January 28, 2014

Ex-UBS Global Wealth Chief Exposed by Whistleblower Pleads Not Guilty To Tax Fraud Conspiracy

Raoul Weil, who previously served as head of UBS (UBS)’s Global Wealth Management division, has pleaded guilty to fraud conspiracy charges related to a US tax investigation probe involving the Swiss bank. Weil, 54, is accused of conspiring to help thousands of American citizens hide $12 billion at the bank.

Until his arrest last year, Weil was listed as a fugitive in the United States. In federal court in Florida, he was allowed a $10.5 million bond. His first court hearing will be in December. He has until February 12 to reverse his plea to guilty. If convicted, however, he could end up in prison for conspiracy to commit tax fraud for up to five years.

Weil was indicted because of information that UBS whistleblower Bradley Birkenfeld provided to the US Department of Justice and the Internal Revenue Service. The latter, also a former UBS banker, has since been awarded $104 million for helping the federal government start an international crackdown on tax evasion that wealthy Americans had been engaging in for decades through Swiss banks.

Birkenfeld, 47, gave prosecutors details about how UBS engaged in tax evasion and even confessed to engaging in errand running for rich clients. In 2009, the bank settled with the US for $780 million to resolve a criminal case over secret offshore accounts. UBS also turned over the names of over 4,000 US taxpayers who were account holders.

Since Birkenfeld’s whistleblower case, over 33,000 US taxpayers have admitted to keeping undeclared accounts overseas and they have had to pay over $5 billion in penalties and taxes. Birkenfeld, who pleaded guilty to one count of conspiracy to defraud the US was sentenced to 40 months. (A US law allows the IRS to pay up to 30% to a whistleblower for exposing wrongdoing—convicted felons are not precluded from this benefit.)

Puerto Rico Bond Fraud
In other UBS news, the bank has been embroiled in trouble over municipal bonds sold by its UBS Puerto Rico unit. Investors are now flocking to securities lawyers to file securities claims and lawsuit alleging municipal bond fraud that has even cost some of them their life savings. Many say that UBS brokers told them not only to get involved in UBS Bond funds, including the Tax Free Puerto Rico Fund II, but also, these financial representatives recommended that they borrow funds either via a margin account or more traditional methods so that they invest even more money in these proprietary funds. Now, it is these municipal bond fund investors who must deal with the financial losses.

Our Puerto Rico bond fund lawyers represent investors that invested in muni bonds through UBS, Banco Santander, and Banco Popular. Contact Shepherd Smith and Edwards and Kantas, LTD LLP today.

Former UBS banker Raoul Weil pleads not guilty to helping Americans dodge taxes, The Telegraph, January 7, 2014

Whistleblower Gets $104 Million, Wall Street Journal, September 11, 2012


More Blog Posts:
Billions of Dollars Have Already Been Lost by Investors in Puerto Rico Closed-End Funds that were Sold by UBS, Stockbroker Fraud Blog, January 10, 2014

Detroit, MI Can’t Pay $165M to UBS & Bank of America For Swaps Deal, Rules Judge, Institutional Investor Securities Blog, January 21, 2014

Fannie Mae Sues UBS, Bank of America, Credit Suisse, JPMorgan Chase, Citigroup, & Deutsche Bank, & Others for $800M Over Libor, Institutional Investor Securities Blog, December 14, 2013

January 10, 2014

Billions of Dollars Have Already Been Lost by Investors in Puerto Rico Closed-End Funds that were Sold by UBS

According to new research from a consulting group, the losses of investors who purchased UBS Puerto Rico closed-end municipal bond funds is now in the billions of dollars. During the first nine months of 2013 alone, reports InvestmentNews.com, 19 of UBS’s Puerto Rico closed-end funds lost $1.6 billion. The ones that lost the most were reportedly the funds with big muni bond holdings that were underwritten by UBS.

UBS Financial Services, Inc.’s Puerto Rico unit put together and sold roughly $10 billion in closed-end bond funds between 2002 and 2012. As the funds were only registered to be sold in Puerto Rico, they were largely composed of Puerto Rico municipal bonds and could be sold only to Puerto Rican residents, who have now been hit with huge losses as the value of Puerto Rican debt has fallen sharply over the last few months.

In addition to UBS’s bond funds, other bond funds that have purchased Puerto Rican debt and investors holding individual Puerto Rican bonds in the US have been significantly impacted. In fact, if Puerto Rico were to default on its debt, the impact would be far reaching. According to Forbes.com, a default in Puerto Rico would change the price of the whole $3.7 trillion US municipal bond market, which could cost municipalities and states in the US billions of dollars in interest rate charges. Already, investors on the mainland found themselves paying close to $10 billion last year because Puerto Rico’s $52 billion in bonds were down 20% on average.

Please contact our Puerto Rico bond fund lawyers if you bought closed-end bond funds, other municipal bond funds or Puerto Rican bonds from UBS, Banco Santander (SAN.MC), Banco Popular, or other brokerage firms in Puerto Rico and the US. Our securities fraud law firm represents muni bond investors in the mainland and the commonwealth. Your case consultation with us is free.

