank Settles SEC Charges Over Latin American Investment Fraud Scam

Regions Bank has agreed to a $1 million fine to settle SEC allegations that it helped defraud some 14,000 investors. Most of the affected investors are based in Latin America.

According to the SEC, Regions Bank helped two unregistered broker-dealers, U.S. College Trust Corp. and U.S. Pension Trust Corp., commit securities fraud against Latin American investors.

Beginning October 2001, Regions Bank played the role of “trustee” to the broker-dealers’ investment plans. It continued to accept USPT clients until January 2008. The SEC contends that this affiliation with a US bank gave the securities fraud scheme an aura of “legitimacy” and became a big draw for Latin American investors.

The SEC says that by taking on the role of trustee, Regions Bank formed individual trust relationships with investors, processed client contributions, and bought mutual funds on their behalf.

Investor had the option of paying one lump sum or making yearly contributions. Investors were not notified until March 2006 that USPT deducted substantial chunks of investors’ contributions—up to 85% of initial contributions made by investors who took part in an annual plan and up to 18% of single contributions—and used the money to pay for commissions and other fees.

The SEC says that Regions Bank either knew or should have known about USPT’s deceptive sales practices. The Commission is accusing Regions Bank of dispatching representatives to Latin America to meet prospective investors and allowing USPT to use the bank’s name in marketing and promotional materials.

The $1 million penalty will be placed in a Fair Fund to compensate investment fraud victims. Regions bank has also agreed to a cease-and-desist order.


SEC charges Regions Bank for role in Latin American fraud scheme, Investment News, September 21, 2009

Read the SEC Complaint (PDF)

Continue reading "Regions Bank Settles SEC Charges Over Latin American Investment Fraud Scam" »

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Posted In: Broker Fraud , Financial Advisers , Regions Bank , SEC Enforcement , Securities Fraud

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September 22, 2009

Bank of America’s Merrill Lynch unit agrees to $26.5 million national settlement stemming from Texas securities fraud claim

Following a Texas securities fraud claim that Bank of America's Merrill Lynch, Pierce, Fenner & Smith Inc. allowed unregistered sales persons to sell securities, the Bank of America unit has agreed to pay $26.5 million as part of a national settlement over the allegations. The state of Texas’s portion of the settlement is $1.6 million. The other states that were part of the task force, led by the Texas State Securities Board, are Arizona, Colorado, Vermont, Missouri, Delaware, and New Hampshire.

Client associates who accept trade orders must be registered not just in their own state but also in the client’s state. Per the probe, the task force determined that Merrill did not have a supervisory system that was designed in a manner that made sure that associates were in compliance with registration requirements. The task force was investigating a tip, provided in May 2008 by a Merrill Lynch employee, that the company saved money on registration fees by allowing client associates to register only in their home state and in a neighboring state.

Last week, Merrill Lynch agreed to pay the state of Texas another $12.7 million over a Texas securities fraud cause involving auction-rate securities. The settlement ends the state’s probe into the broker-dealer’s handling of ARS and clients’ funds even as the market was collapsing.

The board determined that not only did Merrill Lynch not tell investors that the market could very well collapse, but also that the broker-dealer offered financial associates sales incentives to sell ARS despite knowing that the auction process could fail.

September has been a rough month for Bank of America and Merrill Lynch. On the same day that the Texas securities commissioner announced the $26.5 million settlement, New York Attorney General Andrew Cuomo accused high-level Bank of America Corp. executives of failing to reveal key information about its Merrill Lynch & Co. takeover. Cuomo is threatening to press charges. Bank of America, however, is calling Cuomo’s allegations “spurious.”

