March 31, 2014

Bank of America, Its Ex-CEO To Pay $25M to Settle Securities Case with NY Over Merrill Lynch Deal

Bank of America Corp. (BAC) and its ex-CEO Kenneth Lewis have consented to pay $25 million to settle the remaining big securities fraud case accusing them of misleading investors about the financial state of Merrill Lynch & Co. during the 2008 financial crisis. The New York securities case accuses the bank of deceiving shareholders by not disclosing Merrill’s increasing losses before the acquisition deal was closed or letting them know that the deal let Merrill give its officials billions of dollars in awards.

As part of the settlement, the bank will pay the state of New York $15 million and it will enhance its oversight. Lewis, meantime, has consented to pay $10 million and he cannot work at or serve as a director of any public company for three years.

Also named as a defendant in the securities lawsuit but who refused to settle is ex-Bank of America CFO Joe Price. NY Attorney General Eric Schneiderman intends to pursue a summary judgment against him, as well as ask a judge to reach a decision without a trial. Schneiderman reportedly wants Price permanently banned from serving as a director or working at a public company.

Previously, Lewis and other Bank of America directors agreed to pay $20 million to settle a securities fraud lawsuit by investors accusing them of not disclosing needed data about Merrill before the takeover was approved. In 2012, the bank consented to pay $2.43 billion to resolve a class-action securities case with investors accusing the institution and its officers of making misleading and false statements about Merrill’s financial health. Just two year before that Bank of America agreed to pay $150 million to settle with the SEC over charges that it did not disclose material data about Merrill.

Bank of America acquired Merrill in a $50 billion deal in September 2008, which is when Lehman Brothers Holdings went into bankruptcy. While the deal was at first considered good news, especially as the rest of Wall Street appeared to be in so much trouble, analysts started to wonder if Lewis paid too much. There was also Merrill’s losses right before the acquisition was finalized.

Because of investors’ fears about the financial crisis, share prices of Bank of America dropped significantly, causing the value of the deal to drop to about $19 billion by the time it actually was finalized in January 2009. Securities fraud lawsuits then followed.

Bank of America’s decisions to purchase Merrill and Countrywide Financial Corp. have since compelled it to put aside over $42 billion to cover lawsuit costs, reserves, and payouts. Many of the securities cases contend that Countrywide, once one of the biggest subprime mortgage lenders, sold faulty mortgage securities to investors leading up to the 2008 economic crisis.

In October, a jury found Bank of America liable for securities fraud over the mortgages that Countrywide originated as home loans that in then sold to Freddie Mac and Fannie Mae.

Please contact our stockbroker fraud lawyers if you suspect your investment losses are because of financial fraud.

Lewis, BofA Reach $25 Million Pact With N.Y. Over Merrill, Bloomberg, March 26, 2014

Bank of America to pay $2.43B in settlement, Yahoo, September 28, 2012

Bank of America liable for Countrywide mortgage fraud, Reuters, October 23, 2008


More Blog Posts:
$500M MBS Settlement Reached Between Countrywide and Investors, Stockbroker Fraud Blog, May 10, 2013

Dismissal of Double Derivative Delaware Securities Lawsuits Over The Bank of America-Merrill Lynch Merger is Affirmed by the Second Circuit, Stockbroker Fraud Blog, December 22, 2012

Bank of America Settles Mortgage Bond Claims with FHFA for $9.3B, Institutional Investor Securities Blog, March 29, 2014

March 25, 2014

LPL Financial Fined $950K by FINRA for Supervisory Failures Involving Alternative Investments

FINRA says that LPL Financial, LLC must pay a fine of $950,000 for supervisory deficiencies involving the sale of alternative investment products, such as oil and gas partnerships, non-traded real estate investment trusts, managed futures, hedge funds, and other illiquid pass-through investments. By settling, the independent broker-dealer is not denying or admitting to the FINRA charges. LPL however, has agreed to an entry of the self-regulatory agency’s findings.

A lot of alternative investments establish concentration limits and certain states have even stipulated their own concentration limits for alternative investment investors. LPL also has set its own limits.

According to FINRA, however, from 1/1/08 to 7/1/12 LPL did not properly supervise the sale of alternative investments that violated of concentration limits. The SRO contends that even though initially LPL employed a manual system to assess if an investment was in compliance with requirements for suitability, the brokerage firm sometimes relied on inaccurate and dated data. Later, when LPL put into place a system that was automated to conduct the reviews, the system was purportedly not updated to make sure current suitability standards were correctly reflected and the programming in the database was flawed.

FINRA EVP and Enforcement Chief Brad Bennett said that because LPL did not have a proper supervisory system set up that could correctly and accurately evaluate if a transaction was in accordance to the necessary suitability requirements, the broker-dealer exposed customers to risks that were not acceptable. FINRA is also accused the firm of not properly training its representatives on how to properly follow suitability guidelines.

Meantime, an LPL broker that sold REITs to customers who was at the center of FINRA’s securities case against the firm has been fired. LPL has reportedly improved its supervisory procedures and policies.

Our inadequate supervision securities lawyers work with investors to get back their securities fraud losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Regulator fines LPL Financial $950,000 over sale of alternatives, Reuters, March 24, 2014

FINRA Fines LPL Financial LLC $950,000 for Supervisory Failures Related to Sales of Alternative Investments, FINRA, march 24, 2014

Read the FINRA action (PDF)


More Blog Posts:
FINRA Bars Ex-LPL Broker Over Nontraded REIT Sales, Stockbroker Fraud Blog, December 27, 2013

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

LPL Financial Continues to Stay On Regulators’ Radar, Stockbroker Fraud Blog, April 10, 2013

March 24, 2014

Securities America Under Investigation by Pennsylvania in Nontraded REIT Probe

The Pennsylvania Department of Banking and Securities is looking into the sales of nontraded real estate investment trusts by Securities America employees. Ladenburg Thalmann & Co. Inc., which owns the broker-dealer and two other independent brokerage firms, said in its yearly report that the state regulator wants the brokerage firm to provide data about nontraded REITs that Pennsylvania residents have been buying since 2007. The request was made in October.

According to InvestmentNews, it is not known at this time if Pennsylvania regulators are just looking at nontraded-REIT sales at Securities America or the investigation extends to other firms. It was just last year that Securities America, along with other independent brokerage firms, settled with the Massachusetts Securities Division over nontraded REIT sales.

Securities America paid $8.4 million in restitution to clients in that state along with a $150,000 fine. According to that probe, firms had difficulties abiding by their own policies as well as to the Massachusetts rule that an investor’s purchase of REITs cannot go beyond his/her liquid net worth.

Each state has its own rules about how many alternative investments brokers can sell to clients. Often, the net worth of an investor impacts this amount.

In an Investor Alert, the Financial Industry Regulatory Authority outlined the risks involved in investing in a non-traded REIT:

• Distributions are not a guarantee and can be impacted by numerous factors.

