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March 11, 2010

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

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

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

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

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

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

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

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

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

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March 3, 2010

Citigroup Ordered to Defend Against Securities Fraud Allegations by Terra Securities of Norway and Several Norwegian Municipalities

A district court judge has denied Citigroup’s motion that the securities fraud lawsuit filed against it by Terra Securities of Norway and seven Norwegian municipalities be dismissed. The plaintiffs claim that Citi misrepresented the risk involved in the $115 million in securities they bought in May and June 2007. They are seeking over $200 million in compensatory damages.

Judge Victor Morrero rejected Citibank’s claim that the U.S. District Court for the Southern District of New York lacked jurisdiction over the case because the financial losses happened in Norway. The plaintiffs had argued that their securities fraud claims are a result of Citigroup’s conduct in New York.

In their securities fraud complaint, the plaintiffs are claiming that Citigroup sold fund-linked securities as if they were conservative, safe investments. In fact, the notes, which were tied to the Citi Tender Option Bond Fund, are very high risk.
The municipalities bought the derivatives through Terra.

In the months following their purchase, the notes would go on to significantly drop in value. Terra went bankrupt and the municipalities had to reduce funding that was intended for hospitals, libraries, schools, and social services. One of the plaintiffs, the municipality of Narvik, was forced to turn off street and road lights at night. This is an area experiences limited daylight hours during the winter. The other municipalities that are plaintiffs of this securities fraud lawsuit are Bremanger, Hemnes, Hattfjelldal, Rana, Kvinesdal, and Vik.

The plaintiffs' securities fraud lawyer says that the judge’s ruling affirms foreign plaintiffs’ right to sue Citigroup for alleged fraud that occurred in NY over notes that were marketed abroad. Citigroup, which had pushed to have the case heard in Norway or England, denies any wrongdoing. The investment bank says it will vigorously defend against the charges.

Related Web Resources:
Citigroup Must Defend Norwegians’ Lawsuit Over Notes, BusinessWeek, February 17, 2010

Citigroup Must Defend Suit Over Derivatives Sales In Norway, Wall Street Journal, February 17, 2010

Continue reading "Citigroup Ordered to Defend Against Securities Fraud Allegations by Terra Securities of Norway and Several Norwegian Municipalities" »

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Posted In: Citigroup , Financial Firms , Securities Fraud

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February 28, 2010

SEC Says It Has Jurisdiction to Go After Ex-JP Morgan Executives For Securities Fraud

The US Securities and Exchange Commission has countered the motion to dismiss its securities fraud case against two former JP Morgan Chase (JPM) executives. The SEC had charged defendants Douglas MacFaddin and Charles LeCroy with paying the friends of Jefferson County, Alabama commissioners $8.2 million to garner $5 billion in business for JP Morgan Chase. The two men filed motions to dismiss on the grounds that swap agreements are not “securities-based swap agreements,” which means they aren’t under the SEC’s jurisdiction and therefore not subject to its enforcement.

However, the SEC’s brief argues that the defendants’ challenge is based on the question of whether the Bond Market Association's Municipal Swap Index is an index of securities. The SEC argued that regardless of what you call the Municipal Swap Index, this “linguistic exercise” doesn’t make a difference to what the Index actually is, the manner in which it is calculated, and the connection between the bonds and interest rates that comprise the Index. The SEC notes that interest rates are securities.

The SEC asked the court to not dismiss the case over lack of subject matter jurisdiction and pointed to the ruling made in SEC v. Rorech. In that enforcement case, the U.S. District Court for the Southern District of New York refused to decide during the pleading phase whether credit default swaps are security-based swap agreements.

Related Web Resources:
Read the SEC Complaint (PDF)

Swap Transactions, All Business

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Posted In: Financial Firms , J P Morgan - Chase

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February 25, 2010

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

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

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

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

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

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

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

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

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

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

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February 23, 2010

Morgan Keegan Ordered by FINRA Panel to Pay Investor $2.5 Million for Bond Fund Losses

A Financial Industry Regulatory Authority panel has ordered Morgan Keegan & Co. to pay investor Andrew Stein $2.5 million because the bond funds that he invested in had bet poorly on mortgage-related holdings. Panel members found Morgan Keegan liable for failure to supervise, negligence, and for selling investments that were unsuitable for Stein and his companies. The claimants, who sustained financial losses, had initially sought $12 million.

Stein’s arbitration claim is just one of over 400 securities claims that have been filed against Morgan Keegan over its bond funds that had invested in subprime-related securities, such as CDO’s (collateralized debt obligations). When the US housing market collapsed, the funds went down in value by up to 82%.

