March 19, 2014

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

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

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

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

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

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

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

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

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

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

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

October 26, 2013

Merrill Lynch, Morgan Stanley Call A Broker Recruiting Truce

Bank of America Corp. (BAC) and Morgan Stanley (MS), which own the largest brokerage firms in the world, are declaring a cease-fire when it comes to using big bonuses to keep their own brokers and lure each other's brokers away. Bank of America Corp. owns Merrill Lynch (MER).

After payments tied to Bank of America’s purchase of Merill Lynch expire in approximately two years, new retention bonuses will no longer be offered to the latter’s lead performers. Also, Morgan Stanley’s chief executive James Gorman has said that with brokers seeking to switch firms less often, compensation costs could fall.

A decline in recruiting could push up broker-dealer profits, which has been held back because of the fight between firms for the leading advisers. Some brokers have even been offered multiple times their yearly salary to move and bring their client roster with them.

Already, Morgan Stanley, the largest broker-dealer with 16,500 financial advisers, paid out 57% of revenue from wealth management as compensation during this year’s third quarter, which is a decrease from the 63% of revenue a year ago. As for Merrill Lynch, a spokesperson for the firm says that in this past quarter since the end of 2010 it has lost the least amount of financial advisers to competitors.

Meantime, UBS (UBS), which has been in the headlines a lot lately over the Puerto Rico bond funds crisis, is reportedly not doing as much recruiting as it did under previous management. During this year’s second quarter, the firm spent $171 million—9.5% of its operating income during that time on recruiting bonuses.

Last month, the Financial Industry Regulatory Authority voted to mandate that brokers reveal how much they were paid to defect to another firm. The plan was supported by Merrill Lynch and Morgan Stanley. However, Stifel Financial Corp. (SF) wrote the SRO to say that the proposal was anti-competitive and would give brokers less incentive to change firms even when this was in the best interest of their customers.

However, broker-dealers are still recruiting from one another to hire financial advisers to take the place of retired brokers. Some of the candidates are being offered six times their take-home salary. One reason for this is that internal training programs are reportedly not producing enough successful brokers.

It is important that as they recruit new financial advisers, brokerage firms continue to properly train and supervise them while ensuring the proper procedures and systems are in place to decrease the chances of brokerage fraud. Unfortunately, some financial advisers who are negligent merely carry on with their misconduct at the firms that they move to, leaving more investor victims in their wake.

You want to work with a securities fraud law firm that knows how to help you recover your losses from stockbroker fraud.

Morgan Stanley Joins BofA in Broker-Recruiting Truce, Bloomberg, October 24, 2013

Analysis: Broker bonus bidding war comes at a cost, Reuters, April 10, 2012

More Blog Posts:
SEC Looking to Simplify Disclosure Rules to Minimize “Information Overload” for Investors, Stockbroker Fraud Blog, October 16, 2013

SEC Focuses More Attention On Accounting Fraud, Variable Annuities, & Market-Maker Risk, Stockbroker Fraud Blog, June 26, 2013

FINRA Arbitration Panel Awards Ex-Wedbush Securities Broker $4.2M Against the Firm, Institutional Investor Securities Blog, October 4, 2013

August 27, 2013

Lloyds, Barclays, to Set Aside Hundreds of Millions of Dollars for Allegedly Mis-Selling to Victims

Britain’s largest banks expected to set aside hundreds of millions of dollars to compensate customers that were the alleged victims of mis-selling. As of the end of July, the Big Four Banks reportedly had budgeted at least $20.2 billion (the figure was converted from pounds) to pay back clients that were mis-sold insurance policies. Lloyds Banking Group (LLOY) and Barclays (BCS) are among the institutions needing to pay such provisions.

According to the Financial Conduct Authority, in April and May both, banks across Britain paid just over $642.6 million in compensation. This is a significant jump from February, when they paid $625.7 million and in March when the amount as $573.75 million U.S. dollars.

Borrowers bought payment protection insurance (PPI) policies, which were supposed to guarantee that they could pay back loans if they were no longer able to work or became unemployed. That said, the policies were purportedly sold to customers that either would not have been able to avail of the coverage because they were either on benefits or self-employed or people that didn’t want to be covered.

Recently, Britain’s high street banks have been involved in another scandal involving seven million people who paid for identity protection and credit policies. (The card protection is supposed to provide coverage to help replace or cancel lost or stolen cards.)

13 banks and credit companies, including Royal Bank of Scotland (RBS), HSBC, Barclays, Capital One, Morgan Stanley (MS), and Santandera, are said to have been involved. Compensation is estimated at about 1.3 billion pounds. Letters will be sent to the customers that were impacted at the end of the month.

The FCA says that those that bought the coverage were issued unclear and misleading information about them so that the purchase was either something they didn’t need or the risks presented to them for why they needed the policy had been exaggerated. Some 23 million policies were involved. The high court must still approve the compensation plan.

Shepherd Smith Edwards is a securities fraud law firm that represents investors seeking to recoup their losses.

Battered banks face huge extra payouts: Mis-selling bill keeps rising to dash hopes of end to crisis, Mail Online, July 29, 2013

UK banks agree to pay for latest mis-selling scandal, Reuters, August 22, 2013

Financial Conduct Authority

More Blog Posts:
FINRA Enhances Its Arbitrator Vetting Policy, Stockbroker Fraud Blog, August 26, 2013

Citigroup Must Pay $11M Claimant for Royal Bank of Scotland Investment Losses, Says FINRA Arbitration Panel, Institutional Investor Securities Blog, August 7, 2013

Texas Money Manager Sued by SEC and CFTC Over Alleged Forex Trading Scam, Stockbroker Fraud Blog, August 6, 2013

July 30, 2013

Morgan Stanley to Pay New Jersey Regulators $100K for Selling Exotic ETFs to Investors, Including Seniors

Morgan Stanley will pay $100,000 to the New Jersey Bureau of Securities for allegedly selling exotic exchange-traded funds to investors. The state’s regulators say that the firm’s financial advisers were not properly trained and sold inverse and leveraged ETFs to senior investors that wanted to earn additional income. These clients instead would go on to sustain losses. A state official contends that the financial firm did not properly supervise staff that was dealing with ETF transactions.

Commenting on the securities settlement, Morgan Stanley said it was “pleased’ to have arrived at a resolution and that since the period in question—1/07 to 6/09, the brokerage firm has overhauled its process involving these products. The amount includes $65K in civil penalties, $25K to pay the state back for its investigative expenses, and $10,000 toward investor education. Already, the broker-dealer has paid $96,940 in restitution to investor in New Jersey.

Last year, Morgan Stanley consented to pay close to $2.4 million to settle Financial Industry Regulatory allegations over the firm’s handling of ETFs. According to the SRO, from 1/08 to 1/0, the firm did not set up or maintain a supervisory system and written procedures to ensure compliance with FINRA and NASD rules related to the sale of inverse, leveraged, and inverse leveraged ETFs.

Instead, contends the SRO, Morgan Stanley oversaw these Non-Traditional ETFs as if they were traditional ones. The financial firm also purportedly did not set up proper training for these non-traditional exchange traded funds and its registered representatives who recommended these investments did not fully comprehend them. Also, there were representatives that allegedly recommended these ETFs to clients whose main goal was to incur income, which means these investments were unsuitable for them.

