June 9, 2016

Oppenheimer to Pay $2.9M for Unsuitable Non-Traditional Exchange-Traded Fund Sales

FINRA is fining Oppenheimer & Co. Inc. (OPY) $2.2M for the sale of non-traditional exchange-traded funds, including inverse, leveraged, and inverse-leveraged ETFs, to retail customers without proper supervision and for suggesting them to clients even though they were not appropriate investments for them. The self-regulatory organization is also making the firm pay over $716,000 to the customers who were impacted.

FINRA said that even though Oppenheimer put into place policies barring representatives from both selling non-traditional ETFs to retail customers and executing non-traditional ETF purchases that were unsolicited for said customers unless they met certain requirements—including liquid assets greater than $50OK—the firm did not do a reasonable job of making sure that these policies were properly enforced. (The firm had put them into effect after FINRA issued a notice advising brokerage firms of the risks involved in non-traditional ETFs.) Because of this, Oppenheimer continued to market non-traditional ETFs to retail customers and effect transactions that were unsolicited for those who failed to meet the requirements.

Continue reading "Oppenheimer to Pay $2.9M for Unsuitable Non-Traditional Exchange-Traded Fund Sales" »

June 8, 2016

Oppenheimer to Pay $2.9M for Unsuitable Non-Traditional Exchange-Traded Fund Sales

FINRA is fining Oppenheimer & Co. Inc. (OPY) $2.2M for the sale of non-traditional exchange traded funds, including inverse, leveraged, and inverse-leveraged ETFs, to retail customers without proper supervision and for suggesting them to clients even when they were not appropriate investments for them. The self-regulatory organization is making the firm pay over $716,000 to the customers who were impacted.

FINRA said that even though Oppenheimer put into place policies barring representatives from both selling non-traditional ETFs to retail customers and executing non-traditional ETF purchases that were unsolicited for said customers unless they met certain requirements (i.e. having liquid assets that were greater than $50OK) the firm did not do a reasonable job of making sure that these policies were properly enforced. The firm had put the policies into effect after FINRA issued a notice advising brokerage firms of the risks involved in non-traditional ETFs.

However, Because of the purported failure to do a reasonable enforcement job, said FINRA, Oppenheimer continued to market non-traditional ETFs to retail customers and effect transactions that were unsolicited for those who failed to meet the requirements.
FINRA also said that Oppenheimer did not perform sufficient due diligence regarding the features and risks of non-traditional ETFs and lacked a reasonable basis for recommending them to retail customers. The SRO said that Oppenheimer solicited and effected no-traditional ETF purchases that were not suitable for customers, including customers who were senior investors.

Continue reading "Oppenheimer to Pay $2.9M for Unsuitable Non-Traditional Exchange-Traded Fund Sales" »

May 16, 2016

Oppenheimer Shuts Down Its Commodity Strategy Total Return Fund

After nearly twenty years, Oppenheimer (OPY) is liquidating its Commodity Strategy Total Return Fund (QRAAX) in mid-July. The reason for the shut down is underperformance.

According to the company’s website, the Oppenheimer Commodity Strategy Total Return Fund lost 49% since it was created in 1997, and average yearly returns have consistently declined by the double digits. The Wall Street Journal reported that the commodity fund has lost money annually since hitting an 8.5% return in 2010. It’s also been up 7.19% since the beginning of 2016. However InvestmentNews reports, the fund’s performance has been poor over the last five years. The Oppenheimer fund’s assets under management is down to $269M from over $2B in 2011.

While Oppenheimer said that it continues to believe in the value of its investment strategy, the firm is now saying that investors would benefit more from a multi-asset portfolio. The Commodity Strategy Total Return Fund is most heavily involved in energy, with agriculture and precious industrial metals also big presences. The decline in their prices have played a factor in the fund’s decline.

Oppenheimer has also been in the spotlight of late because a lawmaker has asked the SEC to look into OppenheimerFunds and whether the firm has complied with securities laws when dealing with Puerto Rico bond investments. NY City Council Speaker Melissa Mark-Viverto believes that the firm helped to make the U.S. territory’s financial crisis worse. OppenheimerFunds is heavily invested in Puerto Rico. The Island owes more than $70B in debt.

Oppenheimer Shuts Down Its Commodity Strategy Total Return Fund, The Wall Street Journal, May 11, 2016

NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis, Stockbroker Fraud Blog, May 9, 2016

May 9, 2016

NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis

According to InvestmentNews, New York City Council Speaker Melissa Mark-Viverito is asking the U.S. Securities and Exchange Commission (“SEC”) to conduct a probe into OppenheimerFunds, Inc. (“OPY”) and its impact on Puerto Rico’s financial woes. Speaker Mark-Viverito believes that the asset-management company played a part in making Puerto Rico’s financial crisis worse by investing even more in the island’s debt. She claims that just in the last eight months, OppenheimerFunds has added $500 million to investments it made in Puerto Rican debt.