Stein contends that Morgan Keegan did not reveal the kinds of risks involved in investing in the bond funds. He and his companies claim that Morgan Keegan artificially increased the fund assets’ value so that the funds would appear more stable and investors wouldn’t be able to see the actual risks involved.

At least 80 of the securities cases have been heard, and claimants have so far been awarded $10.1 million. Morgan Keegan says that while it has settled a number of securities claims over the bond funds, claimants have dropped 114 other cases.

Stein and his two companies are pursuing a securities claim against Regions Financial and Morgan Asset Management, Inc. They are claiming fraudulent pricing and valuation of funds.

Our securities fraud law firm represents clients that sustained financial losses as a result of investing in Morgan Keegan bond funds. Please contact us for your free case evaluation.

Related Web Resources:
Morgan Keegan Must Pay Investor, Wall Street Journal, February 22, 2010

FINRA

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Posted In: Arbitration , Bond Funds , FINRA , Financial Firms , Morgan Keegan , Regions Financial Corporation , Securities Fraud

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February 20, 2010

Frontline Advisors LLC and Frontline Financial, Inc. Propose Texas Securities Fraud Settlement that Includes Permanent NFA Bar

The National Futures Association has accepted Frontline Advisors LLC and Frontline Financial, Inc.'s proposal to permanently remove themselves as a member of the group. The Texas-based Commodity Trading Advisors and Commodity Pool Operators offered the settlement after the NFA filed a complaint against them in 2009 accusing FFI and principal Charles G. Rice of failing to disclose key information to participants in a pool they were running. Among the material information withheld:

• In exchange for promissory notes, the pool would lend money to third parties
• When issuers of the promissory notes defaulted, the pool sustained losses
• Even after one note went into default, FFI charged a monthly management fee to participants
• FFI redeemed its interest in the pool
• FFI wrote off notes but did not give participants specifics about the write-offs

The NFA also accused FFI of not filing an annual financial statement, disclosure document, or exemption notice for the fund. Meantime, Rice has also agreed to a withdraw himself as an NFA member for five years. If he decides to reapply for membership, he has to pay a $10,000 fine.

Our Texas securities fraud lawyers represent clients with claims against investment advisors and stockbrokers. The most common reasons why an investor would file a securities claim or lawsuit are:

• Misrepresentations
• Omissions
• Unauthorized trading
• Overconcentration
• Registration violations
• Churning
• Margin account abuse
• Failure to execute trades
• Negligence
• Breach of fiduciary duty
• Failure to supervise
• Breach of contract
• Breach of promise

Your first consultation with our Dallas securities fraud law firm is free.

Related Web Resources:
Read the Complaint (PDF)

Read the Decision (PDF)

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Posted In: Financial Firms , Frontline Advisers LLC , Frontline Financial Inc. , Texas Securities Fraud

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February 19, 2010

H & R Block Financial Adviser Claims: Securities Fraud Law Firm Shepherd Smith Edwards & Kantas LLP Investigating Inadequately Supervised Reverse Convertible Notes for Investors

Our securities fraud lawyers are looking into claims by investors regarding their purchase of reverse convertible notes from H&R Block Financial Advisors. Just this week, the Financial Industry Regulatory Authority imposed a $200,000 fine on the broker-dealer for failing to set up proper supervisory systems over RCN sales. H & R Block was also ordered to pay $75,000 to an elderly couple that sustained financial losses from their RCN investments.

FINRA found that not only did H & R Block fail to properly monitor customer accounts for possible RCN over-concentrations, but they also failed to detect and respond to these possible over-concentrations. This is FINRA's first enforcement action over RCN sales.

Reverse Convertible Notes
An RCN is usually an issuer’s high-yield short-term note that is a put option connected to the performance of an unrelated asset (such as an index or a common stock). Upon maturity of the RCN the investor should either get a predetermined amount of shares of the linked equity or the full principal investment. The higher the coupon rate, the greater the expected volatility and the chances that shares will be paid. Risks that accompany RCNs include inflation risk, issuer default, and the underlying asset risks. Most RCNs require an initial investment of $1,000/unit. The majority of maturity dates run from 3 -12 months.

FINRA has issued an Investor Alert called Reverse Convertibles - Complex Investment Vehicles to help consumers better understand RCNs. It also put out Regulatory Notice 10-09 to remind broker-dealers of their sales practice obligations when selling RCNs to retail investors.

Please contact our stockbroker fraud law firm to discuss your H & R RCN investments. Shepherd Smith Edwards & Kantas LLP has successfully helped thousands of clients recover their investment losses.

