November 18, 2014

Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed

Puerto Rico’s Electrical Power Authority, also known as PREPA, is experiencing a surge in overdue accounts. According to a report from an FTI Consulting subsidiary, since 2012, the U.S. territory’s electrical authority has seen a 219% increase in the number of company and residential accounts that are at least 120 days late in making their payments. The report was generated as part of an agreement with the creditors, which retain more than $9 billion of the electrical utility company’s debt.

By September 2014, late balances owed to PREPA not just among businesses and residents, but also by government entities had hit $1.75 billion. At least $708.6 million were payments that were late by a minimum of four months.

Puerto Rico’s governmental entities owe about $758 million, with certain public corporations unable to even pay their electricity bills and refusing to agree to payment plans to get their accounts current. The FTI report recommends that Prepa put into place an amnesty period for clients that are delinquent, retain a collection agency, increase late fees and charges for reconnection, and push for timely payments.

Prepa is getting ready to unveil a plan early next year to restructure its $8.6 billion of debt. Its debt has been issued a junk rating by credit rating agencies.

Meantime, Puerto Rico is talking to four bond insurers to get at least part of up to $2.9 billion in bonds insured. These are bonds the financially beleaguered Commonwealth wants to put out later this year. The bond issues would let the territory access a deeper capital pool in the municipal bond market than the small hedge funds that purchased $3.5 billion of its debt earlier this year.

Puerto Rico is also seeking to refinance a $2.2 billion loan that the Government Development Bank made to its Highways and Transportation Authority to try and improve its poor financial health and give the territory more time to reverse its failing economy. To make the sale, the island has to pass laws that would increase an oil tax that could allow it to back the bonds.

Puerto Rico Bond Fraud
Puerto Rico’s muni bonds are the focus of hundreds of FINRA arbitration claims, with many investors complaining that they sustained huge losses because they were sold investments that were too risky for what they could afford.

Brokers for UBS (UBS), Banco Santander (BNC), and Banco Popular are among those identified as having made inappropriate recommendations to customers. A number of investors lost everything.

At Shepherd Smith Edwards and Kantas LTD LLP, our Puerto Rico muni bond fraud lawyers represent investors with FINRA arbitration claims that are seeking to recover their money. Contact our securities fraud law firm today to request your free case consultation.

Puerto Rico Electric Utility’s Late Accounts Surge 219% From ’12, Bloomberg, November 17, 2014

Read the FTI Capital Advisors Report

Puerto Rico's PREPA urged to get tough on $1.8 bln owed, Reuters, November 17, 2014

PREPA


More Blog Posts:
Investors File Close to $1B of Puerto Rico Bond Fraud Claims against UBS, Stockbroker Fraud Blog, October 9, 2014

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts, Institutional Investor Securities Blog, November 13, 2014

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


November 13, 2014

Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg

According to Bloomberg.com, sources are telling them that Citigroup (C) and Bank of America (BAC) are selling soured U.S. mortgages to satisfy the demand from investment firms that are raising the prices. For example, say the individuals who asked not to be named, Bank of America recently placed approximately $1 billion of beleaguered debt, including nonperforming loans. Meantime, Citigroup purportedly sold around $1 billion of re-performing and nonperforming mortgages.

Lenders are reportedly selling more defaulted mortgages to avoid the cost of holding the debt. Meantime, private-equity firms and hedge funds are trying to make money off of increasing home values. The number of firms looking to acquire debt that has soured is growing.

According to some critics, that housing regulators and other agencies have recently announced rulings that would decrease credit and lending standard for home mortgages is a sign that the government is making the kinds of errors that led to the 2008 housing crisis. With housing giants Freddie Mac (FMCC) and Fannie Mae (FNMA), handing over the majority of their earning to the Treasury Department, government-sponsored enterprises are now lacking the capital buffer they would need in the event there are losses. If the economy gets into trouble again, it may be up to taxpayers once more to bail these GSEs out. It was the U.S. Treasury that helped save Freddie and Fannie with $180 million as the government seized them, placing both under conservatorship.

Last month, the Federal Housing Finance Agency announced that even though sellers of certain asset-backed securities have to keep a minimum of 5% of the asset’s credit risks, securities backed by qualified residential mortgages are exempt from this requirement.

Our mortgage-backed securities fraud lawyers are here to help investors recoup their losses.

Bank of America, Citigroup Said to Sell Soured Home Loans
, Bloomberg, November 12, 2014

Feds to Back Risky Home Loans Again
, The Washington Free Beacon, November 10, 2014


More Blog Posts:
Detroit Suburb Charged with Muni Bond Fraud, Institutional Investor Securities Blog, November 6, 2014

Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

November 10, 2014

Two Former Merrill Lynch Brokers Contend with Unauthorized Trading Claims

According to the Financial Industry Regulatory Authority (FINRA), Ameriprise Financial (AMP) broker Lorene Fairbanks, formerly with Merrill Lynch. Pierce, Fenner & Smith Incorporated, was recently sanctioned over allegations that she effected over 57 discretionary transactions for several customers without getting the required written authorization from the clients or the approval of the firm. Fairbanks also allegedly mismarked over 50 order tickets, noting them as “unsolicited” when they were “solicited” orders. Brokers are not allowed to exercise discretionary authority in a client account without written authorization.

The Ohio broker was registered with Merrill Lynch from 8/06 to 3/12. The firm fired Fairbanks in February 2012 for purportedly taking discretion in client accounts and mismarking customer orders. She has been associated with Ameriprise since June 2012. There also have reportedly been other customer complaints accusing Fairbanks of excessive trading and unsuitable trading.

Also sanctioned by FINRA for allegations of unauthorized trading is George Zaki, another ex-Merrill Lynch broker. The self-regulatory organization contends that Zaki implemented or executed about 3,600 trades in some 80 accounts without written customer authorization between 6/10 and 8/12.

Zaki was let go by Merrill Lynch in October 2012. The firm said the termination was because of conduct related to exercising discretion in client accounts that were not discretionary. FINRA rules prohibits a registered representative from exercising discretionary power in the account of a customer without that client’s prior written permission and firm acceptance of the account.

After Zaki was terminated from Merrill Lynch, he was registered with Barclays (BARC) Capital Inc. until earlier this year.

Our broker fraud lawyers represent investors in the U.S., as well as those headquartered abroad with claims against brokerage firms in the country.