Could a Puerto Rico Default Hammer the $3.7 Trillion U.S. Muni Bond Market in 2014?, Forbes, January 3, 2014

UBS Puerto Rico closed-end muni investors losing billions, Investment News, January 6, 2014


More Blog Posts:
UBS Bank USA No Longer to Offer Loans Collateralized with Puerto Rico Securities, Stockbroker Fraud Blog, December 28, 2013

Puerto Rico Reportedly Among Those that Engaged in "Scoop & Toss" Tactic with Municipal Bonds, Stockbroker Fraud Blog, December 7, 2013

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

December 14, 2013

Moody's Reassessment of Puerto Rico Bonds Does Nothing to Relieve Investor Worries

One day after Moody’s Investor Service placed Puerto Rico’s general obligation bonds rating of Baa3 on review for downgrade to junk status, the credit rating agency affirmed the ratings it had earlier in the year given four banks: Banco Santander Puerto Rico, Popular Inc. and its subsidiaries, FirstBank Puerto Rico, and Doral Financial Corporation, as well as the ratings for senior bonds put out by Doral Financial and Banco Santander Puerto Rico through the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority. The ratings outlook for First Bank, Popular, and Doral Financial stayed negative, as did Banco Santander Puerto Rico’s BFSR/BCA. (However, the outlook on that bank’s supported deposit and debt ratings are stable due to the bank’s affiliation with Santander Bank NA, which is a US affiliate.)

Puerto Rico, which is a major municipal bond issuer, has been close to or in recession for nearly a decade and has over $70 billion in debt. Moody’s said it is worried about the territory’s growing dependence on outside short-term debt, “weakening liquidity,” limited market access, and its poor economy. The credit rater believes that the fiscal and economic challenges that the territory continues to face will keep threatening the “health of the banking system.” Noting that the banks’ non-performing assets continue to remain negative relative to banks in the US mainland, the agency said that this could result in more losses if things don’t get better.

Unfortunately, many investors who got involved in Puerto Rico muni bonds were not apprised of the risks or could have never handled the high risks to begin with. Some investors have lost their retirement or life savings as a result.

In the last several months, many Puerto Rican investors who had accounts with UBS Financial Services Inc. (UBS), Banco Santander (SAN.MC), and Banco Popular have come forward complaining of significant losses in their accounts due to the fall in Puerto Rican municipal bonds or products tied to those investments. Our securities fraud lawyers have agreed to take on a number of these municipal bond cases and we are continuing to meet with investors in the US and in Puerto Rico.

Among those being blamed for the losses is UBS broker David Lugo. One of our clients has already filed a FINRA arbitration case against UBS seeking to recover $15 million as a result of Mr. Lugo and UBS’s management of his accounts. According to that complaint, Mr. Lugo and UBS recommended the client invest almost all of his savings in low-rated Puerto Rican bonds or UBS’s proprietary closed-end Puerto Rican Bond Funds.

In accordance with the claim filed with FINRA, once all of the clients’ own funds were invested in these securities, UBS encouraged to the client to take out tens-of-millions in loans, much of which was used to buy more UBS bond funds. When the market for Puerto Rican bonds began to dry up, the large debts began to be called in, wiping out the clients’ entire account in a matter of weeks. In addition to the one client, Mr. Lugo’s brokerage industry records indicate several others have filed similar complaints against him in the last few weeks. Our firm is also representing more than a dozen other investors who worked with David Lugo and UBS and we will also be filing FINRA arbitration claims for the recovery of their savings in the coming weeks.

Please contact our Puerto Rico municipal bond lawyers to request your free case assessment.

Moody's affirms ratings of Puerto Rican banks, Moody's, December 12, 2013

Moody's puts Puerto Rico on review for downgrade, Reuters, December 11, 2013

More Blog Posts:
Puerto Rico Reportedly Among Those that Engaged in "Scoop & Toss" Tactic with Municipal Bonds, Stockbroker Fraud Blog, December 7, 2013

Why did UBS Financial Advisors Recommend Puerto Rico Muni Bonds to Elderly and Retired Investors?, Stockbroker Fraud Blog, November 6, 2013

Liquidators of Bear Stearns Hedge Funds Sue S & P, Moody’s and Fitch for $1.12B, Institutional Investor Securities Blog, August 6, 2013

November 6, 2013

Why did UBS Financial Advisors Recommend Puerto Rico Muni Bonds to Elderly and Retired Investors?

In the wake of the Puerto Rico Bond Crisis, our securities fraud lawyers cannot help but wonder why advisors of UBS Financial Services of Puerto Rico, Inc. (UBS) recommended that retiree and conservative investors get involved with municipal bonds that had close to junk ratings. Now, many of these investors are coming forward to pursue securities claims against the firm.

According to Forbes, merely assessing Puerto Rico muni bonds via Fitch, Moody’s and Standard & Poor’s should have caused any good financial adviser to make sure that the junk bonds were only recommended to sophisticated clients that could afford the risks. Also, signs that Puerto Rico’s debt was only growing worse have been around for years.

Still, during the last decade, UBS managed to package $10 billion of closed-end bond funds full of risky Puerto Rican bonds that were highly leveraged and sold them to many retired and conservative investors. Now, customers want to know, how could UBS have overlooked the US territory’s unfunded liabilities, serious budget deficits, strict cash flow limitations, and slowed economic growth?

