December 13, 2010

Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients

Sanjeev Jayant Kumar Shah, a former Smith Barney financial services adviser, has pleaded guilty to one count of securities fraud and three counts of wire fraud over his involvement in a securities scam to bilk clients of Citibank and his firm. Shah was charged with diverting about $3.25 million from a foreign bank client and fabricating documents that he claimed were from bank representatives.

He is also accused of falsely saying that the transfers were required for bond purchases and that he would send statements showing these purchases. Prosecutors say that he attempted to cover up the scam by telling clients that a computer mistake had kept the bonds from showing up online bank statements and that had had bought the bonds for the bank.

The securities fraud charge comes with a 20 year maximum penalty plus a fine. Each wire fraud charge carries a maximum 30 years in prison penalty and also a fine.

Shah was at Citigroup unit Smith Barney for 3 ½ years. Citigroup says that it was the one that brought the case to the attention of the Department of Justice.

Securities Fraud
Our securities fraud lawyers are committed to helping our clients recover their financial losses. The most common investor claims against brokers and investment advisers can involve issues such as:

• Unsuitability
• Registration violations
• Margin account abuse
• Unauthorized trading
• Breach of fiduciary duty
• Breach of contract
• Failure to execute trades
• Overconcentration
• Negligence
• Churning
• Misrepresentation and omissions
• Failure to supervise

Read the guilty plea, Justice.gov, November 24, 2010 (PDF)

Former Smith Barney adviser admits $3 million fraud, Reuters, November 24, 2010

Former Smith Barney adviser admits $3 mln fraud, CNBC, November 24, 2010

Continue reading "Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients" »

September 9, 2010

Morgan Stanley, UBS, Wells Fargo, and Merrill Lynch Recruit Other Investment Firms’ Brokers

UBS AG unit UBS Wealth Management Americas recently recruited Bank of America Corp.'s Merrill Lynch financial adviser Nina Hakim to join its Westfield, New Jersey office. Hakim, who reportedly managed $300 million in client assets and generated $1.5 million in commissions and fees, will now report to UBS branch Manager Erik Gaucher.

Another new addition to the UBS team is Morgan Stanley Smith Barney adviser Raymond Schmidtke, who will be based in Seattle, Washington. According to regulatory records, Schmidtke, was employed by Citigroup Inc. for over two decades and stayed at the MS joint venture for a year. He reportedly had close to $100 million in assets under management and $1 million in annual production. He now reports to UBS branch manager Shawn MacFarlan.

In other investment adviser news, a team of now former Wells Fargo Advisors advisers has joined Morgan Stanley Smith Barney. Francis Schiavetti and Ben Dembin’s base will be the Boca Raton, Florida office. The team reportedly manages $107 million in client assets and produces approximately $1.2 million in commissions and annual fees. The two men both were employed by Wells Fargo and predecessor firm Wachovia Securities before joining the Morgan Stanley Smith Barney team.

In August, the Financial Industry Regulatory Authority fined and censured Morgan Stanley $800,000 for not making public disclosures, which is required under the SRO’s rules that oversee research-analyst conflicts of interest. FINRA claims that the financial firm also did not comply with a key 2003 Research Analyst Settlement provision when it failed to disclose independent research availability in customer account statements. Every six months, for the next two years, Morgan Stanley must now review a sample of its research reports and certify that they are in compliance with FINRA’s rules.

Related Web Resources:
Hires Merrill Lynch, Morgan Stanley Brokers, Fox Business, August 24, 2010

Morgan Stanley Adds Team From Wells Fargo, Faces FINRA Fine, Investment Advisor, August 24, 2010

FINRA Fines Morgan Stanley $800,000 for Deficient Conflict of Interest Disclosures in Equity Research Reports and Public Appearances by Research Analysts, FINRA, August 10, 2010

Continue reading "Morgan Stanley, UBS, Wells Fargo, and Merrill Lynch Recruit Other Investment Firms’ Brokers" »

July 2, 2008

Citigroup’s Smith Barney Draws Ire of Investors and Its Own Brokers Over ASTA/MAT and Falcon Funds

Citigroup is offering to cover some of the losses of investors involved with certain hedge funds sold by the firm’s Smith Barney brokerage unit. Citigroup and Smith Barney brokers allegedly recommended the funds, ASTA/MAT and Falcon, to investors looking for conservative investments.

