July 23, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds

The Financial Industry Regulatory Authority is reporting that roughly 400 claims have already been filed against UBS Financial Services Inc. of Puerto Rico (UBS) and other brokerage firms over the fallout of municipal bonds and bond funds related to the Commonwealth of Puerto Rico. As the U.S. territory’s bonds continue to drop in price, more investors are likely to file cases.

According to Securities Attorney Sam Edwards, one of the partners at Shepherd, Smith, Edwards & Kantas currently representing dozens of investors who lost money in these investments, ““The recent drop in Puerto Rico bond prices have resulted in Puerto Rico bonds, and the bond funds holding Puerto Rico bonds, to give back most, if not all, of the gains of the last nine months. Bond prices have largely returned to the lows suffered in the Fall of 2013.” Mr. Edwards continues, “This is likely to result in new groups of clients coming forward as the rally in Puerto Rico debt appears to have been short-lived.”

Investors, many of them locals, took huge financial losses when two dozen Puerto Rico bond funds sponsored by UBS and Popular Securities, Inc. (Banco Popular) declined in value last year. Many of the investors are retirees and other senior investors that have now lost their life savings. However, they are not the only ones impacted.

Even investors who did not directly invest in Puerto Rico bonds are feeling the effects. That is because there are many single-state and nationally marketed municipal bond funds in the U.S. that also got involved in the island’s debt. Many of the bond funds that were constructed for residents of different states hold Puerto Rico bond funds because of their advantageous tax status. However, with that tax advantage came significant risks.

Franklin Templeton Investments (BEN) and Oppenheimer Funds offer the 10 bond mutual funds with the most exposure to Puerto Rico bonds. Recently, these two fund managers filed a lawsuit seeking to have a new Puerto Rico law, known as the Public Corporation Debt Enforcement and Recovery Act, struck down.

The law, which lets parts of the U.S. territory restructure its debt, is causing investors to worry about significant losses to principle. The funds are arguing that the law violates the U.S. Constitution because it lets the territory impair certain contracts. They contend that the federal government is the only entity allowed to make bankruptcy law.

Puerto Rico is now asking a federal court to throw out the lawsuit, arguing that states are only barred from making bankruptcy law if this conflicts with federal law. It says that contracts are allowed to be impaired if this means fulfilling an “important government purpose.” Puerto Rico also noted that existing bankruptcy laws are not applicable to the island.

Additionally, the U.S. territory argues, the lawsuit was not timely because the specific local bonds at issue are from the Puerto Rico Electric Power Authority (PREPA) and the electric authority has not yet attempted to restructure its debt. The fund managers collectively hold around $1.7 billion in PREPA debt.

At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico bond fraud law attorneys are representing many Puerto Rico residents. We have already filed more than 20 case against UBS and others, with dozens more pending. We represent investors in the U.S. and in the Commonwealth.

The first securities arbitration hearings will likely happen sometime this year. FINRA arbitrators will hear most of the muni bond fraud cases in Puerto Rico.

If you are an investor who has suffered losses from investing in these Puerto Rico bonds or bond funds holding Puerto Rico debt, please contact us today. There is still time to try to get your money back.


A Deluge of Legal Claims Hit UBS’ Puerto Rico Unit Over Closed End Bond Funds, The Wall Street Journal, July 21, 2014

Puerto Rico seeks dismissal of U.S. bond funds' lawsuit, Reuters, July 21, 2014

Puerto Rico Electric Power Authority


More Blog Posts:

OppenheimerFunds, Franklin Templeton Sue Over Puerto Rican Debt Law, Stockbroker Fraud Blog, July 2, 2014

UBS AG Under Criminal Investigation Over Puerto Rico Bond Fund Sales, Stockbroker Fraud Blog, June 21, 2014

Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15, 2013

July 1, 2014

Broker Fraud: Ex-Investors Capital Rep. is Indicted in Ponzi Scheme, Credit Suisse Sues Two Ex-Brokers Over Client Data Theft, and SEC Files More Insider Trading in IBM-SPSS Acquisition

Ex-Investors Capital Rep. Charged in $2.5M Ponzi Scam
Patricia S. Miller, a former Investors Capital Corp. representative, has been indicted on charges that she ran a $2.5 million investment fraud. She is accused of promising clients high yields for placing funds in “investment clubs.” Miller allegedly took this money and either gambled it away or used it to pay for her own spending.

According to prosecutors in Massachusetts, alleged fraud took place from 2002 through May 2014. Investors Capital fired Miller last month. Her BrokerCheck Report notes that the independent broker-dealer let her go because she allegedly misappropriated funds, borrowed client money, generated false documents, and engaged in “fraudulent investment activity.” Miller is charged with five counts of wire fraud.