The New American reports that Puerto Rico’s debt is close to four times greater than the $18 billion debt experienced by Detroit, which forced the Michigan city to file for bankruptcy protection. Even though Puerto Rico’s muni bonds are exempt from local, federal or state taxes, their interest rates have soared since Detroit’s bankruptcy filing to 8-10% and some say this will go up even more to bring in new investors. The New American says that there are signs that this bond debacle could lead to trouble for the US:

- Moody’s downgrading of Puerto Rico’s debt to right above junk and gave it a negative outlook.

- UBS’s Puerto Rico branch settling with the SEC over allegations that it artificially supported bond prices and tried to cover up the fact that the territory’s economy was failing.

- Puerto Rico’s treasury officers borrowing in the private market sector because they were having trouble accessing the bond market.

- Puerto Rico having a pension plan that is just 7% funded.

- Puerto Rico’s government having a negative cash flow for over a decade.

Unfortunately, triple tax emptions and other incentives let the Puerto Rican government continue to borrow from investors at rates that were artificially attractive while the latter wrongly assumed that their investments were secure. Some of the funds holding these high risk bonds have lost much of their value. For example, the UBS Puerto Rico Tax-Free Target Maturity Fund II and the UBS Puerto Rico Tax-Free Target Maturity Fund have declined in value by 83.5% and 88.9%, respectively.

Puerto Rico Bond Fund Attorneys

Our Puerto Rico bond lawyers at Shepherd Smith Edwards and Kantas are meeting with customers in the US and in Puerto Rico who invested in municipal securities and bonds through UBS, Banco Santander (SAN.MC), Banco Popular, and other brokerage firms. We can help you explore your legal options.

Puerto Rico's Bond Prices Are Falling Sharply, Foreshadowing U.S. Problems, The New American, October 29, 2013

How Did UBS Recommend Puerto Rico Junk For Mom And Pop Clients?, Forbes, November 5, 2013


More Blog Posts:
US Treasury Doesn't Intend to Provide Aid Over Puerto Rico Bond Fund Debacle, Says Spokesperson, Stockbroker Fraud Blog, October 10, 2013
Two Investment Advisers Sue Twitter for Secondary Market Fraud, Stockbroker Fraud Blog, November 5, 2013

Puerto Rican Labor Groups Want the US Territory to Sue UBS over the Bond Debacle, Institutional Investor Securities Blog, October 28, 2013

October 10, 2013

US Treasury Doesn't Intend to Provide Aid Over Puerto Rico Bond Fund Debacle, Says Spokesperson

Hope that the US Treasury will save ailing Puerto Rican bonds does not appear to be warranted. According to a spokesperson for the department, who did not wish to be named, the Treasury will not be providing help to the US territory over the municipal bond fund debacle.

However, reports Fox News, the federal government is expected to provide incentives to enhance Puerto Rico's failing economy. Right now, Puerto Rico’s debt, which is mostly in mutual funds, is at about $70 billion—that’s close to 2% of the $3.7 trillion municipal bond market. This is significantly higher than Detroit’s $18 billion debt that forced that city to file for municipal bankruptcy earlier this year.

Yet even as Puerto Rico’s debt continues to grow, it won't be allowed to file for Chapter 9 bankruptcy because like US states, territories cannot seek such protection. That said, officials in Puerto Rico maintain that it isn’t bankrupt yet.

This year, Puerto Rican bonds have dropped 18%—Standard & Poor’s says this will be the bonds’ worst year since 2000. Because Puerto Rico is a US territory, it can sell bonds that lead to tax-exempt interest paid in all the US states, and these bonds come with higher interest than a lot of others due to its typically low credit rating. Also, some bonds are insured for default, while others come with legal structures that give the appearance that they are bulletproof—although such assurances may be illusory.

Due to all these advantages, investors have been getting involved in Puerto Rico bonds for years, even as the territory’s debt has gone up. The commonwealth selling hundreds of millions of dollars of new bonds to pay up older bonds, as well as $2.5 billion of bonds to raise money for its beleaguered pension system and to pay for its annual budget deficits. Now it appears that this gluttony of debt may finally push the bonds down to junk status.

Puerto Rico Bond Fund Claims
At Shepherd Smith Edwards and Kantas, LTD, LLP, our securities fraud lawyers are investigating claims for investors that bought Puerto Rio municipal bonds and bond funds. The securities were sold by UBS (UBS), Banco Popular, and Banco Santander (SAN.MC), and there are growing concerns that the investments were not appropriate for some of these investors.

Many investors are now claiming that the Puerto Rico bond funds were sold to them as stable, safe, and would generate income for them. Yet, the bonds and bond funds have resulted in huge financial losses. Some customers have lost all of their retirement.

Over the years, our securities lawyers have helped thousands of investors recoup their investment fraud losses. Contact our Puerto Rico bond fund law firm today.

Puerto Rico, At Brink Of Bankruptcy, May Get U.S. Economic Boost, Fox News/Reuters, October 9, 2013

Worsening Debt Crisis Threatens Puerto Rico, New York Times, October 7, 2013

U.S. Treasury Said to Have No Puerto Rico Assistance Plan, Bloomberg Business, October 8, 2013


More Blog Posts:
Puerto Rico Municipal Bonds, Stockbroker Fraud Blog, October 9, 2013

Muni Bond Funds Hit by Puerto Rico’s Debt Problems, Institutional Investor Securities Blog, October 9, 2013

Muni Bonds Draw Investors But Come With Serious Risks, Stockbroker Fraud Blog, June 11, 2013

August 30, 2013

Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges

UBS Settles Unregistered Assistant Allegations for $4.5M
UBS AG (UBS) has agreed to pay $4.5 million to settle state regulator allegations that its assistants may not have been licensed in the states where they conducted business. The New Jersey Bureau of Securities, which led the securities case, contends that for about six years, the financial had “client service associations” that lacked the necessary state registrations take orders.