Right now, the U.S. territory owes over $70 billion in debt, which it is struggling to pay. It recently defaulted on over $370 million of a bond payment that was due this month. Another $2 billion is due in July, including around $700 million in general obligation debt.

To satisfy investor redemptions, OppenheimerFunds has sold its non-Puerto Rico bonds, which would have raised the current allocation of the asset manager’s funds to the Commonwealth. In a letter to the SEC, Mark-Viverito, who was born in Puerto Rico, urged the agency to look into whether Oppenheimer has complied with all regulations and securities laws when handling its Puerto Rican bond investments. She believes banks, hedge funds, and other investors in the territory’s general-obligation bonds and utility debt are to blame for the island’s financial woes.

Continue reading "NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis" »

April 30, 2016

Oppenheimer Still Has Substantial Funds in Puerto Rico Municipal Bond Debt

According to InvestmentNews, even with Puerto Rico heading toward default on its $72 billion in municipal debt, there are a number of funds that continue to hold the U.S. Territory’s bonds in their portfolios, such as the:

· U.S. Oppenheimer Rochester Maryland Municipal (ORMDX)—Morningstar said that as of the conclusion of February the fund had 48.2% of assets in Puerto Rican debt.

· Oppenheimer’s (OPY) Virginia municipal bond fund (ORVAX) reportedly had 40.8% of its assets in the U.S. territory.

· Eaton Vance Oregon Municipal Income (ETORX) had 9.31% of its portfolio in Puerto Rico bonds.

· MainStay Tax-Free Bond (MKINX) had 8.8%.

InvestmentNews also reports that during a conference call on April 7, management for Oppenheimer Rochester said that about half of its funds’ holdings were in COFINA bonds or general obligation bonds, both from Puerto Rico.

Continue reading "Oppenheimer Still Has Substantial Funds in Puerto Rico Municipal Bond Debt " »

March 1, 2016

Study Accuses Nearly 20% of Oppenheimer Advisers, 15% of Wells Fargo and UBS Advisers, Others of Misconduct

InvestmentNews reports that according to a new working paper by business school professors at the University of Minnesota and the University of Chicago, 7% of financial advisers have been subject to discipline for misconduct. The study noted that at certain large firms, the trend of misconduct exceeds that average. For example, found the paper, at Oppenheimer & Co., almost 20% of its advisors' records indicate misconduct.

Other advisor firms noted for their high misconduct rates included First Allied Securities at 17.7%, Wells Fargo Advisors (WFC) at 15.3%, UBS Financial Services (UBS) at 15.14%, Cetera Advisors at 14.39%, Securities America at 14.3%, National Planning Corp. at 14%, Raymond James Financial Inc. (RJF) at 13.74%, Stifel Nicolaus & Co. at 13.27%, (SF) and Janney Montgomery Scott at 13.27%. Firms with the lowest misconduct rates among its advisers included Morgan Stanley & Co. (MS), Goldman Sachs & Co. (GS), BlackRock Investment (BLK), UBS Securities, Jefferies, Prudential Investment Management, and Wells Fargo Securities, among others.

University of Chicago finance professor Amit Seru, who co-authored the working paper, titled “The Market for Financial Adviser Misconduct” called this misconduct problem “pervasive.” He also said that he believes the study did a conservative job of measuring misconduct, which ranges from behavior such as placing clients in unsuitable investments to the more extreme type, such as using client accounts to trade without their permission. Insurance products were reportedly factor in many misconduct cases.

The study noted that firms often do take action when misconduct by its advisers is discovered. About half of those caught are fired, although 44% of these individuals will typically end up going to another firm. Often these places will have higher misconduct rates, making it possible for the advisers to continue engaging in wrongful behavior. The study said that prior offenders are five times more likely to taking part in new actions of misconduct than the average adviser.

Continue reading "Study Accuses Nearly 20% of Oppenheimer Advisers, 15% of Wells Fargo and UBS Advisers, Others of Misconduct" »

July 24, 2015

SEC Probes Whether Mutual Fund Managers Are Charging Investors Undisclosed Fees

The Securities and Exchange Commission is looking into whether Franklin Templeton, Oppenheimer Funds (OPY), J.P. Morgan Chase & Co. (JPM), and other mutual fund managers are charging investors for fund fees that have not been fully disclosed. While money managers are allowed to use some of investors’ money to pay compensation to the brokers who sell a fund's shares, as well as for certain marketing purposes, the regulator wants to know whether firms are exceeding the allowed limits.

The Commission is trying to find out whether mutual fund companies have come up with ways to make extra payments to brokers by using investor assets to cover certain services, such as the consolidation of client trading records. The agency is worried that proper disclosure of these added fees are not being made to investors. The SEC is also wondering if brokers are more inclined to recommend funds that provide such additional payments, compelling them to prioritize profit over funds.

