January 28, 2012

SEC Charges First Resource Group LLC in Alleged Florida Penny Stock Boiler Room Scam

The SEC is accusing First Resource Group LLC and its founder David H. Stern of violating sections of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Commission contends that they ran a boiler room scam involving penny stock companies while selling the same stocks to make illegal earnings.

First Resource and Stern allegedly hired telemarketers to make fraudulent solicitations to brokers to buy Cytta Corporation and TrinityCare Senior Living Inc. stocks. Meantime, Stern was also selling Cytta stock and TrinityCare shares to investors while buying small quantities to make it look as if actual trading activity was taking place so that investors would buy the shares.

The SEC claims that Stern and First Resources used a telephone sales boiler room to defraud investors and make inflated claims while manipulating the stocks’ price and making a profit. The Commission says they acted as unregistered brokers.

The SEC contends that Stern would give the company’s salespersons information so that they could prepare sales scripts about TrinityCare and pitch the company’s stock. He would then look at and approve scripts before they were used while providing them with a list of people to pitch to and cold call.

The Commission says that Stern even sent out a research report about Cytta to investors that falsely claimed that for ’10 – ’14, sales projections should go beyond $500 million with a pre-tax net beyond $400 million. Meantime, Salespeople for First Resource are accused of falsely claiming that TrinityCare stock will be $5-7 with in six months to a year and that in five years, the company would be worth about $500,000 million (about $40/stock).

The SEC is seeking disgorgement, in addition to prejudgment interest, permanent injunctions, and financial penalties, in addition to a penny stock bar for Stern.

Microcap Stocks
The term “Microcap stock” can be applied to companies with “micro” or low capitalization. These companies usually have limited assets. Because many of these companies don’t submit financial reports to the SEC, investing in microcap stocks can be risky. One reason for this is that there isn’t a lot of information available about them, which can make it easy for scammers to put out bogus information. A lot of microcap stocks are traded in the over-the-counter market.

Quotes on microcap stock can be found through the “Pink Sheets” or the OTC Bulletin Board. In addition to there being insufficient public information about microcap stocks, these stocks usually don’t have to satisfy any minimum listing standards and they are very high risk. One reason for this is that a lot of microcap companies are new and therefore lack a solid track record. They many not even have assets or operations. Also, due to the low volumes of trades, any trade size can have a significant impact on stock price.

Since the start of 2011, the SEC has filed over 50 enforcement actions over alleged microcap stock-related misconducted and 63 orders to suspend suspicious microcap issuers’ trading.If you believe that you were the victim of a microcap stock scam, contact our stockbroker fraud law firm right away to request your free case evaluation.

Read the SEC Complaint (PDF)

Microcap Stock: A Guide for Investors, SEC


More Blog Posts:
Texas Securities Fraud: BNY Mellon Capital Markets LLC Settles Allegations of Rigged Bond Bidding for $1.3M, Stockbroker Fraud Blog, January 24, 2012

Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors, Stockbroker Fraud Blog, January 21, 2012

Merrill Lynch, Pierce, Fenner & Smith Ordered to Pay $1M FINRA Fine for Not Arbitrating Employee Disputes Over Retention Bonuses, Institutional Investor Securities Blog, January 26, 2012

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

Posted In: Financial Firms

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

January 23, 2012

Jury Trial Begins in Ponzi Scammer Allen Stanford’s Criminal Case

Two-and-a-half years after he was arrested for allegedly running a $7 billion Ponzi scam, the criminal trial of Allen Stanford has begun. The Texas financier is charged with 14 counts of fraud, conspiracy to commit money laundering, and conspiracy. He denies any wrongdoing.

Stanford is accused of issuing $7 billion in fraudulent CDs through his Antigua-based Stanford International Bank to investors in over a hundred nations. He then allegedly defrauded them.

Even since his arrest these investors have not recovered any of their money. According to Reuters, a guilty conviction won’t necessarily help his Ponzi victims recoup their losses. Hopefully, however, the Securities and Exchange Commission’s lawsuit against the Securities Investor Protection Corp. will remedy this.

The SEC wants SIPC, the broker industry-funded fund, to accept the securities claims made by Stanford’s victims. Meantime, SIPC maintains that it has no jurisdiction over the Stanford case. (Also, this week, arguments over that lawsuit will begin in federal court, and Judge David Hittner, who is presiding over the criminal case against Stanford has overruled a motion by the government to keep the decision in the SIPC v. SEC case off-limits.)

The prosecution says that Stanford promised investors that they would get higher returns if they bought CDs through the Antigua bank (compared to the returns coming from US bank CDs). The money from these CD sales was then used pay off earlier investors and financially support Stanford’s other businesses. He also allegedly used investors’ money to pay for expensive vehicles, luxury residences, and women.

Stanford and three of ex-company executives are accused of trying to cover up their wrongful actions through bogus bank records and with bribes to auditors and regulators in the form of Super Bowl tickets, other perks, and money (over $3 million). The Ponzi scam collapsed in 2008 when his bank ran out of funds and investors stopped receiving payments.

Meantime, Stanford’s defense attorneys are arguing that he wasn’t running a Ponzi scam. They claim that Stanford’s investment operation was legitimate.

His legal team is instead blaming the financial scheme on former Stanford International Bank CFO James M. Davis, who has already pleaded guilty to charges of securities fraud, wire fraud, conspiracy to commit mail fraud, and conspiracy to obstruct a SEC investigation. Davis, who struck a plea deal in his criminal case, is expected to testify for the prosecution during Stanford’s trail.

Stanford, who has been behind bars for the last two-and-a-half years, was declared fit for trial in December. His case had been delayed so he could recover from a medication addiction and from injuries he sustained after he was involved in a jail brawl.

If you are an investor that suffered losses as a result of the Stanford Ponzi scam or any other financial scheme, do not hesitate to contact our securities fraud lawyers right away.

Prosecutors say Texas financier Stanford, stole investors’ money in $7 billion Ponzi scheme, The Washington Post, January 24, 2012

Stanford trial starts, cold comfort for investors, Reuters, January 24, 2012


More Blog Posts:
Multibillion-Dollar Stanford Securities Fraud Scam Has Investors Contacting Houston Stockbroker Fraud Lawyers for Help, Stockbroker Fraud Blog, February 19, 2009

Ex-SEC Lawyer to Settle DOJ Charges Accusing Him of Inappropriately Representing Ponzi Fraudster Allen Stanford, Stockbroker Fraud Blog, January 12, 2012

Securities Fraud Lawsuit Names NRP Financial Inc. in $150M Minnesota Ponzi Scam, Stockbroker Fraud Blog, January 10, 2012

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

Posted In: Financial Firms , Ponzi Scams , Stanford Group Co.