An unknown amount of unsolicited trades were reportedly involved in these transactions between 2004 through 2010 when UBS had about 2,277 sales assistants on staff. The fine will be divided between the 50 States, DC, Virgin Islands, and Puerto Rico. By settling, the Zurich-based bank is not denying or admitting to the allegations. However, in late 2010 it modified its order-entry system so that employee state-registration statuses could be validated.


SEC Sues Over Alleged $6M Ponzi Scam that Invested in Bounty Hunter Enterprises
The Securities and Exchange Commission says that it now as an emergency court order freezing the assets of Guaranty Reserves Trust LLC and its owner John Marcum. The Indiana man is accused of defrauding over three dozen individuals by purportedly getting them to invest in promissory notes. He also is accused of promising them double-digit yearly returns with no risk to principal and told them that he would be day trading.

The regulator says that Marcum got investors to give them their retirement by presenting himself as a trader who was able to garner high returns without loss and he even provided them with account statements exhibiting yearly returns of over 20%. In truth, contends the SEC. Marcum lost over $900K on any trading he did do, while the rest of the funds paid for his lavish lifestyle or was used to invest in ventures, including a bridal shop, a bounty hunter-owned restaurant, and a reality TV show about bounty hunters.


California Investment Adviser Sued by SEC for Alleged Cherry Picking
Ian O. Mausner and his firm J.S. Oliver Capital Management are now facing SEC charges accusing them of taking part in a cherry picking scam that directed winning trades toward certain clients, such as hedge funds in which the investment adviser and his family had investments. According to the Commission, Mausner and his company also misappropriated over $1.1M in soft dollars, which are rebates or credits that clients pay for trades in their accounts.

As a result, says the regulator, investors lost about $10.7 million from the financial scam, which would have occurred from 6/08 through 11/09, with the misappropriation of soft dollars taking place after this period through 11/11. The SEC says the soft dollars were used to pay money that was owed to Masuner’s wife, business “rent” for space used in his home, “outside research” services that were actually payments made to a JS Oliver employee, and maintenance on a personal timeshare in NY. The SEC investigation into the allegations is ongoing.

Our securities lawyers represent investors that have been bilked by brokers, investment advisers, broker-dealers, hedge fund managers, and other industry professionals.

SEC says Indiana man used Ponzi scheme to fund a reality TV show, Chicago Tribune, August 26, 2013

SEC Charges San Diego-Based Investment Adviser in Cherry-Picking and Soft Dollar Schemes, SEC, August 30, 2013

UBS to pay hefty settlement over unregistered assistants, Investment News, August 26, 2013


More Blog Posts:
Lloyds, Barclays, to Set Aside Hundreds of Millions of Dollars for Allegedly Mis-Selling to Victims, Stockbroker Fraud Blog, August 27, 2013

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

JPMorgan Found Liable in Billionaire’s Subprime Mortgage Lawsuit for Over $50M in Damages, Institutional Investor Securities Blog, August 28, 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

July 2, 2013

Financial Firms in the Headlines: UBS Charges Financial Planning Fees, MF Global Customers Seek to Cap Ex-Leaders’ Legal Defense Expenses, Ex-Thompson REIT CFO is Suspended

UBS Wealth Management Customers Now Paying a Fee for Financial Plans
UBS (UBS) Wealth Management Americas is now charging a fee for the financial plans that advisers are customizing for the firm’s clients. According to the head of the wealth management advisor group head Jason Chandler, this new policy wasn’t implemented to up firm revenues, although it has. Rather, it was set up to increase the level of commitment clients have to their plan, which he say is what happens when they have to pay money for one.

To date this year, the company has made $3 million in financial plan fees, up from $1.4 million from last year. The average fee amount is $4,100. Advisers who design the financial plans are getting 50% of the fee that they charge, while 15% of the fees earned from the plans end up in expense accounts for them.

MF Global Customers Seek to Cap Legal Defense Bills of Brokerage Firm’s Former Executives
MF Global Inc. customers want to limit how much the former top executives of the failed brokerage firm pay for their legal defense. In a court filing, attorneys for the customers expressed concern at how quickly the legal costs of Chief Executive Jon Corzine and other former executives are growing.

The MF Global clients are suing about two dozen former managers for their alleged misconduct that they believe caused the broker-dealer’s collapse. Of the $200 million in insurance coverage that the firm has to cover legal judgments, $30 million has gone toward the ex-executives defense and they are asking for another $10 million. The brokerage customers want a $40 million cap placed on the defense costs. They are worried that the more the ex-MF Global executives spend toward defense the less money there will be to go toward their own $300 million shortfall they are facing and they won’t be made whole for the financial losses they sustained.