Fund companies have said that they do properly disclose fees for marketing. Oppenheimer, which is one of the companies that the SEC has investigated over this issue, has said that it doesn't bill mutual fund clients for recordkeeping costs but that the money comes from the firm.

Continue reading "SEC Probes Whether Mutual Fund Managers Are Charging Investors Undisclosed Fees" »

July 16, 2015

OppenheimerFunds Says Puerto Rico Can Repay Its $72B Debt

OppenheimerFunds Inc. (OPY) is disputing Puerto Rico Governor Alejandro García Padilla’s contention that the island cannot pay back its $72 billion debt. The New York-based mutual fund company said that based on data about income growth, sales-tax collection, and unemployment, the U.S. territory’s economy can withstand repaying creditors.

According to Bloomberg data, as of July 9, OppenheimerFunds, which is the largest holder of Puerto Rico municipal bonds, had about $4.4 billion of uninsured obligations from the island. Aside from insured debt, re-refunded securities, and tobacco bonds, these obligations make up 13.8% of Oppenheimer’s municipal fund holdings.

As Puerto Rico bonds continue to lose value—data shows that this year alone Puerto Rico bonds suffered a 9.5% loss—OppenheimerFunds’ municipal funds also have suffered. Bloomberg reports that for 2015,the company’s state funds in Arizona, Virginia, Maryland, New Jersey, and North Carolina, which all hold Puerto Rico securities, sustained the largest losses among single-state, open-end muni funds.

When García Padilla asked for wide-ranging restructuring of the territory’s debt last month, OppenheimerFunds said it would defend the terms of the bonds it holds. The firm does not believe the territory’s fiscal health will get better even if some of Puerto Rico’s agencies file for bankruptcy protection.

Continue reading "OppenheimerFunds Says Puerto Rico Can Repay Its $72B Debt" »

March 29, 2015

Oppenheimer Must Pay $2.5 Million Fine, $1.25 Million in Restitution for Not Supervising Ex-Broker

The Financial Industry Regulatory Authority is fining Oppenheimer & Co (OPY) $2.5M for not supervising Mark Hotton. The ex-broker stole from customers and excessively traded in their accounts. Oppenheimer must also pay $1.25 million in restitution.

To date, the brokerage firm has paid over $6 million to settle customer securities arbitration claims involving Hotton. This latest restitution will go to another 22 customers who did not file claims.

According to the self-regulatory organization, Oppenheimer did not properly investigate Hotton before hiring him, despite the fact that FINRA’s own records linked him to several customer complaints and criminal charges. After discovering that Hotton’s business partners sued him for bilking them out of millions of dollars, still the firm did not heighten supervision over him.

FINRA also said that Oppenheimer disregarded “red flags” in wire transfer requests and correspondence that indicated he was wiring money from customer accounts to entities that he controlled or belonged to him. Because of this, says the SRO, Hotton was able to move over $2.9 million of customer funds. (FINRA said that the firm did not properly supervise his trading of customer accounts even though its surveillance analysts noticed that he was trading at levels that appeared excessive.)

The regulator said that Oppenheimer made over 300 required filings to the SRO in an untimely fashion, with many submitted over 230 days late. Because of this, said FINRA, the public did not become aware of the serious claims made against some of the firm’s registered representatives, including Hotton, until later. By settling with the SRO, Oppenehimer is consenting to an entry of FINRA’s findings. It has not, however, admitted to or denied the charges.

Meantime, last year, Hotton was sentenced to 34 months in prison last year. Among his victims were the producers of the Broadway play “Rebeccca the Musical.” He also bilked a real estate firm in Connecticut.

The Letter of Acceptance, Waiver, and Consent
(PDF)

FINRA Sanctions Oppenheimer & Co. $3.75 Million for Supervisory Failures, FINRA, March 26, 2015


More Blog Posts:

Oppenheimer to Pay $20M Settlement to the SEC and FinCEN Over Penny Stock Violations, Stockbroker Fraud Blog, January 28, 2015

SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2014

SEC Commissioners Oppose Regulator’s Leniency Toward Oppenheimer, Despite Violations, Institutional Investor Securities Blog, February 12, 2015

January 28, 2015

Oppenheimer to Pay $20M Settlement to the SEC and FinCEN Over Penny Stock Violations

Oppenheimer & Co. (OPY) has consented to pay $20 million to resolve settlements with the U.S. Securities and Exchange Commission and the Financial Crimes Enforcement Network. The firm is accused of not properly identifying and reporting suspect trades in penny stocks. The low priced, highly speculative securities are easy to manipulate and involve in pump-and-dump scams.

At least 16 Oppenheimer customers in several U.S. states were reportedly identified as having engaged in “suspicious activity.” Admitting guilt, the broker-dealer acknowledged that it did not set up and implement a proper anti-money laundering program nor did it perform sufficient due diligence on a foreign correspondent account. Oppenheimer also said that it failed to comply with the USA PATRIOT Act’s Section 311, which allows FinCEN’s director to decide whether a foreign financial firm is a money laundering risk.