BrokerCheck, FINRA


More Blog Posts:
FINRA May Expel Ex-Broker For $6M Hedge Fund, Stockbroker Fraud Blog, July 15, 2014

SEC Stops Fraudulent Bond Offering by Chicago Suburb, Institutional Investor Securities Blog, June 25, 2014

AIG Advisor Group, Securities America, LPL Financial, Cambridge, And Even Schorsch’s Broker-Dealer Stops Selling His REITs, Institutional Investor Securities Blog, November 7, 2014

November 3, 2014

SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds

The Securities and Exchange Commission has sanctioned thirteen financial firms, including UBS Financial Services (UBS), Charles Schwab and Co. (SCHW), J.P. Morgan Securities (JPM), and Stifel Nicolaus & Co. (SF), for the improper sales of Puerto Rican junk bonds. A $100,00 minimum denomination had been established in junk bonds of $3.5 billion made by Puerto Rico several months ago. An SEC probe, however, revealed that there had been 66 instances when firms sold the bonds in transactions of under $100,000.

Municipal bond offerings are supposed to have a set minimum denomination that determines the smallest amount that a firm can sell to an investor during a single transaction. Typically, municipal issuers will establish high minimum denominations for junk bonds with a greater default risk. This is done to limit the bonds from ending up in the accounts of investors who may not be able to handle the risks.

The firms and their fines: UBS Financial Services for $56,400, Charles Schwab & Co. for $61,800, Oppenheimer & Co. (OPY) for $61,200, Wedbush Securities Inc. for $67,200, Hapoalim Securities USA for $54,000, TD Ameritrade (AMTD) for $100,800, Interactive Brokers LLC for $56,000, Stifel Nicolaus & Co. (SF) for $60,000, Investment Professionals Inc. for $67,800, Riedl First Securities Co. of Kansas for $130,000, J.P. Morgan Securities for $54,000, National Securities Corporation for $60,000, and Lebenthal & Co. for $54,000.

The firms are accused of violating Rule G-15 of the Municipal Securities Rulemaking Board. The rule sets the minimum denomination requirement. The SEC says that by conducting sales under the minimum denomination, the firms violated the Securities Exchange Act of 1934’s Section 15B(c)(1), which does not allow for any MSRB rule to be violated.

All 13 firms agreed to settle the SEC’s findings without admitting to or denying them. The firms also agreed to be censured. They will review their respective procedures and policies, as well as make the needed changes to ensure appropriate compliance moving forward.

Our Puerto Rico muni bond fraud lawyers represent investors in the Commonwealth and on the mainland. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC Sanctions 13 Firms for Improper Sales of Puerto Rico Junk Bonds, SEC, November 13, 2014

Rule G-15, Municipal Securities Rulemaking Board

Securities Exchange Act of 1934
, Legal Information Institute

More Blog Posts:
Investors Have Filed Close to $1B of Puerto Rico Bond Fraud Claims against UBS, Stockbroker Fraud Blog, October 29, 2014

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

UBS Brokers Are Still Selling Puerto Rico Muni Bonds, Stockbroker Fraud Blog, October 20, 2014

October 30, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm

James “Jeb” Bashaw, the former star financial adviser at LPL Financial (LPLA) from Texas is now registered with International Assets Advisory, a small brokerage firm. LPL Financial fired Bashaw last month over allegations involving selling away. Then, for a while this month, he was with Wunderlich Securities Inc.

Selling away typically involves engaging in private securities transactions sans the required written disclosure or brokerage firm approval. It can also include borrowing from a client, as well as engaging in a transaction that is a potential conflict interest, again without the required disclosure in writing or firm approval.

Responding to the selling away allegations, Bashaw noted that he was “home supervised” and underwent more than a dozen perfect audits while affiliated with LPL. After his firing, Wunderlich took steps to hire Bashaw but there was a delay in transferring his license to the firm. In the end, the broker-dealer and Bashaw reportedly decided not to pursue a working relationship.

In 2011, Bashaw was ranked the number one financial adviser in Texas. He founded a dually registered firm in Houston, which was one of the biggest affiliated LPL practices. He reportedly managed assets of $3.8 billion.

In other LPL Financial news, this week Mark Casady, its chief executive, apologized to shareholders for the time it has taken to resolve the company’s compliance issues. The problems have cost the brokerage firm millions of dollars in settlements, restitution payments, and fines.

Casady’s statement comes a week after parent company LPL Financial Holdings Inc. announced that the broker-dealer expected to incur some $23 million in charges to settle undisclosed regulatory issues. That’s $18 million more than what had been anticipated. Following the announcement, LPL shares dropped 7%.

LPL said the regulatory matters primarily involve LPL Financial’s policies, systems, and procedures. Without going into detail, Casady said that the nature of the issues made it hard to identify or evaluate the “timing or magnitude of their resolution.”

For the last two years, LPL Financial has been contending with regulators over different issues. Earlier this month, regulators in Massachusetts announced that LPL had consented to pay back senior investors $541K for surrender charges from switching variable annuities. In June, LPL Financial was told to pay $820K in restitution and a $2 million fine to Illinois regulators for not properly mantaining books and records that documented 1035 exchanges.

Last year, FINRA fined LPL $7.5 million for close to three dozen system failures involving emails. The firm paid investors in Massachusetts $4.8 million in restitution related to their purchase of nontraded real estate investment trusts.

Our Texas broker fraud lawyers represent investors who wish to recoup their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Ex-LPL Adviser’s Talks With Wunderlich Scuttled, The Wall Street Journal, October 14, 2014

CEO Mark Casady apologizes to LPL Financial shareholders for compliance missteps, Investment News, October 30, 2014


More Blog Posts:
LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches, Stockbroker Fraud Blog, October 15, 2014

Former LPL Financial Broker Must Pay Almost $2 Million For Bilking Clients, Including Elderly Investors, Stockbroker Fraud Blog, August 29, 2014

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

October 25, 2014

SEC Fines E*TRADE Subsidiaries Over $1M Penalty for Unregistered Microcap Securities Sales, Puts Out Risk Alert Regarding Broker-Dealer Duties To Clients

Earlier this month, the U.S. Securities and Exchange Commission put out a Risk Alert reminding brokerage firms about their duties when they take part in unregistered transactions for customers. The guidance came, along with the announcement that the agency had filed an enforcement action against former and current E*TRADE Financial Corporation (ETFC) brokerage subsidiaries that did not successfully act as gatekeepers and improperly engaged in the unregistered sales of microcap stock for customers.

According to the SEC, E*TRADE Capital Markets and E*TRADE Securities sold billions of penny stock shares for customers between 2007 and 2011. During this time, there were numerous occasions when they disregarded red flags indicating that the offerings were taking place without an applicable exemption from federal securities laws’ registration provisions.

The two brokerage firms consented to repay over $1.5 million in disgorgement plus prejudgment interest from commissions they made on the improper sales. They also have to pay a $1 million combined penalty.

The SEC’s Risk Alert provides a summary of deficiencies found during a sweep by the SEC’s Office of Compliance Inspections and Examinations of 22 brokerage firms that frequently engage in microcap securities sales. Widespread deficiencies included inadequate policies and steps for monitoring and noticing possible red flags in sales initiated by customers, insufficient controls for assessing the way a securities was acquired by a customer, as well as whether the securities can be resold legally sans registration, and failure to submit reports of suspicious activity as mandated by the Bank Secrecy Act.