January 21, 2012

Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors

Last month, a US judge refused Citigroup’s request to overturn a $54.1M arbitration award that a Financial Industry Regulatory Authority arbitration panel had ordered the financial firm to pay investors Gerald D. Hosier, Jerry Murdock Jr. and Brush Creek Capital. The award was the largest amount ever granted to individuals in a securities arbitration proceeding.

Following Citigroup’s request that a United States district court toss out the award, details from what were confidential proceedings have been unsealed. According to the New York Times, documents viewed by the arbitrators show that on a scale of 1 to 5, with 5 signifying the highest risk (usually only assigned to products that potentially carried the risk of an investor losing everything), Citigroup rated these investments as having a 5 rating for risk. Is it no wonder then that investors could and would go on to lose 80% of what they had investments.

The investments, which were municipal arbitrage portfolios, are known as ASTA/MAT. Citigroup Global Markets sold them through MAT Finance LLC.

Per internal e-mails, after the investments began declining in value in early 2008, when Citigroup wealth management head Sallie Krawcheck asked for the MAT’s risk rating,” She was told that it was “3-5.” Also, customers were never told about the 5 rating that their investments were previously given. The Times also reported that during a conference call involving brokers whose clients had sustained losses, the portfolio manager was directed to not discuss internal guidelines, which contained different information than what was in the prospectus that investors had received.

Citigroup eventually would offer to buy back the investments at a discount price but only if investors agreed to not file a securities fraud lawsuit against the financial firm. (Brokers have said they felt pressured by Citigroup to get investors on board with this. For example, a memo with the heading “Fund Rescue Options “noted that if the broker’s client let Citigroup repurchase the instruments, this would not be noted in his/her U-5 regulatory record. If, however, the client chose to sue, then this would appear in the broker’s U-5.)

In their securities fraud case, Claimants accused Citigroup of failure to supervise, fraud, and unsuitability. After the FINRA arbitration panel ordered them to pay the investors, Citigroup argued that panel members had ignored the law and contended that despite verbal statements made to investors, the latter had signed agreements acknowledging that the risk of losing everything was a possibility. Judge Christine Arguello would go on to affirm the FINRA panel’s decision. While the majority of the award was compensation for the claimants’ investment losses, about $17 million was for punitive damages.

Secrets of a Sales Machine, NY Times, January 14, 2012

Citigroup Slammed With $54 Million Award by FINRA Arbitrators in MAT/ASTA Case, Forbes, April 12, 2011


More Blog Posts:
Citigroup Request to Overturn $54.1M Municipal Bond Arbitration Ruling Denied by Judge, Institutional Investor Securities Blog, December 27, 2011

Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest, Stockbroker Fraud Blog, January 20, 2012

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2012

Continue reading "Unsealed Documents in $54.4M FINRA Arbitration Case Reveal that Citigroup Did Not Disclose Municipal Bond Risks to Investors " »

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

Posted In: Citigroup , FINRA , Financial Firms

January 20, 2012

Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest

FINRA says that Citigroup Global Markets will pay a fine of $725K for not disclosing specific conflicts of interest during public appearances made by research analysts and in research reports. By settling, Citigroup is not denying or admitting to the charges although it has, however, consented to an entry of the findings.

According to the SRO, in research reports published between 1/07 and 3/10, the financial firm did not disclose possible conflicts of interest that existed in certain business connections, including the facts that the financial firm and its affiliates:
• Received revenue or investment banking from certain companies
• Had an at least 1% or more ownership in companies that were covered
• Managed public securities offerings
• Made a market in certain covered companies’ securities

Also, FINRA says that Citigroup research analysts did not reveal these same conflicts when bringing up the covered companies during public appearances.

As a result of these alleged failures to disclose, FINRA contends that Citigroup kept investors from knowing of possible biases in the research recommendations that it made. FINRA says that such disclosures are essential in order to make sure that investors are given all of the information they need when making decisions about investments.

The SRO said that the reason Citigroup did not provide the required information is that the database for identifying and creating disclosures experienced technical difficulties and/or was inaccurate. FINRA also cites a lack of proper supervisory procedures that could have prevented such inaccuracies and disclosure failures. However, Citigroup did self-report a number of the deficiencies and has taken remedial steps to remedy them.

A financial firm can be held liable when failure to disclose key facts about an investment leads to an investor sustaining financial losses. In many instances, such omissions are made to hide or diminish the risk involved in the investment. While some omissions are intentional, others can occur due to inadequate supervision or the lack of proper systems and procedures to make sure such failures to disclose don’t happen.

It is a broker’s obligation to fairly disclose all the risks involved in a potential investment. (Misrepresenting material facts is another way that risks are concealed and investors end up losing money.

It doesn't matter whether malicious intent was involved. If a broker-dealer concealed OR failed to disclose key information related to your investment and you suffered financial losses on your investment, you may have a securities fraud case on your hands that could allow you to recover your losses.


Citi settles with Finra over alleged conflicts at its brokerage, Investment News, January 20, 2012

Finra Fines Citigroup $725,000 For Alleged Research Violations, The Wall Street Journal, January 18, 2012

Financial Industry Regulatory Authority

More Blog Posts:
Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff, Stockbroker Fraud Blog, November 28, 2011

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses, Stockbroker Fraud Blog, October 22, 2011

Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling, Institutional Investor Securities Blog, November 30, 2010

Continue reading "Citigroup Global Markets Settles for $725,000 FINRA Fine Over Failure to Disclose Conflicts of Interest" »

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

Posted In: Citigroup , FINRA , Financial Firms

January 10, 2012

Securities Fraud Lawsuit Names NRP Financial Inc. in $150M Minnesota Ponzi Scam

A Minnesota securities fraud lawsuit, filed by court-appointed receiver R.J. Zayed, contends that because NRP Financial Inc. allegedly failed to properly supervise former broker Jason Bo-Alan Beckman, the brokerage firm ended up assisting in one of the largest Ponzi scams that the state has ever experienced. The $150M financial fraud raised $47.3M from at least 143 clients. Over 900 investors sustained losses as a result of the scam.

Beckman worked as an NRP rep between 2005 and 2008. Last year, he was charged with 13 felony counts related to the alleged financial scheme, including the criminal charges of conspiracy to commit mail and wire fraud, mail fraud, aiding and abetting wire fraud, mail fraud, and money laundering. He also is accused of stealing $7M from Global Advisors LLC, which he owns.

Minneapolis money manager Trevor Cook is the supposed chief architect of the Minnesota Ponzi scam. (He is serving a 25-year prison after pleading guilty to tax evasion and mail fraud.) Involving foreign currency arbitrage, investors were allegedly told that yearly returns of up to 12% would be earned with little, if any, risk to their principal if they bought into the program. Beckman made representations about the currency program between 2006 and 2009.