FINRA fines, suspends Andrew MacGill over sale of revertibles, Bizjournals, February 15, 2010

Reverse Convertibles—Complex Investment Vehicles, FINRA

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February 17, 2010

FINRA Fines H & R Block Financial Advisors (Now Ameriprise Advisor Services) over Sales of Reverse Convertible Notes (RCN)

The Financial Industry Regulatory Authority (FINRA) has fined H&R Block Financial Advisors (now Ameriprise Advisor Services) $200,000 for failing to put in place the proper system to supervise its reverse convertible notes (RCN) sales to retail clients. FINRA also suspended H & R broker Andrew MacGill for 15 days while ordering him to pay a $10,000 fine and $2,023 in disgorgement for making unsuitable RNC sales to a retired couple. MacGill recommended that they invest close to 40% of their total liquid net worth in RCNs. Meantime, H & R Block has been ordered to pay the couple $75,000 in restitution for their financial losses. Without denying or admitting to the charges, the brokerage firm and MacGill consented to the finding’s entry.

According to FINRA, between January 2004 and December 2007, H&R Block sold RCNs without a system of procedures in place to properly monitor whether possible over-concentrations in RCNs were taking place in customer accounts. FINRA says that the brokerage firm relied on an automated surveillance system to monitor client accounts and review securities transactions for unsuitability but that the system was not set up to monitor RCN placement in customer accounts or RCN transactions. This caused H & R Block to miss signs of when there were potentially unsuitable levels of RCN in client accounts. Furthermore, FINRA says that the firm failed to provide guidance to its supervisors regarding the assessment of suitability standards related to their agents' recommendation of RCNs to the firm’s clients.

This is FINRA’s first enforcement action over RCN sales.

Reverse Convertible Notes
Reverse convertible notes offer a high coupon in return for the risk of getting shares valued at under the initial principal. Richard Ketchum, FINRA chief executive and chairman, has noted that it is not recommended for a client to place a significant chunk of one’s life savings into these kind of high risk, complex investments.

FINRA has issued Notice to Members 10-09 cautioning the entire brokerage community about their sales practice obligations to the investing public when it comes to RCNs and other risky “Complex Investment Vehicles.”

If you think you might have sustained investment losses because of unsuitable reverse convertible notes, contact our securities fraud law firm immediately.

Related Web Resources:
Regulator fines H&R Block $200K for poor controls, MarketWatch, February 16, 2010

Regulatory Notice 10-09, FINRA

FINRA Fines H&R Block Financial Advisors $200,000 for Inadequate Supervision of Reverse Convertible Notes Sales, FINRA/Business Wire, February 16, 2010

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Posted In: Ameriprise - Securities America , FINRA , Financial Firms , H&R Block , Reverse Convertibles

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February 15, 2010

Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million

Bank of America Corp. (BAC) has agreed to pay $150 million, in addition to $1 million in disgorgement, to settle the Securities and Exchange Commission’s charges over the investment bank’s proxy-related disclosures regarding the Merrill Lynch acquisition. U.S. District Judge Jed S. Rakoff said he hopes to decide by February 19 on whether to approve the settlement. He also said he has more questions regarding the deal.

If approved, the settlement would conclude two SEC securities lawsuits against Bank of America over the Merrill Lynch merger. One complaint involves the investment bank’s alleged failure to reveal, prior to a 2008 shareholder meeting to vote on the acquisition, that financial losses were in the billions and rising at Merrill. The second lawsuit is over what the bank did and did not disclose about the billions of dollars in bonuses paid to Merrill Lynch employees right before the $50 billion merger was completed.

Under the proposed SEC settlement, the $150 million would go to Bank of America shareholders who suffered financial losses because of the investment bank’s alleged disclosure violations. Also, for three years BofA would have to maintain and implement a number of remedial measures, including hiring an independent auditor to look at its internal disclosure controls, hiring a disclosure counsel to work on bank disclosures, making sure that BofA’s chief financial officers and chief executive certify yearly and merger proxy statements, and allowing shareholders to have an advisory say-on-pay vote regarding executive compensation.

Earlier this month, New York Attorney General Andrew Cuomo filed a separate securities fraud lawsuit against Kenneth D. Lewis, who formerly served as BofA’s chief executive, Joe Price, the bank’s former chief financial officer, and Bank of America for allegedly concealing Merrill Lynch's losses. The complaint alleges that BofA general counsel Timothy Mayopoulos was let go because he wanted to disclose the losses at Merrill Lynch before the deal was finalized.