The government agency said that because Oppenheimer did not notify its foreign correspondent financial institutions of the special measures under Section 311, the firm ended up conducting business without setting up the necessary procedures, policies, and internal controls that allow it to reasonably report and detect suspect fraud activity from ’08 to ’14.

FinCEN noted that this is the second time it has penalized the Oppenheimer for similar violations. It fined Oppenheimer $2.8 million in 2015. In 2013, it was the Financial Industry Regulatory Authority that fined the broker-dealer $1.4 million for anti-money laundering failures and securities laws violations.

Meantime, in the SEC’s parallel action, the regulator noted two times between ’08 and ’10 when the firm took part in unregistered penny stock sales. One incident involved a financial adviser and his branch manger purposely engaging in the unregistered sales of 2.5 billion penny stock shares for one customer even though the shares were not registration exempt. The trades made $12 million and the firm got $588,400 in commissions. Oppenheimer is accused of not reacting to red flags or looking into whether sales were exempt from registration.

The other incident is over Oppenheimer’s possible involvement in purportedly illegal activities involving Gibraltar Global Securities, which is a broke-dealer in the Bahamas that is not registered to do business in the United States. The firm purportedly executed billions of shares of penny stocks in Gibraltar’s account and either knew or was negligent if it didn’t know that that firm was making transactions and providing brokerage services for customers, many of whom were based in the U.S.

The Commission said that Oppenheimer did not report possible misconduct by Gibraltar and its clients and, also, did not properly deal with over $3 million in backup withholding taxes in that brokerage’s account. The filing of Suspicious Activity Reports is a Bank Secrecy Act requirement.

As part of the SEC settlement, Oppenheimer is admitting wrongdoing and will pay $10 million. The other $10 million resolves the FinCEN claims.

Read the SEC Order (PDF)

FBI raids Florida firm with 'Wolf of Wall Street' link: witnesses, Reuters, January 14, 2014


More Blog Posts:

SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2014

Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges, Institutional Investor Securities Blog, January 25, 2014


Oppenheimer Told by FINRA to Pay $675,000 Fine, $246,000 Restitution over Municipal Securities Transaction Pricing, Supervisory Violations, Stockbroker Fraud Blog, December 12, 2013


December 10, 2014

SEC Headlines: Regulator Probes Oppenheimer Executive, Prepares Insider Trading Case Against Policy Research Firm, & Wants to Suspend Standard & Poor’s From Rating CMBSs

SEC Investigating Ex-Oppenheimer Executive for Securities Law Violations
According to Bloomberg.com, Robert Okin, Oppenheimer & Co.’s (OPY) former retail brokerage head, is under investigation by the Securities and Exchange Commission. In October, the agency’s enforcement division notified Okin that, based on a preliminary determination, it intended to file charges against him for securities law violations, including failure to supervise.

Okin is no longer with Oppenheimer. He resigned earlier this month to pursue “other interests.” Okin denies violating the Securities Exchange Act.


Marwood Group LLC May Be Subject to Insider Trading Charges
Earlier this month, the SEC notified Marwood Group LLC that it is looking to bring an enforcement action against the Washington policy-research firm for insider trading.

The Commission is looking at whether Centers for Medicare and Medicaid Services officials gave the firm inside information about funding for Provenge, a prostate cancer drug. The product’s manufacturer, Dendreon Corp. (DNDNQ), saw its shares drop before the CMS decided to cut coverage on the medication in 2010, as opposed to after.

According to the regulator, a year before the CMS cut coverage, a CMS employee allegedly gave a Marwood employee insider information about the reduction. A week after the reduction was officially announced, the political intelligence put out a research report that included details about the change in coverage

A Marwood spokesperson maintains that the firm did nothing wrong, noting that no one benefited financially from the information. However, SEC officials have said that such a conversation is the equivalent of insider trading.

Under the 2012 Stop Trading on Congressional Knowledge Act, public officials are obligated to keep government-related non-public data hat could shift share prices confidential.


SEC Looks to Suspend S & P from Rating Commercial Mortgage-Backed Securities
The Commission wants to suspend Standard & Poor’s from rating CMBSs. The regulator has been probing whether the credit rating agency modified criteria in 2011 to win business.

In July, the regulator sent S & P a Wells notice notifying it that the agency was pursuing an action linked to six commercial mortgage-backed securities ratings from a few years ago. The purported violations involve the public disclosure and rankings that the credit rating agency made about the securities.

It was in 2011 that the S& P withdrew the grades it issued for a CMBS offering that came from Citigroup (C) and Goldman Sachs Group (GS). This caused both institutions to drop the deal after its placement with investors.