BofA's Merrill to pay US$26.5M in settlement on unregistered salespeople, AP/Yahoo, September 8, 2009

Bank of America Calls Cuomo’s Merrill Allegations ‘Spurious,' Bloomberg.com, September 10, 2009

Merrill Lynch pays $12.7M to settle Texas auction rate securities case, Taragana.com, September 14, 2009

Continue reading "Bank of America’s Merrill Lynch unit agrees to $26.5 million national settlement stemming from Texas securities fraud claim " »

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Posted In: Bank of America , Broker Fraud , Financial Firms , Merrill Lynch

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September 21, 2009

Former Stifel Nicolaus and AG Edwards Stockbroker Sentenced to 21-Months in Prison for Investment Fraud Scam

A former broker who was fired from both AG Edwards, Inc.and Stifel Nicolaus & Co. has been ordered to serve a 21-month federal prison sentence for selling fraudulent investments to Stifel Nicolaus clients. Neil Rolla Harrison told clients that they were investing in commodities futures or the gold market when in fact the stockbroker was using their money to support his drinking and gambling habits.

A federal grand jury indicted the 54-year-old former broker last May. Harrison pleaded guilty to one count of mail fraud. He has been ordered to pay $91,303 in restitution.

It is not clear, however, whether the investment fraud victims will recoup their losses. One of his targets, 67-year-old Ralph Brock, says that because he has worked as a self-employed trucker for most of his life, the only retirement he had was the one he created through investing.

AG Edwards fired Harrison in 2005 after the broker-dealer discovered that he was borrowing money from clients. Stifel Nicolaus hired him soon after even though the broker-dealer knew that AG Edwards had fired him. Stifel Nicolaus fired Harrison when the thefts were discovered.

Brokers are entrusted with the responsibility of handling a client’s finances. Many investors seek the services of a stockbroker because they don’t have the knowledge and experience to make their own investments in a sound manner.

When a broker breaches that duty of care and money is lost it is usually the victims of securities fraud that suffer. This can be devastating—especially for the many clients who rely on their investments to get them through retirement or put their children through school. Any loss as a result of stockbroker fraud is unacceptable.

Related Web Resources:
Former stockbroker gets 21-month sentence, The Telegraph, September 18, 2009

Stifel broker gets jail time for scam, St. Louis Business Journal, September 18, 2009

United States Postal Inspection Service

Illinois Securities Department

Continue reading "Former Stifel Nicolaus and AG Edwards Stockbroker Sentenced to 21-Months in Prison for Investment Fraud Scam" »

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Posted In: A G Edwards , Broker Fraud , Financial Firms , Stifel, Nicolaus, & Co. Inc.

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September 12, 2009

Texas Securities Commissioner, Appointed New President of Nationwide Association of Regulators, Seeks Additional Investigations into Wall Street Fraud

The incoming head of the North American Securities Administrators Association, Denise Voigt Crawford, is warning brokerage firms that more enforcement actions over Wall Street fraud are likely to follow. Crawford is also the Texas Securities Commissioner. She will formally assume her role as NASAA president on September 15.

In her new role, Crawford plans on playing a key role in the government’s plans for regulatory reform. She wants the states to have a more prominent position when it comes to regulatory oversight.

At this time, state regulators only supervise investment advisors that are managing assets of $25 million or below. She wants states to regulate investment advisors with assets as high as $100 million. Since most of these firms are located in regional areas, Crawford says it is easier for state regulators to oversee them.

NASAA represents all states securities regulators and has been pushing forward actions against broker-dealers ever since the auction-rate securities collapse in 2008. According to Crawford, NASAA can be credited with $60 billion in ARS that brokerages are repurchasing. The states have fined large broker-dealers about $597 million.

Crawford says that NASAA is continuing to examine the role that “downstream” firms played in the ARS market collapse. She says NASAA will try to figure out how to unfreeze investor assets that were purchased from firms such as Charles Schwab Corp.

NASAA does not want FINRA to expand the role it plays in investment advisor oversight. The self-regulatory organization now regulates Series 7 licensed registered reps, but not Series 65 licensed advisors.

