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October 17, 2009

Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC

The US Securities and Exchange Commission is upholding the market timing violations against two AG Edwards and Sons Inc. supervisors and one of its stockbrokers. Billions of dollars were involved in the mutual fund market timing transactions.

While market timing, which involves the buying and selling of mutual fund shares in a manner that takes advantage of price inefficiencies, is not illegal, a violation of 1934 Securities Exchange Act Section 10(b) and Rule 10b-5. can arise when there is intent to deceive.

Last year, the ALJ found that AG Edwards and Sons brokers Charles Sacco and Thomas Bridge intentionally violated antifraud provisions when they engaged in market timing activities even though they had been restricted from doing so. The ALJ also found that supervisors Jeffrey Robles and James Edge failed to properly supervise the stockbrokers.

The antifraud charges filed against Bridge by the SEC Enforcement Division involved 1,352 trades (representing $1.126 billion) he executed over a two-year period for companies belonging to client Martin Oliner. The Enforcement Division accused Sacco of entering 25,533 market timing trades (representing $4.036 billion) for two hedge fund clients between 5/02 – 9/03.

The SEC determined that Edge, who was Bridge’s supervisor, knew and was complicit in the latter’s actions. Although Robles was not considered to have been complicit in Sacco’s alleged broker fraud, the commission said he should have noticed there were problems.

The SEC ordered Bridge to cease and desist from future violations. He is also barred from associating with any dealers or brokers for five years. Sacco has already settled his broker-fraud case.

Edge is barred from acting in a supervisory role over any dealer or broker for five years. Robles received a similar bar lasting three years. All three men were ordered to pay penalties, while Bridge was ordered to disgorge almost $39,000 plus $16,665.57 in prejudgment interest.

Related Web Resources:
Read the SEC's Opinion regarding this matter

Commission Sanctions Thomas C. Bridge for Violations of the Antifraud Provisions of the Securities Laws and James D. Edge and Jeffrey K. Robles for Failing to Supervise Reasonably, Trading Markets, September 29, 2009

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Posted In: A G Edwards , Financial Firms , Market Timing , Mutual Funds , SEC Enforcement , Securities Fraud

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September 21, 2009

Former Stifel Nicolaus and AG Edwards Stockbroker Sentenced to 21-Months in Prison for Investment Fraud Scam

A former broker who was fired from both AG Edwards, Inc.and Stifel Nicolaus & Co. has been ordered to serve a 21-month federal prison sentence for selling fraudulent investments to Stifel Nicolaus clients. Neil Rolla Harrison told clients that they were investing in commodities futures or the gold market when in fact the stockbroker was using their money to support his drinking and gambling habits.

A federal grand jury indicted the 54-year-old former broker last May. Harrison pleaded guilty to one count of mail fraud. He has been ordered to pay $91,303 in restitution.

It is not clear, however, whether the investment fraud victims will recoup their losses. One of his targets, 67-year-old Ralph Brock, says that because he has worked as a self-employed trucker for most of his life, the only retirement he had was the one he created through investing.

AG Edwards fired Harrison in 2005 after the broker-dealer discovered that he was borrowing money from clients. Stifel Nicolaus hired him soon after even though the broker-dealer knew that AG Edwards had fired him. Stifel Nicolaus fired Harrison when the thefts were discovered.

Brokers are entrusted with the responsibility of handling a client’s finances. Many investors seek the services of a stockbroker because they don’t have the knowledge and experience to make their own investments in a sound manner.

When a broker breaches that duty of care and money is lost it is usually the victims of securities fraud that suffer. This can be devastating—especially for the many clients who rely on their investments to get them through retirement or put their children through school. Any loss as a result of stockbroker fraud is unacceptable.