Non-Traditional ETFs
Inverse and leverage ETFs employ debt and derivatives that are supposed to amplify market returns in the short run while substantially moving away from benchmarks over long periods. A lot of the funds reset daily, which means they can be very different from their underlying benchmark’s performance. These non-traditional ETFs come with certain risks.

Also, there is always a chance that certain inverse and leveraged ETFs won’t meet its objective on any trading day, so it is important that investors know how this might impact their portfolio. Non-traditional ETFs may be more expensive than traditional ones, with expenses and fees potentially affecting your investment.

It is important that you invest in funds and other investments that are appropriate for you, your goals, and the amount of risk your finances can handle. When an investor sustains losses due to unsuitable recommendations, misrepresentations, omissions, or inadequate supervision, this may be grounds for an ETF fraud lawsuit. Contact our securities law firm today.

Morgan Stanley Settles With New Jersey Over ETF Sales, Bloomberg, July 30, 2013

Morgan Stanley To Pay Nearly $2.4 Million ETF Fine and Restitution, Forbes, May 1, 2012

More Blog Posts:

Investor Sues Berthel Fisher Over TNP 2008 Participating Notes Program LLC, Stockbroker Fraud Blog, July 29, 2013

Thornes & Associates Inc. Investment Securities’ Head Gets Industry Bar for “Lending” $4.2M of His Clients’ Assets to Friends, Stockbroker Fraud Blog, July 27, 2013

Both Sides Rest in Ex-Goldman Sachs Bond Trader Fabrice Tourre's Trial For Alleged Mortgage-Backed Securities Fraud, Institutional Investor Securities Blog, July 29, 2013

July 12, 2013

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

Morgan Stanley Buys Smith Barney from Citigroup
Morgan Stanley (MS) now owns Smith Barney, which it just bought from Citigroup (C) for $9.4 billion. Smith Barney’s new name is Morgan Stanley Wealth Management. Based on its new number of financial advisers, the deal makes Morgan Stanley the largest Wall Street firm and comes in the wake of Federal Reserve approval.

Wells Fargo & JPMorgan Defeat Analysts’ Estimates
JPMorgan Chase (JPM) says it experienced a 31% rise in second quarter earnings, surpassing analysts expectations it would garner $5.47 billion on $24.84 billion, and, instead generating, $6.5 billion in earnings and $25 billion of revenue. A year ago for the same period, revenue for the financial firm was at $22 billion.

Meantime, Wells Fargo (WF) is also reporting a 19% profit rise for Q2. This is its 14th quarterly profit increase in a row and 9th consecutive record report. While net income for the same period last year was at $4.6 billion, its net income second quarter for 2013 was $5.5 billion.

5-Time MLB All-Star Sues UBS for $7.6 Million
Retired fiive-time Major League Baseball All-Star Mike Sweeney is suing UBS Financial Services Inc. (UBS) and his former broker there for $7.6 million. Per the securities fraud case, broker Ralph A. Jackson III invested half of Sweeney’s portfolio, worth millions of dollars, in high-risk private placements that failed.

Sweeney contends that he was an inexperienced investor who trusted Jackson to make sure his money was being invested conservatively. He says that over a five-year period, the UBS broker put $6.85M of his portfolio in private-equity investments that were misrepresented to him as safe and suitable, as well $2.7M into other investments without his consent. Sweeney, who hit it big when he signed with the Kansas City Royals, claims he lost $4.9M.

Ray Lucia, His Firm Fined Over “Buckets of Money” Strategy
Financial adviser and nationally syndicated radio host Ray Lucia and his firm Raymond J. Lucia Cos. Inc. must pay fines for allegedly providing misleading information related to his wealth-management strategy known as “Buckets of Money." The Securities and Exchange Commission is accusing the California adviser of causing retirees to believe that his approach would allow them to make income that was inflation-adjusted for life.

Now, an administrative-law judge has taken away Lucia’s adviser registration and fined him $50,000. His firm, which must pay $250,000, also has lost its license. Judge Cameron Elliot found that for years, Lucia misrepresented any purported back-testings’ validity in seminars about saving for retirement. The SEC contends that Lucia and the firm hardly, if at all, conducted any back-tests.

Morgan Stanley Completes Purchase of Smith Barney Venture, Bloomberg, June 28, 2013

JPMorgan Chase and Wells Fargo Beat Estimates, Crossing Wall Street, July 12, 2013

Retired Slugger Sue UBS for $7.6 Million, Courthouse News, June 17, 2013

Ray Lucia, firm fined buckets of money over investment claims, Investment News, July 9, 2013

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

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

Securities Case Over Insuring The $160M in Disgorgement Paid to the SEC Goes Back to Trial Court, Institutional Investor Securities Blog, July 6, 2013

May 30, 2013

Morgan Stanley Unveils Trade Flow Insights Product to Give Brokers Better Sales Data

Morgan Stanley (MS) has a new trade tool to help brokers better understand who is buying and selling what financial products. Trade Flow Insights was recently rolled out to over 16,000 financial advisers.

The tool provides information on leading sales and purchases that have been executed, in addition to asset allocation. Advisers can even filter data to determine which products were the most popular in the last week or month. Client age, asset class, and household assets are just some of the filter categories.

Not only will Trade Flow Insights let representatives know what products are most in demand, but also it will inform them of which financial instruments their coworkers are most successful with. Some brokers are saying that having this type of insight is beneficial, helping them become aware of current trends while causing them to probe more deeply into the investment options out there before making a buy for an investor.

Still, other advisers are concerned that their trades and strategies will no longer become private. Respecting these concerns, Morgan Stanley has designed Trade Flow Insights so that single-day activity won’t be accessible. Activity surrounding a certain investment will only show up when at least 50 advisers have been involved in at least 4,000 client accounts.

The tool could also be beneficial for newer advisers, who may be able to avail from the experiences and knowledge of their more seasoned counterparts.

Securities Fraud
If you suspect that your investment losses are a result of unsuitable recommendations, unauthorized trading, misrepresentations and omissions, inadequate supervision, breach of duty, failure to execute trades, overconcentration, negligence, registration violations, and margin account abuse, you may have grounds for a securities fraud claim or lawsuit. Contact our securities lawyers today.

Morgan Stanley Gives Advisers a Peek at What Peers Buy, The Wall Street Journal, May 13, 2013

Morgan Stanley rolls out Trade Flow Insights tool, Investment News, May 26, 2013

More Blog Posts:
Morgan Stanley & Goldman Sachs Settle Federal Homeowner Foreclosure Complaints for $557 Million, Stockbroker Fraud Blog, January 16, 2013

Morgan Stanley Hit with $5 Million Securities Fraud Lawsuit Involving Alleged Superannual Account Losses Related to Risky Option Trading, Institutional Investor Securities Blog, May 18, 2013

January 16, 2013

Morgan Stanley & Goldman Sachs Settle Federal Homeowner Foreclosure Complaints for $557 Million

Goldman Sachs (GS) and Morgan Stanley (MS) have agreed to collectively pay $557M to settle complaints accusing them of wrongfully foreclosing on homeowners. Under their respective agreements with the Federal Reserve, Morgan Stanley will pay $227M while Goldman will pay $330M.

Approximately 220,000 people who lost their homes due to “robo-signing” and other abuses could receive compensation as a result. Per the agreement with the two investment banks, they will pay $232 million in cash to compensate homeowners. This will conclude the loan files review against the two banks that were ordered in 2011. Cash payments will vary and may go as high as $125,000 to borrowers whose homes foreclosed in 2009 and 2010. $325M will go toward lowering mortgage balances and forgiving outstanding principal on home sales that made less than what borrowers owed on mortgages.