Credit Suisse Sues Former Advisers For Allegedly Stealing Client Data
Credit Suisse Securities (CS) is suing John Delehanty and David Starker for violating their non-solicitation agreements when leaving the firm. The firm is accusing the men of taking client lists and sending confidential information to their personal accounts before going to work with J.P. Morgan Securities (JPM). The firm has also filed a claim with FINRA seeking damages.

In dispute was a contact list consisting of about 3,00 names that Starker sent from his Credit Suisse work e-mail account to his personal one. The list included notes about prospective clients. Delehanty is also accused of sending confidential client information to his personal e-mail account.

Under the Protocol for Broker Recruiting, which has been signed by about 1,100 brokerage firms, a broker is not subject to litigation when recruited to another firm as long as they bring just a spreadsheet that contains only certain client data, such as phone numbers and names. Anything more is considered a violation. However, this can be undone if the broker gives back the information when resigning. Credit Suisse said that Delehanty and Starker did not answer request by the firm to follow this protocol.

SEC Files More Insider Trading Charges in IBM-SPSS Acquisition
The Securities and Exchange Commission is charging two more brokers with insider trading prior to IBM’s acquisition of SPSS Inc. in 2009. Ex-representatives Daryl M. Payton and Benjamin Durant III allegedly traded illegally on the information that the deal was going to happen. They got the tip from another broker, Thomas C. Conrad.

Now, the regulator wants ill-gotten gains of about $300,000 returned, along with financial penalties, interest, and permanent injunctions. The U.S. Attorney’s Office for the Southern District of New York has filed a parallel action against the two men.

The SEC had previously filed insider trading charges against Conradt and David J. Weishaus, also a broker and tippee. They got the information from Conradt’s roommate, research analyst Trent Martin, who received the data from an attorney who worked on the deal. The three men have settled with the SEC. They entered guilty pleas in their criminal cases.

SEC Charges Former Brokers with Trading Ahead of IBM-SPSS Acquisition, SEC, June 25, 2014

Ex-Credit Suisse brokers sued over alleged theft of client data, InvestmentNews, June 30, 2014

Advisor Indicted In Long-Running Ponzi Scheme, FA-Mag, June 30, 2014


More Blog Posts:
Ponzi Scams: FINRA Bars Ex-Raymond James Broker Over $3M Ponzi Scam, Expels Success Trade Securities, Inc. for Bilking NFL and NBA Players, Stockbroker Fraud Blog, June 27, 2014

BNP Pleads Guilty to Criminal Charges Over Sanctions Violations, Pays $8.8B Fine, Institutional Investor Securities Blog, June 30, 2014

Credit Suisse Admits Wrongdoing and Will Pay $196M to Settle SEC Charges That It Provided Unregistered Services to US Customers, Stockbroker Fraud, February 22, 2014

June 26, 2014

NY Sues Barclays Over Alleged High Speed Trading Favors in Dark Pool

New York Attorney General Eric Schneiderman has filed a securities fraud lawsuit against Barclays (BARC) Plc. accusing the British bank of lying about giving preference to high-frequency traders. The state contends that Barclays took part in fraudulent activity related to a dark pool. The British-based bank has 20 days to respond to the securities fraud charges.

Financial Industry Regulatory Authority data says that for the first week of June 2014, LX was the number two biggest alternative trading system in the United States. According to the high frequency trading case, LX, which is Barclays’ dark pool, favors computer-driven firms that can weave their way through the market at super fast speeds yet downplays how much these high-frequency traders use the venue.

Schneiderman says that the bank falsely depicted the way it routes the orders of clients and claimed to protect them from high-speed firms, when really the dark pool was run to the advantage of these traders. He claims that Barclays even specifically sought to bring in high-speed traders to LX, giving them preferential treatment over others by providing them with details about the way the dark pool is run.

According to his complaint, over a dozen high-frequency firms, including Virtu Financial Inc., Jump Trading LLC, and Citadel LLC, took part in “significant trading activity” on the LX venue. The firms are not part of this case.

Recently, the Securities and Exchange Commission announced that it is investigating dark pools. The regulator wants to know if these trading venues are providing accurate disclosure about the way they are run and if investors are treated equally. The SEC is concerned that the high speed in which stocks are sold and bought may place retail investors at a disadvantage.

If you are a retail investor who has sustained losses that you believe may be the result of securities fraud, contact Shepherd Smith Edwards and Kantas, LTD LLP today.