Related Web Resources:
Former stockbroker gets 21-month sentence, The Telegraph, September 18, 2009

Stifel broker gets jail time for scam, St. Louis Business Journal, September 18, 2009

United States Postal Inspection Service

Illinois Securities Department

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

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June 25, 2009

Former Stifel Nicolaus and A.G. Edwards Stockbroker Pleads Guilty to Mail Fraud

A former stockbroker that used to work for A.G. Edwards and Stifel Nicolaus has pleaded guilty to mail fraud. Neil R. Harrison, could spend up to 27 months behind bars—although his agreement to repay $85,739, cooperate with police, and lack of a criminal record could help him receive less than the 21-month minimum sentence. Harrison is accused of defrauding clients at two Illinois firms. He solicited investors to place their money in commodities futures and the gold market but instead used their funds for gambling. The mail fraud charge is based on a wire transfer confirmation mailed to a Stifel client.

While this may be Harrison’s first official brush with the law, he was let go from A.G. Edwards in 2005 for failing to cooperate with a probe regarding his efforts to get a loan from a client. A.G. Edwards filed the necessary securities documents regarding his firing. Even though Stifel Nicolaus was aware of Harrison’s background, the broker-dealer still hired him—with a special supervised agreement—just 10 days after A.G. Edwards terminated him.

Stifel would eventually fire the stockbroker in 2008 for “unethical and professional misconduct.” The broker-dealer accused Harrison of soliciting and getting money and personal loans from clients for fraudulent investments.

Per Harrison’s plea agreement: The ex-stockbroker persuaded clients to sign paperwork to open margin accounts without making sure that they had a good understanding of what these accounts were or the interest rates associated with them. He would then direct his broker-dealer to issue wire transfers to the investors’ checking accounts to replace money that was issued to him for the bogus investments. He also made material misrepresentations to clients and prospective investors. He told them they could make a lot of money but they would have to go outside the traditional brokerage account for diversity when making investments.

At least five investors were defrauded.

Related Web Resources:
Ex-stockbroker pleads guilty to mail fraud, The Telegraph, June 23, 2009

Former broker accused of mail fraud, The Telegraph, May 21, 2009

Illinois Securities Department

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Posted In: A G Edwards , Broker Fraud , Broker-Dealers , Financial Firms , Stifel, Nicolaus, & Co. Inc.

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March 16, 2008

A.G. Edwards & Sons Stockbrokers Ordered to Pay $750,000 Fine for Market-Timing Scam

Three A.G. Edwards & Sons Inc. brokers are being ordered to pay $750,000 in fines for their participation in a market-timing scheme that involved mutual funds that benefited certain customers.

The brokers, Thomas Bridge, James Edge, and Jeffrey Robles, were also ordered to serve suspensions from the securities industries. Bridge, a former registered representative in the firm’s Boca Raton, Florida office, must also disgorge $39,808.53. Edge was the branch manager at the same office. Robles worked as a branch manager at Edwards’ Back Bay office.

Securities and Exchange Commission Chief Administrative Law Judge Brenda Murray ordered the sanctions. The market-timing scam occurred from the Edwards’ branch offices in Lake Worth, Boca Raton, and Boston.

According to the ALJ, Bridge participated in market timing to benefit a customer, while Edge failed to properly supervise Bridge—despite notices from mutual funds that Bridge was in violation of certain policies.

The ALJ is also accusing Bridge of market-timing in secret—concealing transactions by using several broker ID numbers and account numbers.

Robles failed to properly supervise Charles Sacco, who is accused of engaging in market timing for two hedge fund customers. Sacco has already settled the SEC charges against him.

Edwards also has settled SEC supervisory charges-related to the market-timing scheme. The firm agreed to pay $3.86 million in civil penalties, fines, and disgorgement, as well as hire an independent consultant.

Broker misconduct of any kind is wrong—especially when it negatively affects the money of investors. The law firm of Shepherd Smith and Edwards is dedicated to fighting for investors who do lose money from this type of misconduct and helping them recover their losses.

Related Web Resources:

Read the SEC Order (PDF)

Boca brokers fined in trading scheme, Miami Herald, March 15, 2008

Boca Brokers Suspended, Fined in Fraud, Black Enterprise, March 15, 2008

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Posted In: A G Edwards , Market Timing

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June 24, 2007

Do Wall Street Powerhouses Earn Billions Through Fraudulent Fund Sweeps?