The deals stuck by Morgan Stanley and Goldman Sachs is similarly structured to the $8.5B one reached last week with JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), PNC Financial Services (PNC), MetLife Bank (MET), SunTrust (STI), Sovereign (SOV), Aurora, and US Bank. They are paying 3.8 million homeowners approximately $3.3 billion to conclude the foreclosure review. $5.2 billion is for forgiveness of principal and mortgage modifications. Ally Financial and HSBC are in talks to work out similar settlements. The Fed reports that now, over 4 million borrowers will receive cash compensation.

These latest mortgage settlements come nearly one year after the US government and 49 state attorneys general reached an “unprecedented” deal that involved Citigroup, Bank of America, Wells Fargo, JPMorgan Chase, and Ally Financial when they agreed to pay $25 billion to settle allegations of abusive foreclosure practices related to the housing market crisis.

Aside from the rob-signing debacle, which involved banks approving foreclosures without making sure that they were warranted or retaining workers who signed bogus signatures on fake documents to get houses through the foreclosure process faster, other wrongdoings that allegedly occurred include the use of deceptive tactics when offering loan modifications, the improper filing of documents in bankruptcy court, and not offering offer borrowers other options prior to foreclosure.

In other industry news, Goldman Sachs is thinking about selling its reinsurance. A main reason for this is Basel III capital rules, which compel banks to look at non-core businesses that are exiting. Goldman Sachs Reinsurance Group is with its securities division in New York.

Securities Fraud
Our securities fraud law firm is dedicated to helping our investor clients recoup losses they have suffered because of financial fraud. Your initial case evaluation with one of our experienced securities attorneys is free.

Goldman, Morgan Stanley pay $557M to settle mortgage case, AP/New York Post, January 16, 2013

Goldman, Morgan Stanley Set $557 Million Fed Mortgage Accord, Bloomberg, January 16, 2013

Goldman Mulls Majority Sale of Reinsurance Business, The Wall Street Journal/Red Lion Trader, January 16, 2013

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

Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs, Stockbroker Fraud Blog, May 3, 2012

Principals of Global Arena Capital Corp. and Berthel, Fisher & Company Financial Services, Inc. Settle FINRA Securities Allegations, Stockbroker Fraud Blog, April 6, 2012

January 3, 2013

Morgan Stanley Must Pay Ex-Manager $1M

A Financial Industry Regulatory Authority arbitration panel says that Morgan Stanley (MS) Smith Barney has to pay Gregory Carl Torretta $1 million. The financial firm’s ex-manager claims that he was forced to unfairly resign.

Torretta had sought $8 million to $9 million for what he claims were wrongful termination and the breach of his employment contract. Torretta contends that Morgan Stanley had accused him of criticizing the performance of a branch manager, whom he was about to fire, and that he was going to take that person with him to another firm. The allegations surfaced after the branch manager, who was unhappy with the oversight, wrote Torretta implying that the latter had talked about leaving the brokerage firm and suggested that he also leave with him. The branch manager cc'ed Torretta's boss on the email.

Torretta says that the firm then told him he could either resign or be fired, so he resigned. He is now employed with Ameriprise Financial Services Inc. (AMP). The branch manager was letter let go.

Torretta’s legal team contends that Morgan Stanley did not abide by proper procedures when handling the matter.

Meantime, a Morgan Stanley Wealth Management (the new name of Morgan Stanley Smith Barney) spokesperson says that the firm disagrees with the panel’s ruling and it is currently exploring its options.

Securities Fraud
Our stockbroker fraud law firm represents clients that have sustained investment losses because of broker misconduct, including those involving misrepresentations and omissions, overconcentration, churning, unsuitable investment recommendations, failure to execute trades, inadequate or lack of supervision, breach of fiduciary duty, breach of contract, breach of promise, registration violations, margin account abuse, insider trading, and unauthorized trading.

Among the types of securities claims we are currently investigating are those involving Non-Traded REITS, Wells REIT II, UBS Willow Fund LLC, Wells Timberland REIT, Apple REITs, MF Global Holdings Ltd., elder exploitation, principal protected notes, private placements, reverse convertible notes, collateralized debt obligations (CDOs), mortgage-backed securities (MBS), and high yield bonds.

Morgan Stanley Ordered to Pay $1 Million to Ex-Manager, Wall Street Journal, January 7, 2013

December 28, 2012

Stockbroker Fraud Headlines: Wells Fargo Banker Charged Over $11M Insider Trading, Morgan Stanley to Resolve Facebook IPO Action for $5M, & SEC Accuses Canadian Broker of Inadequate Day Trader Supervision

Wells Fargo Banker and 8 Others Accused of Alleged $8M Insider Trading Scam
The U.S. Attorney for the Western District of North Carolina is charging Wells Fargo (WFC) investment banker John Femenia and eight alleged co-conspirators with involvement in an alleged $11 million insider trading scam. Femenia is accused of stealing confidential data from his employer and its clients about acquisitions and mergers that were pending. He then either directly or via others tipped his co-conspirators, receiving kickbacks in return.

According to the N.C. government, the insider trading scam resulted in $11M in profits. While six of the co-conspirators opted to plead guilty to conspiracy to commit insider trading, Femenia and the other two have been indicted on multiple charges of conspiracy and insider trading. The same defendants, and another person, are also named in the SEC lawsuit over the scheme.

Morgan Stanley to Settle Massachusetts’ Facebook IPO Allegations for $5M
Morgan Stanley & Co. LLC (MS) will pay $5 million to settle the Massachusetts securities regulator’s allegations that the financial firm’s investment bankers improperly affected research analysts over Facebook Inc.’s (FB) IPO. The financial firm was the initial public offering’s lead underwriter. (It was just in October that Citigroup Global Markets Inc. (C) also settled with the Massachusetts regulator for $2M claims that an analyst acted improperly by making available confidential data about Facebook prior to the latter’s going public.)

Per the allegations, After Facebook’s CFO told a Morgan Stanley senior investment banker that the social media company’s projected revenue might be lower than predicted, the banker supposedly told the CFO to take certain steps to make it seem as if all investors were being given access to this information. This banker also allegedly organized calls with research analysts to give them this new information. The analysts would go on to modify their estimates but only told institutional investors about it.

Canadian Brokerage Firm Agrees to Industry Bar for Alleged Inadequate Day Trader Supervision
Biremis Corp. and its cofounders Charles Kim and Peter Beck agreed to a permanent industry bar for allegedly neglecting to properly supervise overseas day traders who were then able to allegedly use the brokerage firm’s order management system to take part in layering, which is a manipulative trading practice that involves the placing of orders that will not be executed to fool others into trading at an artificial price. The orders are later cancelled.

The Securities and Exchange Commission contends that Biremis, which allows up to 5,000 traders on up to 200 trading floors in 30 nations to access US markets, did not deal with repeated incidents of layering committed by the overseas traders despite the red flags. The brokerage firm, Kim, and Beck have agreed to settle the Securities and Exchange Commission allegations without denying or admitting to the alleged misconduct.