Per the Ponzi fraud lawsuit, the scam would have ended sooner if only NPR Financial had properly supervised Beckman, denied transfer of investors’ funds to bank accounts maintained on behalf of shell entities, looked into improper transfers of clients’ monies that Beckman had made, and refused to let him hide his actions behind its name and reputation. A lot of the parties that invested were clients of Oxford Private Client Group LLC, which is not only a NRP Financial branch, but also it is partly owned by Cook and Beckman.

Oberlin Financial, which preceded NRP, is accused of having known
way back in April 2006 that Beckman had another business involving trading currencies. NPR also allegedly was aware that Beckman used marketing collaterals that made an inflated claim that there was $3.5B in assets under management.

National Retirement Partners Inc., which is NRP Financial’s parent, sold its assets to LPL for $27M. When the deal was taking place, LPL touted the buy as a way to get into the retirement and pension market. However, according to an LPL Investment Holdings spokesperson, the company is not named in the securities complaint and has not been liable in this case. The broker-dealer was not one of the assets that LPL Holdings bought from NRP.

B-D that sold assets to LPL played role in $150M scam: Lawsuit, Investment News, January 6, 2012

Patrick Kiley, two others indicted in Trevor Cook ponzi scheme, CityPages, January 6, 2011


More Blog Posts:
SEC Sues SIPC Over R. Allen Stanford Ponzi Payouts, Stockbroker Fraud Blog, December 20, 2011

SEC Charges Father and Son with Utah Securities Fraud In Alleged $220M Ponzi Scam Over Purported Real Estate Investments, Stockbroker Fraud Blog, December 15, 2011

SEC Issues Emergency Order to Stop $26M “Green” Ponzi Scam, Institutional Investor Securities Blog, October 13, 2011

Continue reading "Securities Fraud Lawsuit Names NRP Financial Inc. in $150M Minnesota Ponzi Scam" »

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

Posted In: Financial Firms , NRP Financial Inc. , Ponzi Scams , 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

December 22, 2011

Wells Fargo-Sponsored Survey Finds that Sense of Security About Retiring Doesn't Necessarily Come with Affluence

According to a recent Wells Fargo & Co-sponsored survey, 23% of the 800 Americans with at $100,000 in investable assets who participated reported that they don’t feel confident that they will have enough money saved by the time they retire. 75% said they felt sure that they would have enough. The ones most likely to feel confident are the ones with a written a financial plan, trust that the stock market will take care of their investments, are married, have at least $250,000 in investable assets, and/or are male. Those who felt unsure about their finances for when they retire included those who are single, female, belong to the 40-59 age group, and/or have under $250,000 in investable assets.

Some of the Other Findings from the Survey:
• 48% of those in the 25 to 49 age range want to keep working during their retirement years.
• More men (42%) than women (34%) wanted to keep working even after hitting retirement age.
• Approximately three-quarters of those that are currently working believe that having a specific amount of money matters more than what age they are when they retire.
• Women without a written financial plan and/or with investable assets of over $100,000 but under $250,000 are more likely to believe that they won’t have enough money when they retire regardless of what they do now.
• Nearly 2 in 5 Affluent Americans feel like they should significantly reduce their spending now to save up for retirement
• One-third of those surveyed worry that they won’t be able to leave their children an inheritance because their savings will have to go toward their retirement
• Four in 10 prefer to enjoy life now rather than worry: These people are usually already retired (54%), seniors belonging to 60-75 age group (51%), Democrats (47%), and parents with kids that are already legal adults (44%)
• Parents with kids under 18 (71%), adults belonging to the 40-49 age group (62%), women (65%), and seniors age 50-59 (64%) are the ones most likely to worry about what will happen when they retire.

Unfortunately, there appears to a nationwide rise in investment fraud targeting baby boomers, many who are just (or on the verge of) retiring. The Wall Street Journal reports that many of these older investors found themselves placing their money in high-risk bets to compensate for the losses they suffered during the recently financial crisis.

There are approximately 77 million baby boomers currently live in the US. Of the 3,475 enforcement actions involving fraud in 2010, 1,241 affected investors were 50 years of age or older. According to securities regulators, this number is expected to hit a record figure this year. Enforcement actions involved free-lunch seminars, variable annuities, or the misuse of professional credentials. Common types of senior investment fraud included Ponzi scams, self-directed IRA’s containing bogus investments in gold, real estate, and oil wells, and promissory notes.

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LLP represent seniors throughout the US. We know the toll that losing your savings can take on you and your family.
Retirement Fears Jump the Wealth Gap to Strike Many Affluent Americans, Wells Fargo Retirement Study Finds, Wells Fargo, December 14, 2011

Boomers Wearing Bull's-Eyes, Wall Street Journal, December 14, 2011


More Blog Posts:
Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors, Stockbroker Fraud Blog, December 17, 2011

Texas Securities Fraud Over Sale of Allegedly Bogus Annuities to Elderly Seniors, Stockbroker Fraud Blog, December 14, 2011

LPL Financial Ordered to Pay $100K for Lack of Adequate Oversight that Resulted in Unsuitable Investments for Clients, Stockbroker Fraud Blog, November 29, 2011

Continue reading "Wells Fargo-Sponsored Survey Finds that Sense of Security About Retiring Doesn't Necessarily Come with Affluence" »

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

Posted In: Financial Firms , Senior Investors , Wells Fargo

December 17, 2011

Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors

To settle Financial Industry Regulatory Authority securities fraud allegations against one of its brokers, Wells Fargo Advisers will pay a $2M fine, as well as repay an unspecified amount to elderly clients that were defrauded. Over 21 senior investors were reportedly targeted by Alfred Chi Chen, who sold them reverse convertible notes even though the majority of them were retired and/or had never invested in this type of complex instrument. A number of investors were in their 80’s and 90’s.

FINRA says that Chen made over $1M in commissions even as the investors sustained losses. He also is accused of not giving discounts on Unit Investment Trust (UIT) transactions even when clients were eligible. As part of its settlement, Wells Fargo will pay restitution to those that should have but did not get the discounts and those that were sold unsuitable investments.

FINRA Executive Vice President and Chief of Enforcement Brad Bennett said that Wells Fargo did not review the reverse convertible transactions to make sure that they were suitable and that investors were harmed as a result. The SRO also determined that Wells Fargo did not give certain clients that were eligible breakpoint and rollover and exchange discounts when they bought UITs because the financial firm’s procedures and systems were not sufficient to properly monitor unsuitable reverse convertibles and ensure that clients got the discounts for which they were eligible. (Discounts should be offered on UIT sales when purchases go beyond certain thresholds or involve termination or redemption proceeds from another UIT during the initial offering period.)