• There are tax consequences to REIT status and distributions. Distributions for REITS that are from accumulated profits and earnings are taxed as if they are ordinary income. The rate could be up to 20% if you are in the highest tax bracket.

• Non-traded REITs are typically illiquid and come with valuation complexities.

• Early redemption can be costly and is frequently restrictive.

• Fees may accrue, adding to the expenses associated with non-traded REITS. For example, front-end fees alone can take the form of selling compensation and costs, as well as organizational and offering costs.

• Properties are frequently unspecified, which means many non-traded REITS begin as blind pools.

• Non-traded REITS can offer limited diversification.

• The real estate risks are real.

If you are considering investing in non-traded REITs, FINRA says that you should know about and understand what you are getting involved in. Find out what kind of fees your financial representative or his/her firm will be paid in commissions and fees. Make sure that this type of security is suitable for your portfolio and you can handle the degree of risk involved. Will this investment help you meet your long-term investment goals? You want to work with a brokerage firm and financial representative that know what they are doing.

Unfortunately, there are investors who have been persuaded to invest in non-traded REITS but were not apprised of the risks, conditions, or costs involved. If you believe that you were misled by a brokerage firm into getting involved in these investments and you have sustained losses because of it, contact Shepherd Smith Edwards and Kantas, LTD LLP. One of our non-traded REIT fraud lawyers would be happy to offer you a free case assessment.

Securities America focus of second state nontraded-REIT inquiry, Investment News, March 19, 2014

Public Non-Traded REITs—Perform a Careful Review Before Investing

More Blog Posts:
FINRA Bars Ex-LPL Broker Over Nontraded REIT Sales, Stockbroker Fraud Blog, December 27, 2013

Securities America, Ameriprise, Among Independent Broker-Dealers Charged $10.75M by Massachusetts for Nontraded REIT Sales, September 4, 2013

FINRA Plan May Dramatically Change The Way Brokerage Firms Report On Nontraded REITS & Other Illiquid Investments on Client Statements, Institutional Investor Securities Blog, April 28, 2013

March 19, 2014

Former Morgan Stanley Broker and Two Others Allegedly Ran $5.6M Insider Trading Scam, Swallowed The Information

In an alleged insider trading scam that could have been ripped out of the plot of a movie, prosecutors are accusing three men of engaging in methods of spycraft, including eating the evidence, as they ran an insider trading racket that netted about $5.6 million. The information they used was purportedly obtained from Simpson Thacher & Bartlett, LLP, which is the premier mergers-and-acquisitions law practice in New York. The firm is known for its work involving mergers and acquisitions and private equity.

Prosecutors say that Steven Metro, a managing clerk at the law firm, used his employer’s computer system to gather information about deals and other corporate developments involving clients. He then shared the information, which, according to The Wall Street Journal, included data about Tyco International Ltd.’s intentions to purchase Brink’s Home Security Holdings Inc., as well as the Office Dept. Inc. Office Max Inc. merger, with an unnamed mortgage broker during coffee shop and bar meetings. That person then allegedly gave the info to broker Vladimir Eydelman, who until recently, was with Morgan Stanley (MS) (and before that (Oppenheimer & Co. (OPY)) Edylman, 42, then traded on the data.

Metro and Eydelman were arrested this week and then released on $1 million bond. They face numerous criminal charges, including securities fraud. Meantime, the unnamed mortgage broker is working with prosecutors and is expected to consent to a plea deal.
Both Morgan Stanley & Oppenheimer are also cooperating in the probe.

Beginning in 2009, Metro and the unnamed broker would meet with friends for drinks. The unnamed broker and Eydelman would then meet by the large clock at Grand Central. A piece of paper with the stock trading symbol of the company would allegedly be flashed between them and then eaten once the data was memorized. Eydelman also allegedly set up a fake paper trail and “contrived emails” with information to make it seem as if the illegal trades were legitimate.

Shepherd Smith Edwards and Kantas, LTD LLP represents securities fraud victims in getting back their losses. Contact our investment fraud lawyers today.

U.S. Alleges Inside Traders Used Spycraft, Ate Evidence, The Wall Street Journal, March 19, 2014

Morgan Stanley Broker Charged in Post-It Insider Scheme, Bloomberg, March 19, 2014


More Blog Posts:
JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam, Stockbroker Fraud Blog, January 25, 2014

JPMorgan To Pay $2.6B in Penalties in Bernard Madoff Ponzi Scam Settlements, Stockbroker Fraud Blog, January 7, 2014

SAC Capital Advisors LP Expected to Plead Guilty to Insider Trading Criminal Charges, Institutional Investor Securities Blog, October 31, 2013

March 17, 2014

FINRA Orders Securities America and Triad Advisers to Pay $1.2M Over Reporting Violations

The Financial Industry Regulatory Authority is fining Securities America and Triad Advisors $625,000 and $650,000, respectively, for not properly supervising the way consolidated reporting systems were used. Triad must also pay $375,00 in restitution. Even though they are settling, the two firms are not denying or admitting to wrongdoing.

The self-regulatory organization said this inadequate supervision led to statements containing inaccurate valuations that were sent to customers. The two firms are also accused of disobeying securities laws by not keeping appropriate consolidated reports.

A consolidated report is a document that includes information about the bulk of a customer’s financial holdings. The report is a supplement to official account statements.

According to FINRA, while Securities America and Triad Advisors had a consolidated reporting system that allowed representative to generate these reports, for over two years they did not supervise the hundreds of brokers who were authorized to do this. This permitted the generation and dissemination to customers consolidated reports that were inaccurate and false, and contained inflated investment values, fictitious assets, and other inaccuracies. As FINRA Enforcement Chief and EVP Brad Bennett has noted, consolidated reports can be used to hide theft and fraud without proper supervision.

At Shepherd Smith Edwards and Kantas, LTD LLP reports, our securities fraud lawyers are here to help investors that have suffered losses because of broker or firm negligence or misconduct to get their money back. Contact our securities law firm today.

Finra Fines Triad Advisors, Securities America for Inaccurate Consolidated Reports, The Wall Street Journal, March 12, 2014

FINRA Fines Triad Advisors and Securities America a Total of $1.2 Million for Consolidated Reporting Violations, FINRA, March 12, 2014

Triad Advisors Action (PDF)

Securities America Question (PDF)


More Blog Posts:
Securities America, Ameriprise, Among Independent Broker-Dealers Charged $10.75M by Massachusetts for Nontraded REIT Sales, Stockbroker Fraud Blog, September 4, 2013

Ameriprise Financial, Securities America, & Three Other Brokerage Firms Reach $9.6M Non-Traded REIT Securities Settlement with Massachusetts Financial Regulator, Stockbroker Fraud Blog, May 22, 2013

Ex-Goldman Trader Tourre Must Pay $825M in Securities Fraud Involving CDO Abacus 2007-AC1, Institutional Investor Securities Blog, March 14, 2014

March 12, 2014

Jefferies LLC Settles SEC Charges for $25 Million

Broker-dealer and investment bank Jefferies LLC (JEF) has consented to pay $25 million to settle Securities and Exchange Commission charges that it did not properly supervise traders at its mortgage-backed securities desk. These same staffers purportedly lied to investors about pricing.