Contact our microcap fraud lawyers today to request your free case assessment.


Certain accounts, such as omnibus account, appeared to be among the ones most frequently associated with unregistered illiquid microcap shares sales. Accounts that belong to supposed stock loan companies, under the name of an LLC or a corporate entity, utilize a sub-/master structure, or belong to foreign financial institutions are some of the omnibus accounts noted.

BROKER-DEALER CONTROLS REGARDING CUSTOMER SALES OF MICROCAP SECURITIES, National Exam Program Risk Alert

The SEC Order Against the E*TRADE subsidiaries (PDF)


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Rajaratnam Brother Settles Insider Trading Charges Involving Hedge Fund Advisory Firm Galleon Management, Stockbroker Fraud Blog, October 23, 2014

SEC to Reject BlackRock Inc. Proposal for Nontransparent Exchange-Traded Fund
, Institutional Investor Securities Blog, October 23, 2014

SEC To Examine Exchange Traded-Fund Regulation Again, Stockbroker Fraud Blog, March 22, 2014

October 14, 2014

UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Puerto Rico Closed-End Mutual Fund Sales

UBS Financial Services Incorporated of Puerto Rico (UBS) has reached a settlement with the Commonwealth’s Office of the Commissioner of Financial Institutions (OCIF) over UBS’s offering and sale of closed-end mutual funds in Puerto Rico. As part of the agreement, UBS will pay a $3.5 million fine, as well as $1.7 million in restitution to 34 clients. As is typical with such settlements, UBS is not denying or admitting to any wrongdoing.

After examining UBS’s operations between the periods of 1/1/06 through 9/30/13, OCFI discovered that UBS had placed clients with conservative risk tolerances in high concentrations of Puerto Rico Closed-End Funds (PRCEF). OCIF further alleged that UBS recommended or allowed these clients to use “non-purpose” loans to buy more PRCEF, which should have never happened. OCFI also reported irregularities in the way some clients’ accounts were managed and said UBS had engaged in inadequate supervision and recordkeeping.

The clients that are entitled to restitution are primarily elderly investors with low net worth and conservative financial profiles. UBS is going to pay them almost $1.7 million in restitution. This offer has to be made within 45 days of the settlement’s execution. The $3.5 million penalty will go to the Securities Trading, Investor Education and Training Fund.

UBS is also required to enhance its supervision of six of its agents, who may have committed practices that were objectionable, for at least six months. UBS has agreed to reassess, and perhaps even modify, its procedures and policies to make sure the firm is complying with regulations. UBS also will review additional customers’ accounts with similar profiles as the ones affected by these claims to see if further action and restitution are required.

UBS Puerto Rico is one of the firms accused of making inappropriate recommendations to investors in Puerto Rico muni bonds. When the bonds started to fail last year, many investors suffered huge losses.

Our Puerto Rico bond fraud lawyers have been meeting with investors on the island and in the U.S. to see how we can help recover their losses. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today for a free, no obligation consultation about your investment account.



UBS Settlement with OCIF


More Blog Posts:

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds, Stockbroker Fraud Blog, August 15, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

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

October 8, 2014

Securities Fraud: Ex-Ameriprise Adviser to Pay $3M for Ponzi Scam, Four Insurance Agents Allegedly Defrauded Senior Investors, and Trading in Nine Penny Stocks is Suspended

Former Ameriprise Adviser Ordered to Jail, Must Pay $3M Restitution
Oscar Donald Overbey Jr., an ex-Ameriprise Financial Services (AMP) financial adviser, must pay back the $3 million he allegedly stole from investors while operating a Ponzi scam. The 47-year-old has been sentenced to three and a half years behind bars.

Court documents say that from 1996 into 2007, Overbey stole about $4 million of client funds that he was supposed to invest. Instead, the money was used to pay earlier investors, cover his personal expenses, and pay off his gambling debts.

In July 2012, Overbey was indicted. He pleaded guilty to wire fraud felony charges last year. Overbey reportedly told a doctor that many of his brokerage clients were fellow gamblers.

The Financial Industry Regulatory Authority barred him from the industry in 2007. Ameriprise fired him. It has since paid back the clients that were affected by Overbey’s fraud.

Insurance Agents Face SEC Charges Alleging Elder Financial Fraud
The U.S. Securities and Exchange Commission is charging four insurance agents over their involvement in a multi-million dollar securities fraud that targeted senior investors. The elder financial fraud charges come almost a year after the regulator filed charges against Gary C. Snisky for orchestrating the scheme and bringing in insurance agents to solicit investors.

The financial scam raised about $4.3 million over 18 months. Now, the SEC is going after insurance agents Kenneth C. Meissner, Mark S. Tomich, James Doug Scott, and David C. Sorrells for soliciting funds even though they weren’t registered as a broker-dealer with the Commission.

The fraud primarily targeted annuity holders that were retired. The insurance agents sold interests in Arete LLC, which Snisky controlled. Investors were purportedly told that their money would be used to buy discounted agency bonds that were backed by the government. Instead, Snisky misappropriated about $2.8 million of their money.

Microcrap Fraud Probe Leads to Trading Suspension in Nine Penny Stocks
The SEC has suspended trading in nine penny stocks. The move is an effort to battle microcap fraud. The affected companies include Xumanii International Holdings Corp., All Grade Mining Inc., Solar Thin Films Inc., Global Green Inc., Bluforest Inc., mLight Tech Inc., DHS Holding Co., Inova Technology Inc., and Essential Innovations Technology Corp.

The SEC can elect to suspend trading in a stock if it believes that doing so is necessary to protect investors and the public. The regulator typically cannot announce in advance that a suspension is in the works because this could hinder its investigative efforts.

Ex-Ameriprise adviser gets jail time for using client money to pay gambling debts, Investment News, October 7, 2014

SEC Charges Four Insurance Agents in Securities Fraud Targeting Elderly Investors, SEC, September 26, 2014

Penny Stocks Trading Suspension Order, SEC (PDF)


More Blog Posts:

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision, Stockbroker Fraud Blog, October 7, 2014

Former Axa Advisors Broker Faces SEC Charges Over Alleged $1.5M Ponzi Scam, Stockbroker Fraud Blog, September 30, 2014

Shareholder’s $40B Class Action Securities Lawsuit Over AIG Bailout Goes to Trial, Institutional Investor Securities Blog, September 29, 2014

October 6, 2014

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision

The Financial Industry Regulatory Authority has barred Jo Ellen Fischer, an independent financial adviser with Raymond James Services Inc. (RJF), for purportedly stealing nearly $1 million from a 95-year-old client. At the time, Fisher worked for Peoples Bancorp.