Our Texas securities fraud law firm is working hard to help our clients recover their ARS that froze when the market collapsed. We continue to offer free case evaluations to potential clients whose ARS became frozen even after brokers told them that their securities were liquid like cash. Broker misconduct should not be tolerated. There are ways to recover your losses if you were the victim of investment fraud.

Related Web Resources:
New NASAA President: More Enforcement Actions to Come, Financial Planning

NASAA

Texas State Securities Board

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Posted In: Broker Fraud , NASAA , Texas Securities Fraud

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September 10, 2009

SEC Warns Broker-Dealers to be Mindful of Their Recruiting Bonuses

Securities and Exchange Commission Head Mary Shapiro is warning broker-dealers to be careful of the recruiting tactics they employ—especially those involving recruiting bonuses. She cautioned that attractive compensation packages can compel registered representatives to watch out for their own self-interests over the interests of investors, resulting in acts of securities fraud. For example, Shapiro cautioned that a broker who knows that she or he will be given a larger compensation for meeting certain commission goals might make unsuitable investment recommendations, churn customer accounts, or take part in other commission-revenue focused actions that aren’t necessarily in the clients' benefit.

Shapiro is also asking broker-dealer heads to watch over big up-front bonuses. Brokerage firms continue to offer large recruiting bonuses to top registered representatives at rival investment banks. Recruiting packages at wirehouses Merrill Lynch, UBS, Morgan Stanley, and Wells Fargo Advisers are between 200-250% of trailing 12-month production. In many instances, an investment adviser who satisfies production targets and brings in a certain percentage of assets is frequently rewarded.

Shapiro’s letter to the firm’s CEOs reminded them that it is the broker-dealer’s responsibility to “police such conflicts” and supervise broker-dealer activities, especially those related to sales practices. She reminded the broker-dealers that when a sales group expands, it is the investment bank's responsibility to not just supervise advisers but to make sure the compliance structure maintains the adequate capacity. She noted that investor interests must always be of prime importance when investment products, such as securities, are sold.

Unfortunately, there are brokers who choose to place their own financial gain over the interests of their clients. This can result in securities fraud losses for investors. A few examples of broker misconduct include churning, misrepresentation, negligence, breach of fiduciary duty, and unauthorized trading.

Related Web Resources:
Read Shapiro's Letter (PDF)

Schapiro Message to B-D CEOs: Watch Your Recruiting Tactics, Research Mag, September 1, 2009

Chairman Mary Schapiro, SEC

Continue reading "SEC Warns Broker-Dealers to be Mindful of Their Recruiting Bonuses" »

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Posted In: Broker Fraud , Broker-Dealers , SEC , SEC Enforcement

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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

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

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August 31, 2009

In Investment fraud Lawsuit Against Lehman Brothers, Goldman Sachs and Morgan Stanley, Court Grants Class Certification

A District Court judge has granted class certification in the securities fraud lawsuit against Lehman Brothers, Morgan Stanley, and Goldman Sachs. The plaintiffs are accusing the broker-dealers of putting forth misleading analysts reports about RSL Communications Inc. for the purposes of maintaining or obtaining profitable financial and advisory work from RSL. Per Judge Shira Sheindlin, the class is to be made up of all parties that bought RSL Common stock between April 30, 1999 and December 29, 2000.

RSL investors, who are the plaintiffs, contend that the defendants artificially inflated the market price of RSL common stock, which injured them and other class members.

In July 2005, the court had certified a class that included anyone who had bought or acquired RSL equity shares between the dates noted above after determining that the plaintiffs had made “some showing” that Rule 23 requirements had been satisfied. The broker-dealer defendants appealed.

The US Court of Appeals for the Second Circuit vacated the class certification order and remanded the action for reconsideration. It’s decision in e Initial Public Offering Securities Litigation, 471 F.3d 24 had clarified class certification standards.