Ex-Thompson REIT CFO Gets Five-Month Securities Industry Suspension
The Financial Industry Regulatory Authority is suspending Wendy J. Worcester from the securities industry for five months. Worcester was previously chief financial officer of real estate investor Tony Thompson's nontraded real estate investment trust, as well as co-chief compliance officer of TNP Securities LLC, which is the brokerage firm controlled by Thompson. The SRO says that Worcester did not perform independent and sufficient due diligence into Thompson’s real estate dealings, including three Thompson National Properties LLC-sponsored private placement offerings. This caused her to allegedly compromise TNP Securities’ independence.

According to FINRA, When Thompson National Properties was in financial trouble in 2009, suffering nearly $25.8 million in losses and a negative net equity of $13.6 million while launching REIT The TNP Strategic Retail Trust Inc., two Thompson private placement note programs would go on to pay old investors with either new investor funds or money from some other part of the business. Worcester is settling the REIT securities case without denying or admitting to the allegations.

Finding fees: UBS charging for financial plans, Investment News, June 11, 2013

MF Global Customers Want to Cap Ex-Leaders' Legal Defense Costs, Dow Jones/Program Business, June 7, 2013

FINRA Sanctioning Former TNP Compliance Officer for Failed Due Diligence as to TNP REIT Offerings


More Blog Posts:
FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

Lawmakers Address Securities Bills Regarding Audit Rotation Requirements, Dodd-Frank, M & A Business Broker Registration, & Senior Fraud, Institutional Investor Securities Blog, June 28, 2013

FINRA Delays Audit Trail Plan, Proposes Arbitration Rule Changes, Asks for Firm’s Social Media Use Data, Warns About Cybersecurity Breaches, Stockbroker Fraud Blog, June 28, 2013

January 10, 2013

Despite Her Involvement in Dozens of Securities Cases, Brokerage Firms Continue to Clear Trades of Newport Coast Securities Broker Bambi I. Holzer

Three years after Forbes magazine wrote an article exposing broker Bambi Holzer as someone whose investment advice to clients had resulted in more than $12M in securities settlements, brokerage firms continue to clear her trades. Over the years there have been dozens of complaints filed against her for improper broker activities—more than nearly anyone that we here at Shepherd Smith Edwards and Kantas, LTD, LLP have ever seen.

Holzer is currently a Newport Coast Securities broker, but her employment history with different broker-dealers within the industry has involved numerous financial firms. According to the Financial Industry Regulatory Authority, she was previously registered with Wedbush Morgan Securities Inc., Brookstreet Securities Corporation, and Sequoia Equities Securities. Holzer also worked with UBS (UBS), where she and the firm were compelled to pay at least $11.4 million to settle securities claims that she had allegedly misrepresented variable annuities by misrepresenting that they came with guaranteed returns. Following her time there, Holzer went to go work at AG Edwards (AGE), where she was fired in 2003 for engaging in business practices allegedly not in line with the policies of the firm.

Later, while at Brookstreet, Holzer allegedly made misrepresentations during a 2005 presentation in Beverly Hills about how trusts had allowed a fictional couple to defer $732,000 in taxes and make $9 million. She would later say on her website that 500 people watched her that day. However, a court document says that there were actually just 33 people in attendance.

Also while at Brookstreet, NASD, FINRA’s predecessor suspended Holzer for 21 days and ordered her to pay a $100,000 fine for negligent misrepresentations she allegedly made about certain product features related to variable annuities when she worked at PaineWebber. And an example of one complaint still pending against Holzer is the FINRA arbitration claim filed in early 2010 by a Wedbush Morgan Securities customer who is contending that account mishandling, breach of fiduciary duty, and breach of contract allegedly resulting in $824,000 in damages.

Holzer’s record on FINRA’s Central Registration Depository is 105 pages long, and the lawsuits and regulatory disciplinary actions against her span over 90 of these pages. Allegations include:

• Violations of the Illinois Securities Act
• Negligent representations related to variable annuities
• Fraud
• Misrepresentations of fees
• Unsuitable investments
• Private placement-related fraud
• Churning
• Variable annuity-related fraud
• Inadequate supervision
• Elder abuse
• Negligent sale/recommendation of Provident Royalties, LLC
• Negligent recommendation/sale of unsafe products, including the Behringer Harvard Security Trust

Many of the FINRA claims against Holzer involve private placement and variable annuity instruments. A lot of these arbitration cases have resulted in substantial settlements.

Beware of Your Broker, Forbes, March 25, 2009

FINRA Central Registration Depository


More Blog Posts:
Ernst &Young Auditor Suspended Over Part Played in Botched 2004 Audit of AA Investors Management LLC, Stockbroker Fraud Blog, January 7, 2013

SEC Roundup: Massachusetts Investment Adviser Gets $1.78M Judgment and Allianz to Pay $12.3M to Settle Foreign Corrupt Practices Act Lawsuit, Stockbroker Fraud Blog, January 7, 2013

Clearing House Association Wants Greater Protections for Clearing Members, Institutional Investor Securities Blog, December 31, 2012

Continue reading "Despite Her Involvement in Dozens of Securities Cases, Brokerage Firms Continue to Clear Trades of Newport Coast Securities Broker Bambi I. Holzer" »

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" »

June 7, 2012

District Court Denies UBS Summary Judgment in Sarbanes-Oxley Whistleblower Lawsuit

The U.S. District Court for the District of Connecticut has decided not to grant summary judgment to UBS AG (UBS) and UBS Securities LLC in Mary Barker’s lawsuit claiming that her firing violated the whistleblower provision of the Sarbanes-Oxley Act. Judge Janet Hall found that UBS failed to show that there was “clear and convincing evidence” that the plaintiff would have been let go “regardless of any protected activity.”