Standard & Poor had withdrawn the rankings to assess whether there were conflicts in the way it used its methodology. It also stopped rating new CMBSs. In August of that year, however, S & P said that it would resume grading deals, noting that the conflict was not a big deal. It modified its criteria the following year and went back into the market.

SEC investigating top Oppenheimer executive
, Investment News, December 10, 2014

Marwood Grp Gets Wells Notice in Insider Trading Crackdown on 'Political Intelligence'
, Fox Business, December 9, 2014

SEC Seeking S&P’s Suspension From Rating Commercial Mortgage Bonds, Bloomberg, December 8, 2014

2012 Stop Trading on Congressional Knowledge Act (PDF)


More Blog Posts:
Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation, Institutional Investor Securities Blog, December 11, 2014

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants, Institutional Investor Securities Blog, December

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

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

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

February 14, 2014

OppenheimerFunds Increases Its Exposure to Puerto Rico Debt Despite Downgrade by Moody’s, S & P, and Fitch to Junk Status

Even though Puerto Rico’s debt has been downgraded to “junk” status by the three major ratings agencies (Standard & Poor’s, Moody’s, and Fitch Ratings), OppenheimerFunds (OPY) has increased its holding of Puerto Rican debt in two of its municipal bond funds that carry lower risk. The credit raters downgraded the US Commonwealth over worries about its failing economy and decreased ability to finance its deficits in capital markets.

According to Reuters, Lipper Inc. says that at the end of last year, the Oppenheimer Rochester Short-Term Municipal Fund's (ORSCX) exposure to Puerto Rico’s debt had risen 13% from a year ago, while its Intermediate-Term Municipal Fund more than doubled its exposure to 17%. (Details of the holdings in both funds since then are still unavailable.) Both have a 5% limit on how much junk-rated debt they can contain. However, because the US territory’s debt was downgraded after the buys were made, Oppenheimer, which is part of MassMutual Financial Group, may not obligated to unload the assets.

The company has continued to support Puerto Rico municipal bonds, even as a lot of other mutual fund firms have lowered their exposure to Puerto Rico debt. This week, Oppenheimer downplayed the investment risk involved, noting that most bonds involved are insured (Reuters reports that 27% of the holdings in the intermediate-fund and another 4% in the short-term fund, do not have insurance).

In addition to the Rochester short and intermediate bond funds, Oppenheimer has several state specific bond funds that also have significant exposure to Puerto Rican debt. Bloomberg says that the Oppenheimer funds that are focused on Pennsylvania, Massachusetts, Virginia, North Carolina, and Maryland have the largest weightings toward the US commonwealth out of all its state-specific funds —more than 25% each. Its Limited-Term New York Municipal Fund has 25% of its bonds coming from Puerto Rico as well.

Some of Oppenheimer’s funds have started to see outflows of investors because of the exposure to Puerto Rican debt. Last month, for example, investors withdrew roughly $317 million from Rochester muni bond funds. Similarly, a lot of other industry players are taking the same stance, with BlackRock Inc. (BLK), Vanguard, and others eliminating or lowering their exposure to Puerto Rico debt. On Wednesday, Fitch said that in a look at six large asset managers and their 92 municipal closed-end funds, on average Puerto Rico debt had been reduced by over 65% during the last half of last year. Two managers left their holdings completely.

Our Puerto Rico bond fraud lawyers represent investors with muni bond fraud claims against many major Wall Street firms as well as a number of Puerto Rico based firms including: UBS (UBS), Banco Santander (SAN), and Banco Popular. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.


Oppenheimer Rochester on Puerto Rico Downgrades: An Update, OppenheimerFunds, February 12, 2014

OppenheimerFunds increased Puerto Rico risk in two safer funds, Reuters, February 12, 2014

More Blog Posts:
Standard and Poor’s Reduces Puerto Rico Obligation Debt to Junk Status, Stockbroker Fraud Blog, February 6, 2014

How Can you Recover Your Loss on UBS Puerto Rico Municipal Bonds?, Stockbroker Fraud Blog, February 7, 2014


Ex-Oppenheimer Fund Manager to Pay $100K To Settle Private Equity Fund Fraud Charges, Institutional Investor Securities Blog, January 25, 2014

December 12, 2013

Oppenheimer Told by FINRA to Pay $675,000 Fine, $246,000 Restitution over Municipal Securities Transaction Pricing, Supervisory Violations

The Financial Industry Regulatory Authority says Oppenheimer & Co., Inc. (OPY) must pay a $675,000 fine purportedly charging customers unfair prices in municipal securities transactions and not having a proper supervisory system in place to detect such activities. The firm must pay $246,000 in restitution, in addition to interest, to customers that were affected. The SRO is ordering David Sirianni, the head municipal securities trader at Oppenheimer, to pay a $100,000 fine and serve a 60-day suspension.