New York Attorney General Sues Barclays Over Stock-Trading Business, The Wall Street Journal, June 25, 2014

Cracks Open in Dark Pool Defense With Barclays Lawsuit, Businessweek, June 26, 2014


More Blog Posts:
SEC To Tackle High-Speed Trading, Dark Pools With New Initiatives, Stockbroker Fraud Blog, June 6, 2014

FINRA Headlines: SRO Fines Goldman Sachs, Merrill Lynch, and Barclays Capital $1M Each & Makes Dark Pool Data Available, June 7, 2014

Pennsylvania Private Equity Firm Settles SEC Charges Over “Pay to Play” Violations Related to Political Campaign Contributions, Institutional Investor Securities Blog, June 23, 2014

June 21, 2014

UBS AG Under Criminal Investigation Over Puerto Rico Bond Fund Sales

Authorities in the United States are reportedly investigating UBS AG (UBSN) for its actions in Puerto Rico. The criminal fraud investigation comes in the wake of allegations that an ex-UBS broker in Puerto Rico told clients to improperly borrow money to purchase local mutual funds that later sank.

The investigation is centered around non-purpose loans that came from UBS Bank USA of Utah. The former UBS broker, Jose Ramirez, organized the loans for clients. The bank has since let him go.

Under internal guidelines, such loans are not allowed to be used for the purchase of securities since those very securities will be the collateral for the loans. Now, however, investors are saying that Ramirez was utilizing these loans to purchase more shares in the bond funds for them. Some are even saying that he gave them paperwork that made it appear as if customers were borrowing from the UBS bank in Puerto Rico and not the one in Utah. More than 100 investors may have been affected.

The investors contend that Ramirez told these clients to place their loan proceeds in accounts at an unrelated local bank. They wrote him checks for the amounts of the loan and he allegedly used the money to purchase more bond fund shares for these investors.

Now investigators are trying to figure out whether UBS executives on the mainland and in Puerto Rico were aware that proceeds from loans made by the firm’s unit in Utah were used in a manner that violated the bank’s own lending rules. If these executives were aware of what was going on but failed to act to prevent the fraud, they could be found criminally accountable.

Another problem with the loans is that the US territory’s Office of the Financial Institutions Commissioner never granted UBS bank a license to lend them in Puerto Rico. After the lending of the loans was discovered, the bank consented to sell the loans to its brokerage firm in Puerto Rico. But when clients were asked to sign statements promising not to use the proceeds from the loan to buy securities, many had to refuse because some of their securities were purchased with the loan proceeds. They then had to pay back the loans by selling their shares of the bond funds right away at a loss.

Puerto Rico Muni Bonds
Whether borrowed money was used to purchase UBS’s Puerto Rico municipal bond funds or not, investors in Puerto Rico muni bonds sustained huge losses when they failed last year. Many of the muni bonds included Puerto Rico government bonds that UBS underwrote. Those bonds have now all been downgraded to “junk” status, which some being close to default or a significant restricting.

Our investigation has uncovered thousands of Puerto Rican investors who have lost a significant portion of their life savings in local closed-end funds. Our Puerto Rico bond fraud lawyers are currently representing dozens of investors both in Puerto Rico and in the US. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today for a free, no obligation consultation.

Exclusive: UBS faces criminal probe for Puerto Rico bond fund sales - lawyers, Chicago Tribune, June 19, 2014

UBS Loans to Puerto Rico Fund Investors Said to Face U.S. Probe, Bloomberg, June 20, 2014


More Blog Posts:
Puerto Rico-Based Doral Financial Expected to Default on Over $150M in Muni Bondsg, Stockbroker Fraud Blog, May 12, 2014

FINRA Sees 10% Rise in Arbitration Cases, Puerto Rico Bond Claims A Factor, Stockbroker Fraud Blog, April 27, 2014

Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15, 2013

June 18, 2014

Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations

Morgan Stanley (MS) must pay banking regulators in Connecticut $5 million over allegations that the broker-dealer did not properly oversee the communications of its brokers. According to The Connecticut Department of banking, there were a number of issues with the firm’s supervisory procedures. The firm is settling without denying or admitting to the securities allegations.

The state regulators say that Morgan Stanley, which has wealth management branch offices in Connecticut, gave them information about their supervisory procedures that either was “obsolete” or nonexistent. Connecticut Securities Division director Eric Wilder also said that the firm had not updated its written supervisory procedures or compliance manuals for a number of years.

Morgan Stanley is accused of depending on an unqualified third-party provider in India to review all email communications. According to Connecticut regulators, the brokerage firm neglected to make sure that whoever was overseeing the India provider had the proper license and was following the Financial Industry Regulatory Authority’s most current procedures. (Wilder said that the minimum criteria that someone in that country needed to fulfill the compliance function was the ability to speak English—Morgan Stanley has specifically denied this allegation.)

To resolve the claims, the firm is going to update its written procedures. Branch supervisors will also be granted direct access to oversee the emails of advisers. Meantime, the third-party service provider in India can continue to work with Morgan Stanley but the proper licenses are required.