Barker, who started working for UBS in 1998, was terminated from her job in 2008 during a “large-scale” layoff. At the time, she was working in the Business Management Group of the Equities Chief Operating Officer’s office as an associate director. Barker filed her complaint the following year contending that she was actually let go because she “discovered reporting discrepancies” while working on a project to “reconcile” UBS’s New York Stock Exchange holdings. Barker contended that after this, she was “retaliated against or constructively discharged.” She also said that one of her bosses not only failed to adequately support her, but also had been “overlooking her for projects.”

Seeking summary judgment, UBS said that Barker failed to show that her “protected” behavior led to her termination. The district court, however, disagreed with UBS, countering that although the financial firm showed that it was undergoing “extreme financial hardship,” this does not show why the plaintiff, in particular, was let go.

The court also disagreed with two of UBS’s other contentions: That Barker did not actually think she was whistleblowing on “securities fraud” (because she failed to use the terms “violation of securities laws” or “fraud” when talking about the gaps she discovered in her project) and she should have been aware that the discrepancies she found were immaterial to the firm’s shareholders. Booting these claims, however, the court said that an employee doesn’t have to specifically reference a certain statute or actually allege fraud to take part in a protected activity and/or believe that UBS might have violated securities laws. The court also noted that even though Barker was likely familiar with securities regulations, this does not mean she possessed enough expertise in this area to “make it objectively unreasonable” for her to think that for UBS to properly disclose its exchange assets was a violation of securities regulations.

The Sarbanes-Oxley Act’s Whistleblower Law
Under the Sarbanes-Oxley Act, the employees of publicly traded companies that have violated SEC regulations, or any federal law provision related to fraud committed against shareholders, are guaranteed certain protections. Reporting the alleged fraud is considered protected activity under SOX and employees that step forward cannot be illegally discriminated against (including reprimanded, fired, or harassed). Employees that prevail under Sarbanes-Oxley’s whistleblower may be entitled to reinstatement, “make whole” compensation, back pay plus interest, special damages, affirmative relief, and lawyers’ fees and costs.

Our securities lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP have thousands of investors in cases against hundreds of financial firms for over 20 years. Your initial case evaluation with one of our financial fraud attorneys is free.

Read the Decision (PDF)

Sarbanes-Oxley Act of 2002


More Blog Posts:

Former SEC Commissioner Nazareth Says The US Not Keeping Up with Evolving Investment Markets, Stockbroker Fraud Blog, June 6, 2008

Citigroup’s $75 Million Securities Fraud Settlement with the SEC Over Subprime Mortgage Debt Approved by Judge, Stockbroker Fraud Blog, October 23, 2010

Wall Street Complains Financial Reform Will Mean More Lawsuits. Is This Bad?, Institutional Investor Securities Blog, October 16, 2010

May 11, 2012

Stockbroker Fraud News Roundup: 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

UBS Financial Services Inc. of Puerto Rico (UBS) has agreed to pay $26.6 million to settle the Securities and Exchange Commission administrative action accusing the financial firm of misleading investors about its control and liquidity over the secondary market for nearly two dozen proprietary closed-end mutual funds. By settling, UBS Puerto Rico is not denying or admitting to the allegations.

Per the SEC, not only did UBS Puerto Rico fail to disclose to clients that it was in control of the secondary market, but also when investor demand became less in 2008, the financial firm bought millions of dollars of the fund shares from shareholders that were exiting to make it appear as if the funds’ market was stable and liquid. The Commission also contends that when UBS Puerto Rico’s parent firm told it to lower the risks by reducing its closed-end fund inventory, the Latin America-based financial firm carried through with a strategy to liquidate its inventory at prices that undercut a number of customer sell orders that were pending. As a result, closed-end fund clients were allegedly denied the liquidity information and price that they are entitled to under the law. UBS Puerto Rico must now pay a $14 million penalty, $11.5 million in disgorgement, and $1.1 million in prejudgment interest.

The SEC has also filed an administrative action against Miguel A. Ferrer, the company’s ex-CEO and vice chairman, and Carlos Ortiz, the firm’s capital markets head. Ferrer allegedly made misrepresentations, did not disclose certain facts about the closed-end funds, and falsely represented the funds’ market price and trading premiums. The Commission is accusing Ortiz of falsely representing the basis of the fund share prices.

In other stockbroker fraud news, the U.S. District Court for the District of Colorado has denied Morgan Keegan & Co. Inc.'s bid to vacate the over $40,000 arbitration award it has been ordered to pay over the way it marketed its RMK Advantage Income Fund (RMA). Judge Richard Matsch instead granted the investors’ motion to have the award confirmed, noting that there were “many factual allegations” in the statement of claim supporting the contention that the firm was liable.

Per the court, Morgan Keegan had argued that the arbitration panel wasn’t authorized to issue a ruling on the claimants’ bid for damages related to the marketing of the fund, which they had invested in through Fidelity Investment. Morgan Keegan contended that seeing as it had no business relationship with the claimants, it couldn’t be held liable for their losses, and therefore, the FINRA arbitration panel had disregarded applicable law and went outside its authority. The district court, however, disagreed with the financial firm.