According to FINRA, from 7/1/08 through 6/30/09, Oppenheimer, via Sirianni, charged 89 customer transactions at 5.01% to 15.57% over its contemporaneous cost. (The markup was over 9.4% in over 50 of these transactions). The SRO said that it was Sirianni’s job to decide what prices the customers paid for these transactions. He was the one who bought the municipal securities for Oppenheimer, kept them in inventory, and then resold them to Oppenheimer clients.

FINRA contends that Oppenheimer should have but did not notice that customers were being charged prices that were unfair. The regulator believes it is because the firm has an inadequate supervisory system and that personnel only depended on a surveillance report showing intra-day transactions when assessing whether municipal securities transactions were fairly priced. It said that from around 2005 through the middle of 2009, sales made to some Oppenheimer customers were not included in the report or reviewed for fair pricing.

While Oppenheimer is settling FINRA’s charges, it is not denying or admitting to the allegations.

Contact our municipal fraud lawyers today.

FINRA Fines Oppenheimer $675,000 and Orders Restitution of More Than $246,000 for Charging Unfair Prices in Municipal Securities Transactions and for Supervisory Violations, FINRA, December 9, 2013

Finra Fines Oppenheimer, Trader For Alleged Unfair Pricing, The Wall Street Journal, December 9, 2013

More Blog Posts:
Oppenheimer & Co. to Pay $1.4M to FINRA For Allegedly Unregistered Penny Stock Sale & Anti-Money Laundering Violations, Stockbroker Fraud Blog, August 5, 2013

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud
, Stockbroker Fraud Blog, April 19, 2013

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

August 5, 2013

Oppenheimer & Co. to Pay $1.4M to FINRA For Allegedly Unregistered Penny Stock Sale & Anti-Money Laundering Violations

The Financial Industry Regulatory Authority says that Oppenheimer & Co. (OPY) will pay a $1,425,000 fine for the purported sale of penny stock shares that were unregistered and for not having an anti-money laundering (AML) compliance program that was adequate enough to identify and report suspect transactions. The financial firm also must get an independent consultant to perform a comprehensive review of its AML procedures, systems, and policies and its penny stock.

According to the SRO, from 8/18/08 to 9/20/10, Oppenheimer sold over a billion shares of twenty penny stock that were low-priced and very speculative but were not registered or lacked an exemption that was applicable. Soon after opening accounts, customers deposited huge blocks of penny stock and then liquidated them, moving proceeds out of the accounts.

FINRA contends that each sale came with “red flags” that should have spurred the firm to additional review to find out whether or not these were registered sales but that adequate supervisory assessment did not happen.The regulator also believes that Oppenheimer’s procedures and systems over penny stock transactions were not adequate and that because its AML program wasn’t focused on securities transactions it was unable to detect patterns of suspect activity linked to penny stock trades.

By agreeing to settle, Oppenheimer is not denying or admitting to the charges. It has, however, consented to the entry of findings. This is the second time Oppenheimer has purportedly violated AML obligations.

Penny Stock
According to the Securities and Exchange Commission, these are stocks that trade for under $5. Most of them are risky investments with low trading volumes. Companies trade penny tocks primarily on Pink Sheets and the OTCBB (OTC Bulletin Board). They are at risk of the types of market manipulation that are harder to conduct when the stocks are on NYSE or Nasdaq. Penny stocks are “micro-cap stocks.”

It is important that investors exercise caution when investing in penny stocks. The opportunity for big profit is countered by an even bigger possibility of large losses.

According to Investopedia, four factors that make penny stock more high risk than blue chip stocks:

Not enough information available to the public: A lot of data about micro-cap stocks don’t come from credible sources and companies found on pink sheets don’t have to file with the SEC.

Lack of minimum standards: Stocks found on pink sheets and the OTCBB don’t have to satisfy minimum standard requirements to stay on the exchange. Companies that are unable to stay on a major exchange can go to a smaller one.

Insufficient history: A lot of companies that are considered to have micro-cap stocks are either new or close to bankruptcy. Track records for projecting success will be nonexistent or poor.

Lack of liquidity: It could be hard to sell the stock and/or an investor might have to lower price to get a buyer. Low liquidity makes it easier to manipulate stock prices. The pump and dump scam of penny stock is a favorite of fraudsters.

Contact one of our penny stock fraud lawyers to find out whether you have a case.

FINRA Fines Oppenheimer & Co., Inc. $1.4 Million for Sale of Unregistered Penny Stocks and Anti-Money Laundering Violations, FINRA, August 5, 2013

The Lowdown On Penny Stocks, Investopedia


More Blog Posts:
Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit, Stockbroker Fraud Blog, November 19, 2011

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

April 19, 2013

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud

A FINRA arbitration panel is ordering ex-broker Karl Hahn, who previously worked with Bank of America Corp's (BAC) Merrill Lynch (MER), Oppenheimer & Co. (OPY), and Deutsche Bank AG’s (DB) Deutsche Bank Securities, to pay investor Chase Bailey $11 million because he sustained about $6 million in losses allegedly caused by securities fraud. Bailey contends that Hahn made excessive trades and misrepresented securities related to transactions involving a number of investments, including a variable annuity, approximately $2.3 million in fraudulent real estate financing involving East Coast properties, and covered calls.