The regulator contends that Jefferies did not give its supervisors what they needed to properly oversee trading activity on the MBS desk and that these managers neglected to find out what bond traders were telling customers about pricing information in terms of what the bank paid for certain securities. This inaccurate information was misleading to investors, who were not made aware of exactly how much the firm profited from in the trading.

While Jefferies’ policy makes supervisors look at electronic conversations of salespeople and traders so any misleading or false information given to customers would be detected, the SEC says that the policy was not effected in a manner that price misrepresentations were identified. The supervisory failures are said to have taken place between 2009 and 2011.

Jefferies also is accused of not looking over conversations between customers and traders that took place on Bloomberg terminals. The SEC Enforcement Division’s director, Andrew J. Ceresney, says that proper supervision by Jefferies could have caught a lot of the misstatements made by employees.

As part of the securities fraud settlement, Jefferies will pay customers over $11 million (a combination of firm profits and ill-gotten gains). It will also pay a $4.2 million penalty and $9.8 million for its nonprosecution deal reached with the U.S. Attorney's Office for the District of Connecticut over a parallel action.

It was last year that the SEC charged ex-Jefferies Managing Director Jesse Litvak with securities fraud. Litvak is accused of bilking customers that he sold MBS to so he could make additional money for the brokerage firm. Investors lost about $2 billion as a result.

Earlier this month, Litvak was convicted by a federal jury on multiple criminal counts, including securities fraud, and fraud related to the Troubled Asset Relief Program. He is currently the only person charged with fraud involving the Public-Private Investment Program, which used billions of dollars from TARP to get more people to invest in mortgage-backed securities. Meantime, civil and criminal authorities are now investigating whether others Jefferies Group traders also defrauded investors over mortgage-bond prices.

Please contact our MBS fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP today. Our securities law firm represents investors with claims against brokerage firms, investment banks, investment advisers, brokers, and other industry members. The best way to maximize the chances of recovering your investment losses is to work with an experienced securities lawyer that knows how to do the job right. Your initial case consultation with us is a free, no obligation session.

The SEC Order (PDF)

SEC Charges Jefferies LLC With Failing to Supervise Its Mortgage-Backed Securities Desk During Financial Crisis, SEC, March 12, 2014

U.S. Probes More Jefferies Traders Over Mortgage Pricing, Bloomberg, March 12, 2014

More Blog Posts:
Ex-Jefferies Trader Found Guilty in Securities Fraud Case Over Bond Prices, Stockbroker Fraud Blog, March 8, 2014

Puerto Rico Senate Votes to Sell $3.5B in Bonds
, Stockbroker Fraud Blog, February 28, 2014

SEC Investigates Whether Currency Traders Distorted ETF and Options Prices, Manipulated Currency Markets, Institutional Investor Securities Blog, March 12, 2014

March 8, 2014

Ex-Jefferies Trader Found Guilty in Securities Fraud Case Over Bond Prices

A jury has convicted Ex-Jefferies Group LLC (JEF) trader Jesse Litvak of securities fraud. Litvak was found guilty of 15 criminal counts, including 10 securities fraud counts related to his misrepresenting bond prices to customers so he could make more money for him and his firm. He pleaded not guilty to all the charges. Jefferies Group is a Leucadia National Corp. (LUK) unit.

According to the government, the 39-year-old trader gave clients inaccurate information about the price of residential mortgage-backed bonds and kept the monetary difference. Litvak, who worked at Jefferies from April 2008 through December 2011, is accused of bilking customers of about $2 million, benefiting himself and his employer.

While Litvak's legal team tried to persuade a jury that statements Litvak made no difference to customers or their decision of whether to buy the bonds, and that the tactics his client employed are “expected,” the government argued that Litvak’s statements did affect his clients. Litvak was also found guilty of a criminal charge accusing him of fraud related to the Troubled Asset Relief Program.

The former Jefferies broker has yet to receive his prison sentence for the conviction. Meantime, he also is facing a parallel securities fraud case brought by the Securities and Exchange Commission. The regulator is accusing him of bilking investors of mortgage-backed securities to make more revenue for his firm.

The SEC says Litvak would buy an MBS from one client and sell it to a different client and lie about the price. He would then take the difference in price and give it to Jefferies. He also, on occasion, purportedly created a bogus seller to make it seem as if he was working out an MBS trade between clients when he was just selling the securities out of his firm, but at a higher cost. The SEC says that Litvak was able to make another $2.7 million for Jefferies because of the fraud.

Although Jefferies is not accused of wrongdoing related to the charges against Litvak, the brokerage firm has reached a preliminary deal to pay $25 million to settle US probes related to this former employee. In addition to reaching a nonprosecution deal with the US Attorney’s Office in Connecticut and settling with the SEC, Jefferies will also pay trading clients affected by Litvak’s actions.

The criminal conviction against Litvak could help a government investigation launched after Litvak was arrested as year. The Wall Street Journal reported that investigators are trying to find out if other traders engaged in fraud similar to what Litvak did. That probe is being conducted by the SEC, the US Department of Justice, and the special inspector general for the Troubled Asset Relief Program, and looks at markups and markdowns, such as the markups made by Litvak.

Traders are supposed to prioritize a customer’s best interests and make sure the investment and its price is suitable for the client and his/her objectives and portfolio. Unfortunately, there are financial representatives who commit securities fraud for profit at cost to investors. That’s where Shepherd Smith Edwards and Kantas, LTD LLP steps in. Our securities lawyers have helped thousands of investors get their money back.


Former NY RMBS Trader Convicted by Federal Jury of Defrauding TARP, Loansafe.org, March 11, 2014

Jury Finds Former Jefferies Trader Litvak Guilty of Fraud, The Wall Street Journal, March 7, 2014

TARP Programs, Department of Treasury


More Blog Posts:
Fines for FINRA Sanctions Went Down 27%, Reports New Analysis, Stockbroker Fraud Blog, March 5, 2014

Puerto Rico Senate Votes to Sell $3.5B in Bonds, Stockbroker Fraud Blog, February 28, 2014

SEC Director Warns About Recommending Alternative Mutual Funds To Certain Investors, Institutional Investor Securities Blog, March 7, 2014

March 4, 2014

Ex-Merrill Lynch Adviser, Already Jailed for Massachusetts Securities Fraud, Now Indicted Over Ponzi Scam

Even as she serves her 33-month sentence for securities fraud, Jane O’Brien, a former Merrill Lynch (MER) broker, has now been indicted for her alleged involvement in a Ponzi scam that purportedly ran for nearly two decades. The U.S. Attorney's Office for the District of Massachusetts says that O’Brien is facing criminal charges for mail fraud, investment adviser fraud, and wire fraud involving the misappropriation of $1.3 million in client monies.