In other stockbroker fraud news, the SEC has reached a settlement with a Florida attorney accused of being involved in a financial scam run by a viaticals company that defrauded investors of over $1 billion. The securities action, which restrains Michael McNerney from future securities violations, is SEC v. McNerney. He is the ex-outside counsel for now defunct Mutual Benefits Corp.

The MBC sales agent and the company’s marketing materials allegedly falsely claimed that viatical settlements were “secure” and “safe” investments as part of the strategy to get clients to invest. The viaticals company also is accused of improperly obtaining polices that couldn’t be sold or bought, improperly managing escrow premium funds in a Ponzi scam, and pressuring doctors to approve bogus false life expectancy figures.

McNerney, who was sentenced to time in prison for conspiracy to commit securities fraud, must pay $826 million in restitution (jointly and severally with other defendants convicted over the MBC offering fraud).

UBS Puerto Rico unit to pay $26.6 mln in SEC pact
, Reuters, May 1, 2012

Morgan Keegan & Co. Inc. v. Pessel (PDF)

SEC Files Charges Against Former Attorney for Mutual Benefits, SEC, April 30, 2012


More Blog Posts:
Stockbroker Fraud Roundup: 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

Commodities/Futures Round Up: CFTC Cracks Down on Perpetrators of Securities Violations and Considers New Swap Market Definitions and Rules, Stockbroker Fraud Blog, April 20, 2012

Institutional Investor Fraud Roundup: 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 Securities Blog, March 29, 2012

Continue reading "Stockbroker Fraud News Roundup: 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" »

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 " »

September 23, 2011

UBS Trader Charged with Fraud Related to $2B Trading Loss

Kweku Adoboli, a UBS trader, has been charged with false accounting and fraud allegedly resulting in about $2 billion in losses. Adoboli, 31, was arrested in London.

The alleged financial misconduct is said to have taken place between 10/8 and 12/09 and 1/10 and 9/11 while Adoboli, who works out of UBS’s office in London, was a senior trader with UBS Global Synthetic Equities. FSA, which is Britain’s financial watchdog, and FINMA, which is Switzerland’s, have instigated an investigation into the loss. UBS will pay for the probe, which will be conducted by an independent third party.

UBS is also investigating this trading loss but says that no client positions have been impacted. The financial firm has said that most of the risk exposure went undetected because bogus hedging positions were placed in the bank’s systems.

Adoboli’s arrest for "suspicion of fraud by abuse of position” is bringing up questions about UBS’s risk management systems, which are supposed to prevent unauthorized trading. It was just in 2008 that UBS wrote down $50 billion in securities trades, leading to losses of 34.4 billion francs. That was the year that the Swiss Central Bank had to rescue UBS, which then closed down significant parts of its trading division and revised its risk-management systems.

News of Adoboli’s alleged fraud and the $2B loss has caused shares in UBS to drop, while the expense of insuring its 5-year bonds against default for a year became expanded by 15 basis points to 225 basis points. According to Reuters, analysts are saying that that this latest loss is the “final nail in the coffin” for UBS, which has had to deal with plunging markets, strict new regulation, and a Swiss franc that has gotten stronger.

Moody’s and Standard Poor’s now say that UBS’s credit rating is on negative watch. Meantime, Fitch says it has the financial firm’s viability rating on negative watch and that this latest incident only lends to the argument that UBS needs to downsize its investment banking unit.

The $2B loss and Adoboli’s arrest is unfortunate for UBS, which had just started to regain client confidence this year. This huge loss has pretty much cost the financial firm its first year of saving that was supposed to come from a cost-cutting plan involving the elimination of 3,500 jobs. UBS Chief Executive Oswald Gruebel and Chairman Carten Kengeter, who is the head of UBS’s investment bank division, are also now under fire. Gruebel has dismissed calls to step down.

UBS Raises Tally on Losses, Wall Street Journal, September 19, 2011

UBS trader charged with $2 billion fraud, Reuters, September 16, 2011


More Blog Posts:
Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors, Stockbroker Fraud Blog, July 13, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses, Stockbroker Fraud Blog, January 4, 2011

UBS Financial Reaches $160M Settlement with the SEC and Justice Department Over Securities Fraud, Antitrust, and Other Charges Related to Municipal Bond, Institutional Investors Securities Blog, May 16, 2011

Continue reading "UBS Trader Charged with Fraud Related to $2B Trading Loss" »

July 13, 2011

Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors

Steven T. Kobayashi has pleaded guilty to money laundering and wire fraud. The former UBS financial adviser is accused of bilking his private investment fund investors. As part of his plea agreement, he will pay $5,431,600 in restitution and serve a 65-month prison term.

Per the criminal charges, beginning in 2006 Kobayashi, who regularly made financial trades authorized by clients whose account he had access to, started transferring some of these funds into his own bank accounts without the investors’ “knowledge or authorization.” In some instances, clients gave their authorization because they were told the withdrawals were necessary to make investments. On other occasions, he forged their signatures on authorization forms.