Citigroup marketed the hedge funds as being ideal for retirees and other investors seeking safe investments, and Smith Barney raised hundreds of millions of dollars for the funds. The funds were reportedly marketed to investors as low-risk and accompanied by only a minimal probability of loss when, in fact, they came with high levels of risk—information that was kept from investors.

Last year, Citigroup told Smith Barney and Citigroup bankers to market the funds to their best clients. These clients were not informed that the new pitch initiative was an effort to inject new funds into Falcon, which had dropped by over 10%. The fund would be worth 25% of its original value by the end of March 2008.

In February, Citigroup disclosed to the SEC that it gave the Falcon funds a $500 million line of credit. The firm later said it would consolidate the funds’ $10 billion in assets and liabilities on its balance sheet. Citigroup said it would reimburse investors for part of their losses.

However, critics say that this complex partial compensation plan will allow each investor to get back about 25 cents for every dollar invested—only 28% of their losses. Smith Barney brokers have also voiced concerns that the plan is designed to give customers just enough so they won’t file lawsuits.

Last week, our securities fraud law firm announced that we are investigating claims for investors that lost money in Falcon and ASTA/MAT hedge funds. Any investors that accept Citigroup’s offers will forfeit their right to file a lawsuit against the company, so why not schedule a free consultation with our stockbroker fraud law firm for a free consultation to explore your legal options first? Contact Shepherd Smith Edwards & Kantas LTD LLP today.


Related Web Resources:

The Law Firm of Shepherd Smith Edwards & Kantas LTD LLP Investigates Losses in Falcon Hedge Funds, Primenewswire.com, July 2, 2008

Citigroup Acts to Bolster Hedge Funds, New York Times, March 11, 2008

Citigroup Smith Barney

July 24, 2007

Citigroup's Smith Barney Unit Ordered to Pay $50 Million over Widespread Fraud Charges

In one of its final regulatory acts before being folded into the NASD, the New York Stock Exchange’s regulatory unit has censured and fined Smith Barney $50 million over illegal trades, failures to supervise and record-keeping violations. The firm agreed to the sanctions without admitting or denying the charges.

The Smith Barney unit of Citigroup Global Markets Inc. will pay a fine of $10 million to the NYSE, and a fine of $5 million to the State of New Jersey, related to a "separate regulatory matter arising out of the same conduct." An additional $35 million will be paid into a restitution fund to compensate victims.

The NYSE regulators say Smith Barney agreed to these huge sanctions to resolve charges related to a variety of fraudulent trading activities, including excessive trading, improper trading in mutual fund shares, improper trading in variable annuity mutual fund sub-accounts, illegal market timing trades, plus the firm’s failures to supervise and to maintain adequate books and records.

The market timing charges also included deceptive acts to conceal the identities of the brokers involved as well as their customers, said the NYSE adding that, during a two year period, Citigroup financial consultants engaged in 250,000 market timing trades, generating approximately $32.5 million in gross revenues.

Shepherd Smith and Edwards represents investors nationwide in claims against members of the securities industry. We have helped numerous clients to recover in claims against both Smith Barney and Citicorp. To learn whether we can also assist you to recover contact us to arrange a free consultation with one of our attorneys.