Ex-Wells Fargo Banker Among Nine Hit With Insider Trading, Bloomberg/BNA, December 13, 2012

Mass. fines Morgan Stanley $5M over Facebook IPO, AP/ NECN, December 17, 2012

SEC Revokes Registration of Toronto-Based Broker and Bans Two Executives from U.S. Securities Industry for Allowing Layering, SEC, December 18, 2012

More Blog Posts:
SEC Intends to Examine 25% of Investment Advisers That Had To Register, Per Dodd-Frank Act, by End of 2014, Stockbroker Fraud Blog, December 26, 2012

Investment Advisor Securities Roundup: Two Firms Settle SEC Claims That They Impeded with Examinations, FINRA Defends SRO Model, IA Allegedly Duped Private Equity Investors, & CDO Misrepresentation Accusations Against GSCP Executive Are Dismissed, Stockbroker Fraud Blog, December 10, 2012

GAO Says Most Financial Regulators Don’t Have the Procedures/Policies to Coordinate Dodd-Frank Rules, Institutional Investor Securities Blog, December 24, 2012

October 26, 2012

Morgan Stanley Must Pay CFTC $200K for Supervisory Violations, Sued for Bias by Detroit Owners Over New Century Loans

The CFTC is ordering Morgan Stanley Smith Barney LLC (MS) to pay a civil monetary penalty of $200,000 for alleged supervisory failures related to customer account handling by employees, which is a violation of CFTC regulation 166.3. Its Order maintains that Morgan Stanley did not have adequate supervisory and internal controls in place that would have allowed it to successfully discourage and detect CFTC and CEA regulation violations.

Per the CFTC, the financial firm had a customer that acted as a futures commission merchant even though it wasn’t registered as one. (This is a Commodity Exchange Act violation.) The agency contends that by failing to look into suspect transactions that indicated this client was engaging in unlawful behavior, Morgan Stanley was committing a CFTC regulation 166.3 violation.

The CFTC says that even after Morgan Stanley discovered in January 2010that the client had been improperly carrying its proprietary futures trading account since 2006, it let the customer keep on in the role as a futures commission merchant through May 2010.

In other Morgan Stanley related news, five Detroit, Michigan homeowners are suing the financial firm for what they are claiming is racial bias over the way the firm finances and funds mortgage loans. They believe that this statistically increased African Americans’ exposure to foreclosure. The case, which is being presented as a class action lawsuit, could involve up to 6,000 plaintiffs.

The lead plaintiffs are alleging Michigan civil rights statute and federal anti-bias law violations in Morgan Stanley’s securitizing of mortgage loans that it was aware would expose borrowers to a higher foreclosure risk. Per their lawsuit, the investment bank’s sale and packaging of New Century loans to investors was closely linked to how it funded and financed New Century even before the loans were made.

Between 2004 and 2007, Morgan Stanley gave New Century billions of dollars in credit lines and issued procedures and policies that resulted in loans with high debt-to-income ratios, teaser rates that were low, hardly, if any, income verification, and other features. The plaintiffs believe that the financial firm dictated the kinds of loans that New Century issued, even requiring, as a condition of their profitable business relationship, that a huge percentage of the loans come with “dangerous” traits. Such obligations, they contend, negatively impacted African-American borrowers in the Detroit area who got their loans from New Century. In 2007, New Century sought bankruptcy protection.

According to the attorneys that filed the complaint, this is the first lawsuit to claim a connection between racial discrimination and securitization, as well as the first one involving homeowners accusing an investment bank, rather than the lender, of causing borrowers harm.

CFTC Orders Morgan Stanley Smith Barney LLC to Pay $200,000 for Supervision Violations, CFTC, October 22, 2012

Adkins, et al. vs. Morgan Stanley, ACLU, October 15, 2012

More Blog Posts:

Texas Securities Roundup: Morgan Stanley Smith Barney Sued Over Financial Adviser’s Ponzi Scam, Judge Dismisses Ex-GE Executive Whistleblower’s Lawsuit Over His Firing, & Ex-Stanford Financial Group CIO Pleads Guilty to Obstructing the SEC’s Probe, Stockbroker Fraud Blog, July 3, 2012

Why Were Two Former Morgan Stanley Smith Barney Brokers Not Named As Defendants in Securities Lawsuit by State Regulators Over $6M Now Missing From Wisconsin Funeral Trust?, Stockbroker Fraud Blog, September 27, 2012

Ex-Morgan Stanley Smith Barney Broker Settles with FINRA for Allegedly Failing to Notify Firm of Previous Arrest, Stockbroker Fraud Blog, June 16, 2012

Continue reading "Morgan Stanley Must Pay CFTC $200K for Supervisory Violations, Sued for Bias by Detroit Owners Over New Century Loans " »

September 27, 2012

Why Were Two Former Morgan Stanley Smith Barney Brokers Not Named As Defendants in Securities Lawsuit by State Regulators Over $6M Now Missing From Wisconsin Funeral Trust?

Wisconsin regulators are suing Wisconsin Funeral Directors Association Inc. and Fiduciary Partners Inc. for allegedly improperly investing the money from a $48 million Wisconsin Funeral Trust. With a possible long-term deficit of $21 million, close to $6 million in investor money has already been lost. However, our stockbroker fraud law firm wants to know why two former Morgan Stanley Smith Barney brokers—brothers Michael Hull and Patrick Hull—are not defendants in this case. The two brothers managed the trust until earlier this month, when a circuit court judge assigned a receiver to take charge of liquidating the fund. They now run bluepoint Investment Council, LLC.

The trust is funded by about 10,500 prepaid contracts. According to state Department of Justice officials, customers who bought prepaid funeral policy plans because they were under the impression that their money would be placed in CDs, government bonds, and low risk investments and that they would get a guaranteed, modest return rate. Instead, the trust ended up losing millions in risky investments. (The Department of Financial Institutions is now ordering a securities enforcement action after it concluded that the funds, which were in the trust, were invested in a manner that violated state law.) Fiduciary Partners Trust, the trust’s trustee, has said that it was never involved in how the trust’s investments were managed or marketed and that this was the job of the Wisconsin Funeral Directors Association and the investment management firms.

“The information which has been reported leaves us with more questions than answers as to Morgan Stanley and its former brokers,” said stockbroker fraud lawyer William Shepherd. “In any event, any claims against the firm and/or brokers would likely be excluded from court action by the trust because of a mandatory FINRA arbitration agreement.”

Michael Hull has said that there are no statements or allegations raising questions about the way he and his brother managed the Wisconsin fund and he is not under investigation by the state. Michael also says that he was let go by Morgan Stanley Smith Barney earlier this year when the firm discovered that he intended to establish his own independent registered investment advisory firm. (According to his record with FINRA, Michael was let go in the wake of allegations involving possible dealings with outside investments that MSSB had not approved.)

The Wisconsin securities case accuses the defendants of dealing with trust (and its assets) as if it were a hedge fund and improperly putting depositors’ money in a portfolio of risky, illiquid investments. The regulators contend that the portfolio is not in line with the goals of the trust, which is to give investors a secure, low, return rate that is 1% greater than the average 3-year CD rate in the state.