Connecticut Banking Regulators Settle With Morgan Stanley Smith Barney Over E-Mail Problems
, Courant.com, June 16, 2014

Banking Commissioner Announces $5 Million Settlement With Morgan Stanley, Connecticut Department of Banking, June 16, 2014


More Blog Posts:
Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales, Stockbroker Fraud Blog, May 6, 2014

PNC Bank Sues Morgan Stanley & Ex-Trust Adviser For “Surreptitious Conspiracy”, Institutional Investor Securities Blog, April 3, 2014

$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial, Stockbroker Fraud Blog, April 2, 2014

June 13, 2014

Broker Headlines: Former Wells Fargo Broker Must Pay Back Firm $1.2M, Morgan Stanley CEO Wants to Lower Broker Compensation, & Representatives Oppose Best Interest Rules

Ex-Wells Fargo Advisors Broker Must Pay Back Firm $1.2M
A Financial Industry Regulatory Authority panel says that Philip DuAmarel, a former Wells Fargo Advisor (WFC), must pay his former employer back almost $1.3 million. The panel denied his claim that the firm oversold its corporate stock plan services during his recruitment. They told him to pay back the unvested part of an upfront loan he received when he became part of Wells Fargo.

DuAmarel worked for the firm for less than three years when he left in 2010 for Bank of America (BAC) Merrill Lynch. He contended that when the firm was recruiting him he was misled about Wells Fargo’s ability to serve corporate stock plans and also regarding how much he could make for helping executives with their company’s stock trades. DuMarel’s attorney said that the broker left when it became obvious he wouldn’t be able to work with clients they way he did when he was at Citigroup (C) Global Market’s Smith Barney.

Morgan Stanley CEO Seeks To Give Brokers Reduced Payouts
James Gorman, the CEO of Morgan Stanley (MS), said he wants to reduce broker payouts relative to revenue. This could mean that compensation in the wealth management business could drop to 55% of revenue, which is down 5% from last year. He said the reduction could be attributed to an increase in lending and banking products that garner less commission for advisers and fee-based accounts that offer a larger revenue/dollar of client assets (as opposed to accounts where commissions are involved).

Gorman, who made his statements at the firm’s yearly financials conference, also talked about how recruiting expenses was another area that was buoying cost ratios in the brokerage division. He said that the industry had arrived at a breaking point regarding how many veteran financial advisers could be traded back and forth among the biggest firms.

Brokers Oppose DOL’s Proposed Rule About Clients’ Best Interests in Retirement Accounts
According to The New York Times, the Securities Industry and Financial Markets Association, which represents big financial firms on Wall Street, and the Financial Services Institute are continuing to oppose a proposed Labor Department rule that would mandate that a wider group of professionals place clients’ interests ahead of their own when it comes to retirement accounts. Right now, brokers are not obligated to do this when when advising clients about retirement.

The DOL is trying to amend a rule that is part of Employee Retirement Income Security Act, which outlines when advisers become fiduciaries. Currently, it isn’t very difficult for brokers to avoid becoming a fiduciary under Erisa. Before they must follow the higher standard they have to satisfy a five-part test. If they have a customer advice just once, the adviser doesn’t have to meet the rule requirements. Also, the broker and consumer have to both agree that the advice given was the primary reason for an investment choice.

Opponents of the rule, however, have continued to delay even the release of a revised proposed rule. They claim that the new rules would affect the way the industry is paid, which could make it hard for them to work with smaller investors. They are worried the rules could stop them from being able to charge commissions.

Under Erisa fiduciaries are not allowed to receive payment in a manner that would present a conflict of interest. Right now, are compensated in ways where there is possible conflict. This happens when a representative can earn a higher commission when recommending one product over another. Revenue sharing also presents possible conflicts.

Ex-Wells broker ordered to repay firm $1.2 million, Investment News, June 12, 2014

Morgan Stanley's Gorman seeks to tame broker compensation, Investment News, June 11, 2014

Brokers Fight Rule to Favor Best Interests of Customers, NY Times, June 12, 2014

ERISA, United States Department of Labor


More Blog Posts:
Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case, Stockbroker Fraud Blog, June 11, 2014

SEC Files Order Against New Mexico Investment Adviser Over Allegedly Secret Commissions, Stockbroker Fraud Blog, June 10, 2014

Regulator Headlines: SEC Commissioner Stein Wants Updated Capital Rules for Brokerage Firms, FINRA’s BrokerCheck Link Proposal Faces Opposition, & CFTC Appoints New Enforcement Head, Institutional Investor Securities Blog, June 12, 2014

June 7, 2014

FINRA Headlines: SRO Fines Goldman Sachs, Merrill Lynch, and Barclays Capital $1M Each & Makes Dark Pool Data Available

FINRA Fines Merrill Lynch, Goldman, and Barclays Capital $1M Each Over Blue Sheet Data

The Financial Industry Regulatory Authority has issued a censure that fines Goldman Sachs & Co. (GS), Merrill Lynch, Pierce Fenner & Smith Inc., and Barclays Capital Inc. $1 million each. The firms are accused of not submitting accurate and complete data about trades conducted by them and their customers to the SRO and other regulators. This information is known as “blue sheet” data. Firms are legally required to give regulators this information upon request.