By agreeing to settle, Wells Fargo is not admitting to or denying FINRA’s allegations.

The SRO has filed a separate complaint against Chen, who allegedly exposed clients to risks that were not in line with their investment profiles. As of June 2008, 172 of the accounts he worked with held reverse convertibles. 148 accounts had concentrations over the 50% of their total holdings. 46 accounts had concentrations of over 90%.

Reverse Convertibles
These interest-bearing notes involve repayment of principal connected to an underlying asset’s performance. The specific terms of reverse convertibles may vary. An investor risks loss if the underlying asset’s value drops under a certain maturity level or during the reverse convertible’s term.

It is important for many elderly investors that their investments not expose them to too much risk. For an elderly senior to lose his/her life savings because a financial firm or broker behaved irresponsibly, committed securities fraud, or made an avoidable mistake is unacceptable.

Wells to pay $2M to settle claims broker sold unsuitable investments to seniors, Investment News, December 15, 2011

Wells Fargo Fined by Finra Selling Structured Notes to Aged, Bloomberg, December 15, 2011


More Blog Posts:
Broker-Dealers are Making Reverse Convertible Sales That are Harming Investors, Says SEC, Stockbroker Fraud Blog, July 28, 2011

RBC Wealth Management Unit Ferris Baker Watts to Pay Investors Restitution Over Reverse Convertible Notes Allegations, Says FINRA, Stockbroker Fraud Blog, October 23, 2010

Wells Fargo Settles for $148M Municipal Bond Bid-Rigging Charges Against Wachovia Bank, Institutional Investors Securities Blog, December 8, 2011

Continue reading "Well Fargo Advisers to Pay $2 Million to Settle Claims that Broker Sold Unsuitable Reverse Convertible Securities to Seniors" »

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

Posted In: FINRA , Financial Firms , Reverse Convertibles , Senior Investors , Wells Fargo

December 10, 2011

$1.2 Billion of MF Global Inc.’s Clients Money Still Missing

According to the Commodity Futures Trading Commission, the whereabouts of $1.2M in MF Global Inc. customer funds are still unknown. Lawmakers at a Senate Banking Committee meeting grilled the CFTC officials earlier this week.

Speaking before the panel on Tuesday, CFTC Commissioner Jill Sommers said that the agency still has yet to find all the money. The CFTC began its investigation into MF Global’s collapse after holding company MF Global Holding filed its Chapter 11 bankruptcy petition on October 31. Sommers reported that there are dozens of CFTC staffers working on finding the missing funds.

Meantime, former MF Global head Jon Corzine has said that he, too, doesn’t know where the money went. He issued an apology to employees, customers, and investors who have had to deal with the fallout from brokerage firm’s collapse. Since MF Global announced it was seeking bankruptcy protections, thousands of clients have seen their assets frozen.

One suspicion is that MF Global used clients’ money to make significant investments in European sovereign debt. In remarks that were prepared for a U.S. House of Representatives Agriculture Committee last week, CME Group Inc. Executive Chairman Terrence Duffy accused MF Global of misusing hundreds of millions of dollars in client funds and moving the cash to broker-dealer’s own accounts. Duffy noted that this is a violation of the Commodity Exchange Act. CME was an MF Global regulator. The futures exchange operator claims that during a phone call the brokerage firm admitted to making these transfers.

CFTC Chairman Gary Gensler has recused himself from the probe into MF Global. He sees his business ties to Corzine as a conflict. Corzine was the chairman of The Goldman Sachs Group Inc. when Gensler worked there.

However, CFTC ethics officials, who are aware of their connection, don't see this as a problem. At the Senate Banking Committee hearing on Tuesday, Republicans accused Gensler of shirking his duties.

When MF Global sought Chapter 11 bankruptcy protection, the firm left behind over $2 billion in debt. JP Morgan Chase, with over $1.2 billion in corporate bonds, and Deutsche Bank, with $1 billion in bonds, are two of its larger unsecured creditors.

Our stockbroker fraud lawyers at Shepherd Smith Edwards & Kantas, LLP are investigating MF Global Holdings LTD. If you were an MF Global customer who believes you may have a securities claim, we want to hear from you. This is not the type of case you want to pursue without an experienced securities fraud law firm representing you.

Unfortunately, investors do lose money because of broker misconduct. There is no reason why you should have to suffer because of other people’s negligence and mistakes.

Regulators: $1.2B of MF clients' money still missing, Investment News, December 6, 2011

Corzine sorry, puzzled by missing MF Global money, Reuters, December 8, 2011

MF Global files for bankruptcy protection, CNN Money, October 31, 2011


More Blog Posts:
MF Global Shortfall May Be More than $1.2B, Says Trustee, Stockbroker Fraud Blog, November 26, 2011

MF Global Holdings Ltd. Files for Bankruptcy While Its Broker Faces Liquidation and Securities Lawsuit by SIPC, Institutional Investor Securities Blog, October 31, 2011

SEC’s Office of the Whistleblower Received 334 Tips During FY 2011, Stockbroker Fraud Blog, December 8, 2011


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

Posted In: Financial Firms , MF Global

December 2, 2011

Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal

Raymond James Financial Services has paid the $1.79M Dallas securities arbitration award plus interest it owes to Hurshel Tyler and the estate of his wife Mildred. They filed their claim with the Financial Industry Regulatory Authority. Both were in their 80’s.

They contend that they were advised by an ex-Raymond James representative to take their $3.5M in bond funds and place them in variable life insurance and variable annuities. Unfortunately, the life insurance policy was tied to $2M in improper loans, interest obligations, and ongoing tax that made it difficult to return the financial product to the brokerage firm. Tyler and Mildred’s estate claim that the stockbroker, Daul Davis, made a recommendation to them that was unsuitable.

Davis not only advised the Tylers to liquidate their municipal bond portfolio and make the new investments, but also, unknown to the couple, he moved them from one variable annuity to another, which cost them a significant surrender fee and commission. The Tylers’ Texas stockbroker lawyer says that by making the couple’s son the new annuity’s annuitant, the financial firm and Davis earned over twice the commission than if Hurshel Tyler had been the annuitant. (Usually, the annuitant and annuity owner are the same person. However, the insurance company that was involved only offered a 3.25% commission for annuitants over 80 years of age, while the commission for someone younger than that was 7.5%)

A FINRA arbitration panel sided with Tylers. The couple had sought to recoup their money, but instead panel members instead awarded them with compensatory damages.