$6M in investor funds goes missing from trust, Investment News, September 23, 2012

Receiver appointed to take over funeral directors association, Milwaukee-Wisconsin Journal Sentinel, September 14, 2012

More Blog Posts:
Morgan Stanley May Have To Shut Down Brokerage Offices, Say Sources, Stockbroker Fraud Blog, August 8, 2012

Morgan Stanley Smith Barney Ordered by FINRA Arbitration Panel to Pay $5M Over Allegedly False Promises Made To Brokers Recruited from UBS AG, Stockbroker Fraud Blog, June 22, 2012

Ex-Morgan Stanley Smith Barney Broker Settles with FINRA for Allegedly Failing to Notify Firm of Previous Arrest, Institutional Investor Securities Blog, June 16, 2012

Morgan Stanley Sued by MetLife for Securities Fraud Over $757 Million in Residential Mortgage-Backed Securities, Institutional Investor Securities Blog, April 28, 2012

August 8, 2012

Morgan Stanley May Have To Shut Down Brokerage Offices, Say Sources

Reuters is reporting that sources aware of internal talks taking place at Morgan Stanley (MS) are saying that the financial firm is thinking about shutting down brokerage offices as part of its efforts to increase profit margins in its retail brokerage arm. It also is reportedly considering laying off support employees and making branch managers work as revenues to bring in more money.

Already, Morgan Stanley has consolidated regional manager ranks down from 19, and last week, it narrowed its regions from 16 to 12. More measures to reduce expenses are likely.

Also, last month, the financial firm announced more layoffs when it said that its payroll would likely shrink by another 1,000 employees in 2012 so that it could employ staff levels that were 7% lower than what they were in December 2011. The news came after its second–quarter earnings showed a step decline, while revenue in its asset management, wealth management, and investment banking business saw a large drop, with overall revenue declining 24% to $6.95 billion

The financial firm appears determined to cut spending in its brokerage division now that its close to 17,000 brokers were moved to a common technology platform. Offices from the Morgan Stanley and Smith Barney networks that are considered redundant will likely be the ones shut down, which could affect up to 100 offices. (As of the end of June 2012, Morgan Stanley Smith Barney had 740 offices. Consider that in the middle of 2009, it had over 950 branches in the US alone.) Its bond trading business performed the worst, dropping in revenue by 60% to $770 million—a significantly larger descent than other big banks on Wall Street.

The financial firm is trying, by December 2014, to reduce its risk weighted assets by 30% from the $346.79 billion levels where they were last September. As of June 30, Morgan Stanley had $319.19 billion in risk-weighted assets. It also is contending with its bond trading business declining because there had been the threat of a severe debt rating downgrade, as well as criticism over the way it handled the Facebook (FB) IPO. Fortunately for the financial firm, Moody’s Investors Service only downgraded the bank to “Baa1,” which is three steps over junk.

Morgan Stanley is not the only big bank to have to cut costs after quarterly results were reported. Goldman Sachs Group. Inc. (GS) (now with a $500 million cost-saving target), Deutsche Bank AG (DBK), and Bank of America Corp. (BAC) also made staff cuts in their underwriting and trading businesses. 2011 was the first time that banks didn’t give some employees bonuses.

With so much uncertainty, now, more than ever financial representatives must make sure that they invest their clients’ money wisely and refrain from any type of misconduct or poor decisions that could cause huge losses. At Shepherd Smith Edwards and Kantas, LTD, LLP, we are here to fight for our clients’ recovery from losses stemming from securities fraud.

Morgan Stanley Considers Shutting Offices, Cutting Staff: Sources, CNBC/Reuters, August 8, 2012

Morgan Stanley plans further staff cuts on weak outlook, Reuters, July 19, 2012

Deutsche Bank Said To Consider Staff Cuts At Investment Bank, Bloomberg, July 19, 2012

More Blog Posts:
Plaintiff Says Morgan Stanley Fired Him for Calling out Investment Adviser Who Was Churning Accounts and Bilking Investors, Stockbroker Fraud Blog, August 7, 2012

Morgan Stanley Smith Barney Ordered by FINRA Arbitration Panel to Pay $5M Over Allegedly False Promises Made To Brokers Recruited from UBS AG, Stockbroker Fraud Blog, June 22, 2012

Ex-Morgan Stanley Smith Barney Broker Settles with FINRA for Allegedly Failing to Notify Firm of Previous Arrest, Stockbroker Fraud Blog, June 16, 2012

Continue reading "Morgan Stanley May Have To Shut Down Brokerage Offices, Say Sources" »

August 7, 2012

Plaintiff Says Morgan Stanley Fired Him for Calling out Investment Adviser Who Was Churning Accounts and Bilking Investors

Clifford Jagodzinski has filed a lawsuit against Morgan Stanley & Co. (MS), Morgan Stanley Smith Barney, and Citigroup (C). He claims that he was fired from his job at Morgan Stanley as a complex risk officer because he reported that an investment adviser was churning accounts and earning tens of thousands of dollars while defrauding clients. Jagodzinski filed his case in federal court.

He contends that even though he always received excellent job evaluations during the six years he worked for Morgan Stanley, he was terminated as an employee 10 days after he told supervisors that unless the financial firm started reporting unauthorized trades it would be violating SEC regulations. Jagodzinski said that the financial firm told him to sign a confidentiality agreement with a non-disparagement clause and then proceeded to hurt his career by claiming that he was let go because of poor performance. He wants reinstatement and punitive and compensatory damages of over $1 million for whistleblower violations.

Jagodzinski believes that his trouble started after he told his supervisors, Ben Firestein and David Turetzky, that Harvey Kadden, one of the firm’s new wealth managers, was allegedly flipping preferred securities so that he could make tens of thousands of dollars in commissions, while causing his clients to sustain financial losses or make little gains as he exposed them to risks that could have been avoided. Jagodzinski said that while he was initially praised for identifying the alleged misconduct, his supervisors told him not to look into the matter further. He believes this is because Morgan Stanley had given Kadden a $25 million guarantee, and due to their high expectations of him, they didn’t want to hurt his book of business.

Jagodzinski said that he encountered similar resistance when he notified the financial firm of other violations, including those involving Bill Siegel, another financial adviser that he accused of making unauthorized trades. Once again, he says he was told not to investigate or report the alleged violations further—even though (he says) Siegel admitted to making 80 unauthorized trades for one client and other ones for other clients. Although Turetsky allegedly told him that this was because he didn’t want Siegel fired, Jagodzinski suspects that his supervisor was more concerned that the defendants would have to pay penalties and fines. He also said that when he reported his concerns that yet another financial adviser was not just engaging in improper treasury trades but also abusing drugs, his worries were again brushed aside.

An employee who gets fired for blowing the whistle on a company or a coworker can have grounds for filing a wrongful termination lawsuit. If the wronged employee is a whistleblower, he is entitled to certain protections, which include being shielded from retaliation on the job for stepping forward and doing what is right.

Worker Says He Caught Morgan Stanley in the Act, Courthouse News Service, August 3, 2012

Ex-Morgan Stanley Risk Officer Sues Bank Over Firing, Bloomberg, August 1, 2012

More Blog Posts:

Dodd-Frank Whistleblower Protection Amendment Must Be Applied Retroactively, Said District Court, Stockbroker Fraud Blog, July 21, 2012

SEC’s Office of the Whistleblower In Early Phase of Evaluating Reward Claims, Institutional Investor Securities Blog, March 23, 2012

District Court Denies UBS Summary Judgment in Sarbanes-Oxley Whistleblower Lawsuit, Stockbroker Fraud Blog, June 27, 2012

Continue reading "Plaintiff Says Morgan Stanley Fired Him for Calling out Investment Adviser Who Was Churning Accounts and Bilking Investors " »

June 22, 2012

Morgan Stanley Smith Barney Ordered by FINRA Arbitration Panel to Pay $5M Over Allegedly False Promises Made To Brokers Recruited from UBS AG

A Financial Industry Regulatory Authority arbitration panel is ordering Morgan Stanley Smith Barney to pay $5 million to Todd G. Vitale and John P. Paladino, two of the brokers that the financial firm had wooed from UBS AG (UBS) in 2008. The two brokers are alleging fraudulent misrepresentations, breach of written and oral contract, promissory fraud, negligent misrepresentation, fraudulent omission and/or concealment, intentional interference with existing and prospective economic advantage, negligent omission and/or concealment, California Labor Code violations, breach of implied covenant of good faith and fair dealing, promissory estoppel, constructive fraud, negligent supervision, and failure to supervise. They both still work for Morgan Stanley Smith Barney.