Two years later, pending the outcome In re Salomon Analyst Metromedia Litigation, the court issued a stay. Following its opinion, which held that market presumption includes securities fraud allegations against research analysts, the Court lifted the stay, allowing the plaintiffs to renew their motion for class certification. The court granted the motion and noted that the defendants have been unable to “rebut the fraud on the market presumption by the preponderance of the evidence on the basis that the analyst reports” are missing certain key pieces of information. Per their securities fraud claim, plaintiffs can therefore avail of the “fraud on the market presumption to establish transaction causation.”

The court said that the plaintiffs have succeeded in proving that loss causation can be proven on a “class-wide basis."

Related Web Resources:
Court OKs Class Cert. In Fraud Suit Against Lehman, Law360, August 5, 2009

U.S. District Court for the Southern District of New York (PDF)

Continue reading "In Investment fraud Lawsuit Against Lehman Brothers, Goldman Sachs and Morgan Stanley, Court Grants Class Certification" »

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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.
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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?” " »

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

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August 19, 2009

FINRA Bars Ohio Broker Accused of Stealing $90,000 Inheritance from Two Sisters from the Securities Industry

Richard Wood, an Ohio broker, has agreed to be barred from the securities industry for allegedly committing broker misconduct. According to the Financial Industry Regulatory Authority, the broker, working for American General Securities Inc., allegedly stole the $90,000 that a client had left to two of her nieces.

FINRA says that Wood helped liquidate the estate in 2006. He then suggested that the nieces, who are sisters, open a brokerage account and invest in bonds. He was to oversee their investments. Instead, he allegedly misappropriated the money and told the sisters to issue their checks to STL Financial, Inc., an entity that he alone controlled rather than an actual brokerage firm.

The self-regulatory organization claims that Wood gave each of the sisters a bogus account number to a brokerage account that didn’t exist. He also allegedly put together more than one false customer account statement when one of the sisters became suspicious.

FINRA says Wood used the funds. He did eventually return some of it to one of the sisters. The firm would later reimburse the other sister for her investment losses.

FINRA Enforcement Chief Susan L. Merrill says that Wood was in “egregious breach of ethical standards” when he stole money from the sisters and came up with documents that were bogus to make the two women think that he was taking care of their investments.

By agreeing to settle the case, Wood is not denying or admitting to the SRO’s allegations against him.

Our stockbroker fraud law firm is determine to make sure that our investor clients recover the losses that they’ve suffered due to broker fraud.

Related Web Resources:
FINRA Bars AGSI Broker for Misappropriating $90,000 Inheritance From Two Sisters, FINRA, August 11, 2009

FINRA Bars Broker for Stealing Sisters' Inheritance, FA-Mag, August 11, 2009

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

Posted In: Broker Fraud , Financial Firms

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August 12, 2009

UBS AG and Merrill Lynch Collectively Fined $250,000 by FINRA for Closed-End Fund Actions

UBS Financial Services Inc. has agreed to be fined $100,000 and Merrill Lynch, Pierce, Fenner & Smith Inc. has consented to a $150,000 fine, says the Financial Industry Regulatory Authority, for alleged supervisory failures that resulted in the inappropriate short-term sales of closed-end funds that were bought at initial public offerings for the funds. By agreeing to settle, the broker-dealers are not deny or admitting to the FINRA charges. They are, however, consenting to the findings.

FINRA also announced that it was suspending five Merrill Lynch brokers for 15 days. Each of them must pay a $10,000 fine for allegedly making fund recommendations that were unsuitable for investors.

Merrill Lynch brokers that FINRA has sanction include:

• Kenneth C. Iwelumo (his clients lost about $563,000)
• Joseph Miller (approximately $130,000 in client losses)
• Ronald Kemp (about $411,000 in customer losses)
• Michael Kizman (about $210,000 in losses)
• John Ong (about $350,000 in client losses)

The investigation into the activities of a number of former UBS brokers is ongoing.

Closed-End Funds
Closed-End Funds are investment companies that sell a fixed number of shares during an initial public offering. These sales come with built-in sales charges. The CEF’s at issue came with a 4.5% sales charges and a 30-90 day penalty bid period after the IPO. If a client sold the CEF that had been purchased at the IPO during this time period, the broker would lose the commission.