Raymond James went on to appeal that decision. The broker-dealer argued that the couple should have given the annuities back. They also contended that they shouldn’t have to pay the couple’s $250K in legal fees because Florida, which is where the financial firm is based, doesn’t allow for this type of award.

Although Raymond James has gone ahead and paid the arbitration award, the broker-dealer maintains that the payment is unjust. The financial firms claims that not only did the couple make over $800,000 while the accounts were under its watch, but also, any losses they sustained occurred after they moved the accounts to a different broker-dealer. Raymond James says that despite disagreeing with the FINRA panel’s ruling, it has gone ahead and paid what it considers an “erroneous award” because in the long run doing so now would be less costly than continuing to contest it.

This Texas securities arbitration award is the largest one that Raymond James has ever had to pay.

Raymond James Pays Highest Arbitration Award in History, LifeHealthPro, November 30, 2011

After appeal fails, RJ forks over $1.8M to 87-year-old client, Investment News, November 30, 2011


More Blog Posts:
Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011

Texas Securities Fraud: SEC Moves to Freeze Assets of Stewardship Fund LP, Stockbroker Fraud Blog, November 5, 2011

Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011

Continue reading "Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal" »

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

Posted In: Financial Firms , Raymond James , Texas Securities Fraud

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

November 29, 2011

LPL Financial Ordered to Pay $100K for Lack of Adequate Oversight that Resulted in Unsuitable Investments for Clients

LPL Financial must pay $100K for its improper supervision of a broker. The Oregon Division of Financial and Corporate Securities, which fined the financial firm, reports that LPL Financial has put in place better oversight procedures since the violation was discovered. LPL Financial is a LPL Investment Holdings Inc. division.

According to the state’s securities division, Jack Kleck, an LPL Financial branch manager, sold risky gas and oil partnership-related investments to almost 36 residents. A lot of these clients were elderly seniors for whom these investments were unsuitable (considering their investment goals and age). Some even lacked the mental capacity to make such investment choices.

LPL Financial is accused of committing securities law violations, including not making sure that company procedures and policy were enforced and inadequately supervising Kleck, whose securities license was taken away in 2007. He was ordered to pay a $30,000 fine.

Among the steps that LPL has taken to set up better supervisory and compliance practices are having more employees focus on these responsibilities, improving branch office exams, and increasing the pre-sale evaluation of transactions.

Our securities fraud lawyers are talking to people who sustained losses because of Kleck or another LPL Financial representative. Contact Shepherd Smith Edwards and Kantas LLP today.

Unfortunately, elderly seniors and persons who are mentally impaired are easy targets for securities fraud. These investors may not fully understand what they are getting into and they can place their trust in the wrong registered representative. Often, the risks resulting from stockbroker fraud are too much for these clients, who may want to be conservative about their investment goals in order to ensure that they have enough money to support themselves. At this point in their lives, they cannot afford any huge losses.

It is the responsibility of financial firms to properly supervise their employees so that securities fraud doesn’t take place. They must also have the proper supervisory and compliance procedures in place so that employees can execute them.

Our senior investor fraud lawyers know how devastating it can be to find out the nest egg you’ve spent your whole life growing is now gone because someone made investments on your behalf that were inappropriate.

Examples of Financial Scams that Commonly Target Seniors:
• Investment scams
• Reverse mortgage schemes
• Ponzi scams
• Internet fraud

Ways to Avoid Financial Fraud:
• Don’t sign up right way. Take the time to think about the investment and whether it would benefit you.
• Do research on the broker and the financial firm to make they are legitimate. Have they been accused of securities fraud before?
• Consult with a family member or a friend about the investment.
• Make sure you know what you are getting involved in. If you don't understand any details, ask and make sure you get answers.

Oregon fines LPL Financial $100,000 for failing to properly supervise rural broker-dealer, Oregon Live, November 22, 2011

Shepherd Smith Edwards & Kantas Investigates Claims Against LPL Financial in Light of $100k Fine for Supervisory Oversight, Globe Newswire, November 30, 2011


More Blog Posts:
LPL Financial Management and Private Equity Backers TPG and Hellman & Friedman Could Make Over $450M from IPO, Stockbroker Fraud Blog, November 19, 2010

Linsco Private Ledger Clients File FINRA Arbitration Claims Accusing Former Financial Adviser Raymond Londo of Running Multi-Million Dollar Ponzi Scam, Stockbroker Fraud Blog, April 13, 2011

Wells Investment Securities Agrees to $300,000 Fine by FINRA for Alleged Use of Misleading Marketing Materials for REIT Offerings, Institutional Investor Securities Blog, November 23, 2011


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

Posted In: Financial Firms , Inadequate Supervision , LPL Financial , Securities Fraud , Senior Investors

November 28, 2011

Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff

U.S. District Judge Jed S. Rakoff has turned down the proposed $285M settlement between the SEC and Citigroup Global Markets Inc. However, unlike with the SEC’s tentative $33M settlement with Bank of America that he rejected, eventually approving a $150 million settlement between both parties—this time, Rakoff is ordering the SEC and Citigroup to trial.

The SEC claimed Citigroup sold Class V Funding III right as the housing market fell apart in 2007 and then bet against the $1 billion mortgage-linked collateralized debt obligation. Meantime, the financial firm allegedly failed to tell clients about this conflict of interest. Investors would go on to lose nearly $700 million over the CDO, while Citigroup ended up making about $160 million.

To many observers, Rakoff’s decision doesn’t come as a surprise. He has expressed concern with the SEC’s handling of securities cases for some time. In his ruling today, Rakoff was very clear in stating that he didn’t believe the tentative agreement was “fair… reasonable… adequate, nor in the public interest.” He also called for the “underlying facts” and made it clear that the SEC’s typical boilerplate settlement, which usually involves the other party agreeing to the terms but not admitting to or denying wrongdoing, was not going to suffice.

Until now, the SEC’s settlement policy has allowed the Commission to declare a victory while letting defendants get away with not acknowledging any wrongdoing so that private plaintiffs cannot use such an outcome in litigation against them. Now, however, Rakoff wants the court and the public to actually learn whether or not Citigroup acted improperly.

Also in his opinion, Rakoff spoke about how the current settlement doesn’t do anything for the investors that Citigroup allegedly defrauded of hundreds of millions of dollars. Not only that but the SEC isn't promising to compensate the alleged securities fraud victims.

For now, the trial between Citigroup and the SEC is scheduled for July 2012. However, the Commission could decide to appeal Rakoff’s ruling and ask an appellate court to either make him accept the $285 million settlement or appoint a new judge to the case. According to the New York Times, however, this could prove challenging because a writ of mandamus would be required.

Our securities fraud law firm has had it with financial firms defrauding investors and then getting away with this type of misconduct. It is our job to help our clients recoup their losses whether via arbitration or in court.