June 18, 2007

NASD Says Citigroup To Pay $15.2 Million For Misleading BellSouth Retirees

Citigroup Global Markets Inc is being charged $3 million by NASD to settle charges connected to misleading materials it allegedly gave Bellsouth employees during retirement meetings and seminars held in North Carolina and South Carolina. NASD also says that Citigroup has to pay over 200 ex-Bellsouth employees $12.2 million in restitution. The latter comes came from a civil class action involving Smith Barney, which had tried to get the case dismissed under SLUSA.

NASD says that Citigroup neglected to properly supervise certain brokers located in Charlotte, North Carolina that used the misleading sales materials during numerous meetings with BellSouth Corp. employees. The materials made “exaggerated and unwarranted projections of future earnings” and did not elaborate on the related risks of making certain investments.

Following these presentations, over 400 BellSouth employees opened more than 1100 accounts via these brokers. Many of their investors had retired early from BellSouth and had less than $350,000 in savings. Many of them cashed out their 401(k) accounts and pensions and invested these funds with the Citigroup brokers.

Also disciplined by the NASD:

*Jeffrey Sweitzer, who developed the sales campaigns, directed many of these seminars, drafted the misleading materials, and managed the brokers. He suspended for 18-months and ordered to pay a $125,000 fine.

*Matthew Muller was suspended for $9 months and ordered to pay $50,000 for his participation in numerous seminars and in-person meetings.

*Joseph Zentner received a 30-day suspension and was fined $30,000 for helping Sweitzer prepare some of the misleading materials.

All three men are being ordered to complete 40 hours of training on complying with federal securities laws and NASD rules.

*Randall Matz, a branch office manager, was suspended from his supervisory role for 90 days and fined $60,000.

*Elizabeth Harris, a branch operations manager, was also suspended from acting as a supervisor for 45 days. She is being ordered by NASD pay a $30,000 fine. Both must pass an NASD Qualification Exam before they can return to these roles.

All parties, including Citigroup, agreed to the suspensions and fines without admitting to or denying the charges.

Shepherd Smith and Edwards has represented many former employees of telephone companies with similar complaints against various brokerage firms. We have an excellent track record for helping these investors recover their losses. If you are an investor who has lost money because of the misconduct of broker-dealers or anyone else in the securities industry, contact Shepherd Smith and Edwards to schedule your free consultation.

Related Web Resources:

Citigroup to pay $15.2 million for misleading retirees, Reuters, June 6, 2007

Citigroup Global Markets to Pay Over $15 Million to Settle Charges Relating to Misleading Documents and Inadequate Disclosure in Retirement Seminars, Meetings for BellSouth Employees, P.R. Newswire

April 10, 2007

Citigroup May Reduce Compliance in Cost Cutting Move.

At a time when The New York Stock Exchange is paying-off National Association of Securities Dealers members to take over its compliance responsibilities, private firms are seeking to reduce oversight evern further. For decades the securities industry has insisted its self-regulatory structure works best to protect the public. Yet, after massive fraud was discovered on Wall Street and billions lost by investors, instead of tighter reins on the industry oversight is shrinking.

The latest to reduce compliance may be Citigroup, now the largest financial firm on Wall Street, culminating with the amalgamation of Smith Barney and a number of other fiancial firms. According to the New Yok Times, after "a series of messy scandals", including questionable research and alleged participation in such failures as Enron and WorldCom, Citigroup increased its compliance efforts. Yet, in an article this week, the Times states that that firm is now poised to reduce oversight of its operations.

Under pressure from investors, Citigroup CEP Charles O Prince, III will soon to release plans for a cost-cutting overhaul. Prince's plan is reportedly to eliminate or reassign more than 26,000 jobs, or about 8 percent of the work force, as part of a broad effort to streamline the bank’s unwieldy global operations and get its costs under control. Citigroup’s consumer and investment banking businesses are expected to face severe cuts, but legal and compliance departments are likely to also take a hit, according to those who have been briefed on the plans.