According to the self-regulatory organization, from July to December 2013, Fisher converted $924,750 from the elderly customer’s trust without permission. She did this by moving funds and securities into a brokerage account under her daughter’s name. Fisher then liquidated securities and used the money to cover her personal spending, including two Rolexes, motor vehicles, a 2-carat diamond ring, and other expenses.

FINRA says that Fisher claimed that the elderly client was her daughter’s godfather and he wanted her to have the money when she was older. The SRO, however, contends that Fisher falsified documents regarding this matter. She has agreed to the bar without denying or admitting to the findings alleging elder financial fraud.

Raymond James, which terminated Fisher's registration earlier this year, is cooperating with investigators. The financial firm has filed its own action against her in federal court to get back the money she purportedly took. Raymond James has already paid back the investor.

In other FINRA-related news, the SRO is charging SWS Financial Services with approving variable annuity applications without conducting principal review to make sure they were suitable. The agency’s enforcement department claims that from 9/09 to 5/11 the firm did not have the required supervisory systems and written procedures in place for VA transactions.

SWS is accused of not conducting adequate supervisory reviews of variable annuity deals, failing to register principal reviews of VAs prior to turning the applications over to the insurer, not setting up and documenting a training plan for supervisory review of VA deals, and failing to establish surveillance procedures that could identify VA exchanges that were not appropriate.

FINRA says that during the time of these violations, variable annuity sales comprised up to 20% of the firm’s total revenue. It wants disciplinary action, including monetary sanctions, as well as an order mandating that SWS pay for the proceeding costs.

Finra Bars Ex-Raymond James Adviser Over Alleged Account Theft, The Wall Street Journal, October 3, 2014

Finra charges SWS with improper supervision of VA transactions, Investment News, October 2, 2014


More Blog Posts:

Former Axa Advisors Broker Faces SEC Charges Over Alleged $1.5M Ponzi Scam, Stockbroker Fraud Blog, September 30, 2014

DOJ’s Fund for Madoff Victims Has Received 51,700 Claims Worth $40B, Institutional Investor Securities Blog, May 14, 2014

Resource Horizons Group’s Future Hangs in Balance Following $4M FINRA Arbitration Award, Stockbroker Fraud Blog, September 25, 2014

September 25, 2014

Resource Horizons Group’s Future Hangs in Balance Following $4M FINRA Arbitration Award

Resource Horizons Group, a regional brokerage firm and investment adviser, may no longer be able to stay in business after a $4 million Financial Industry Regulatory Authority arbitration award was issued against it. The self-regulatory organization blames the firm for almost $3.5 million in investor losses after Robert Gist, one of the firm’s brokers, allegedly took the money. Part of the award is $1 million in punitive damages.

Last year, Gist consented to pay $5.4 million to settle SEC charges claiming that he converted about that much from at least 32 customers for his own use over a ten-year period. He went through Gist, Kennedy & Associates, Inc., which was an unregistered entity with no connection to Resource Horizons, in that financial scam.

Resource Horizons hired Gist in 2001. Even before that there already were a number of customers disputes and other disclosures on his record. Both the SEC and FINRA have now barred Gist from the securities industry.

The claimants that filed a case against Resource Horizon and three firm executives include a family trust and six individuals. Among their allegations was a claim alleging inadequate supervision.

Resource Horizons reportedly may not have enough money to pay the arbitration award. An audited filing with the Securities and Exchange Commission notes that the firm’s net income in 2013 was $286,220 and its excess net capital is only $468,628 over the $100,000 it is obligated to keep to satisfy regulatory requirements.

If Resource Horizons cannot pay the securities arbitration award, it will need to note the amount as a liability. This would get rid of its excess capital and put the firm under the $100,00 net capital requirement.

Once a financial firm drops under net capital requirements, it can no longer conduct business and must notify customers that they must now put their orders straight through to its clearing firm.

Brokerage, Execs Ordered to Pay $3.9M in Bad-Broker Case, WSJ.com, September 24, 2014

B-D's fate uncertain after $4M arbitration award, Investment News, September 25, 2014


More Blog Posts:
SEC News: Regulator Grants $30M Whistleblower Award and Charges Washington Investment Advisory Firm $600K for Undisclosed Principal Transaction, False Advertising, Stockbroker Fraud Blog, September 23, 2014

Man to Pay $40.4M for Texas Securities Fraud Involving Bitcoin Ponzi Scam, Stockbroker Fraud Blog, September 20, 2014

SEC Investigates Pimco Exchange-Traded Fund for Artificial Inflation, Institutional Investor Securities Blog, September 25, 2014

September 19, 2014

FINRA Bars Ex-Wells Fargo Broker From Industry For Allegedly Bilking Customers, Expels HFP Capital Markets LLC for Securities Fraud

The Financial Industry Regulatory Authority has barred a former Wells Fargo (WFC) registered representative from the brokerage industry. According to the self-regulatory organization, Ane S. Plate, who previously worked with Wells Fargo Advisors Financial Network in Florida, allegedly made fifteen unauthorized trades in a joint brokerage account of two customers between October 2013 and April 2014. The transactions resulted in $176,080 of cash proceeds, of which Plate is accused of pocketing $132,358.

The former Wells Fargo broker is also accused of setting up bi-weekly transfers from the brokerage account to a bank account that was in the name of one of her relatives. She then allegedly moved $7,700 to that account between December 2013 and May 2014.

Plate, who was working with Wachovia Securities when Wells Fargo acquired that firm, has since been fired after the latter discovered the purported theft. FINRA’s BrokerCheck reports that the customers that were harmed were fully reimbursed for the amount taken from them.

Plate, who settled the FINRA charges, is not denying or admitting to the allegations. She has, however, consented to an entry of the regulator’s findings.

FINRA also recently expelled a financial firm from FINRA membership, this for the purportedly fraudulent sale of about $3 million of senior secured zero-coupon notes. HFP Capital Markets LLC will now have to pay $2,980,000 plus interest in customer restitution.

The financial firm is accused of selling private offerings of the notes to customers while knowingly leaving out or misrepresenting material facts in the offering and sales. The SRO says the notes were misrepresented as collateralized by certain barrels of leftover mining materials that were valuable enough to secure an investment, when the ore concentrate was actually worthless.

FINRA is also accusing HFP Capital Markets of not disclosing material facts about the management and ownership of the issuer and about the way the proceeds from the offering were utilized. The firm also purportedly disregarded red flags and did not conduct sufficient due diligence on the individuals involved, the offering, or the third parties that were presented as critical strategic partners.

Some customers recovered their money in the form of replacement transactions after complaining to the firm, but everyone else lost their funds. Now, HFP Capital Markets is settling without denying or admitting to the findings.