Both brokers were recruited a few months before Morgan Stanley merged with Citigroup Inc.'s (C) Smith Barney. Per the terms of their recruiting agreement, Vitale was promised that within six months of joining the financial firm he would become a salaried manager. Paladino would then inherit Vitale’s book, which would come with significant revenue.

After the merger occurred, however, a number of key management changes happened, and four years after they were hired, Vitale still hasn’t been promoted to manager while Paladino has yet to get his book. Also, Paladino’s monthly income has been reduced.

Ruling on the case, the FINRA arbitration panel awarded $2 million to Paladino and $2.6 million to Vitale. $355,000 in legal fees was also awarded to the two men.

This arbitration proceeding is one of numerous cases of late involving investment advisers claiming that financial firms had wooed them with promises that were never fulfilled. Brokerage firms often make verbal commitments when recruiting and they protect themselves by not including these agreements in the actual employment contract.

“Successful financial advisors and brokers can manage tens of millions or even hundreds of millions of dollars of their clients’ assets and securities firms are willing to pay, or promise to pay, them millions of dollars to bring their clients’ accounts to a new firm,” said Shepherd Smith Edwards and Kantas, LTD, LLP Partners and FINRA Arbitration Attorney William Shepherd. “Just as firms are not always honest with investors, these firms do not always keep their promises to advisors and brokers. Because licensed representatives and their firms are required to sign agreements to arbitrate disputes, cases of this type must be decided in securities arbitration. Our law firm has represented both investors and investment professionals in securities arbitration proceedings in their disputes with financial firms.”

Meantime, Morgan Stanley Smith Barney has issued a statement saying that the financial firm’s disagree with the panel’s decision and the facts support the ruling. However, there are internal firm memos documenting the recruiting deal.

Former Morgan Stanley Smith Barney Brokers Win $5M Employment Dispute Arbitration Award, Forbes, June 20, 2012

Panel Says MSSB Must Pay Recruited Brokers $5 Million, Wall Street Journal, June 20, 2012

More Blog Posts:
Merrill Lynch to Pay Brokers Over $10M for Alleged Fraud Over Deferred Compensation Plans, Institutional Investor Securities Blog, April 5, 2012

Investment Advisers and Brokers Should Be Able To Explain in One Page Why an Investment Would Benefit a Retail Client, Says FINRA CEO Richard Ketchum, Stockbroker Fraud Blog, June 14, 2012

Securities Law Roundup: Ex-Sentinel Management Group Execs Indicted Over Alleged $500M Fraud, Egan-Jones Rating Wants Court to Hear Bias Claim Against SEC, and Oppenheimer Funds Pays $35M Over Alleged Mutual Fund Misstatements
, Stockbroker Fraud Blog, June 13, 2012

Continue reading "Morgan Stanley Smith Barney Ordered by FINRA Arbitration Panel to Pay $5M Over Allegedly False Promises Made To Brokers Recruited from UBS AG" »

May 24, 2012

Securities Law Roundup: Ex-Morgan Stanley’s SEC Settlement Over Alleged FCPA Violations Gets Court Approval, Corruption Probe Into Wal-Mart’s Mexico Activities Continue, and Sentry Global Securities Principal Gets 20-Years for Pump-and-Dump Scam

A district court has approved ex-Morgan Stanley (MS) executive Garth Peterson’s civil settlement with the Securities and Exchange Commission over alleged Foreign Corrupt Practices Act violations. In SEC v. Garth Peterson, the plaintiff agreed to pay $241,589 in disgorgement and give up his interest in an apartment building in China. He is to work with an SEC-appointed receiver. Peterson has entered a guilty plea to related criminal charges.

According to the Commission, while working at Morgan Stanley’s real estate investment and fund advisory business, Peterson secretly obtained real estate investments worth millions of dollars from the financial firm’s funds not just for himself but also for others, including the ex-chairman of a Chinese state-owned entity that could influence Morgan Stanley's real estate business in that country. Peterson, the official, and a Canadian lawyer are accused of acquiring a direct interest in the Jin Lin Tiandi Serviced Apartments. The Commission has said that Peterson violated the FCPA’s anti-bribery and internal control provisions, as well as aided and abetted violations of the 1940 Investment Advisers Act’s antifraud provisions.

In other allegations of Foreign Corrupt Practices Act violations, Wal-Mart (WMT) is accused of not just committing them but also of covering up its alleged misconduct. An investigation into the accusations was opened up in April.

Wal-Mart executives are accused of concealing possible corruption (including bribery) by company executives and officials in Mexico, where the retail chain has been working to build its presence. Now, House Energy and Commerce Committee ranking member Henry Waxman (D-Calif.) and House Oversight Committee ranking member Elijah Cummings (D-Md.) want the store’s CEO Michael Duke to let a former general counsel cooperate with their investigation.

In a letter to Duke, the two lawmakers said that there are several hundred internal documents that seem to confirm early reports of the scandal. At the time of the alleged cover up, then-Wal-Mart general counsel Maritza Munich had tried to get company’s board to expand its probe into the accusations and put into place a tough anticorruption policy. However, when she left Wal-Mart in 2006, Albert Mora, the person who replaced her, chose not to investigate further. Now, Waxman and Cummings want Wal-Mart to allow Munich to get involved in the current probe. They also are once more putting forward an earlier request that the retail giant give them a “substantive briefing” about the specific bribery allegations related to Mexico.

Meantime, Sentry Global Securities and Red Sea Management principal Jonathan Curshen has been sentenced to two decades behind bars for his conviction in a pump and dump stock manipulation scheme. He was found guilty of wire fraud, conspiracy to commit securities fraud, mail fraud, and conspiracy to commit international money laundering. He also has to forfeit about $7.3 million.

Curshen, stock promoter Nathan Montgomery, and their co-conspirators are accused in taking part in coordinated trades while with issuing false statements to the press. According to the US Department of Justice, the alleged misconduct, which is said to have occurred in 2007, was committed to raise the price of C02 Technologies stock. While co-conspirators “pumped,” Curshen and others “dumped” by selling the shares through his two Costa Rica brokerage companies. The shares then virtually lost all their value.