FINRA says that both broker-dealers knew that CEF’s bought at IPO’s are more appropriate for long-term investments and that because of the sales charges that come with their purchases, it is inappropriate to engage in the short-term trading of CEF’s. FINRA claims that Merrill Lynch and UBS did not have the proper supervisory procedures and systems in place so that brokers couldn’t and/or wouldn't make such unsuitable CEF sales.

FINRA also says that both broker-dealers failed to warn supervisors about the potential issues that could result from such activity and did not properly train registered individuals. Due to this improper supervision, brokers for Merrill and UBS recommended that certain clients engage in short-term sales of CEF’s bought at IPOs without fully understanding the financial ramifications these recommendations would have on their clients’ finances.

FINRA is concerned about brokers who convince customers to buy CEF’s during their IPO’s and then wait until after the penalty bid period is over to recommend that clients sell the CEF’s—usually at a loss. These brokers then recommend that clients use the proceeds from the sale to purchase more CEF’s at initial public offerings.

FINRA Fines Merrill Lynch, UBS for Supervisory Failures in Sales of Closed-End Funds; Customers Get More Than $5 Million in Remediation, FINRA, July 28, 2009

Merrill, UBS Are Fined in Closed-End-Fund Case, The Wall Street Journal, July 29, 2009

Continue reading "UBS AG and Merrill Lynch Collectively Fined $250,000 by FINRA for Closed-End Fund Actions" »

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

Posted In: Broker Fraud , Broker-Dealers , Financial Firms , Merrill Lynch , UBS

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August 10, 2009

SEC Says Prime Capital Services, Inc. Defrauded Elderly Investors in Florida with “Free” Lunch Seminars and Unsuitable Variable Annuity Sales

The US Securities and Exchange Commission is accusing broker-dealer Prime Capital Services Inc., income tax preparation business Gilman Ciocia Inc., and seven individuals of defrauding senior investors in Florida. The agency claims that the two companies, as well as the individuals named, allegedly used “free” lunch seminars that resulted in the sales of unsuitable variable annuities and, on occasion, millions of dollars in commission.

Robert Khuzami, the SEC Enforcement Director, called the free lunches “bait” for the scam. Elderly investors who are persuaded to purchase unsuitable financial products frequently are never able to fully recover their financial losses, which can severely deplete their retirement savings.

In addition to cease and desist proceedings against the respondents, the SEC is seeking remedial action, including civil penalties and disgorgement. According to the attorney representing PCS, Gilman, PCS President Michael P. Ryan, CCO Rose M. Rudden, one of the registered representatives, and one of the supervisors, the conduct under question occurred in the late ‘90’s and 2000’s and has been remedied for some time. The respondents plan to defend themselves against the charges.

SEC investigators say the senior investment fraud scam occurred between November 1999 and February 2007 and that during appointments conducted with seminar participants, PCS representatives either left out important information or made misrepresentations about variable annuities. For example, PCS representatives are accused of telling investors they would have unrestricted access to the money they invested but did not tell them that there would be substantial charges if they withdrew their money early.

The SEC claims that representatives’ commissions when selling variable annuities was 6%. Their commission on other investment products was just 3%. The agency also claims that Ryan and a number of supervisors neglected to implement PCS’s supervisory procedure to identify when misconduct was occurring, as well as prevent broker misconduct from happening.

Related Web Resources:
Read the SEC's Order (PDF)

“Free-Lunch” Seminars Still Baiting Seniors, Retirement Income Journal, July 15, 2009

Continue reading "SEC Says Prime Capital Services, Inc. Defrauded Elderly Investors in Florida with “Free” Lunch Seminars and Unsuitable Variable Annuity Sales" »

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

Posted In: Broker Fraud , Financial Firms , Prime Capital Services, Inc. , Senior Investors , Variable Annuities

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