Blue sheets give regulators specific information about trades, including the name of a security, the price, the day it was traded, who was involved, and the size of transaction. This information is helpful to identify anomalies in trading and look into possible market manipulations.

The three firms, which all have a prior history of submitting inaccurate blue sheet data, settled the charges without denying or admitting to the allegations. Meantime, FINRA has also put out a complaint against Wedbush Inc. also over submitting inaccurate blue sheet information. That case, however, has not been adjudicated yet.


FINRA Gives the Public Access to Dark Pool Data
To enhance market transparency and boost investor confidence, this week FINRA started providing data about the activity levels in all of the different alternative trading systems. This includes information pertaining to dark pools.

Currently, ATSs are involved in a significant chunk of OTC trading in exchange-listed equities located in the US. Although trades in ATSs have been available in real time to professionals and investors via securities information processors, they are not typically attributed to specific dark pools.

The newly available data should allow the public to see how many shares were traded each week in each dark pool. The information can be found on FINRA’s website and is free.

Meantime, as our stockbroker fraud law firm reported in another blog post, the Securities and Exchange Commission is also seeking to make dark pool venues more transparent.

Shepherd Smith Edwards and Kantas, LTD LLP represents investors in arbitration and in court. Contact us to find out whether you have reason to pursue a securities claim. Your consultation with one of our FINRA arbitration lawyers is free.


FINRA Fines Barclays Capital, Goldman Sachs and Merrill Lynch $1 Million Each for Submitting Inaccurate Blue Sheet Data, FINRA, June 4, 2014

FINRA Makes Dark Pool Data Available Free to the Investing Public, FINRA, June 2, 2014

User Agreement, ATS Transparency Data, FINRA


More Blog Posts:
Bank of America Could Settle Mortgage Probes for $12B, Institutional Investor Securities Blog, June 7, 2014

SEC Charges Chicago Investment Advisory Founder With Real Estate Investment Fraud
, Institutional Investor Securities Blog, June 11, 2014

In Alleged $400M Texas Securities Fraud, Medical Device Maker Pays Over $30M Settlement, Stockbroker Fraud Blog, January 13, 2014

June 4, 2014

Second Circuit Overturns Judge's Decision to Block Citigroup's $285M Settlement With the SEC

The Second Circuit appeals court said that District Judge Jed Rakoff abused his discretion when he rejected the $285 million mortgage settlement between the SEC and Citigroup (C). The regulator accused Citigroup of selling sections of Class V Funding III, a $1 billion mortgage-bond deal, without revealing that the bank was betting against $500 million of the assets.

Rakoff, a district court judge, said that he partially blocked the settlement because he didn’t agree with a Commission practice in which the party involved gets to resolve a case without denying or admitting to wrongdoing. Last year the SEC reversed its policy that automatically lets companies settle without making a wrongdoing admission. Now, the regulator is compelling admissions in cases that are especially egregious. Also, following Rakoff’s ruling, other judges followed his lead in a number of lawsuits.

This week, however, the appeals court said that the Commission should be granted wide deference when it is deciding whether or not a case should go to trial or settle. The three-judge panel said the deal between the SEC and Citigroup was in the interest of the public.

The court noted that Rakoff shouldn’t have sought to make the agency establish the veracity of the claims made against the party as a condition for whether he would approve the decree of consent. The Second Circuit said that the district court doesn’t have “purview” to mandate facts.

Now, the appeals court is remanding the mortgage case back to Rakoff. However, he isn’t obligated to okay the deal right away. The court said the judge could still seek additional disclosures from the two parties.

The panel also issued guidelines for how to exercise discretion in federal enforcement cases. As long as the SEC abides by these correct procedures, a judge’s decision-making power would be limited.

The appellate court’s decision is expected to directly affect the $616 million securities fraud settlement reached between SEC and SAC Capital Advisors over insider trading allegations. Although a judge approved the deal last year, the ruling was contingent upon the outcome of the appeal in the Citigroup settlement.