Per the indictment, between 1995 and 2013 and while she worked at Citigroup (C)'s Smith Barney and then later with Merrill, O’Brien persuaded a number of clients to withdraw money from brokerage accounts and their banks. She got their permission to invest the funds in private placements. However, instead, the 61-year-old allegedly used the money to repay other investors and cover her personal expenses.

O’Brien is also accused of making misrepresentations to clients, providing them with materially false statements, “making lulling payments,” and offering false assurances that their money was secure. She even in one instance, allegedly, got a client to invest in “Crooked Arrows,” a Hollywood film, in return for a promised 25% return, which did not happen.

In December 2012, O’Brien pleaded guilty to securities fraud over a separate case having to do with a $240,000 investment in a nonexistent security. According to the state, she also borrowed about $1.7 million from the client, which violates not just Merrill Lynch’s policies but also the rules of the securities industry. Late last year, Merrill settled with Massachusetts regulators over allegations that it did not properly supervise O’Brien. The firm paid $500,000, some of which went to investors who had been bilked.

Also, in August 2012, the Financial Industry Regulatory Authority barred O’Brien from the industry, contending that between 2004 and 2011 she borrowed over $2 million from clients even though she did not have permission.

Unfortunately, every year there are investors that get reeled in and robbed because they inadvertently became involved in a Ponzi scam or some other type of securities fraud. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today if you suspect you maybe one of these investors, and we can help you explore your legal options.

Former Merrill Lynch broker accused of 18-year Ponzi scheme, InvestmentNews, March 4, 2014
Needham Financial Advisor Sentenced to 33 Months in Securities Fraud, Justice.gov


More Blog Posts:

Massachusetts Securities Regulators Fine Merrill Lynch $500,000 For Alleged Failure to Stop Rogue Broker, Stockbroker Fraud Blog, October 29, 2013

North American Securities Administrators Association Releases 2013 List of Top Threats to Investors, Stockbroker Fraud Blog, October 22, 2013

Detroit, MI to Pay UBS and Bank America $85M Over Interest Swaps Settlement, Institutional Investor Securities Blog, March 4, 2014

February 25, 2014

Berthel Fisher & Affiliate Fined $775K by FINRA Over Supervisory Failures Involving Non-Traded REITs and Leveraged and Inverse ETFs

Berthel Fisher & Company Financial Services, Inc. and its affiliate, Securities Management & Research, Inc. are going to pay the Financial Industry Regulatory Authority a combined $775,000 for purported supervisory deficiencies related to leveraged and inverse exchange-traded funds and non-traded real estate investment trusts. The firm settled without deny or admitting to the allegations.

FINRA claims that from January 2008 to December 2012 Berthel Fisher had inadequate written procedures and supervisory systems to deal with the sale of alternative investment products, such as managed futures, non-traded REITs, oil and gas programs, managed futures, business development companies, and equipment leasing programs. The SRO says that the brokerage firm’s staff were improperly trained with regard to state suitability standards, and criteria wasn't properly enforced in a number of alternative investment sales because the firm did not figure out the correct concentration levels of certain financial instruments.

FINRA also said that from 4/09 to 4/12, Berthel Fisher lacked a reasonable basis for certain ETF sales, resulting from numerous reasons, including a failure to properly review or research non-traditional ETFs before letting registered representatives make recommendations to customers. Inadequate sales training was not provided and some customers suffered losses because the brokerage firm did not monitor investment holding periods.

Inverse and leveraged ETFs are typically not considered appropriate, for buy-and-hold, low risk customers. They offer greater exposure to market fluctuations and can differ a lot from the benchmark for periods lasting over a day. The SRO notes that Berthel Fisher representatives recommended $49.5 million in nontraditional ETFs to over 1,000 customers. Unfortunately, a number of these products were sold to clients who wanted their investments handled more conservatively

As part of the settlement, Berthel Fisher agreed to retain an independent consultant to enhance supervisory procedures for alternative investment sales. It will also pay almost $13,293 in investor restitution. The broker-dealer no longer has inverse and leveraged ETFs on its platform.

If you suspect you were the victim of securities fraud, contact our Non-traded REIT lawyers or our ETF fraud lawyers today.

FINRA Fines Berthel Fisher and Affiliate, Securities Management & Research, $775,000 for Supervisory Failures Related to Sales of Non-Traded REITs and Leveraged and Inverse ETFs, FINRA, February 24, 2014

Finra fines Berthel Fisher $775,000 for compliance failures, Investment News, February 24, 2014


More Blog Posts:
Foremost Trading LLC Must Pay $400K to CFTC for Supervisory Violations, Stockbroker Fraud Blog, September 12, 2013

SEC Risk Fin Director Wants Public Input About Investor Protection-Related Costs and Benefits, Stockbroker Fraud Blog, June 15, 2013

Lehman Brothers Holdings’ $767M Mortgage Settlement to Freddie Mac is Approved by Judge, Institutional Investor Securities Blog, February 19, 2014

February 22, 2014

Credit Suisse Admits Wrongdoing and Will Pay $196M to Settle SEC Charges That It Provided Unregistered Services to US Customers

Credit Suisse (CS) is agreeing to pay $196 million and has admitted to wrongdoing as part of its settlement with the Securities and Exchange Commission over allegations that it violated federal securities laws when it gave cross-border investment advisory and brokerage services to US clients even though it was not registered with the regulator. According to the SEC’s order to institute resolved administrative proceedings, the financial firm gave cross-border securities services to thousands of clients in this country even though it hadn’t met federal securities laws’ registration provisions. In the process, Credit Suisse made about $82 million in fees even though its relationship managers that were involved had not registered with the Commission nor did they have affiliation to any registered entities.

The firm began providing cross-border brokerage and advisory services for customers in the US in 2002, setting up as much as 8,500 accounts that held about $5.6 billion in securities assets. Relationship managers visited the US about 107 times and serviced hundreds of customers when they were here. They would offer investment advice and effect securities transactions. When they were abroad, the managers worked with US clients via phone calls and e-mails. Also, some of the customers involved were Americans who had Swiss bank accounts at the firm. Criminal authorities continue to look into whether there were tax violations and if the clients were able to avoid paying taxes as a result.

Even though the firm knew about the registration requirements and made efforts to prevent violations, their initiatives didn’t work that well due to improper monitoring and the inadequate implementation of internal controls. The SEC says that it wasn’t until the civil and criminal probe into similar conduct by UBS (UBS) in 2008 that Credit Suisse started taking action to stop providing these cross border advisory services to UC clients. These types of activities were completely terminated but not until the middle of last year. During that time, the financial firm kept collecting investment adviser fees on some broker accounts.

The SEC is accusing Credit Suisse of violating the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934. When settling, Credit Suisse admitted to the facts in the SEC’s order, acknowledged that it violated federal securities law, accepted a cease-and-desist order and a censure, and agreed to hire an independent consultant. The $196 million settlement that the firm is paying includes over $82 million in disgorgement, more than $64 million in prejudgment interest, and a $50 million penalty.