FINRA also recently censured Felix Investments LLC, which is based in New Jersey, for sending misleading, unwarranted, and exaggerated claims or statements to potential investors of a fund via email. The communications purportedly did not note the possible risks or provide comprehensive descriptions of the fund.

Now, Felix Investments has to submit all retail communications, per FINRA Rule 2210’s definition, with the agency at least 10 days before use and pay a $300,000 fine. The firm’s principal, Susan Mindlin Diamond, must pay a $10,000 fine and serve a four-month suspension. Meantime financial representative Frank Gregory Mazzola, who is accused of sending the emails, is barred from associating with any FINRA member.

Other FINRA findings against Felix Investments and Diamond include inadequate supervision of Mazzola, even after an AWC was put out against him, and failure to put into place a written anti-money laundering program to keep Felix in compliance with the Bank Secrecy Act and other regulations.

Felix Investments, Mazzola, and Diamond settled with FINRA without denying or admitting to the findings.

Former Wells Fargo Advisor Barred From Brokerage Industry, Bank Investment Consultant

FINRA Enforcement: HFP Capital Markets Expelled From FINRA for Note Fraud, ThinkAdvisor, September 5, 2014

FINRA


More Blog Posts:
FINRA Fines Minneapolis Broker-Dealer $1M for Inadequate Supervision of Penny Stocks, Stockbroker Fraud Blog, September 13, 2014

Deutsche Bank, Wells Fargo, Citigroup Sued by Pimco and Blackrock Over Trustee Roles Involving Mortgage Bonds, Institutional Investor Securities Blog, July 3, 2014

FINRA Headlines: SRO Considers Revised Broker Bonus Plan, To Discuss Potential Dark Pool Rules, May Instigate Civil Action Against Wells Fargo, &Warns Investors About Frontier Markets, Institutional Investor Securities Blog, September 12, 2014

September 16, 2014

Morgan Stanley to Pay a $280,000 Fine to CFTC for Records and Supervision Failures Involving SureInvestment and $35M Ponzi Scam

Morgan Stanley Smith Barney, LLC (MS) has settled civil charges by the U.S. Commodity Futures Trading Commission accusing the firm of records violations and inadequate supervision involving its know-your-customer procedures. Aside from a $280,000 fine, the broker-dealer will have to disgorge commissions from the subject accounts involved.

According to the regulator, Morgan Stanley did not diligently oversee its employees, officers, and agents when they opened firm accounts for a family of companies known as SureInvestment, which purportedly ran a hedge fund that was partially based in the British Virgin Islands—considered to be a risky jurisdiction. Because of this geographic circumstance, when the accounts were opened the firm should have subjected them to special observation pursuant to the its procedures, including watching out for red flags indicating suspect activities.

The CFTC’s order, however, notes that even though there were a number of red flags in the account opening documents for SureInvestments, Morgan Stanley failed to identify them. Later, it was discovered that SureInvestment doesn’t even exist and that its owner, Benjamin Wilson, was conducting a $35 million Ponzi scam based in the U.K. (Wilson, who has pleaded to criminal charges brought by the Financial Conduct Authority, has been sentenced to time behind bars.)

The CFTC order also said that Morgan Stanley did not properly enforce its trading limits for SureInvestment accounts, which led to initial margin requirements that went way beyond applicable trading limits, did not keep sufficient records about the credit trading limit that applied to the accounts, and failed to respond in a timely and accurate manner to the agency’s request for account records.

In other Ponzi scam-brokerage firm news, three ex-brokerage executives of Allied Beacon Partners Inc., a now-defunct independent broker-dealer, must pay a $1.05 million FINRA arbitration fee plus interest to a family that invested in private placements that were apparently scams. The Bosco family accused Allied Beach and the other defendants of not doing enough due diligence, which they believe would have caused the firm to discover that Shale Royalties and Medical Capital were actually fraudulent investments.

Our broker fraud lawyers represent investors and their families in recouping their financial fraud losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

CFTC Fines Morgan Stanley Smith Barney for Supervision and Records Failures Relating to Its “Know Its Customer” Procedures, CFTC, September 15, 2014

CFTC Fines Morgan Stanley for Failure to 'Know Its Customer', The Wall Street Journal, September 15, 2014

Executives of defunct IBD hit with $1.05 million arbitration award, Investment News, September 16, 2014


More Blog Posts:
Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations, Stockbroker Fraud Blog, June 18, 2014

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

September 5, 2014

Fidelity Investments Settles Class Action Lawsuits Over 401(K) Plan for $12 million

Fidelity Investments has consented to pay $12 million two settle two class action employee lawsuits. The plaintiffs contend that the retirement plan provider was self-dealing in the FMR LLC Profit Sharing Plan and making money at their expense by offering employees high-cost fund options and making them pay excessive fees.

Over 50,000 ex- and present employees are eligible to receive from the settlement. Fidelity is accused of providing just its own funds in the retirement plan for its workers, with certain investment options having little (if any) track record, while failing to use an impartial process when choosing the investment options.

As part of the agreement, Fidelity will now give employees a choice of non-Fidelity and Fidelity mutual funds, increase auto-enrollment to 7%, and allow participants of non-Fidelity mutual funds to benefit from revenue sharing, just like the participants of Fidelity mutual funds and collective trusts. The company also will keep offering a default investment alternative, the Fidelity Freedom Funds-Class. The Portfolio Advisory Services at Work program will be provided for free.

Despite settling, the company is denying the allegations. A company spokesman said that Fidelity chose to resolve the case to avoid the burden of litigation costs.

In another 401(K) lawsuit, this one alleging fiduciary breach, the U.S. Supreme Court has agreed to weigh in. The complaint revolves around whether an employer violated its fiduciary obligation when selecting retail funds, rather than less costly institutional share classes. The lawsuit, Glenn Tibble v. Edison International, was filed seven years ago. It is one of the first group employee complaints against an employer alleging unreasonable 401(k) fees.

Edison is accused of offering approximately 40 mutual funds, including retail share class funds, even though the less costly institutional ones were available. The plaintiffs said the funds employed revenue sharing, which lets Edison pay less to its record keeper.

In 2010, the plaintiffs were granted $370,732 in damages over excessive fees in three of the funds. Both parties, however, have continued to fight over fees, with their dispute making its way to the 9th U.S. Circuit Court of Appeals and now to the nation’s highest court.

Now, the Supreme Court is asking U.S. Solicitor General Donald B. Verrilli Jr. to look at the fiduciary breach claim accusing Edison of selecting the more expensive retail share class mutual funds instead of the less costly options. Verrilli has said that even though the statute of limitations requires that a breach of fiduciary duty claim be brought within six years of the alleged breach, plan fiduciaries have a continuing duty beyond that time period to assess plan investments and get rid of the ones that are “imprudent.” The Supreme Court will decide whether to take the case.

Contact our 401K Fraud Attorneys at Shepherd Smith Edwards and Kantas, LTD LLP today.