Appeals Court Says Judge Erred in Blocking SEC-Citigroup Settlement, The Wall Street Journal, January 4, 2014

Appeals Court Overturns Decision to Reject S.E.C.-Citigroup Settlement, The NY Times, June 4, 2014

Cohen's SAC to pay $616 million in SEC insider trade settlement, Reuters, March 15, 2013


More Blog Posts:
$11M Award Against Citi is Vacated by the New York Supreme Court, Stockbroker Fraud Blog, January 30, 2014
SEC Practice of Settling Enforcement Actions Without Requiring Defendants to Deny or Admit to Allegations Gets Support from Federal Judges and Democrats, Institutional Investor Securities Blog, May 26, 2012

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

May 30, 2014

Wells Fargo Must Face Los Angeles’s Lawsuit Over Predatory Loans

U.S. District Judge Otis Wright II says that a lawsuit by the city of Los Angeles, which seeks to hold Wells Fargo & Co. (WFC) liable for foreclosures that occurred when the U.S. housing market collapsed, may proceed. Although Wright did not rule on the merits of the city’s claims, he said that L.A.’s allegations that the bank used “predatory loans” to target minority lenders were legally sufficient at this point.

The California city has filed separate cases against Wells Fargo, Bank of America Corp. (BAC) and Citigroup Inc. (C) accusing the mortgage lenders of engaging in discriminatory practices going as far back as at least 2004. L.A. says that the banks placed minority borrowers in loans that were out of their budget, raising the number of foreclosures in the city’s neighborhoods.

According to the city, local homeowners have lost around $78.8 billion in home value because of foreclosures that occurred between 2008 and 2012. Property tax revenue that was lost because of this was reportedly $481 million. Now, Los Angeles wants to hold the banks liable for the increase in municipal services and the tax revenue that was lost due to the foreclosures.

L.A. had also sued Deutsche Bank AG (DB) in the role of the foreclosed properties’ owner. Last year, the lender settled with the city. It said that securitization trusts and services would pay the city $10 million.

Already, Bank of America and Wells Fargo have paid a combined total of over $500 million in of the largest residential cases. The US government claims that borrowers who had loans that came from Countrywide and Wells Fargo were likelier to be paired subprime loans if they were Hispanics or Blacks

Earlier this year, Illinois’s Cook County sued HSBC Holdings Plc. (HSBA) for allegedly targeting minority borrowers in the Chicago area through costly home loans. The populous county wants unspecified punitive and compensatory damages for costs to police to keep up deteriorating areas and because of lost tax revenue on properties that became vacant.

Also the US cities of Memphis, Tennessee, and Baltimore, Cleveland have filed claims contending that banks made loans to unqualified minority borrowers or gave them high-interest subprime mortgages even though they qualified for prime loans. These cities brought their cases under the Housing Act.

Wells Fargo Can’t Shake L.A. Lawsuit Over Predatory Loans, Bloomberg, May 28, 2014

Judge denies Wells Fargo's bid to dismiss L.A. predatory lending suit, Reuters, May 28, 2014


More Blog Posts:
FINRA Arbitration Panel Says Wells Fargo Must Repurchase $94M of Auction-Rate Securities from Investors, Stockbroker Fraud Blog, December 29, 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

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

May 22, 2014

SEC Investigates Merrill Lynch & Charles Schwab Over Allegations of Failures that Allowed Mexican Drug Cartels to Launder Money

The SEC is investigating whether Merrill Lynch (MER) and Charles Schwab Corp. (SCHW) did not recognize signs that that some of their customers might have been laundering money because they didn’t do enough to find out who these clients were. Some of the purported money laundering has been linked to drug cartels in Mexico.

Bank of America Corp. (BAC) now owns Merrill Lynch. The SEC says that the two broker-dealers accepted as clients individuals who gave out fake addresses and shell companies. For example, one Charles Schwab client, a Texas rancher, had been moving funds to a holding company that was actually a shell company. Also, some account holders with Schwab were linked to drug money in Mexico. Certain accounts contained millions of dollars.

Broker-dealers must set up, document, and keep up steps so that it can identify its customers and confirm their identifies. Failure to do any of these can result in stiff penalties, such as the $1 million E*Trade Financial Corp. was ordered to pay in 2008. The firm did not check to confirm the identities of over 65,000 secondary account holders. Because of this failure false reporting occurred.

Last year, HSBC Holdings Plc (HSBA) reached a $1.9 billion deal with the U.S. over charges that it made it possible for drug cartels in Latin America to launder billions of dollars. The agreement was a deferred-prosecution deal.

The firm is accused of not monitoring over $670 billion in wire transfers and over $9 billion in purchase of U.S. money from HSBC Mexico, which made it possible for the money laundering to happen. HSBC also allegedly violated U.S. economic sanctions against Sudan, Libya, Iran, Cuba, and Burma.


At Shepherd Smith Edwards and Kantas, LTD LLP, we are here to help our investors get their securities fraud losses. Contact our securities lawyers today.