In the filmmaker/Internet entrepreneur’s securities arbitration claim, Bailey named the three financial firms where Hahn previously worked. It is during this period that Bailey was allegedly defrauded. (He had moved his funds from one brokerage firm to the other each time Hahn was hired by that employer.) Bailey settled his case with Merrill for $700,000, while claims against Deutsche Bank and Oppenheimer were tossed out.

Per the FINRA arbitration ruling, Bailey is awarded $6.4 million in punitive damages and $4.1 million in compensatory damage. Ordering brokers to pay punitive damages is uncommon.

In February, Deutsche Bank & Hahn were ordered to pay $934,000 to Susan and Michael Myers. The couple, who had sued on their behalf and for a number of trusts, had claimed civil fraud, while contending that financial firm had negligently supervised Hahn, who worked in its private wealth management division between 2008 and 2009.

The Myerses had bought high-risk life insurance in which policyholders use loans usually tied to variable interest rates to finance premiums. Hahn, who advised the couple via Deutsche Bank, allegedly failed to tell them that his dad would get a “significant” commission from that life insurance policy. They said that this might have been the reason he recommended that they invest in the policy. (Brokers are not supposed to make investment recommendations that will benefit them or those that they know.) The Myerses claimed substantial losses.

Hahn has been involved in other securities cases. He was charged with wire fraud involving an alleged $1.1 million real estate scam in 2010. He also was involved in a $2.55 million federal court judgment that Deutsche Bank obtained in 2012. That lawsuit involved the unpaid balance of a $2.8 million bonus he got when he joined the financial firm.

Contact Our Securities Fraud Law Firm
If you believe that you too were the victim of securities fraud involving Mr. Hahn or another broker, please contact Shepherd Smith Edwards and Kantas, LTD LLP today to request your free case evaluation. You may have reason to file your own stockbroker fraud claim.

Ex-Merrill, Deutsche Bank Broker Ordered to Pay Client $11 Million, Fox, April 5, 2013

U.S. panel orders Deutsche Bank, ex-adviser to pay $934,000, Reuters, February 14, 2013


More Blog Posts:
Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

UBS Loses Appeal to Have FHFA’s $6.4 Billion MBS Fraud Lawsuit Dismissed, Institutional Investor Securities Blog, April 18, 2013

June 13, 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

Former Sentinel Management Group Inc. CEO Eric Bloom and head trader Charles Mosley have been indicted for allegedly defrauding investors of about $500 million prior to the firm’s filing for bankruptcy protection in 2007. The government is seeking forfeiture of approximately that amount.

The two men are accused of fraudulently getting and retaining “under management” this money by misleading clients about where their money was going, the investments’ value, and the associated risks involved. According to prosecutors, defendants allegedly used investors’ securities as collateral to get a loan from Bank of New York Mellon Corp. (BK), in part to buy risky, illiquid securities. Bloom is also accused of causing clients to believe that Sentinel’s financial problems were not a result of these risky purchases, the indebtedness to the BoNY credit line, and too much use of leverage.

In other securities law news, Egan-Jones Rating Co. wants the Securities and Exchange Commission’s attempts to pursue claims against it in an administrative forum instead of in federal court blocked. The credit rating agency, which has long believed that the SEC does not treat it fairly even as it “historically coddled and excused” the larger credit raters, contends that if it were forced to make its defense in an administrative hearing it would not be able to avail of its constitutional due process rights due to the SEC’s bias.The Commission’s administrative claims accuse Egan Jones and its president Sean Egan of allegedly making “material misrepresentations” in its 2008 registration application to become a nationally registered statistical rating agency for government and asset-backed and securities issuers.

Egan-Jones filed a complaint accusing the SEC of “institutional bias,” as well as of allegedly improper conduct when examining and investigating the small credit ratings agency (including having Office of Compliance Inspections and Examinations staff go “back and forth between divisions and duties” to engage in both examination and enforcement roles.)The credit rater is also accusing the Commission of improperly seeking civil penalties against it under the Dodd-Frank Wall Street Reform and Consumer Protection Act, even though the actions it allegedly committed happened way before Dodd-Frank was enacted.

One firm that has agreed to settle the SEC’s administrative action against it is OppenheimerFunds Inc. Without denying or admitting to the allegations, the investment management company will pay over $35 million over allegations that it and its sales and distribution arm, OppenheimerFunds Distributor Inc., made misleading statements about the Oppenheimer Champion Income Fund (OPCHX, OCHBX, OCHCX, OCHNX, OCHYX) and Oppenheimer Core Bond Fund (OPIGX) in 2008.