Fidelity quietly settles employee lawsuits, Investment News, August 12, 2014

It Pays to Fight High 401(k) Fees: Lawsuits Result in $12 Million Settlement, MainStreet.com, August 18, 2014

Glenn Tibble v. Edison International


More Blog Posts:
Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

Supreme Court to Rule on Whether Employee Can Sue for 401K Losses, Stockbroker Fraud Lawyer, November 30, 2007

U.S. Supreme Court Decides That 401(k) Retirement Participants Can Sue for Losses Under ERISA, Stockbroker Fraud Lawyer, February 20, 2008

August 29, 2014

Former LPL Financial Broker Must Pay Almost $2 Million For Bilking Clients, Including Elderly Investors

Blake B. Richards, an ex-LPL Financial (LPLA) broker, must pay close to $2 million in penalties and disgorgement over allegations that he defrauded clients of close to $1.7 million. According to the case, submitted in the U.S. District Court of the Northern District of Georgia, Richards told at least seven clients to write checks to entities under his control. The clients thought that the money would be invested in variable annuities, fixed-income investments, or equities. Instead, contends the U.S. Securities and Exchange Commission, the funds were used to pay for his personal spending.

According to the SEC, most of the investors’ money came from life insurance proceeds or retirement savings. Two of the investors involved were widowed and at least two others were elderly customers.

Per the regulator’s complaint, Richards won one investor’s trust by delivering pain meds to her husband during a snowstorm. The spouse was suffering from terminal pancreatic cancer at the time.

Richards has not denied or admitted to the charges. The agency said that his actions indicate “selling away,” which involves brokers defrauding investors through external business activities.

LPL let Richards go last year after another adviser notified the brokerage firm about his alleged wrongful conduct involving non-firm accounts. The broker-dealer then conducted its own probe and notified regulators. Also last year, the Financial Industry Regulatory Authority barred Richards.

Senior Fraud

Elderly investors are a favorite target for fraudsters. According to a survey by the Investor Protection Trust, the American Bar Association, and the Investor Protection Institute, 34% of attorneys who took the poll said they either work with or expect to represent senior clients who have been victims of fraud. 27% reported dealing with the children of older fraud victims who either are trying to help their parents, who’ve been bilked, or the kids are the ones accused of exploiting them.

In an earlier survey, the Investor Protection Trust found that over 7.3 million Americans older than 65 had already sustained fraud losses. Earlier this month, the North American Securities Administrators Association set up the Committee on Senior Issues and Diminished Capacity. The panel, which is comprised of state securities regulators, will look more closely at elder financial abuse and the problems that can occur related to retirement nest eggs and complex financial securities. NASAA-compiled enforcement statistics indicate that 34% of actions in the last six years involved senior victims.

One reason for this is that the retirement population is growing, especially as people are living longer. However, a diminished mental capacity and the growing number of complex financial products can make for a bad combination. Many retirees may not be able to understand what they’re putting the retirement money into, and they can end up suffering huge losses.

The SEC has also expressed concern about how elderly investors continue to be targeted by fraudsters.

Contact our elder financial fraud lawyers today to request your free case consultation. Shepherd Smith Edwards and Kantas, LTD LLP also represents investors based abroad with securities claims against U.S. firms.


Ex-LPL broker ordered to pay $1.9 mln in U.S. SEC fraud suit, August 28, 2014

Senior investor concerns, abuse get more regulator attention, Investment News, April 19, 2014

Investor Protection Trust


More Blog Posts:
LPL Financial to Pay Illinois $2 Million Fine Related to Variable Annuity Exchanges, Stockbroker Fraud Blog, August 13, 2014

SEC Charges Ex-UBS Broker in $730K Elder Financial Fraud Ponzi Scam, Stockbroker Fraud Blog, August 4, 2014

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

August 27, 2014

Citigroup Global Markets Fined $1.85M By FINRA, Must Pay $638K Restitution Over Non-Convertible Preferred Securities Transaction Valuations

The Financial Industry Regulatory Authority says that Citigroup Global Markets Inc. (C) will pay a fine of $1.85 million for not providing best execution in about 22,000 customer transactions of non-convertible preferred securities, as well as for supervisory deficiencies that went on for over three years. Affected customers are to get over $638,000 plus interest.

A firm and its registered persons have to exercise reasonable diligence to make sure that the sale/buying price the customer pays is the most favorable one under market conditions at that time. FINRA says that instead a Citigroup trading desk used a pricing methodology for the securities that failed to properly factor in the securities’ National Best Bid and Offer. Because of this, contends the self-regulatory organization, over 14,800 customer transactions were priced inferior to the NBBO. The SRO also claims that because Citigroup’s BondsDirect system for order execution used a faulty pricing logic, over 7,200 customers transactions were priced at less than NBBO.

FINRA says that Citigroup’s written supervisory procedures and supervisory system related to best execution in these securities were lacking. It claims that the firm did not review customer transactions for the securities at issue, which were either executed manually by the trading desk or on BondsDirect. Such an assessment could have ensured compliance with Citigroup’s best execution duties. (FINRA noted that it had sent the firm inquiry letters about the reviews.)

Citigroup is consenting to the entry of the SRO’s findings. It isn’t, however, denying or agreeing with FINRA’s claims.

FINRA Fines Citigroup Global Markets Inc. $1.85 Million and Orders Restitution of $638,000 for Best Execution and Supervisory Violations in Non-Convertible Preferred Securities Transactions, FINRA, August 26, 2014

Citigroup to Pay $2.5 Million for Pricing Flaws of Markets Unit, The Wall Street Journal, August 26, 2014


More Blog Posts:
Citigroup’s LavaFlow to Pay $5M to SEC For Not Protecting Subscriber Data in ATS, Stockbroker Fraud Blog, July 28, 2014

Judge Rakoff Approves Citigroup’s $285M Mortgage Securities Fraud Deal with the SEC, Institutional Investor Securities Blog, August 5, 2014

Citigroup Settles Mortgage-Backed Securities Probe with DOJ for $7 Billion, Institutional Investor Securities Blog, July 14, 2014

August 26, 2014

Goldman to Buy Back $3.15B in RMBS to Resolve FHFA Claims

Goldman Sachs Group Inc. (GS) will pay $3.15 billion to buy back residential mortgage-backed securities related to bonds that were sold to Freddie Mac and Fannie Mae. The repurchase represents an approximately $1. 2billion premium and makes the mortgage companies whole on the securities. The RMBS case was brought by the Federal Housing Finance Agency.

It was in 2011 that FHFA sued 18 firms to get back taxpayer money from when the U.S. took control of Freddie and Fannie after the economy tanked in 2008. Goldman is the fifteenth bank to settle.