Related Web Resources:
Bank of America Still Dealing With Fallout From Merrill Deal, Fox Business, February 5, 2010

Cuomo Sues Bank of America, Even as It Settles With S.E.C., NY Times, February 4, 2010

US judge has questions on $150 mln SEC-BofA accord, Reuters, February 16, 2010

Continue reading "Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million" »

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

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February 13, 2010

Former Chelsey Capital Hedge Fund Manager Accused of Using Insider Tips From Former UBS Executive Pleads Guilty to Illegal Trading

David Slaine, a former manager for Chelsey Capital, has pleaded guilty to using UBS insider tips that allowed him to earn over $3 million for the hedge fund while he made more than $500,000 in illegal profits. The inside information was given to him by an ex-UBS Securities LLC executive.

According to the US Securities and Exchange Commission’s complaint, Slaine must still settle the SEC’s securities fraud allegations against him. The agency claims that Erik Franklin, a Chelsey Capital colleague, gave Slaine the tips. Franklin had received them from Mitchel S. Guttenberg, who worked in UBS’s equity research department as an executive editor.

The tips, which were UBS analysts’ equity securities recommendations, were supposed to be nonpublic. Slaine, however, used the information to trade in advance of the recommendations. In 2002, he made over 20 trades using that information.

SEC has settled related allegations against Guttenberg, Franklin, and five others. Guttenberg, who was convicted of insider trading, is serving 78 months in prison.

Slaine could be sentenced to up to 25 years behind bars. Although he pleaded guilty in December, this information was only made public this month. The former hedge fund manager has also been identified as a government cooperator in the Galleon hedge fund insider trading scheme.

Related Web Resources:
Ex-NY fund manager Slaine pleads guilty, Reuters, February 2, 2010

Ex-Galleon Trader Slaine Pleaded Guilty, Sued by SEC in Probe, BusinessWeek, February 3, 2010

Investor charged in Galleon insider trading case, TimesOnline, February 2, 2010

Continue reading "Former Chelsey Capital Hedge Fund Manager Accused of Using Insider Tips From Former UBS Executive Pleads Guilty to Illegal Trading" »

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Posted In: Financial Firms , Hedge Funds , Insider Trading , UBS

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February 9, 2010

FINRA to Assess Amerivet Securities Inc. Allegations that Certain SRO Executives Received Excessive Pay in 2008

At a closed-door meeting scheduled for February 10, the Financial Industry Regulatory Authority board of governors will preside over a closed-door meeting to assess allegations made by Amerivet Securities Inc. that certain FINRA executives, including chief executive Mary Schapiro, received excessive pay. The brokerage firm submitted a letter to the board last year demanding that action be taken to recover this compensation, as well as the SRO’s unprecedented portfolio losses” in 2008.

A release, filed by Amerivet’s securities litigation lawyers, alleged that in 2008, under Shapiro’s leadership, FINRA failed to warn investors about auction-rate securities risks, paid senior FINRA executives close to $30 million, failed to discover that R. Allen Stanford and Bernard Madoff were engaged in Ponzi scams, and sustained close to $700 million in losses.

FINRA Executives' Pay
Schapiro was paid $3.3 million in bonuses and salaries in 2008. Per her accumulated retirement plan benefits, She also received approximately $7.2 million.

Another 12 current and ex-FINRA executives made over $1 million in 2008, including ex-chief administrative officer Michael D. Jones, who received $4.3 million in severance, compensation, and accumulated benefits after over 10 years at the SRO. Elisse Walters, now with the SEC, was paid $3.8 million ($2.4 million was supplemental retirement benefits), and Douglas Schulman, now with the IRS, was paid $2.7 million in salary, retirement benefits, and bonuses after over eight years of service.

FINRA has called Amerivet's statements “part of an ongoing publicity campaign” involving a counsel and a party who have been in “litigation with FINRA.”

Related Web Resources:
Finra execs overpaid? The board wants to know, Investment News, February 20, 2010

FINRA

FINRA Board of Governors

Continue reading "FINRA to Assess Amerivet Securities Inc. Allegations that Certain SRO Executives Received Excessive Pay in 2008" »

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Posted In: Amerivet Securities Inc. , FINRA , Financial Firms

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February 8, 2010

Claims Filed Against Morgan Keegan Division of Regions Financial Causes Shortage of Arbitrators

The Financial Industry Regulatory Authority has had to bring in hundreds of additional arbitrators to deal with the approximately 400 securities fraud claims that investors have filed against Regions Financial Corp., the investment banking unit of Morgan Keegan & Co. Investors are seeking to recover $35 million after three of its mutual funds dropped in value by up to 82% when the housing market fell apart. The Region Financial Corp mutual funds contained subprime-related securities, including collateralized debt obligations, low-quality mortgages, and mortgage-backed securities.