Behind Rakoff’s Rejection of Citigroup Settlement, NY Times, November 28, 2011

Judge to SEC: Stop settling, start really suing, OC Register, November 28, 2011

Read Judge Rakoff's Opinion


More Blog Posts:
Citigroup’s $285M Mortgage-Related CDO Settlement with Raises Concerns About SEC’s Enforcement Practices for Judge Rakoff, Institutional Investor Securities Blog, November 9, 2011

Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million, Stockbroker Fraud Blog, February 15, 2010

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

Continue reading "Citigroup’s $285M Settlement With the SEC Is Turned Down by Judge Rakoff" »

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

Posted In: Citigroup , Collateral Debt Obligation , Financial Firms , SEC

November 26, 2011

MF Global Shortfall May Be More than $1.2B, Says Trustee

According to trustee James Giddens, MF Global Inc. may have a greater than $1.2B shortfall in US segregated customer accounts. Giddens has been tasked with overseeing the failed company’s liquidation.

Previously, the estimated shortfall had been $593 million. Now, however, that estimate has likely changed. Giddens says that it will take $1.3 billion to $1.6 billion dollars to distribute 60% of what should have been found in the accounts of customers. He has noted that how much of the assets he can access is not the same as the shortfall amount. Giddens is reportedly close to exhausting the money that he does control.

$5.45 billion in money from customer accounts were frozen on the last day of October, one day after an MF Global unit reported that client funds (Commodity Futures Trading Commission rules say these should have been segregated) had experienced a material shortfall. Parent company MF Global Holdings Inc. then sought bankruptcy protection.

Since then, Giddens has gained control of $3.7 billion from MF Global Inc.’s US depositories. About $520 million in cash is going back to customers while $1.5 billion in collateral has already been distributed.

The SEC, the CFTC, and the US Justice Department are looking at cash movements that took place at the financial firm before it filed for bankruptcy.

According to Bloomberg.com, former FBI director Louis Freeh is now the Chapter 11 trustee in the Mr Global Holdings Ltd. bankruptcy. The appointment comes after creditors and the company called for one person to take charge of recovering assets.

Meantime, US lawmakers plan to take a closer look at the relationship between ex-MF Global Holdings Ltd. Chief Executive Jon S. Corzine, who used to run Goldman Sachs Group Inc., and the credit ratings agencies (Standard & Poor’s, Moody’s Investment Services, and Fitch Ratings) that downgraded the brokerage firm as it moved toward bankruptcy. They want to see if Corzine’s start status may have influenced the rating firms.

It wasn’t until just days before MF Global filed for bankruptcy protection that Fitch and Moody’s reduced their investment grade ratings on the brokerage firm. Moody’s downgraded it to the brink of “junk” on October 24. Standard & Poor’s only downgraded its rating of MF Global after the bankruptcy filing.

Marketwatch recently reported that MF Global clients who want their money back are not taking this situation lying down. A new group, called the Commodity Customer Coalition, is now representing clients with over 7,000 MF Global accounts. Its members are ready to lobby Washington for help. BTR Trading Group principal John Roe, who started the group, says that more than $10 million of his own funds and clients’ monies are somewhere in MF Global.

If you cannot access your money in the wake of MF Global’s bankruptcy filing, please contact our stockbroker fraud lawyers today.

MF Global may come up $1.2B short, trustee says, Investment News, November 21, 2011

MF Global’s Bankruptcy Trustee Set to Be Ex-FBI Director Freeh, Bloomberg, November 26, 2011

MF Global customers taking case to Washington, MarketWatch, November 25, 2011

Rating Firms' MF Global Role to Be Explored, The Wall Street Journal, November 25, 2011


More Blog Posts:
MF Global Holdings Clients Unable to Access Their Money Following Chapter 11 Bankruptcy, Stockbroker Fraud Blog, November 16, 2011

MF Global Holdings Ltd. Files for Bankruptcy While Its Broker Faces Liquidation and Securities Lawsuit by SIPC, Institutional Investor Securities Blog, October 31, 2011

UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investor Securities Blog, April 12, 2011

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

Posted In: Financial Firms , MF Global

November 19, 2011

Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit

A federal court has decided that Oppenheimer municipal bond fund holders can go ahead with their securities fraud complaint against Oppenheimer Funds. The plaintiffs of In re Oppenheimer Rochester Funds Group Securities Litigation are alleging federal securities law violations. Funds involved included:

• AMT-Free Municipals Fund
• Rochester National Municipals Fund
• AMT-Free New York Municipals Fund
• Rochester Fund Municipals
• California Municipal Fund
• Pennsylvania Municipal Fund
• New Jersey Municipal Fund

The shareholders of seven municipal bonds had their securities fraud lawsuits consolidated into one case in two years ago. They are claiming that the Oppenheimer Funds neglected to reveal in their registration and prospectus statements that risks were being taken that weren’t in line with their declared strategy and investment goals. The investors argued that even as the funds explicitly said that preserving capital was a clear investment goal, the true objective was one of “high-risk, high-return.” Seeing as certain market conditions were foreseeable, the shareholders believe this placed their capital at great, undisclosed risk, which did come to fruition during the credit crisis of 2007-2008. This is when the Funds’ holding in highly leveraged, complex securities set off cash reserve and payment duties that required for the assets be sold under conditions that most likely were not to the funds’ advantage. The plaintiffs say that because of this, the funds underperformed compared to other municipal bond funds.

They are also claiming that the significant drop in the Funds’ shares’ values can be linked to the deviations between the stated and actual objectives. After investors were notified in October and November 2008 via prospectus supplements of what the Funds’ investments true liquidity risks were, share prices then went crashing. The net asset value of the 7 funds dropped by about 30-50% that year while similar municipal bonds only went down by 10-15%.

The defendants moved to dismiss the consolidate case, claiming that the investors’ losses were triggered by the credit crisis and not because of what was written (or not included) in the funds’ prospectuses. They also argued that they were making a forward-looking statement when they made the “preservation of capital” a goal and had adequately disclosed the risks involved.

In the U.S. District Court, District of Colorado, the federal judge turned down the Defendants’ motion to toss out the consolidated lawsuits. Judge John L. Kane, Jr. also rejected their claim that federal securities laws exempts mutual funds from liability because drops in those funds’ value are a result of corresponding downturns in the funds’ investments’ value and not of statements (whether true or false) in their prospectuses.