The firm will pay Fannie May $1 billion and $2.15 billion to Freddie Mac for the securities. The two had purchased $11.1 billion from Goldman Sachs. A few of the other banks that have settled with the FHFA include Morgan Stanley (MS), JPMorgan Chase (JPM), and Bank of America Corp. (BAC). The agency’s remaining RMBS fraud cases still pending are those against RBS Securities Inc. (RBS), HSBC North America Holdings Inc., (HSBC), and Nomura Holding America Inc. (NMR).

In June, Goldman and a couple of the now remaining defendants asked U.S. District Judge Denise Cote to reconsider her earlier ruling that FHFA did not wait too long to sue the banks over the RMBS. They've wanted the cases against them dismissed.

Their latest attempt to have the claims tossed out was a result of a recent U.S. Supreme Court ruling. In that decision, the court determined that a federal law did not preempt a state-law statute that put time restrictions on filing an applicable complaint even if a plaintiff was unaware it had a claim. Earlier this month FHFA pointed to a ruling by an appeals court that let the National Credit Union Administration push securities cases against banks even though there were potential issues regarding time limits.

Goldman Sachs Settles FHFA Lawsuit for About $1.2 Billion, The Wall Street Journal, August 22, 2014

Goldman to Buy $3.15 Billion of Debt to End FHFA Claims, Bloomberg, August 22, 2014


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

Massachusetts Files Lawsuit Against Fannie Mae, Freddie Mac, and FHFA, Stockbroker Fraud Blog, June 2, 2014

JPMorgan Will Pay $614M to US Government Over Mortgage Fraud Lawsuit, Stockbroker Fraud Blog, February 8, 2014

August 15, 2014

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds

Even though UBS Wealth Management Americas (UBS) has been generating record revenue, the financial firm saw its profits drop upon reporting that had it put aside $44 million for litigation costs primarily related to Puerto Rico bond fraud cases. UBS’s second quarter earnings of $238 million are 3% lower than last year.

Already, UBS clients have filed hundreds of arbitration cases and a number of securities class action lawsuits contending that the brokerage firm put investors’ money in highly leveraged and unsuitable Puerto Rico municipal bond funds that dropped in value last year. These funds begun to lose value again recently.

OppenheimerFunds Inc. (OPY), which is the biggest mutual fund to hold Puerto Rico debt, has also taken a financial hit. Bloomberg reports that in the past year, the firm has seen a loss of close to a third of its funds’ assets. For example, the Oppenheimer Rochester Maryland Municipal Fund (ORMDX) directed approximately 35% of its holdings to the islands as of the end of June. As of August 4, its assets had dropped to $64.9 million. At this time last year, the fund had $96.1 million in assets.

On Thursday, the Puerto Rico Electric Power Authority (Prepa) and creditors arrived at a deal that will give the public agency time to restructure. Prepa will appoint a chief restructuring officer and must come up with a five-year business plan. The agreement will allow the Puerto Rican power authority to utilize $280 million that was in a construction fund to cover capital improvements and current costs. Prepa had until yesterday to extend its credit line with banks or restructure around $9 billion in debt.

Last month, the power authority arrived at deals with Citigroup (C), Bank of Novia Scotia (BNS) and other banks, which has allowed it to delay about $671 million in payments that it owed them. Standard & Poor’s has lowered the utility bonds’ ratings into junk territory.

Puerto Rico lawmakers recently approved legislation that would let a number of public agencies overhaul their finances. Public utilities can work out deals with bondholders to reduce their debt load. Oppenheimer Funds and Franklin Templeton (BEN) have since gone to court to challenge the constitutionality of the law. Their investment funds hold approximately $1.6 billion in Prepa bonds.

The firms believe that the power authority can fulfill its obligations without having to restructure. Puerto Rico wants the judge to dismiss the lawsuit. BlueMountain Capital Management LLC., which holds over $400 million in Prepa-issued bonds, has also filed a lawsuit.

At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico Bond fraud lawyers have already filed dozens of securities fraud claims against UBS and other brokerage firms related to Puerto Rico bonds or mutual funds holding Puerto Rico Bonds. We represent investors in the U.S. and in Puerto Rico. Please call us for a fee, no obligation, consultation if you or someone you know has lost money investing in Puerto Rico Bonds or funds tied to the Puerto Rico bond market.

Puerto Rico debt depresses UBS Wealth earnings, InvestmentNews, July 29, 2014

OppenheimerFunds Sees Some Funds Shrink 33% on Puerto Rico Bonds, Bloomberg, August 5, 2014

Puerto Rico PREPA Utility Announces Creditor Agreement, Extension, Barron's, August 14, 2014


More Blog Posts:
Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

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

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

August 13, 2014

LPL Financial to Pay Illinois $2 Million Fine Related to Variable Annuity Exchanges

In a settlement reached with the Illinois Securities Department, LPL Financial (LPLA) agreed to pay a $2 million fine and $820K in restitution for inadequate books and records maintenance involving 1035 exchanges. According to the firm’s BrokerCheck file, LPL Financial did not enforce “supervisory system and procedures” when certain persons documented variable annuity exchange activities.

Following the settlement, a company spokesperson said that LPL Financial is enhancing its procedures related to surrender charges resulting from variable annuity exchange transactions. This is to make sure these are accurately documented in records, books, and any disclosures that are issued to clients. The brokerage firm is also taking steps so that advisers are properly documenting why variable annuity recommendations were made.

State regulators have been taking a closer look at LPL as they investigate investment product sales. Last year, the broker-dealer settled with the Massachusetts for at least $2 million and a $500,000 fine over nontraded real estate investment trusts. Financial Industry Regulatory Authority fined the firm $7.5 million for 35 e-mail system failures.

In response to the scrutiny, LPL Financial CEO Mark Casady told 3,500 advisers they will need to provide more documentation and background to show regulators. The firm has implemented automated processes to enhance data focus and is looking at other ways to meet regulatory obligations.

According to InvestmentNews.com, a rise in administrative and general costs, primarily because of the regulatory scrutiny, led to flat second-quarter earnings for LPL Financial Holdings Inc. Meantime, UBS Wealth Management (UBS), which also has had to deal with more scrutiny in the wake of the Puerto Rico municipal bonds, debacle, also took an earnings hit. The firm has put aside $44 million for litigation by investors claiming muni bond fraud. Oppenheimer Holdings (OPY), which is under investigation not just by FINRA but also the Securities and Exchange Commission and the U.S. Treasury Department, has reportedly put aside $12 million for possible fines.