Morgan Keegan claims that it notified investors of the risks associated with investing in the mutual funds. Regions says that to date, 79 arbitration cases have been heard. 39 of the cases were dismissed and 114 arbitration claims seeking $24 million were dropped before decisions were reached. The investment firm is putting up a tough fight against the complaints. So far, arbitrators have been awarded $7.6 million.

Because so many investors filed arbitration claims, FINRA has had to contact arbitrators in different parts of the US and ask them to come to the different cities where the hearings on the mutual funds are talking place. The average pool of arbitrators in each city is now approximately 721 persons. This is an increase from its previous average pool of 87 arbitrators.

Stockbroker fraud attorney William Shepherd says that his securities fraud law firm Shepherd Smith Edwards and Kantas, LLP is committed to helping investors recover their financial losses related to Regions Financial Corp mutual funds. “Our law firm is handling dozens of claims nationwide regarding these funds, each on an individual basis. Some law firms have grouped claims and are using other methods we believe do not properly serve victims. This has skewed results against investors.” SSEK offers prospective clients a free case evaluation.

Related Web Resources:
Arbitrator Out of Work? Call Finra, The Wall Street Journal, February 5, 2010

FINRA

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Posted In: Financial Firms , Morgan Keegan , Mutual Funds , Regions Financial Corporation

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February 6, 2010

Former JPMorgan Bankers Sued by SEC Over Swap Transactions Want Judge to Dismiss Securities Fraud Charges

Two ex- JPMorgan Chase & Co. bankers that the Securities and Exchange Commission is suing over their alleged involvement in certain swap transactions are asking the U.S. District Court for the Northern District of Alabama to throw out most of the securities fraud charges that the regulator agency has filed against them. According to the SEC, Douglas MacFaddin and Charles LeCroy paid close friends of county commissions and broker-dealers over $8 million in undisclosed payments to make sure that JPMorgan would be chosen as the bond offerings underwriter and its affiliated bank would be selected as swap provider so that both entities could make $5 billion in underwriting and interest rate swap agreement business.

The swaps involve three Jefferson County bond transactions that took place in 2002 and 2003 and are at least partly linked to the Securities Industry and Financial Markets Association’s municipal swap index. The SEC says this index is securities-based because it is derived from variable-rate demand notes. MacFaddin and LeCroy’s lawyers, however, say that the SIFMA swap index is a rate index, which therefall places the swaps outside the agency’s antifraud jurisdiction. The defendants want the case dismissed.

The ex-JPMorgan bankers’ lawyers claim the undisclosed fees were connected to the swap transactions and that the investment bank was not obligated to disclose them. The defendants’ motions argue that the SEC’s failure to cite an instance in which the two men committed securities fraud is another reason the charges should be thrown out.

To resolve SEC administrative charges over its alleged part in the alleged securities scam, J.P. Morgan Securities Inc. consented to pay $75 M and forfeit $647 M in termination fees.

Related Web Resources:
Ex-JPM Bankers Seek End to Swap Charges, Onwallstreet.com, January 21, 2010

Read the SEC Complaint (PDF)

Continue reading "Former JPMorgan Bankers Sued by SEC Over Swap Transactions Want Judge to Dismiss Securities Fraud Charges " »

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Posted In: Financial Firms , J P Morgan - Chase , Securities Fraud

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February 3, 2010

SEC Warns that Disclosure of a “Possible Risk” is Misleading When the Event has Already Occurred

According to the US Securities and Exchange Commission, the Private Securities Litigation Reform Act's safe harbor as it applies to certain forward-looking statements isn’t triggered by cautionary remarks made by defendants over the impact of "potential deterioration in the high-yield sector" if, per the plaintiffs’ claim, the defendants knew the deterioration was taking place. The SEC made its comments in an amicus curiae brief to the U.S. Court of Appeals for the Second Circuit.

The case is Slayton v. American Express Co. The class securities fraud action alleges that the defendant engaged in faulty disclosures related to losses in its high-yield investment portfolio. A district court dismissed the complaint over failure to plead scienter. The plaintiffs appealed the case, and the Second Circuit heard oral argument lat October.

The SEC’s statements address the application of the statutory safe harbor to specific statements that Amex made in its May 2001 Form 10-Q’s Management's Discussion and Analysis section. Amex stated that the $182 million in high-yield losses was a reflection of it high-yield portfolio’s ongoing deterioration. Amex also stated that total investment losses for the rest of 2001 were expected to be significantly lower than losses sustained during the first quarter.