SEC probes Schwab, Merrill, for anti-money laundering violations, sources say, Chicago Tribune/Reuters, May 22, 2014

HSBC Judge Approves $1.9B Drug-Money Laundering Accord, Bloomberg, July 3, 2013


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Man Convicted in $46M Michigan Ponzi Scam, Stockbroker Fraud Blog, May 20, 2014

R.P. Martin To Pay $2.2M in Libor Rigging, Institutional Investor Securities Blog, May 22, 2014

FINRA Conducts 170 Probes Into Possible Algorithmic Abuse, Institutional Investor Securities Blog, May 21, 2014

May 9, 2014

Goldman Sachs Under Investigation Over Hiring Practices, High-Frequency Trading

Goldman Sachs (GS) Group Inc. said it is under scrutiny in probes related to high-frequency trading and whether its hiring practices comply US antibribery laws. This is the first time the firm has publicly disclosed both investigations. The information was made available via Goldman’s quarterly filing with the SEC.

In the bank hiring practices investigation, Credit Suisse Group Ag (CS), Morgan Stanley (MS), UBS AG (UBS), and Citigroup (C) are also under scrutiny. The Securities and Exchange Commission wants to know whether the banks or their staff hired the relatives of well-connected officials in Asia, which could be a violation of the antibribery laws—in particular, the Foreign Corrupt Practices Act, which prevents companies from giving foreign officials items of value in exchange for business. Although it isn’t illegal to hire government officials’ relatives in Asia, hires cannot just be made for the purpose of earning new business.

As for the high-speed trading probe, the US Justice Department, the SEC, New York Attorney General Eric Schneiderman, and the Federal Bureau of Investigation are assessing trades that engage in fast algorithmic trading. Schneiderman wants to know if firms involved in high-speed trading have secret deals with trading venues, such as dark pools and stock exchanges, that lets them trade before other investors.

Goldman has Sigma X, which is a dark pool trading operation. Recently, the firm has been weighing whether to shut it down amidst the growing criticism over this kind of private stock-trading venue. (In 2011, Sigma X experienced a pricing malfunction and customers were not paid correctly for transactions. Goldman reimbursed them the losses.)

In dark pools, investors get to be more anonymous than in public markets. Recent technological glitches in the stock market, however, have emphasized the risks involved in running private trading platforms. The Financial Industry Authority is also looking at the way brokers use dark pools to make trades and route customer orders.

Goldman is currently a defendant in a class action securities case over high-speed trading. The Rhode Island capital of Providence proposed the lawsuit for investors who bought stock in the US between 2009 and now.

Goldman and the other defendants, JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Morgan Stanley (MS), and Citigroup Inc. (C) , are accused of working with stock exchanges run by NASDAQ OMX Group Inc., BATS Global Markets Inc., Chicago Board Options Exchange, and Intercontinental Exchange's New York Stock Exchange to manipulate the markets while engaging in fraud. As a result, contends the high-frequency trading lawsuit, every year, billions of dollars were diverted from the sellers of securities and its buyers.

The securities complaint says that brokerages and stock exchanges got kickbacks for giving high-frequency trading firms access to material trading information. Other allegations include rebate arbitrage, electronic front-running, contemporaneous trading, and spoofing.

Exchanges, brokerages hit with high-speed trading class action, Reuters, April 18, 2014

Goldman Mulls Closing Dark Pool, The Wall Street Journal, April 8, 2014


More Blog Posts:

FINRA NEWS: Goldman Sachs Appeals Vacating of Securities Award, Non-Customers of Brokerage Firm Can’t Compel Arbitration, & Three Governors Named To FINRA Board, Stockbroker Fraud Blog, August 21, 2013

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

Goldman Sachs Must Contend with Proposed Class-Action CDO Lawsuit, Institutional Investor Securities Blog, January 22, 2014

May 6, 2014

Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales

Morgan Stanley Smith Barney LLC (MS) will pay a $5 million fine for supervisory failures involving its advisors soliciting shares in 83 IPOs to retail investors. The Financial Industry Regulatory Authority says that the firm lacked the proper training and procedures to make sure that salespersons knew the difference between “conditional offers” and “indications of interest."

By settling, Morgan Stanley is not denying or admitting to the securities charges. It is, however, consenting to the entry of findings by FINRA.

FINRA believes these issues are related to Morgan Stanley’s acquisition of Smith Barney from Citigroup (C) a couple of years ago. In addition to inheriting more high net worth clients, the SRO contends that Morgan Stanley ended up with financial advisers who might not have gotten the needed training.

Firms are allowed to solicit for “indications of interest” in an initial public offering before the registration statement becomes effective. These are not binding and may only lead to the purchase of shares if the investor reconfirms the intent to buy after the date that the statement went into effect. As for “conditional offers to buy,” these can result in a binding deal after the date that the statement becomes effective as long as the investor doesn’t do anything to rescind it before the firm accepts.