Wall Street firms have not only managed to survive the rash of scandals, thanks to a friently court system, but have actually posted record profits. Meanwhile, while Citigroup has itself joined in the prosperity on Wall Street, its investors apparently beleive compliance is actually an "unnecessary evil". WIth less threat of regulation and lawsuits, perhaps Citigroup's gamble to reduce compliance will pay-off.

Citigroup officials insist that changes would be an effort to improve efficiency and coordination, not relax controls and that any effort to “optimize compliance” was distinct from the expense review. “We remain utterly committed to a strong control environment,” said Christina Pretto, a Citigroup spokeswoman. “It’s about getting things to work as efficiently and effectively as they can.” Observers note that one would hardly expect the firm to admit otherwise.

More recently, a series of rapid, huge eurobond trades by Citigroup bankers, referred to as a “Dr. Evil” trading strategy, roiled markets in Europe in August 2004. That fall, Citigroup’s private bank had a run-in with Japanese regulators over lax money laundering controls. For more than a year, Citigroup was banned by the Federal Reserve from making a big acquisition until its financial house was in order. Some suggest that the firms compliance has made it difficult to be competitive.

While Mr. Prince laid out a strategy to deliver internal and international growth, signs of progress on the financial front, so far, have been hard to find. In the face of growing investor pressure, Mr. Prince has cut back on some planned investment spending and placed a greater emphasis on acquisitions, including a $427 million purchase of the Bank of Overseas Chinese, based in Taiwan, that it announced yesterday.

But investors are also looking to see whether Mr. Prince can get the bank’s high costs in line. Alongside the expense review that Mr. Druskin is leading, Citigroup’s new chief financial officer, Gary L. Crittenden, is reviewing the company’s overall finances and operations.

January 23, 2007

American Association for Justice Asks SEC To Publicly Disclose Relationship To Merrill Lynch

The AAJ (American Association for Justice) is asking Securities and Exchange Commission Chairman Chris Cox and General Counsel Brian Cartwright to address media reports that the SEC thought about supporting Merrill Lynch & Company during attempts by Enron shareholders to hold Enron banks accountable. The AAJ wants the SEC to publicly disclose the extent of its connections to Merrill Lynch.

On January 12, 2007, the AAJ turned in to the SEC a Freedom of Information Act request. The AAJ wants the SEC to disclose if, how, and when they communicated with Merrill Lynch regarding Enron and whether Counsel Cartwright and Chairman Cox have recused themselves from the Enron case because they had both once worked for the law firm (Latham and Watkins) representing Merrill Lynch. Also, the Center for Responsive Politics is reporting that Latham & Watkins was Chairman Cox’s largest contributor while he served in the U.S. Congress. The law firm reportedly contributed $124,594 on two separate occasions.

At least 30 states are supporting the Enron shareholders who have filed lawsuits against investment banks that are accused of taking part in accounting fraud because of the Enron scandal. Merrill Lynch is one of these banks.

Attorneys for the investment bank recently requested that the SEC file a brief supporting the firm in front of the U.S. Fifth Circuit Court of Appeals in New Orleans. According to an AP reporter, the SEC considered the request, although it had won tens of millions of dollars from Citigroup Inc., Merrill Lynch, and JP Morgan Chase & Co. because of their participation in the Enron Scandal in 2003.

According to AAJ Chief Executive Officer Jon Haber, "In light of the troubling reports that the SEC, at the request of a major Wall Street bank involved in the Enron scandal, considered interceding in a way that could harm shareholders, the public has a right to know if the fox is guarding the hen house. This is just the latest in a series of audacious moves by some in corporate America to roll back the Enron reforms and avoid accountability.''

Shepherd Smith Edwards & Kantas LTD LLP is dedicated to assisting investors nationwide to recover losses caused by inappropriate actions of stockbrokers and their firms. For more information, contact Shepherd Smith Edwards & Kantas LTD LLP today.

Related Web Resources:

Merrill Lynch

American Association for Justice

U.S. Securities and Exchange Commission