Oppenheimer Rochester Funds Lose Dismissal Bid, Face Trial, Bloomberg/Business Week, October 25, 2011

Oppenheimer Muni Bond Investors May Sue Over Alleged Misstatements in Prospectuses, BNA Securities Law Daily, October 26, 2011


More Blog Posts:
8/31/11 is Deadline for Opting Out of $100M Oppenheimer Mutual Funds Class Action Settlement, Stockbroker Fraud Blog, August 17, 2011

Oppenheimer Champion Income Fund Resulted In Significant Financial Losses for Investors from Citigroup, UBS, Merrill Lynch, and Other Large Financial Firms, Stockbroker Fraud Blog, August 16, 2010

Chase Investment Services Corporation Ordered by FINRA to Pay Back $1.9M for Unsuitable Sales of Floating-Rate Loan Funds and UITs, Institutional Investor Securities Blog, November 19, 2011

Continue reading "Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit" »

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

Posted In: Financial Firms , Oppenheimer , Securities Fraud

November 16, 2011

MF Global Holdings Clients Unable to Access Their Money Following Chapter 11 Bankruptcy

The Wall Street Journal reports that in the wake of MF Global Holdings Ltd. filing for bankruptcy protection, about 33,000 of the securities firm’s clients are finding that they can’t access their cash until trustee James Giddens gives them permission. Giddens is the trustee overseeing the liquidation of MF Global Holdings' broker-dealer unit, MF Global Inc.

Giddens had asked court permission to move about 60% of the $869 million that has been frozen—that’s about $520 million. He is hoping that if the court says, then the distributions would soon follow. However, a spokesman for Giddens has warned that because of MF Global’s financial woes, customers might not be able to get all of their money back.

MF Global Holdings sought Chapter 11 protection last month after a number of credit downgrades and a steep drop in its stock price. Some $600 million also appears to have gone missing. While this bankruptcy is not considered as big a debacle as that of Lehman Brothers Holdings, for traders, investors, and brokers that sold and bought derivatives via MF Global, the repercussions have been devastating.

The MF Global clients whose accounts have been frozen are now unable to make trades or pay for their bills. While Giddens has approved the transfer of accounts that were involved in active trades on the day that MF Global filed for bankruptcy, he froze accounts that only had cash.

Meantime, criminal investigators and federal regulator are still trying to find out what happened to the missing $600 million in customer money. The CFTC is spearheading the search for the AWOL funds, while the SEC is concentrating on a separate MF Global unit. Even the Federal Bureau of Investigation is involved.

According to the New York Times, in all the craziness leading up to bankruptcy filing, MF Global did not register all transactions in its books. It is now up to regulators to figure this out, one dollar at a time. Questions have been raised as to whether MF Global mixed client monies with its own funds, which would have been improper.

Even though MF Global received an extension to access $8M that JPMorgan Chase & Co. held through November 30, discussions to keep MF Global running while in bankruptcy have stopped, at least for now. MF Global’s bankruptcy among the largest the country has seen.

MF Global had issued huge bets on European sovereign debt and may have been doctoring its records before submitting its quarterly reports. Do not hesitate to contact our stockbroker fraud law firm if you invested in MF Global 6.25% Senior Notes due 2016, which dropped in value after the bankruptcy.

With MF Global Money Still Missing, Suspicions Grow, Dealbook, November 16, 2011

Purgatory for MF Global Customers, The Wall Street Journal, November 16, 2011


More Blog Posts:
MF Global Holdings Ltd. Files for Bankruptcy While Its Broker Faces Liquidation and Securities Lawsuit by SIPC, Institutional Investor Securities Blog, October 31, 2011

Ex-Lehman Brothers Holdings Chief Executive Defends Request that Insurance Fund Pay Legal Bills, Stockbroker Fraud Blog, October 19, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011

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

Posted In: Financial Firms

October 31, 2011

Dblaine Capital, LLC Faces SEC Securities Fraud Charges

The SEC is charging Dblaine Capital, LLC and owner David B. Welliver with securities fraud. According to its complaint, Welliver and the investment advisory firm got $4m in loans as a result of a quid pro quo deal that was undisclosed, improper, and violated their responsibilities to the fund. In return, DBlaine Capital and Welliver allegedly agreed to put the funds ‘assets in specific “alternative investment” securities. By placing the fund’s assets in a private placement offering connected to the lender, this caused the fund to violate a number of policies and investment restrictions.

Per the Commission, Dblaine Capital and Welliver placed their own financial interests first and that the two of them also defrauded the Fund by giving an inaccurate valuation for the private placement holding. This caused the shares of the fund to be offered, sold, and redeemed at an inflated net asset value.

Upon discovering that that the private placement had no value, Welliver and DBlaine Capital allegedly kept this information from shareholders. They are also accused of making misleading and false statements in filings and reports submitted to the SEC, participating in prohibited affiliated transactions, and violating a number of policies and restrictions governing the Fund and its investments that were explicitly included in offering materials.

Per Fund polices, the private placement should have been at fair value, yet the Commission says that between December 2010 and July 2011, DBlaine Capital and Welliver did not attempt to figure out that was and chose to value the private placement at acquisition cost. Also, per the SEC, Welliver used $500,000 of the $4 million in loans that DBlaine Capital obtained to cover his personal expenses, including a motor vehicle, expensive purchases, his son’s college education, back taxes, home improvements, and a vacation.

The SEC wants disgorgement of ill-gotten gains, permanent injunction, prejudgment interest, and civil penalties. It is accusing both Dblaine Capital and Welliver of violating the:

• Securities Act of 1933
• Securities Exchange Act of 1934
• Investment Advisers Act of 1940
• Investment Company Act of 1940

Unfortunately, securities fraud committed by broker-dealers and investment advisers can cause investors, shareholders, and others to suffer financial losses. Not only can this be grounds for civil action by regulators, but also victims of this type of fraud may be able to file their own claim seeking to recover what they’ve lost.

Results show that retaining the services of an experienced securities fraud attorney rather than attempting to file your claim on your own increases your chances of recouping your losses. The securities arbitration system can be a complex area to navigate and there is no reason why you should have to do this alone.

SEC Charges IA Arrangement Illegal, BNA Securities Law Daily, October 27, 2011

SEC CHARGES DAVID B. WELLIVER AND DBLAINE CAPITAL, LLC, WITH FRAUD AND OTHER VIOLATIONS, SEC, October 18, 2011


More Blog Post:
EagleEye Asset Management LLC Sued by SEC and CFTC for Alleged Forex Trading Scam, Stockbroker Fraud Blog, September 28, 2011

California Insider Trading Charges Filed by SEC Against Ex-Investment Fund Associate Accused of Making 3000% Profit on Marvel Call Options in Disney Acquisition, Stockbroker Fraud Blog, August 23, 2011

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging Securities Fraud in $1B Derivatives Deal, Institutional Investors Securities Blog, October 20, 2011

Continue reading "Dblaine Capital, LLC Faces SEC Securities Fraud Charges" »

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

Posted In: Financial Firms

October 26, 2011

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges

After surrendering to federal authorities today, Rajat Gupta has entered a not guilty plea to the criminal charges against him involving insider trading. Gupta, who was a former Proctor and Gamble and Goldman Sachs director, is accused of multiple counts of securities fraud and one count of conspiracy to commit securities fraud. He allegedly gave Galleon Group cofounder Raj Rajaratnam corporate secrets about Goldman. Our stockbroker fraud law firm has been following Rajaratnam’s criminal case on our blog site. (See below.) Earlier this month, he was sentenced to 11 years in prison over an insider trading scam that illegally garnered $63.8 million.