SEC v. Garth Peterson

Foreign Corrupt Practices Act, US DOJ

Read the letter to lawmakers' Wal-Mart CEO Duke, BNA, (PDF)

CO2 Tech's Curshen receives 20 years in jail, Stockwatch, May 14, 2012

More Blog Posts:

SEC Issues Alert for Broker-Dealers and Investors Over Municipal Bonds, Man Who Posed As Investment Adviser Pleads Guilty to Securities Fraud, and Citigroup Settles FINRA Claims of Excessive Markups/Markdowns, Stockbroker Fraud Blog, April 10, 2012

UBS Puerto Rico Settles SEC Action for $26M, Morgan Keegan’s Bid to Get $40K Award Over Marketing of RMK Advantage Income Fund Vacated is Denied, and SEC Settles with Attorney Involved in $1B Viaticals Scam, Stockbroker Fraud Blog, May 11, 2012

SEC Seeks Approval of Settlement with Ex-Bear Stearns Portfolio Managers, Credits Ex-AXA Rosenberg Executive for Help in Quantitative Investment Case; IOSCO Gets Ready for Global Hedge Fund Survey, Institutional Investor Fraud, March 29, 2012

Continue reading "Securities Law Roundup: Ex-Morgan Stanley’s SEC Settlement Over Alleged FCPA Violations Gets Court Approval, Corruption Probe Into Wal-Mart’s Mexico Activities Continue, and Sentry Global Securities Principal Gets 20-Years for Pump-and-Dump Scam " »

May 3, 2012

Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs

Wells Fargo & Co. (WFC), UBS AG (UBSN), Morgan Stanley (MS), and Citigroup Inc. (C) have consented to pay a combined $9.1 million to settle Financial Industry Regulatory Authority claims that they did not adequately supervise the sale of leveraged and inverse exchange-traded funds in 2008 and 2009. $7.3 million of this is fines. The remaining $1.8 million will go to affected customers. The SRO says that the four financial firms had no reasonable grounds for recommending these securities to the investors, yet they each sold billions of dollars of ETFs to clients. Some of these investors ended up holding them for extended periods while the markets were exhibiting volatility.

It was in June 2009 that FINRA cautioned brokers that long-term investors and leveraged and inverse ETFs were not a good match. While UBS suspended its sale of these ETFs after the SRO issued its warning, it eventually resumed selling them but doesn’t recommend them to clients anymore. Morgan Stanley also had announced that it would place restrictions on ETF sales. Meantime, Wells Fargo continues to sell leveraged and inverse ETF. However, a spokesperson for the financial firm says that it has implemented enhanced procedures and policies to ensure that it meets its regulatory responsibilities. Citigroup also has enhanced its policies, procedures, and training related to the sale of these ETFs. (FINRA began looking into how leveraged and inverse ETFs are being marketed to clients in March after one ETN, VelocityShares Daily 2x VIX Short-Term (TVIX), which is managed by Credit Suisse (CS), lost half its worth in two days.)

The Securities and Exchange Commission describes ETFs as (usually) registered investment companies with shares that represent an interest in a portfolio with securities that track an underlying index or benchmark. While leveraged ETFs look to deliver multiples of the performance of the benchmark or index they are tracking, inverse ETFs seek to do the opposite. Both types of ETFs seek to do this with the help of different investment strategies involving future contracts, swaps, and other derivative instruments. The majority of leveraged and inverse ETFs “reset” daily. How they perform over extend time periods can differ from how well their benchmark or underlying index does during the same duration. Per Bloomberg, leveraged and inverse ETFs hold $29.3 billion in the US.

“These highly leveraged investments were - and still are - being bought into the accounts of unsophisticated investors at these and other firms,” said Leveraged and Inverse ETF Attorney William Shepherd. “Although most firms do not allow margin investing in retirement accounts, many did not screen accounts to flag these leveraged investments which can operate on the same principle as margin accounts.”

For investors, it is important that they understand the risks involved in leveraged and inverse ETFs. Depending on what investment strategies the ETF employs, the risks may vary. Long-term investors should be especially careful about their decision to invest in leveraged and inverse ETFs.

Finra Sanctions Citi, Morgan Stanley, UBS, Wells Fargo $9.1M For Leveraged ETFs, The Wall Street Journal, May 1, 2012

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

FINRA investigating exchange-traded notes: spokesperson, Reuters, March 29, 2012

More Blog Posts:
SEC to Investigate Seesawing Credit Suisse TVIX Note, Stockbroker Fraud Blog, March 30, 2012

Principals of Global Arena Capital Corp. and Berthel, Fisher & Company Financial Services, Inc. Settle FINRA Securities Allegations, Stockbroker Fraud Blog, April 6, 2012

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients, Institutional Investor Securities Blog, April 12, 2012

Continue reading "Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs " »

April 12, 2012

Morgan Stanley to Compensate A Number of Texas Homeowners for Alleged Misconduct by Saxon Mortgage Services

The Federal Reserve Board has ordered Morgan Stanley (MS) to retain an independent consultant to evaluate foreclosures initiated by former subsidiary Saxon Mortgage Services in 2009 and 2010. Saxon, which intends to shut down its processing center in Forth Worth, is accused of engaging in a “pattern of misconduct and negligence" related to residential mortgage servicing and foreclosure processing. The order mandates that Morgan Stanley compensate homeowners who were hurt financially because of certain deficiencies, including wrongful foreclosures.

Per the Fed, Saxon initiated at least 6,313 foreclosures against homeowners during the years cited above. Regarding certain actions, Saxon is accused of failing to confirm ownership and other information, not properly notarizing signatures, failing to implement proper controls and oversight, and neglecting to adequately staff and fund its operations to handle the increase in foreclosures.

Morgan Stanley had bought Saxon for $706 million during the housing bubble. Earlier this month, the financial firm completed its sale of the mortgage lender to Ocwen Financial of Florida. In the wake of the sale, Morgan Stanley is no longer involved in mortgage servicing. However, should the financial firm reenter this market while the Consent Order is still in effect, it will have to execute better risk-management, corporate governance, compliance, servicing, borrower communication, and foreclosure practices similar in quality to what mortgage servicers who had to abide by enforcement actions in 2011 had to implement.

Monetary sanctions are expected in this case. Morgan Stanley has acknowledged responsibility for making any civil monetary penalty that can be assessed against Saxon over this alleged misconduct.

It was in 2010 that attorenys general from the 50 states announced that they would begin probing bank foreclosure practices following reports that manufactured or faulty documents were used to foreclose on residences. Last September, the Fed arrived at a similar action against Goldman Sachs (GS) and Litton Loan Servicing LP. Litton was accused of robo-signing foreclosure documents, leading to concerns that some borrowers may have been wrongfully removed from their homes. Robo-signing is the term used for company officials vouch for foreclosure documents without ensuring their accuracy.

Goldman Sachs was ordered to execute an independent review of foreclosures made by Litton in 2009 and 2010 as a result of this “pattern of misconduct and negligence.” So that the sale of Litton to Ocwen would be approved, Goldman Sachs agreed to pay penalties and write down $53 million of mortgages loans in New York.

Our Texas securities fraud lawyers represent institutional and individual investors with stockbroker fraud claims against broker-dealers, brokers, investment advisers and others in the financial industry. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

Morgan Stanley to Pay for Some US Foreclosures, AP/ABC News, April 3, 2012

Goldman Sachs Sets Pact With Fed, N.Y. to Complete Litton Sale, Bloomberg Businessweek, September 1, 2011

More Blog Posts:
Texas Securities Fraud: State Law Class Action in R. Allen Stanford’s Ponzi Scam Not Barred by SLUSA, Stockbroker Fraud Blog, March 28, 2012

Three Oil Service Executives Face SEC Charges in Texas Court For Allegedly Bribing Nigerian Customs Officials, Stockbroker Fraud Blog, March 22, 2012

Texan R. Allen Stanford Convicted on 13 Criminal Counts Over $7.2B Ponzi Fraud, Stockbroker Fraud Blog, March 7, 2012

September 19, 2011

Morgan Stanley Smith Barney Employee Fined and Suspended by FINRA Over Unauthorized Signatures

The Financial Industry Regulatory Authority has imposed a 60-day suspension on Carmela L. Knieriem, a former Morgan Stanley Smith Barney female employee over allegations that while employed by the financial firm, she signed other employees’ signatures without obtaining the required approvals and authorizations. FINRA is also fining Knierem $5,000. While she has submitted a Letter of Acceptance, Waiver and Consent to settle the charges, Knierem is not denying or admitting to the findings.