The parties disagreed about whether the cautionary language that Amex used was “meaningful” enough for the purposes of safe harbor.

According to the SEC, forward-looking statements in the MD & A, which isn’t part of a financial statement that abides by generally accepted accounting principals, doesn’t fall within the statutory exclusion for these kinds of statements. It also noted that Amex’s statement about the "potential deterioration in the high-yield sector" wasn’t enough for safe-harbor purposes because the defendants were warning about a possible deterioration that they knew was already happening. The SEC says that "It is misleading and therefore insufficient for a company to warn of a  potentiality that it is aware currently exists.” Also, "If the speaker knows that any of the implied representations is false,  then the speaker knows that the statement is misleading.”

Misstatements and omissions by an investment adviser, a broker, or an investment firm, can be grounds for a securities fraud claim or lawsuit if financial losses were sustained by others.

Related Web Resources:
Read the SEC'amicus curiae brief (PDF)

Private Securities Litigation Reform Act, Lectlaw

Continue reading "SEC Warns that Disclosure of a “Possible Risk” is Misleading When the Event has Already Occurred" »

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Posted In: American Express Co. , Financial Firms , SEC

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January 30, 2010

Judge Gives Lower Sentence to Former Credit Suisse Broker Convicted of Auction-Rate Securities Fraud

Eric Butler, a former Credit Suisse Group AG broker, has been sentenced to five years in prison for securities fraud. A jury found the ex-stockbroker guilty of misleading clients into thinking that they were buying student loan-backed, low-risk auction-rate securities when they were actually buying ARS that were high-risk and backed by home mortgage assets. He modified the trade confirmations to conceal this discrepancy. His securities fraud scam collapsed when the ARS market did, but not before investors sustained $1.1 billion in losses.

The government asked that Butler be ordered to serve a 45-year prison sentence pay stiff penalties. However, U.S. District Court Judge Jack Weinstein sentenced him to just five years, imposed a $5 million fine, and ordered that he forfeit $500,000.

Following the guilty verdict, Weinstein expressed concern about placing all of the blame on Butler. He said that he gave the ex-Credit Suisse broker a reduced sentence because the financial services industry has a “pernicious and pervasive" corrupt culture.

Weinstein says the blame for misdeeds such as stockbroker fraud should be placed not only on individuals but also on the financial institutions that hire them. While stating that Butler abused his power, violated his clients’ trust, and defrauded them of significant sums of money, the judge also placed accountability for the former Credit Suisse broker’s crimes on the failure of lawmakers and government regulators to properly oversee the financial markets, the investors’ failure to supervise their financial transactions, and Credit Suisse’s failure to properly supervise Butler.

Our stockbroker fraud lawyers can’t help but wonder why investors continue to place their faith in an industry where so many brokers have proven that they lack the experience to successfully manage clients’ assets and the arbitration process is set up in a manner that makes it hard for investors to recover a substantial portion of their investment losses.

Related Web Resources:
Ex-Credit Suisse Broker Butler Gets Five-Year Prison Sentence, Bloomberg, January 23, 2010

Ex-Credit Suisse broker guilty in $1B scheme, NY Daily News, August 17, 2009

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Posted In: Credit Suisse , Financial Firms

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January 27, 2010

Former Evergreen Investment Adviser Settles SEC Insider Trading Charges Involving Ultra Short Opportunities Fund

Charles Marquardt, Evergreen Investment Management Co. LLC’s former chief administrator, has settled charges filed by the US Securities and Exchange Commission that he sold Evergreen Ultra Short Opportunities Fund shares after obtaining insider information that a number of the MBS holdings were going to drop down in value. Marquardt worked for Evergreen at the time he allegedly engaged in insider trading and served as the Evergreen Ultra Short Opportunities Fund’s investment adviser. The mutual fund mostly invested in mortgage-backed securities.

On June 11, 2008, he allegedly found out about the likely decrease in value of several of its MBS holdings and that there was a possibility that the Ultra Fund could end up shutting down. Marquardt is accused of having redeemed all of his shares the following day. One of his family members also sold Ultra Fund shares. Marquardt and his relative avoided incurring $4,803 and $14,304 in financial losses, respectively. The fund was liquidated on June 19 of that year.

To settle the charges against him, the investment adviser has agreed to a bar from future violations, as well as to a two-year industry bar. He will pay a $19,107 civil penalty, $1,242 in prejudgment interest, and $19,107 in disgorgement. By settling, Marquardt is not admitting to or denying wrongdoing.