That Credit Suisse admitted to wrongdoing when settling the securities charges with the SEC is significant. It is just the fifth such admission since the regulator revised its policy to allow defendants to resolve charges against them without having to deny or admit to wrongdoing. The Commission decided that in cases involving blatant violations and egregious misconduct, an admission of guilty was warranted to resolve allegations.

Credit Suisse Admits Wrongdoing in SEC Case, New York Times, February 21, 2014

Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients, SEC, February 21, 2014

Read the SEC Order (PDF)


More Blog Posts:
New Jersey Files Securities Lawsuit Against Credit Suisse Over $10B in MBS Sales, Stockbroker Fraud Blog, December 20, 2013

Mixed Securities Verdict Reached in SEC Case Against Texas-Based Life Partners Holdings, Stockbroker Fraud Blog, February 19, 2014

Credit Suisse Could Settle with US Over Tax Evasion Allegations for Over $800M, Institutional Investor Securities Blog, January 18, 2014

February 13, 2014

SEC Restructures Trial Unit in an Effort to Decrease Courtroom Losses

In the wake of recent losses in the courtroom, the Securities and Exchange Commission is changing up the way it gets ready for trial. The Wall Street Journal says that SEC Chairwoman Mary Jo White has retooled the agency’s trial unit. One of the reasons for the restructuring is so litigators and investigators can work more closely together.

The SEC’s victory rate has been dropping. The agency won just 55% of trials in the last four months, which a definite decline compared to the last three years when it had been winning over 75% of the time. Since October, however, juries and judges have ruled in favor of 10 out of 25 persons and firms in securities litigation against the SEC, and the government lost 5 of 11 trials. This is a definite downswing from the 12 months prior when just 5 of 34 defendants beat the regulator. Although the cases that the regulator lost were filed before White took over the helm, defense lawyers believe that the Commission’s current losing trend will compel more people to go up against it instead of settling.

The Commission’s trial unit has now been split into four groups so that this more closely mirrors the work of enforcement officials when they probe cases. Senior officials are also conducting practice openings for trials.

Some attorneys also believe that in the wake of the bigger sanctions the SEC may want for certain deals, the regulator may find it harder to convince certain individuals and firms to settle. Now that some defendants will only be able to settle if they admit to certain violations, a move that could result in even more lawsuits, this will likely compel some to go to court instead.

One high profile securities case that the SEC recently lost, and which certainly garnered a lot of attention, was the insider trading case against Mark Cuban, who owns the Dallas Mavericks. A federal jury turned down the agency’s claims that the billionaire took part in this illegal activity when he sold a stake in an Internet company to avoid losing $750,000. Jury members found that the information Cuban used wasn’t confidential and that he never promised not to trade on the data. That said, high-profile cases have not been the SEC’s only losses. In January, a jury rejected insider trading charges involving a railroad worker and his children.

After the worker deduced that a merger involving his employer was likely to happen, members of his family purchased call options and they profited approximately $1 billion. The Commission had tried to show that the employee engaged in insider trading even though he was never told about the deal. (He had guessed that one was pending because of the number of tours taking place at work.)

The regulator also has had challenges in court over accounting fraud cases, including one accusing two ex-water treatment company executives of inflating revenue and misleading an external auditor. A federal judge rejected the financial fraud charges against them.

Please contact our securities fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP today. We represent investors in court and in arbitration and have helped thousands recover lost investments via settlements and litigation.

SEC Takes Steps to Stem Courtroom Defeats, The Wall Street Journal, February 13, 2014

S.E.C.’s Losing Streak in Court Puts Agency in Spotlight, NY Times, February 10, 2014

SEC Loses as Mark Cuban Triumphs in Insider-Trading Trial, Bloomberg, October 17, 2013


More Blog Posts:
SEC Stops Texas Securities Scam Involving Oil and Gas Investments, Stockbroker Fraud Blog, January 6, 2014

SEC Goes After Alleged Ponzi Scammers, Stockbroker Fraud Blog, November 15, 2013

SEC Accuses Private Equity Manager of $9M Securities Fraud, Institutional Investor Securities Blog, January 30, 2014

February 8, 2014

JPMorgan Will Pay $614M to US Government Over Mortgage Fraud Lawsuit

JPMorgan Chase & Co. (JPM) has agreed to settle securities allegations that it defrauded federal agencies by underwriting mortgage loans that were sub-standard. As part of the agreement with the US government, the bank acknowledged that for over 10 years it approved thousands of insured loans that were ineligible for insurance by the Department of Veterans Affairs of the Federal Housing Administration. The Justice Department claims that as a result of JPMorgan’s actions, both the VA and FHA sustained significant losses because loans that were not qualified failed.

The mortgage fraud lawsuit is over the financial firm’s involvement in US programs that let private-sector lenders approve mortgages for government refinancing or insurances. According to prosecutors, JPMorgan violated the rules on a routine basis when it approved loans that did not meet the program’s criteria. One example, noted by Bloomberg.com, is the bank’s decision to underwrite a loan for an Indiana property and approving it for FHA insurance even though the rules don’t allow for reliance on documents that are over 120 days old to verify the assets of the borrower. After just three payments, the borrower defaulted. Because JPMorgan was the note’s holder, the Department of Housing and Urban Development paid a $109,253 insurance claim.

The Justice Department says that as part of the securities settlement the bank has also admitted that it did not let agencies know that its own internal reviews uncovered over 500 defective loans that should not have been turned in for VA and FHA insurance. According to United States attorney in Manhattan Preet Bharara, JPMorgan put “profits ahead of responsibility.”

The mortgage case stems from a whistleblower lawsuit by Keith Edwards, who sued JPMorgan last year under the False Claims Act. Under the Qui Tam provisions of the act, Edwards is entitled to a percentage of the settlement.

Also this week, JPMorgan agreed to pay $1.45M to 16 female mortgage brokers who accused the bank of allowing for a work environment that was sexually charged, leading to their unfair treatment. The female brokers say that when they failed to “embrace” this atmosphere, they were deprived of certain training opportunities and sales calls.

JPMorgan Joins Morgan Stanley in Settling U.S. Mortgage Lawsuits, BusinessWeek/Bloomberg, February 5, 2014

JPMorgan to pay 1.45 mn for sexual harassment, New Straits Times, February 6, 2014


More Blog Posts:
JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam, Stockbroker Fraud Blog, January 25, 2014

JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

FDIC Sued by JPMorgan Chase in $1B Securities Case Involving Washington Mutual Purchase & Mortgage-Backed Securities, Institutional Investor Securities Blog, December 23, 2013

January 30, 2014

$11M Award Against Citi is Vacated by the New York Supreme Court

The New York Supreme Court has vacated the $11M FINRA arbitration award against Citigroup Global Markets Inc. (C) and one of its employees. The securities case is Citigroup Global Markets Inc. v. Fiorilla.

Judge Charles Ramos vacated the award after determining that the parties had agreed to settle the arbitration case for $800,000 before arbitration. He said that it did not benefit the public interest to honor arbitrations of disputes that were settled before they were arbitrated.