Gupta, who also once was a global head at McKinsey & Co., came under close scrutiny during Rajaratnam’s trial when he was brought up in testimony and phone conversations that were recorded in secret. He is also now facing civil charges with the Securities and Exchange Commission, which contends that he provided Rajaratnam with illegal tips about both Proctor and Gamble and Goldman Sachs’ quarterly earnings and an approximately $5 billion investment that Berkshire Hathaway was planning to make in the financial firm. Based on Gupta’s tips, Rajaratnam avoided losses of/made illegal profits of over $23 million. Rajaratnam made over 800,000 in illegal profits from the Berkshire Hathaway tip when, after first having Galleon funds buy over 215,000 Goldman shares, he ordered the liquidation of the Goldman holdings a day after the information and Goldman’s public equity offering became public.

Rajaratnam also made over $18.5 million in illegal profits for Galleon funds after Gupta allegedly told him that Goldman had positive 2008 second quarter financial results. Rajaratnam then had the hedge fund buy Goldman securities but liquidated them when Goldman made news of its earnings for that quarter public. Other charges stem from Gupta allegedly notifying Rajaratnam that fourth quarter results for that same year were negative. The Goldman holdings were sold off, allowing Rajaratnam to avoid over $3 million in losses. When Gupta allegedly tipped him about P & G's 2008 4th quarter earnings, Rajaratnam had Galleon funds sell short about 180,000 P & G shares, generating over $570,000 in illicit profits.

According to the SEC, Gupta got his confidential information from board conversations while serving as director at both companies. At the time, Gupta had numerous business ties with Rajaratnam and was seeking to strengthen that relationship. Not only had Gupta invested in Rajaratnam’s hedge funds, but they also began a number of financial ventures together.

The SEC had recently dropped its previous administrative action against Gupta over the insider trading allegations. Following that move, he vowed to drop his lawsuit claiming that the regulatory proceeding had violated his constitutional rights.

Of the 56 people that the government has charged with its crackdown on insider trading, 51 either were convicted or pleaded guilty.

With Gupta’s Arrest, Insider Inquiry Goes Beyond Wall St., Dealbook, October 26, 2011

SEC Files Insider Trading Charges against Rajat Gupta, SEC, October 26, 2011

Rajat Gupta, SEC Agree to Drop Galleon-Related Suit, Administrative Action, Bloomberg, August 5, 2011


More Blog Posts:
Galleon Group LLC Co-Founder Raj Rajaratnam Sentenced to 11 Years in Prison Over Insider Trading Scam, Stockbroker Fraud Blog, October 13, 2011

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011

Dallas Mavericks Owner Mark Cuban's Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 18, 2011

Continue reading "Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges" »

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

Posted In: Financial Firms , Goldman Sachs , Insider Trading

October 22, 2011

Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses

Citigroup Global Markets Inc. (C) is suing Abdullah and Ghazi Abbar. The Saudi investors have filed a FINRA arbitration claim against the Citigroup unit seeking to recover the $383 million that they say the bank lost their family’s money. The Abbars, who are father and son, are accusing Citigroup Global Markets of mismanaging their family’s savings.

Citigroup, which wants injunctive relief, says that the entities that took care of the the Abbars’ private-equity loan and leveraged option transactions are located abroad and therefore not under FINRA’s jurisdiction for arbitration. The financial firm also says that father, son, and their investment entities are not CGMI clients and their claims are not activities related it. The investment bank has noted that the Abbars chose to pursue it rather than the non-U.S. parties that they actually had agreements with that completed the transactions. The Abbars, however, say that those overseeing the Citigroup entities that took party in the daily management of their credit deal are personnel that are registered with FINRA.

Says Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd, “The financial industry has created its own securities arbitration forum to resolve disputes and claims between and against its members. It is ironic when claims are filed that they often go to court to beg to get out of arbitration, their self-imposed fate. While courts in New York seem to operate to accommodate Wall Street’s wishes, the law for decades has held that decisions regarding the liability of securities firms are for the arbitrators, not the courts. If these investors have properly alleged any wrongdoing by the U.S. securities firm, the court has no business intervening. Such wrongdoing can be simply ‘control person liability,’ which is the failure to control or properly supervise the behavior or operations of a subordinate or subsidiary.”

CGMI placed $343 million of the Abbars money in hedge funds that were included in a leveraged option swap transaction. In their FINRA arbitration claim, the Abbars argue that leading CGMI officers, including ex- global wealth management chief Sallie Krawcheck and Chief Executive Officer Vikram Pandit, pursued them.

Father and son contend that because of alleged “gross misconduct" by CGMI, their wealth was lost. They say that the bank's failure to monitor the investments properly led to their total collapse during the height of the economic collapse in 2008. The Abbars also believe that lendings related to the Citigroup investments played a role in the losses. The Abbars says that Citigroup, which then started managing the positions that remained in the portfolio while implementing a program to redeem it, will “unjustly benefit” by about $70 million from the redemption of these investments.

Citigroup Sues to Block Arbitration of Saudi Investors’ Claim, Bloomberg/Businessweek, October 6, 2011

Citigroup Aims to Stop Arbitration From Proceeding, OnWallStreet, October 7, 2011

More Blog Posts:
Citigroup Global Markets Fined $500,000 by FINRA for Inadequate Supervision of Broker Accused of Bilking Sick and Elderly Investors, Stockbroker Fraud Blog, August 16, 2011

Citigroup Ordered by FINRA to Pay $54.1M to Two Investors Over Municipal Bond Fund Losses, Stockbroker Fraud Blog, April 13, 2011

Citigroup to Pay $285M to Settle SEC Lawsuit Alleging SecuritiesFraud in $1B Derivatives Deal, Institutional Investors Securities Blog, October 20, 2011

Continue reading "Citigroup Global Markets Inc. Sues Two Saudi Investors in an Attempt to Block Their FINRA Arbitration Claim Over $383M in Losses" »

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

Posted In: Arbitration , Citigroup , FINRA , Financial Firms

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