According to, Between November 2009 and October 14, 2010, Knieriem was associated with the financial firm’s Rancho Bernardo Branch, where she was tasked with providing branch managers, financial advisers, and other employees with administrative support. Part of her job was to prepare specific internal administrative forms related to the processing and documenting of verbal requests, known as “Verbal Forms,” that were made by customers.

FINRA says that when Knieriem made the unauthorized signatures when preparing these Verbal Forms she violated FINRA Rule 2010 10 times. The SRO contends that in six instances, at the request of the financial advisor EP, she prepared an instruction form documenting a client’s verbal request for journal funds between the client’s accounts, the transfer of money from a client’s account, the release of account statements to a third party, and the issuance of a $75,397.22 check from the customer’s account. Knieriem also is said to have followed a financial advisor GT’s request to prepare an instruction form for a client’s verbal request that a stop payment be placed on one of his checks. She also followed the request of a financial adviser CL, who asked her to prepare an instruction form to issue a $95.62 for a client. Also, FINRA says that branch manager RL asked her to prepare an instruction form to journal funds between accounts.

Morgan Stanley also conducted its own investigation into the matter. Knieriem has since voluntarily left the financial firm.

Shepherd Smith Edwards & Kantas LTD LLP founder and stockbroker fraud lawyer Bill Shepherd said: “The only surprise here would be if she kept her job or if any other firm would hire her. Every licensed securities person knows this is a very serious violation. Brokers at large firms manage tens of millions, and often hundreds of millions, of dollars. Those who violate the rules in this manner do not belong in that position. Moreover “uttering a forgery” is not just a rule violation, it is a crime even if there was no financial harm. The only legal defense would be if the person whose name was signed specifically gave her permission and was authorized to do so.”

Shepherd Smith Edwards and Kantas
Our stockbroker fraud law firm is dedicated to helping investors that have lost money as a result of broker misconduct. We are committed to recovering clients’ financial losses.

Morgan Stanley Smith Barney Female Employee Suspended and Fined for Unauthorized Signatures, Forbes, September 23, 2011


More Blog Posts:
Ex-Morgan Stanley Trader’s $25k Settlement Over Alleged Concealment of Proprietary Trades is Inadequate, Says SEC Commissioner Aguilar, Stockbroker Fraud Blog, July 20, 2011

Morgan Stanley, Barclays, and Merrill Lynch Lose ‘Hot News’ Misappropriation Case Against Inc. in Appeals Court, Stockbroker Fraud Blog, June 20, 2011

$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investors Securities Blog, August 29, 2011

July 20, 2011

Ex-Morgan Stanley Trader’s $25k Settlement Over Alleged Concealment of Proprietary Trades is Inadequate, Says SEC Commissioner Aguilar

Jennifer Kim, an ex-Morgan Stanley (MS) trader, has consented to a $25,000 settlement to resolve SEC allegations that she hid proprietary trades that that went above and beyond the financial firm’s risk limits. The alleged misconduct resulted in approximately $24.5m in losses for Morgan Stanley. SEC Commissioner Luis Aguilar, however, is calling the terms of her settlement “inadequate.” In his written dissent, he said that Kim also should have been charged with committing antifraud provisions violations.

Kim and Larry Feinblum, who was her supervisor, are accused of employing “fake” swap orders a minimum of 32 times to conceal their risks. The swap orders they entered into were ones that they intended to cancel soon after. This let them trick the monitoring systems, which recorded lower net risk positions. This alleged maneuvering allowed them to employ a trading strategy that would let them profit from the difference in prices between foreign and US markets.

In December 2009, Feinblum, who lost $7m in a day, told his supervisor about how he and Kim had concealed their positions and went above risk limits. Feinblum, who no longer works for Morgan Stanley, has settled the related securities claims against him for $150,000.

As part of her settlement, Kim agreed to a minimum three-year bar from the brokerage industry. She also consented to cease and desist from future records and books violations.

Even in settling, Feinblum and Kim are not denying or admitting wrongdoing.

Ex-Morgan Stanley Trader Settles SEC Claims Over Hiding Risk, Bloomberg, July 12, 2011

Ex-Broker to Pay $25K Over Risky Trades; Aguilar Objects to Penalty as 'Inadequate', BNA Securities Law Daily, July 14, 2011

SEC Order Against Kim (PDF)

SEC Commissioner Aguilar's Dissent (PDF)

More Blog Posts:

Ex-Morgan Stanley Trader to Settle SEC Unauthorized Swaps Trading Claims for $150,000, Stockbrroker Fraud Blog, June 13, 2011

Morgan Stanley to Pay $500,000 to Resolve SEC Charges that it Recommended Unapproved Money Managers to Clients, Stockbroker Fraud Blog, July 27, 2009

Broker Settles SEC Charges He Defrauded Elderly Nuns, Stockbroker Fraud Blog, January 13, 2011

Continue reading "Ex-Morgan Stanley Trader’s $25k Settlement Over Alleged Concealment of Proprietary Trades is Inadequate, Says SEC Commissioner Aguilar" »

June 20, 2011

Morgan Stanley, Barclays, and Merrill Lynch Lose ‘Hot News’ Misappropriation Case Against Inc. in Appeals Court

The U.S. Court of Appeals for the Second Circuit has reversed a lower court’s ruling and decided that under New York law, Inc., an online financial news service, may not be held liable for disseminating the equity research recommendations found in reports of plaintiffs Barclays Capital Inc., Morgan Stanley & Co. Inc., and Merrill Lynch Pierce Fenner & Smith Inc. The appeals court’s Judge Robert D. Sack concluded that federal copyright law preempts the ‘Hot News’ misappropriation claim.

The financial firms’ reports contain research about public companies, their securities and business prospects, and their respective industries. The reports summarize these findings, which often include recommendations about holding, selling, and buying the subjects’ securities. The firms give clients and prospective ones these reports before the US securities markets open daily as an “informational advantage.”

The plaintiffs accused Fly, which has managed to get a hold of these recommendations and issue them before the brokerage firms had given them to the public or before the exchanges that the securities are traded have opened, of copyright infringement. Concurring with the plaintiffs, a lower court then barred the news service from both infringing on the copyrighted aspects of the brokerage firms’ research reports and publishing their recommendations until after the New York Stock Exchange opened.

Now, however, the appeals court is saying that “a firm’s ability to make news… does not give rise to a right for it to control who breaks the news and how.” The court reversed and remanded the earlier claim and told the district court to dismiss the brokerage firms’ misappropriation claim under New York law.

Related Web Resources: Inc.

Read the district court's opinion (PDF)

Brokerages Lose in Appeals Court On N.Y. ‘Hot News’ Misappropriation Claim, BNA Securities Law Daily, June 20, 2011

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Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011

China-Based Hackers Broke into Morgan Stanley Network, Reports Bloomberg, Stockbroker Fraud Blog, February 28, 2011

Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court, Stockbroker Fraud Blog, January 17, 2010

Continue reading "Morgan Stanley, Barclays, and Merrill Lynch Lose ‘Hot News’ Misappropriation Case Against Inc. in Appeals Court" »