The securities case involves a complaint filed by former legal adviser to the Holy See John Fiorilla. He contended that he turned over approximately $16 million of Royal Bank of Scotland PLC (RBS) stock—an inheritance from his dad—to Smith Barney adviser Robert Loftus. The latter is not a party in this arbitration claim.

Fiorilla claims even though the firm said it would provide protection from losses and hedge the highly concentrated the position because Loftus’s supervisors had been negligent the investment stayed overconcentrated. Between 2007 and 2009, the value of the claimant’s investment in the RBS stock dropping from $35/share to $2 share.

Fiorilla asked for a $19.5 million FINRA arbitration award and he was awarded nearly $11 million. Citigroup then filed a motion to vacate claiming that because of the agreement to settle previously, his securities claim should have never gone to arbitration.

FINRA Arbitration
Our FINRA arbitration law firm represents investors with escurities claims against financial firms and/or its advisors and brokers. You want to make sure you work with a securities fraud law firm that knows how to file and prepare this type of claim to help you recover your investment losses.

Court overturns $11 million arbitration award against Citigroup, Investment News, January 16, 2014


More Blog Posts:

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice, Stockbroker Fraud Blog, September 17, 2013

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor, Institutional Investor Securities Blog, December 14, 2013

Lawyers, Investor Advocates Want to Know More About SEC Supervision Of FINRA’s Arbitrator Selections, Institutional Investor Securities Blog, December 2, 2013

January 28, 2014

Ex-UBS Global Wealth Chief Exposed by Whistleblower Pleads Not Guilty To Tax Fraud Conspiracy

Raoul Weil, who previously served as head of UBS (UBS)’s Global Wealth Management division, has pleaded guilty to fraud conspiracy charges related to a US tax investigation probe involving the Swiss bank. Weil, 54, is accused of conspiring to help thousands of American citizens hide $12 billion at the bank.

Until his arrest last year, Weil was listed as a fugitive in the United States. In federal court in Florida, he was allowed a $10.5 million bond. His first court hearing will be in December. He has until February 12 to reverse his plea to guilty. If convicted, however, he could end up in prison for conspiracy to commit tax fraud for up to five years.

Weil was indicted because of information that UBS whistleblower Bradley Birkenfeld provided to the US Department of Justice and the Internal Revenue Service. The latter, also a former UBS banker, has since been awarded $104 million for helping the federal government start an international crackdown on tax evasion that wealthy Americans had been engaging in for decades through Swiss banks.

Birkenfeld, 47, gave prosecutors details about how UBS engaged in tax evasion and even confessed to engaging in errand running for rich clients. In 2009, the bank settled with the US for $780 million to resolve a criminal case over secret offshore accounts. UBS also turned over the names of over 4,000 US taxpayers who were account holders.

Since Birkenfeld’s whistleblower case, over 33,000 US taxpayers have admitted to keeping undeclared accounts overseas and they have had to pay over $5 billion in penalties and taxes. Birkenfeld, who pleaded guilty to one count of conspiracy to defraud the US was sentenced to 40 months. (A US law allows the IRS to pay up to 30% to a whistleblower for exposing wrongdoing—convicted felons are not precluded from this benefit.)

Puerto Rico Bond Fraud
In other UBS news, the bank has been embroiled in trouble over municipal bonds sold by its UBS Puerto Rico unit. Investors are now flocking to securities lawyers to file securities claims and lawsuit alleging municipal bond fraud that has even cost some of them their life savings. Many say that UBS brokers told them not only to get involved in UBS Bond funds, including the Tax Free Puerto Rico Fund II, but also, these financial representatives recommended that they borrow funds either via a margin account or more traditional methods so that they invest even more money in these proprietary funds. Now, it is these municipal bond fund investors who must deal with the financial losses.

Our Puerto Rico bond fund lawyers represent investors that invested in muni bonds through UBS, Banco Santander, and Banco Popular. Contact Shepherd Smith and Edwards and Kantas, LTD LLP today.

Former UBS banker Raoul Weil pleads not guilty to helping Americans dodge taxes, The Telegraph, January 7, 2014

Whistleblower Gets $104 Million, Wall Street Journal, September 11, 2012


More Blog Posts:
Billions of Dollars Have Already Been Lost by Investors in Puerto Rico Closed-End Funds that were Sold by UBS, Stockbroker Fraud Blog, January 10, 2014

Detroit, MI Can’t Pay $165M to UBS & Bank of America For Swaps Deal, Rules Judge, Institutional Investor Securities Blog, January 21, 2014

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor, Institutional Investor Securities Blog, December 14, 2013

January 25, 2014

JP Morgan VP Barred from Securities Industry By FINRA for Insider Trading Scam

The Financial Industry Regulatory Authority is barring J.P. Morgan Securities, LLC (JPM) vice president David Michael Gutman and ex-Meyers Associates LP Christopher John Tyndall from the securities industry for their alleged involvement in an insider trading scheme. According to the self-regulatory organization between March 2006 and October 2007, Gutman, who works in the firm’s conflicts office, improperly shared information with Tyndall that was non-public and material about at least 15 pending corporate merger and acquisition transactions

Tyndall then purportedly used the data to trade before at least six corporate announcements and recommended that customers and friends invest in the stock too. Tyndall and Gutman are longtime friends. The latter found out about the transactions from his job.

The inside information that Gutman provided Tyndall had to do with acquisitions involving Genesis HealthCare Corporation, American Power Conversion Corporation, First Data Corporation, Alliance Data Systems Corporation, SLM Corporation (Sallie Mae), and Cytyc Corporation. By settling, Tyndall and Gutman are not denying or admitting to the securities charges.

Insider Trading
Illegal insider trading happens when the trade is made using nonpublic, material information about a security. Often, there may be a tipster who provides the insider information to the person who makes the trade or the person with access to the nonpublic, material information may be the person who also makes the trade. Regulators have brought insider trading cases against directors, corporate officers, brokers, investment advisers, and others.

Shepherd Smith Edwards and Kantas, LTD LLP represents investors with securities fraud claims and lawsuit. Contact our securities law firm today.

FINRA Bars J.P. Morgan Vice President and Broker Friend in Insider Trading Scheme, FINRA, January 16, 2014

Insider Trading, SEC.gov


More Blog Posts:

JPMorgan To Pay $2.6B in Penalties in Bernard Madoff Ponzi Scam Settlements, Stockbroker Fraud Blog, January 7, 2014

JPMorgan to Pay $920M to Settle London Whale Debacle & $80M Over Credit-Card Practice Allegations, Institutional Investor Securities Blog, September 19, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases, Stockbroker Fraud Blog, May 16, 2013

January 14, 2014

Stifel, Nicolaus & Century Securities Must Pay More than $1M Over Inverse and Leveraged ETF Sales

Financial Industry Regulatory Authority says that Century Securities Associates, Inc. and Stifel, Nicolaus & Company, Inc. must pay almost $1 million over the sale of inverse and leveraged exchange-traded funds. Stifel Financial Corporation (SF) owns both firms.