LPL Financial hit with $2M fine, ordered to pay $820K in restitution, Investment News, July 30, 2014

LPL Tells Brokers To Expect More Paperwork, The Wall Street Journal, August 13, 2014


More Blog Posts:
LPL Financial Fined $950K by FINRA for Supervisory Failures Involving Alternative Investments, Stockbroker Fraud Blog, March 25, 2014

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

August 4, 2014

SEC Charges Ex-UBS Broker in $730K Elder Financial Fraud Ponzi Scam

The Securities and Exchange Commission has filed charges against ex-UBS Wealth Management Americas (UBS) broker Donna Tucker for a Ponzi fraud that allegedly bilked elderly investors of over $730,000. Tucker is accused of misappropriating the money from UBS customers over a five-year period while she worked at the financial firm.

According to the SEC, Tucker took part in unauthorized trading, made misrepresentations to customers about the status of their funds, and forged documents and checks. She allegedly gained customers’ trust by becoming friends with them.

For example, she helped one blind couple take care of their medical needs and pay their monthly bills. The latter action gave her access their checkbook. She used this authorization to forge checks written to cash that she then gave to herself.

She also purportedly lied to the couple about their holdings and gave them bogus documents showing fake brokerage account balances. The SEC says that inn one such instance, after she allegedly took money from the couple’s IRA account, the IRS sent them a delinquency letter about the premature distribution. When the couple asked Tucker about it she claimed that the letter was a mistake and no money had been withdrawn. She also generated a fake account statement to support her lie, as well as a fake letter that was supposedly from the IRA saying the matter had been resolved.

The SEC claims that Tucker took close to $350,000 from this couple alone and hid the theft by convincing them to bank online and use electronic statements because she knew they would not be able to get them.

She also allegedly took out unauthorized margin loans on accounts of customers to pay back other accounts. Tucker then used investors’ funds to pay for vehicles, vacations, clothes, and a country club membership.

UBS has since paid back several customers for Tucker’s fraud. She resigned from UBS last year. In September 2013, the Financial Industry Regulatory Authority barred her.

Tucker is settling the SEC charges and has agreed to disgorge the monies. The order she consented to permanently enjoins her from violating the Securities Act of 1933’s Section 17(a), the Securities Exchange Act of 1934’s Section 10(b), and Rule 10b-5. Meantime, the U.S. Attorney’s Office for the Western District of Virginia has filed a parallel criminal case against her.

Senior Fraud
Elder financial fraud is a serious problem. Shepherd Smith Edwards and Kantas, LTD LLP represents senior investors and others who have suffered losses because of securities fraud. Financial fraud by brokers and investment advisors may result in a huge financial strain for elderly investors. Many of them rely on their retirement monies to carry them through for the remainder of their lives. Our securities lawyers are here to help investors recoup their losses.

SEC Charges Virginia-Based Broker With Stealing Funds From Elderly Customers, SEC, July 31, 2014

Read the SEC's Complaint (PDF)


More Blog Posts:
Boston Investment Firm Accused of $5 Million Real Estate Investment Fraud Targeting Senior Investors, Stockbroker Fraud Blog, June 19, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

Deutsche Bank, UBS Being Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays, Institutional Investor Securities Blog, July 30, 2014

July 28, 2014

Citigroup’s LavaFlow to Pay $5M to SEC For Not Protecting Subscriber Data in ATS

LavaFlow Inc., a Citigroup (C) business unit, has consented to pay $ 5million to resolve U.S. Securities and Exchange Commission charges that it did not protect subscribers’ confidential trading data in its alternative trading system. LavaFlow consented to the SEC order without denying or admitting to the allegations.

Per the order, which institutes a settled administrative proceeding, LavaFlow, which runs an electronic communications network ATS, let an affiliate that runs a smart order router application to access and utilize confidential data related to non-displayed orders belonging to subscribers. The order router was not within ECN’s operations and LavaFlow lacked the proper procedures and safeguards to protect this confidential information.

Even though LavaFlow only let the affiliate use the confidential data for ECN subscribers that were also order router customers, the firm did not get subscribers’ consented for their confidential data to be used like this. LavaFlow also failed to disclose this use to the SEC.

LavaFlow has since discontinued this practice. Prior to that, however, the smart order router executed over 400 million shares over three years.

The SEC also claims that LavaFlow aided and abetted a violation by the affiliate that ran smart order router Lava Trading Inc., which kept offering brokerage firm services after it reregistered. During this several month period, Lava Trading made about $1.8 million. Citigroup Financial Products owns Lava Trading.

The SEC order says that LavaFlow violated certain rules of Regulation ATS and aided, abetted, and caused Lava Trade to violate the Securities Exchange Act of 1934. Of the $5 million settlement, $1.8 million in disgorgement of funds made by Lava Trading while it wasn’t registered, $350,000 in prejudgment interest, and a $2.85 million penalty. LavaFlow has been ordered to cease and desist from future violations.

Alternative Trading System
This is a venue that executed stock traders fro traders, including broker-dealers. These stock trading venues are typically run by banks competing with more traditional order flow exchanges. Federal rules mandate that ATS have safeguards to protect its subscribers’ confidential trading information. In the last few months, trading systems have undergone closer regulator scrutiny, especially in relation to high-frequency traders and their relationship to exchange operators.

Just last week, Barclays (BARC) sought to have a dark pool lawsuit filed against it by New York regulators dismissed. The state’s Attorney General Eric Schneiderman claims the British bank lied about giving preferential treatment to high-frequency traders and committed securities fraud.

According to the complaint, Barclays falsely portrayed how clients orders are routed and claims to protect the order from high-speed firms when actually the dark pool LX is operated to the advantage of traders. The bank is now arguing that Schneiderman used misleading data and cherry-picked facts to supports his claims.

Barclays claims that the dark pool lawsuit doesn’t succeed in identifying a specific fraud, failed to establish any material misstatements, and did not identify victims or any real harm.

The bank also says that the Martin Act, which the regulator claims Barclays violated, doesn’t apply to the lawsuit. Under the New York State securities law, prosecutors only have to prove that fraud occurred and doesn’t insist on proof that a firm meant to bilk investors. Barclay, however, said the act doesn’t apply to claims about how a dark pool is run and that Schneiderman’s office is overstepping its mandate in trying to regulate dark pools, which is an SEC job.

Since the case was filed, a number of clients have left Barclay’s LX and trading volume has declined by 75%.

Citigroup Business Unit Charged With Failing to Protect Confidential Subscriber Data While Operating Alternative Trading System, SEC, July 25, 2014

Read the SEC Order (PDF)

Barclays Files to Dismiss New York Attorney General's Dark-Pool Complaint, The Wall Street Journal, July 24, 2014


More Blog Posts:
Second Circuit Overturns Judge's Decision to Block Citigroup's $285M Settlement With the SEC, Stockbroker Fraud Blog, June 4, 2014

$11M Award Against Citi is Vacated by the New York Supreme Court, Stockbroker Fraud Blog, January 30, 2014

Citigroup Settles Mortgage-Backed Securities Probe with DOJ for $7 Billion, Institutional Investor Securities Blog, July 14, 2014