Insider trading is illegal and does not pay off. Just last month, in an unrelated case, investment banker Adhan S. Zaman pleaded guilty to one count of securities fraud. Zaman, who previously worked for Lazard Ltd., admitted to engaging in insider trading.

He is accused of misappropriating non-public, material data from the financial advisory and asset management company and of giving tips to other persons who then used the information to execute securities transactions. They also used insider trading tips that were given to Zaman by a friend that worked in an entity involved in the acquisitions of publicly-traded companies. Tipees made about $400,000, while Zaman was paid about $68,000 in benefits and cash.

Zaman faces up to 20 years in prison and the greater fine of either $5 million or two times the gross loss or gain. The US Sentencing Guidelines will have to be taken into consideration.

Related Web Resources:
SEC settles insider trading case, Boston.com, January 21, 2010
Former San Francisco, CA investment banker pleads guilty to insider trading, BNO News, January 16, 2010

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Posted In: Evergreen , Financial Firms , Lazard Ltd.

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January 26, 2010

Former Southwest Securities Broker’s Lifetime Industry Bar for Texas Securities Fraud is Affirmed, Says Appeals Court

The U.S. Court of Appeals for the Fifth Circuit has affirmed the Securities and Exchange Commission’s lifetime bar against a former Southwest Securities Inc. stockbroker. Scott Gann, who allegedly committed Texas securities fraud, is no longer allowed to associate with dealers, investment advisers, and brokers.

The SEC imposed the permanent bar against Gann because of his alleged involvement in a mutual fund market timing scheme. The appeals court says that the SEC’s ruling is not an abuse of discretion and is supported by the record.

Gann and George Fasciano, also a former Southwest Securities broker, are accused of engaging in market timing trades for Haidar Capital Management and Capital Advisor. They allegedly got around the rules of some of the mutual funds that prohibit market timing by using multiple representative and account numbers. Despite receiving 69 block notices from 34 mutual funds, their strategy allowed them to continue executing market timing trades.

The SEC filed an enforcement action in federal district court accusing the two men of violating the 1934 Securities Exchange Act Section 10(b). Fasciano settled before the case went to trial.

The district court held that Gann was in violation of Section 10(b). An SEC administrative law judge then entered a permanent associational bar against the ex-Southwest Securities broker. The SEC affirmed the bar, as did the appeals court.

The appeals court also noted that as Gann is convinced he did not engage in any wrongdoing—even though the SEC and two courts found that Gann acted wrongfully—there is no guarantee he won't commit future violations.

Related Web Resources:
Gann v. SEC, SEC.gov (PDF)

1934 Securities Exchange Act, Cornell University Law School

Continue reading "Former Southwest Securities Broker’s Lifetime Industry Bar for Texas Securities Fraud is Affirmed, Says Appeals Court" »

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Posted In: Financial Firms , Market Timing , SEC Enforcement , Southwest Securities , Texas Securities Fraud

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January 21, 2010

Court Stops Results One Financial LLC Adviser’s Alleged Investment Fraud Scam

Per the Security and Exchange Commission’s request for emergency relief, the U.S. District Court for the Northern District of Illinois has halted an alleged investment fraud scam involving Results One Financial LLC adviser Steve W. Salutric. He is co-founder of the financial firm. Hon. William J. Hibbler ordered that all assets under Salutric’s control be frozen and he issued a temporary restraining order against him. Hibbler is also granting other emergency relief.

The SEC complaint accuses Salutric of making unauthorized withdrawals from clients’ accounts that were located in another financial institution that was the custodian of Results One Financial's client assets, forging client signatures on withdrawal request forms, and submitting the signed forms to the account custodian.

The SEC is charging the investment advisor with misappropriating several million dollars of his clients’s finds. Beginning in 2007, Salutric allegedly misappropriated more than $2 million from at least 17 clients to support entities and businesses that are linked to him. Funds that were allegedly misdirected include $610,000 to a film distribution company, $259,000 to two restaurants, and $321,000 to the church where he is treasurer. The SEC is accusing Salutric of misappropriating over $400,000 from a 96-year-old nursing home resident who has dementia. He also allegedly made Ponzi-like payments to certain clients.

Courthouse News Service says that Salutric managed over $16 million through Results One. The SEC says that there may be more clients who were defrauded and additional funds may have been misappropriated.

The SEC is seeking penalties, disgorgement, and an injunction.