According to the SRO, for more than four years Century and Stifel recommended non-traditional ETFs that were not suitable to customers because a number of its representatives did not fully comprehend the products’ features or the risks involved. The instruments were marketed to retail investors with conservative investment goals. A number of customers ended up holding the investments for long periods and they suffered net losses.

The regulator says that Century and Stifel failed to set up proper training for their representatives and lacked the reasonable supervisory systems for the sale of these non-traditional ETFs. Instead, the firms oversaw these investments the way they did traditional ETFs. Also, they did not set up a procedure to deal with the risk for the longer-term holding periods involving these complex investments.

As part of the settlement, Stifel will pay close to $340,000 in restitution to 59 clients and a $450,000 fine. Century will pay over $136,000 to six clients and a $100,000 fine.

Leveraged and Inverse ETFs
These financial instruments “reset” every day. They are supposed to fulfill their objectives daily to allow their performance to diverge right away from that of the benchmark or underlying index. Even if there is a gain in the index’s long-term performance an investor can still sustain huge losses. The risk of loss is even bigger when the markets are volatile.

Because ETFs are complex investments it is important that they are only recommended to investors that can handle the risks that they carry. This means that firms must properly train and supervise their representatives so no unsuitable recommendations are made to customers.

If you believe that inadequate supervision, inappropriate recommendations, or/and some other breach of duty are the cause of your ETF investment losses, contact one of our ETF fraud lawyers today.

FINRA Orders Stifel, Nicolaus and Century Securities to Pay Fines and Restitution Totaling More Than $1 Million for Unsuitable Sales of Leveraged and Inverse ETFs, and Related Supervisory Deficiencies, Business Wire/FINRA, January 9, 2014

Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors, SEC.gov


More Blog Posts:
FINRA Orders J.P. Turner to Pay $707,559 in Exchange-Traded Fund Restitution to 84 Clients, Stockbroker Fraud Blog, December 10, 2013

New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M, Stockbroker Fraud Blog, March 14, 2013

SEC Charges Filed Against Stifel, Nicolaus & Co. and Former Sr. VP David Noack Over CDO Sales to Wisconsin School Districts, Institutional Investor Securities Blog, August 11, 2013

January 7, 2014

JPMorgan To Pay $2.6B in Penalties in Bernard Madoff Ponzi Scam Settlements

JPMorgan Chase & Co. (JPM) will pay around $2.6 billion in penalties to settle criminal and civil allegations accusing the bank of failing to warn that Bernard L. Madoff was engaged in a multibillion-dollar Ponzi scam. $2.24 billion will go toward compensating the scheme’s victims—$1.7 billion will be forfeited via the US Department of Justice and $543 million will go to the bankruptcy trustee who is collecting funds for plaintiffs and other Madoff victims. $350 million will settle U.S. Office of the Comptroller of the Currency (OCC) claims.

The penalties are just the latest in the numerous securities settlements that JPMorgan has agreed to pay. The bank recently resolved cases over mortgage bond sales and the “London Whale” trading debacle, among other matters. This latest deal over the Madoff scam would up the total that the firm has paid to resolve government probes to $20 billion in the last year.

Federal prosecutors and the FBI had been trying to determine whether JPMorgan failed to notify regulators about Madoff’s activities even though there were a number of red flags. For example, why did the bank not formally raise worries about Madoff here when it submitted such a complaint in the UK? (The former financial manager kept primary checking accounts at JPMorgan for years.) This, even though US law mandates that banks turn in a SAR (suspicious activity report) when they detect that their might be suspected or definite activities violating federal law.

Now, JPMorgan and federal authorities have reached a deferred-prosecution deal to conclude the government’s probe into the bank's involvement, even if not directly, in the Madoff Ponzi scam. With such an arrangement, companies agree to pay a penalty and prosecutors submit charges while consenting to drop them once certain conditions are met. As part of this agreement, JPMorgan will have to reform its policies to prevent money laundering.

The bank acknowledges that it lacked the necessary systems to catch Madoff and that there were problems with the procedures that did exist to identify and report suspect behavior. According to Reuters, Madoff's account at JPMorgan received transfers and deposits of about $150 billion that almost all came from Madoff Securities investors. The funds, however, were not used to buy the securities.

Madoff Ponzi Scam
Madoff, who handled the money of many investors, including high profile rich and famous individuals, ordinary investors, and charities, pleaded guilty to the criminal charges related to his Ponzi scam in which he bilked customers of about $17 billion over decades. He is currently serving 150 years behind bar.

Meantime, five ex-Madoff employees are on trial on criminal charges accusing them of knowing that they were involved in his Ponzi scam. All of them have entered not guilty pleas and contend that Madoff also fooled them.

This settlement doesn’t conclude JPMorgan’s involvement in all Madoff-related matters. Last year, court-appointed trustee Irving Picard submitted a petition to the US Supreme Court asking to be able to go after JPMorgan and a number of other banks, including UBS (UBS), in his bid to recover investors’ financial losses. The nation’s highest court is expected to decide whether to accept Picard’s case later this week. Picard also has a number of US Bankruptcy Court actions against JP Morgan and other banks over $4B in recovery claims.

J.P. Morgan to Pay $2.6 Billion in Madoff Fraud Settlements, Wall Street Journal, January 7, 2014

JPMorgan to Pay Over $2 Billion to DOJ and OCC in Madoff Case, Reuters, January 7, 2014


More Blog Posts:
Madoff Feeder Funds Are Not Required to Arbitrate Claims Against KPMG, Stockbroker Fraud Blog, June 5, 2013

Deutsche Bank, Royal Bank of Scotland Settle & Others for More than $2.3B with European Union Over Interbank Offered Rates, Institutional Investor Securities Blog, December 24, 2013

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor, Institutional Investor Securities Blog, December 14, 2013

December 30, 2013

Barclays to Pay $3.75M FINRA Fine for E-mail Retention and Record Preservation Violations

The Financial Industry Regulatory Authority said it is fining Barclays Capital Inc. (ADR) $3.75 million for systemic failures that prevented it from making sure certain instant messages, emails, and electronic records are preserved in the way they are required be for at least a decade. The financial institution is settling without denying or admitting to the findings. It has, however, agreed to an entry of the SRO’s findings.

According to FINRA, between 2002 and 2012, Barclays did not preserve a lot of records and electronic books in WORM format, per regulator mandate. This included trade confirmations, trade information, order and trade ticket data, blotters, accounting records, and other records. WORM (Write-Once, Read-Many) Format is the non-erasable, non-rewriteable format that business-related electronic records are supposed to be kept in—per FINRA rules and federal securities laws. The Securities and Exchange Commission says that this format and the preservation of records are essential in protecting investors and ensuring that compliance with securities laws is taking place.