Merrill Lynch, Morgan Stanley, Smith Barney and Charles Schwab are being sued for claims they improperly directed their clients's funds into lower paying deposit accounts at affiliate banks, enabling those banks to reap billions in extra profits. Attorneys for investors seek permission to add Wachovia, based on "sweep" accounts it will receive from AG Edwards in an impending merger.

Details of the suit, filed in January but amended last month, had not previously been reported. Bank deposit sweep programs “put the broker in a very conflicted position” said an attorney for the investors recently, adding “this is not what they should be doing as financial advisers.”

The claim states that the firms are positioning themselves as objective financial advisers, but send their customers' funds into bank deposits paying far less than market rates, adding that the firms disclose to clients that more profitable accounts are available, but bury the disclosures in documents while failing to mention the magnitude of their profits.

Merrill’s savings bank, for example, holds $55 billion in deposits from Merrill’s customers, plus other assets, and earned over $2 billion last year, confirms Jon Holtaway, managing director of Danielson Associates Inc., a bank consulting firm in Rockville, Maryland. He added that Merrill earns a net interest margin of 3.6% - 6 to 7 times as much as the 0.5% to 0.6% firms make on money merket funds.

The suit claims that most of the firms' banks initially paid interest rates competitive with money market funds, but changed to a "tiered" rate structure with yields of 1% or less to smaller customers. Morgan Stanley rolled out its program in 2005, with deposits growing by 30 times to $16.4 billion by February 2007, according to company reports.

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.

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Posted In: A G Edwards , Merrill Lynch , Morgan Stanley , Wachovia

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May 31, 2007

Wachovia Brokerage Buying A.G. Edwards to Become Second Only to Merrill Lynch

Wachovia Corporation agreed to acquire A.G. Edwards Corporation for $6.8 billion in stock. This will vault Wachovia into the second-largest U.S. retail brokerage, behind only Merrill Lynch, with $1.1 trillion in client assets.

This transaction is the largest of the recent takeovers of regional brokerage firms, which are having difficulty fending off hiring of their representatives. Falling commissions in the industry has caused disruptions in sales staffs.

For years there has been speculation over whether A.G. Edwards, a mostly employee owned firm, could maintain its independence and raises new speculation about other large regional brokerages like Raymond James.

The deal will cause Wachovia to surpass Citigroup's Smith Barney brokerage unit in number of representatives as well as Ameriprise Financial, which claimed to be third. Wachovia said the combined company will have 15,000 financial advisers and an increased presence in 48 of the 50 largest metropolitan areas.

Wachovia has built its brokerage business relatively quickly, largely through the acquisition of Prudential Securities in 2003, and several smaller firms. Prudential Financial Inc. continues to own 38% of Wachovia.

By purchasing A. G. Edwards Wachovia will not only have a larger base to market financial products, but it will nearly double its number of brokerage offices to 1,512. The acquisition of A. G. Edwards will also increase Wachovia's focus on small investors and give it wider geographic coverage, particularly the Midwest.

A question yet unanswered is whether, with disparities in payout, Wachovia can retain both the A. G. Edwards Brokers as well as its own. Merrill Lynch retained a much smaller number of brokers than expected it bought Advest in December 2005. UBSAG saw an exodus of brokers from Piper Jaffray’s advisory business, which the Swiss bank last year.

Wachovia and its rivals, including Bank of America Corp., are eager to take aim at baby boomers, tens of millions of whom will take control of their retirement assets in the next decade. Wachovia also advertises its services to women and young people.

Shepherd Smith and Edwards represents investors in the recovery of their losses. We have handled many claims against both Wachovia and A. G. Edwards. Our expertise is also valuable to clients seeking to recover from investment firms after mergers, since such claims have unique problems concerning party entity, supervisory changes and documentation. If you or your company has sustained significant investment losses, contact Shepherd Smith and Edwards to schedule a free conficential consultation with one of our attorneys.

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Posted In: A G Edwards , Broker-Dealers , Wachovia

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