FINRA says that beginning in February 2012, Morgan Stanley put into place a policy in which these two terms were used interchangeably and without appropriate consideration for whether the customer needed to confirm its interest prior to the execution of a sale. The SRO claims that the financial advisers did not get the training or materials they needed to make sure the policy was clear to them. Because of these violations, customers and staff may not have properly comprehended which commitment was solicited.

The SRO is accusing Morgan Stanley of failing to properly monitor compliance and not installing procedures to ensure that conditional offers were solicited in a way that met FINRA rules and federal securities law requirements. The supervisory failures purportedly continued through May 1, 2013. Some of the shares were even sold via social media, including Yelp and Facebook.

Read FINRA's Action to Morgan Stanley (PDF)

Finra Fines Morgan Stanley $5 Million Over IPO Rules, The Wall Street Journal, May 6, 2014


More Blog Posts:
Former Morgan Stanley Broker and Two Others Allegedly Ran $5.6M Insider Trading Scam, Swallowed The Information, Stockbroker Fraud Blog, March 19, 2014

Merrill Lynch, Morgan Stanley Call A Broker Recruiting Truce
, Stockbroker Fraud Blog, October 26, 2013

PNC Bank Sues Morgan Stanley & Ex-Trust Adviser For “Surreptitious Conspiracy”, Institutional Investor Securities Blog, April 3, 2014

April 25, 2014

Charles Schwab’s Barring of Customers from Joining Class Actions Violated FINRA Rules, Says Board of Governors

In a victory for the Financial Industry Regulatory Authority, its Board of Governors has determined that Charles Schwab & Co. (SCHW) violated the self-regulatory organization’s rules when it added waiver language to agreements that prohibited customers from becoming part of any class action cases against the financial firm. Schwab has agreed to settle these claims with a fine of $500,000. Also, it will tell all its customers that the requirement is no longer in effect.

Schwab made amendments to the customer account agreement of over 6.8 million investors in 2011. The move came after it settled a class action securities case accusing the broker-dealer of misleading thousands of customers about its YieldPlus money market fund. (The fund sustained huge losses during the 2008 economic crisis, and to resolve the claims, Schwab agreed to pay $235 million.)

Included in the amendments were waiver provisions mandating that customers consent that any claims against the firm could only be arbitrated individually. Also, arbitrators would not be able to consolidate consolidated claims for more than one party.

In 2012, Schwab was told to pay a $500,000 fine for making customers agree to this. The firm appealed. The case, however, wasn’t been resolved until now.

The board’s ruling partially reverses and affirms an earlier decision made by a FINRA Hearing Panel. The panel determined that waiver violated FINRA rules that restrict what verbiage financial firms could use in predispute arbitration agreements. It also said that the rules could not be enforced by the SRO as they were in conflict with the Federal Arbitration Act.

The board, however, determined that The Act does not preclude the regulator’s ability to enforce its rules and overturned the earlier finding. It upheld the panel’s finding that Schwab’s effort to stop FINRA arbitrators from putting together multiple parties’ claims was a violation of the regulator’s rules.

Consumer advocates and securities fraud lawyers had worried that Schwab’s efforts to prevent class action lawsuits would establish a precedent and that other brokers would follow suit by adding similar clauses in their own agreements with customers. This could have harmed those investors who can't afford the expense of arbitration on their own.

The board’s ruling comes even after the decision last year by the US Supreme Court in American Express v. Italian Colors Restaurant. In that 5-3 ruling, the court said that a class action waiver used in contracts with merchants who use American Express’s charge card was enforceable under the Federal Arbitration Act. The merchants had contended that the waiver precluded any class action claims while only allowing individual disputes to be pursued via individual cases in arbitration even though this option could be costlier.

At Shepherd Smith Edwards and Kantas, LTD, LLP, we believe that filing an individual claim increases your chances of getting the maximum recovery possible. You want to work with a securities fraud law firm that experienced in getting investors’ funds back.

Schwab drops ban on clients filing class-action lawsuits, Reuters, April 24, 2014

Board Decision Finds Charles Schwab & Co. Violated FINRA Rules by Adding Waiver Provisions in Customer Agreements Prohibiting Customers From Participating in Class Actions; Reverses FINRA Hearing Panel Decision, FINRA, April 24, 2014

American Express v. Italian Colors Restaurant (PDF)

The Federal Arbitration Act


More Blog Posts:
JPMorgan, Goldman Sachs, Bank of New York Mellon, Charles Schwab Disclose Market-Based NAVs of Money Market Mutual Funds, Stockbroker Fraud Blog, February 7, 2013

Charles Schwab Corp.’s Lawsuit Against FINRA to Stop Enforcement Case is Dismissed by Federal Judge, Stockbroker Fraud Blog, May 16, 2012

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

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