The SEC contends that Oppenheimer used “total return swaps” derivatives, which created significant exposure to commercial mortgage-backed securities in the two funds, but allegedly did not adequately disclose in its prospectus the year that the Champion fund took on significant leverage through these derivative instruments. OppenheimerFunds also is accused of putting out misleading statements about the financial losses and recovery prospects of the fund when the CMBS market started to collapse, allegedly resulting in significant cash liabilities on total return swap contracts involving both funds. The $35 million will go into a fund to payback investors.

Meantime, Nasdaq Stock Market and Nasdaq OMX Group are proposing a $40M “voluntary accommodation” fund that would be used to payback members that were hurt because of technical problems that occurred during Facebook Inc.’s (FB) IPO offering last month. Nasdaq would pay about $13.7 million in cash to these members, while the balance would be a credit to them for trading expenses.

A technical snafu had stalled the social networking company’s market entry by about 30 minutes, which then delayed order confirmations on May 18, which is the day that Facebook went public. Many investors contend that they lost money as a result of Nasdaq’s alleged mishandling of their purchases, sales, or cancellation orders for the Facebook stock. Some of them have already filed securities lawsuits.

Sentinel Management Chief, Head Trader Indicted in Illinois
, Bloomberg/Businessweek, June 1, 2012

Investors sue Nasdaq, Facebook over IPO, Reuters, May 22, 2012

Credit Rater Egan-Jones, Alleging Bias, Sues To Force SEC Proceeding Into Federal Court, BNA Securities Law Daily, June 8, 2012

OppenheimerFunds to pay $35M to settle SEC charge, Boston.com, June 6, 2012

Continue reading "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" »

November 19, 2011

Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit

A federal court has decided that Oppenheimer municipal bond fund holders can go ahead with their securities fraud complaint against Oppenheimer Funds. The plaintiffs of In re Oppenheimer Rochester Funds Group Securities Litigation are alleging federal securities law violations. Funds involved included:

• AMT-Free Municipals Fund
• Rochester National Municipals Fund
• AMT-Free New York Municipals Fund
• Rochester Fund Municipals
• California Municipal Fund
• Pennsylvania Municipal Fund
• New Jersey Municipal Fund

The shareholders of seven municipal bonds had their securities fraud lawsuits consolidated into one case in two years ago. They are claiming that the Oppenheimer Funds neglected to reveal in their registration and prospectus statements that risks were being taken that weren’t in line with their declared strategy and investment goals. The investors argued that even as the funds explicitly said that preserving capital was a clear investment goal, the true objective was one of “high-risk, high-return.” Seeing as certain market conditions were foreseeable, the shareholders believe this placed their capital at great, undisclosed risk, which did come to fruition during the credit crisis of 2007-2008. This is when the Funds’ holding in highly leveraged, complex securities set off cash reserve and payment duties that required for the assets be sold under conditions that most likely were not to the funds’ advantage. The plaintiffs say that because of this, the funds underperformed compared to other municipal bond funds.

They are also claiming that the significant drop in the Funds’ shares’ values can be linked to the deviations between the stated and actual objectives. After investors were notified in October and November 2008 via prospectus supplements of what the Funds’ investments true liquidity risks were, share prices then went crashing. The net asset value of the 7 funds dropped by about 30-50% that year while similar municipal bonds only went down by 10-15%.

The defendants moved to dismiss the consolidate case, claiming that the investors’ losses were triggered by the credit crisis and not because of what was written (or not included) in the funds’ prospectuses. They also argued that they were making a forward-looking statement when they made the “preservation of capital” a goal and had adequately disclosed the risks involved.

In the U.S. District Court, District of Colorado, the federal judge turned down the Defendants’ motion to toss out the consolidated lawsuits. Judge John L. Kane, Jr. also rejected their claim that federal securities laws exempts mutual funds from liability because drops in those funds’ value are a result of corresponding downturns in the funds’ investments’ value and not of statements (whether true or false) in their prospectuses.

Oppenheimer Rochester Funds Lose Dismissal Bid, Face Trial, Bloomberg/Business Week, October 25, 2011

Oppenheimer Muni Bond Investors May Sue Over Alleged Misstatements in Prospectuses, BNA Securities Law Daily, October 26, 2011


More Blog Posts:
8/31/11 is Deadline for Opting Out of $100M Oppenheimer Mutual Funds Class Action Settlement, Stockbroker Fraud Blog, August 17, 2011

Oppenheimer Champion Income Fund Resulted In Significant Financial Losses for Investors from Citigroup, UBS, Merrill Lynch, and Other Large Financial Firms, Stockbroker Fraud Blog, August 16, 2010

Chase Investment Services Corporation Ordered by FINRA to Pay Back $1.9M for Unsuitable Sales of Floating-Rate Loan Funds and UITs, Institutional Investor Securities Blog, November 19, 2011

Continue reading "Oppenheimer Funds Investors Can Proceed with Their Securities Fraud Lawsuit" »