In regards to Barclays over this matter, FINRA says that the issues were widespread and affected all of the firm’s business. It said that because of this, Barclays couldn’t determine whether all of its e-books and records were kept in an a manner that was unalterable. Also, Barclays is accused of not properly keeping certain attachments to Bloomberg emails and not properly keeping about 3.3 million Bloomberg instant messages. Also, Barclays purportedly did not set up and maintain a proper system and written procedures so it could comply with FINRA, SEC, and NASD regulations and rules involving the requirements noted in the violations.

This is not the first time that FINRA has imposed a fine against a financial firm over electronic document and communication retention. Last year, the SRO fined LPL Financial Inc. (LPLA) $7.5 million over nearly three dozen systemic failures that took place over six years. LPL put aside another $1.5 million to compensate customers that may have been affected. The independent broker-dealer was accused of not fulfilling its duty to properly supervise its representatives, as well as of failing to oversee 28 million emails that involved thousands of its independent contractor representatives.

Two others that have been fined by FINRA over email-related violations are NEXT Financial Group (for failure to supervise email communications and make sure that e-mails transmitted between its customers on non-firm email accounts would always be captured, maintained, and reviewed on the company’s server) for $250,000 and Piper Jaffray for $700,000 in 2010, also over email retention, preservation, and retrieval issues.

A firm that neglects to properly maintain its records can find it difficult to identify investment adviser fraud, broker fraud, and other misconduct. And often, it is the customers who end up losing. Contact our securities fraud law firm today to request your free case assessment.

FINRA Fines Barclays $3.75 Million for Systemic Record and Email Retention Failures, FINRA, December 26, 2013

Read Barclays Letter of Acceptance, Waiver, and Consent w/ FINRA (PDF)


More Blog Posts:
FINRA Fines Piper Jaffray $700,000 for E-mail Retention Issues and Other Violations, Stockbroker Fraud Blog, June 7, 2010

FINRA Orders LPL Financial to Pay $7.5M Over Allegedly Inadequate Supervision of E-Mails, Stockbroker Fraud Blog, May 23, 2013

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

December 29, 2013

FINRA Arbitration Panel Says Wells Fargo Must Repurchase $94M of Auction-Rate Securities from Investors

A Wells Fargo & Co. (WFC) brokerage unit must buy back almost $94 million in auction rate securities from the family who said their adviser misrepresented the investments. The claimants are the relatives of deceased newsstand magnate Robert B. Cohen, who founded the chain Hudson News. Cohen died in 2012.

His family contends that Wells Fargo Advisors and one of its advisors made misleading and fraudulent statements about municipal auction-securities. They are alleging breach of fiduciary duty, negligence, and fraud in their municipal auction-rate securities fraud claim.

Now, the firm must buy back at face value the municipal ARS it helped Cohen, his family, and affiliated business purchase. The transactions started beginning March 2008.
(The FINRA arbitration panel, however, denied the Cohens punitive damages and compensation.)

Since the financial crisis that broke that year, Wells Fargo, Morgan Stanley (MS), Merrill Lynch (MER), UBS Wealth Management (UBS), Oppenheimer (OPY) and others have repurchased billions of dollars in auction-rate securities and consented to millions in fines to settle charges that they did not correctly supervise employees that provided investment advice, as well as failed to properly inform investors about the debt securities.

Many customers thought they were investing in securities that were liquid, like cash. They were therefore dismayed to discover that when the crisis hit and their auction-rate securities became frozen they could not access their money.

Our auction-rate securities fraud lawyers continue to help investors recoup their losses related to the financial crisis of 2008. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Wells Fargo Unit (WFC) Ordered to Buy Back Auction-Rate Securities, The Wall Street Journal, December 27, 2013

Wells Fargo to repurchase $94M in securities from family clients, Investment News, December 27, 2013


More Blog Posts:
Credit Suisse Must Face ARS Lawsuit Over Subsidiary Brokerage’s Alleged Misconduct, Says District Court, Stockbroker Fraud Blog, January 11, 2013

Financial Firms Update: Morgan Stanley Now Owns Smith Barney, Wells Fargo & JPMorgan Defeat Estimates, MLB All-Star Sues UBS for $7.6M, & Ray Lucia, His Firm Fined Over “Buckets of Money” Strategy, Stockbroker fraud Blog, July 12, 2013

Securities Lending Trial Against Wells Fargo & Co. is Underway, Institutional Investor Securities Blog, June 21, 2013

December 27, 2013

FINRA Bars Ex-LPL Broker Over Nontraded REIT Sales

The Financial Industry Regulatory Authority has barred ex-LPL Financial (LPLA) representative Gary Chakman over securities industry rule violations related to the sale of non-traded real estate investment trusts. Chackman was registered with the brokerage firm from 2001 until 2012. LPL then ended his registration with the firm for purportedly violating its procedures and policies related to alternative investment sales.

According to the SRO, Chackman “recommended and effected” transactions that were unsuitable in several LPL customer accounts. He did this by overconcentrating clients’ assets in illiquid securities, including REITs. Chackman is also accused of falsifying LPL documents to avoid firm supervision and making the broker-dealer’s records and books inaccurate because he turned in purchase forms misrepresenting clients’ liquid net worth.

FINRA’s settlement letter says that when Chackman submitted falsified documents, this allowed him to increase how much of customers’ accounts could be concentrated in REITs and other investments even though these amounts went over LPL’s allowed allocation limits. The alleged overconcentration took place between January 2009 and February 2012.

Also, according to BrokerCheck, Chackman has settled three arbitration cases for $747,000. Meantime, he is also under investigation by the Securities and Exchange Commission.

Nontraded REITs
Nontrade REITs usually come with a high commission for the registered representative making the sale. In 2013, securities regulators paid greater attention to the sale of these products, which are typically sold through independent brokerage firms. Analysts and bankers say Nontraded REIT sales for this year is expected to hit nearly $200 billion.

While broker-dealers have reached settlements over non-traded REITS—the Massachusetts Securities Division alone settled with six firms for $21.6 billion in client restitution for this year alone—regulator actions against representatives have not been common, despite the fact that FINRA has received complaints accusing these individuals misrepresenting nontraded REITs when making the sales.

Meantime, FINRA is cautioning investors looking to invest in non-traded REITs to get to know this product and the risks involved before putting their money in. Non-traded REITs are not suitable for everyone and you may not be able to handle certain losses should they arise.

At Shepherd Smith Edwards and Kantas, LTD LLP, our nontraded REIT fraud lawyers work with investors to get their money back. Contact us today.

Public Non-Traded REITs—Perform a Careful Review Before Investing, FINRA

In rare move, Finra bars individual rep over nontraded REIT sales, Investment News, December 19, 2013

BrokerCheck, FINRA


More Blog Posts:
Securities America, Ameriprise, Among Independent Broker-Dealers Charged $10.75M by Massachusetts for Nontraded REIT Sales, September 4, 2013

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

LPL Financial Continues to Stay On Regulators’ Radar, Stockbroker Fraud Blog, April 10, 2013