Related Web Resources:
Securities and Exchange Commission v. Steve W. Salutric, Civil Action No. 1:10-CV-00115 (N.D. Ill.), SEC, January 8, 2010

Read the SEC Complaint (PDF)

Continue reading "Court Stops Results One Financial LLC Adviser’s Alleged Investment Fraud Scam " »

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Posted In: Financial Firms , Results One Financial LLC , Securities Fraud

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January 17, 2010

Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court

The U.S. Court of Appeals for the Fifth Circuit has affirmed the dismissal of LSF5 Bond Holdings LLC and Lone Star Fund V (U.S.) L.P.’s $60 million securities fraud claims against Barclays Capital Inc. and Barclays Bank PLC. The court noted that Barclays never represented that the mortgage pass-through certificates purchased by the private equity firms did not have delinquent mortgages. Also, the court said that seeing as the language used in the parties’ agreement obligated Barclays to substitute or repurchase delinquent representation, Lone Star failed to allege misrepresentation.

In 2006, Barclays bought mortgage loans from then-subprime lender New Century Capital Corp. Barclays then pooled about 10,000 mortgage loans into the BR3 and BR2 Trusts. The trusts then gave out pass-through certificates or mortgage-backed securities. $60 million of the securities were bought by LSF5.

Although trust offerings supplements and prospectuses included representations and warranties that as of “transfer service dating” the mortgage pools did not have any 30-day delinquencies, Lone Star found that nearly 300 of the BR2 mortgages were at least 30 days delinquent beginning the date of purchase. 850 mortgages in the BR3 Trust were also over 30 days overdue.

Lone Star filed a Texas securities fraud lawsuit against Barclays claiming that the delinquent loans were misrepresentations on the investment bank’s part. Barclays sought to have the lawsuit dismissed, arguing that if there were delinquent loans then Barclays must either substitute or repurchase them.

The district court turned down Lone Star’s remand request and agreed with Barclay’s interpretation of the language in the agreement. The court dismissed the case. The appeals court upheld the dismissal.

Related Web Resources:
Lone Star Fund V (U.S), LP et al v. Barclays Bank PLC et al, Justia Federal District Court Filings and Dockets

Read the 5th Circuit Opinion (PDF)

Continue reading "Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court" »

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Posted In: Barclay's Bank , Financial Firms , Securities Fraud , Texas Securities Fraud

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January 15, 2010

For Role in $2.4 Billion Refco Investor Fraud Scheme, Former Mayer Brown Partner Receives 7-Year Prison Sentence

Joseph P. Collins, a former Mayor Brown partner, has been sentenced to seven years in prison for his role in a $2.45 billion investment fraud scheme involving Refco Inc. He had hoped to obtain a more lenient sentence.

In July 2009, a jury found Collins guilty of wire fraud and securities fraud, as well as conspiracy to commit wire fraud, securities fraud, money laundering, bank fraud, and making false filings with the SEC. During his criminal trial, his defense attorneys argued that he did not know about the Refco fraud scam. However, while Southern Judge Patterson said that he believes Collins did not commit his crimes out of greed, Patterson noted what he called the firm partner’s “excessive loyalty” to his biggest client. According to Assistant U.S. Attorney Christopher J. Garcia, Collins brought in over $40 million to his law firm from his work with Refco.

Collins provided legal counsel and drafted documents that Refco principals used to conceal the company’s actual financial state while they made themselves wealthier. The government says that the documents were used to defraud Thomas H. Lee Partners, which owned a majority stake in Refco, and investors who purchased IPO shares in 2005.

Collins testified that Refco officials lied to him. He says he did not know that the financial services firm was conducting bogus transactions to conceal its true financial state from auditors and others. Collins says he did not personally profit from the scheme.

Former Refco CFO Robert C. Trosten and Ex-EVP Santo C. Maggio cooperated with the government in its case against Collins. Trosten and Maggio both pleaded guilty to the criminal charges filed against them over the Refco securities fraud scam. Former Refco CEO and Chairman Phillip Bennett is serving a 16-year prison term after pleading guilty in his criminal case. Meantime, Tone Grant, ex-Refco Group Ltd. president, is serving a 10-year prison term after he was convicted by a federal jury.

Related Web Resources:
Ex-Mayer Partner Gets 7 Years Over Refco, New York Law Journal, January 15, 2010

Former Refco Lawyer Collins Convicted in $2.4 Billion Fraud, Bloomberg, July 11, 2009

Mayer Brown

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Posted In: Financial Firms , Refco , Securities Fraud

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Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

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Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court

For Role in $2.4 Billion Refco Investor Fraud Scheme, Former Mayer Brown Partner Receives 7-Year Prison Sentence

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