Earlier this year, the ex-UBS adviser settled SEC securities fraud charges. The agency says that Kobayashi set up Life Settlement Partners LLC, which is a fund that invested in life settlement polices. He was able to raise millions of dollars for the fund from his UBS customers. However, he also started using the money to pay for prostitutes, expensive cars, and pay off gambling debts.

The SEC says that to try and pay back the fund and investors before they discovered his misconduct, he convinced several other UBS clients to liquidate securities and transfer to the proceeds to entities under his control. This allowed him to steal more money from the investors. Kobayashi settled the SEC charges without denying or admitting to them.

Related Web Resources:

Ex-UBS Adviser Pleads Guilty To Charges He Bilked Private Fund Investors, BNA Securities Law-Daily, June 10, 2011

Ex-UBS Advisor Faces Criminal Charges, in Life Settlement Case, On Wall Street, March 3, 2011

SEC CHARGES FORMER UBS FINANCIAL ADVISER WITH DEFRAUDING LIFE SETTLEMENT FUND INVESTORS, SEC.gov, March 3, 2011


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Texas Securities Fraud: Planmember Securities Corp. Registered Representatives Accused of Improperly Selling Life Settlement Notes, Stockbroker Fraud Blog, June 27, 2011

Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress
, Stockbroker Fraud Blog, August 8, 2010

AIG Trying to Get More Investors to Buy Life Settlements, Institutional Investor Securities Blog, April 26, 2011

Continue reading " Ex-UBS Financial Adviser Pleads Guilty to Defrauding Private Fund Investors" »

January 28, 2011

Guilty Plea for Financial Adviser Who Used UBS Tips in $1M Healthcare Insider Trading Scheme

Registered investment adviser Alexei Koval has pleaded guilty to three counts of securities fraud and one count of conspiracy to commit securities fraud over his role in a $1 million insider trading scheme. Koval, a registered investment adviser, allegedly acted on tips about provided by his friend Igor Poteroba, an ex-UBS Securities LLC investment banker, about the healthcare industry.

Koval admitted to U.S. District Judge Paul Crotty that he and Poteroba engaged in securities fraud between 2005 and February 2009. The two of them used coded email messages to communicate. Poteroba also provided the tips to a third person, Alexander Vorobiev.

Koval, who used to work for Citigroup Asset Management (C.N), Northern Trust Bank (NTRS.O), and Legg Mason Inc. (LM.N) subsidiary Western Asset Management, says he paid money for the insider information about upcoming announcements regarding acquisitions or mergers involving Molecular Devices Corp, Guilford Pharmaceuticals Inc, Via Cell Inc, PharmaNet Development Group Inc, Indevus Pharmaceuticals Inc., and Millennium Pharmaceuticals Inc.

As part of Koval’s plea deal, he will forfeit at least $1,414,290 in illegal proceeds. He is facing fines in the millions of dollars and up to 65 years in prison. Koval is also facing civil securities fraud charges with the US Securities and Exchange Commission.

Illegal Insider Trading
The SEC describes this type of illegal trading usually refers to the selling or buying of a security that involves a breach of fiduciary trust or duty while in possession of nonpublic, material information about the security. It can involve the “tipping” of such information to others, actual trading by the person who was “tipped,” and trading by those who were in possession of the insider information.

Related Web Resources:
UBS Banker Poteroba’s Co-Defendant Koval Pleads Guilty, Business Week, January 7, 2011

Securities and Exchange Commission v. Igor Poteroba, Aleksey Koval, Alexander Vorobiev, and Relief Defendants Tatiana Vorobieva and Anjali Walter, Civil Action No. 10-civ-2667 (AKH), SEC, November 4, 2011

Insider Trading, SEC

Continue reading "Guilty Plea for Financial Adviser Who Used UBS Tips in $1M Healthcare Insider Trading Scheme" »

January 4, 2011

UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses

A Financial Industry Regulatory Authority arbitration panel says that UBS Financial Services Inc. must pay $2.2 million to CNA Financial Corp. Chief Executive and Chairman Thomas F. Motamed for losses that he and his wife Christine B. Motamed sustained from investing in Lehman Brothers structured products. The Motameds, who filed their claim against the UBS AG (UBS, UBSN.VX) unit and ex-UBS brokers Judith Sierko and Robert Ashley early in 2009, are alleging misrepresentation, breach of fiduciary duty, and other charges.

This is the largest award involving UBS-sold Lehman structured products. However, the Motameds’ securities fraud case is just one of many against UBS over its sale of about $1 billion in Lehman-related structured investment products to US clients. Many of the claimants contend that the broker-dealer failed to properly represent the investments. As part of this arbitration case, UBS must also pay 6% yearly interest on the $2.2 million to the Motameds from April 4, 2008 until payment of the award is complete. The ruling is supposed to represent rescission of the Motameds’ structured products purchase.

UBS reportedly has not won even one case over the Lehman structured products where the claimant had legal representation. Just a few months ago, UBS AG was ordered to pay $529,688 to another couple over their Lehman structured notes purchase. Steven and Ellen Edelson bought the notes while under the impression that they were “principal protected” when in fact the securities did not have such protection.

The award is the largest involving Lehman structured products purchased through UBS, which has expressed disappointment over the panel’s ruling. The broker-dealer maintains that the losses sustained by the Motameds are a result of Lehman Brothers’s failure and not UBS’s handling of the products.

To Pay $2.2 Mln To CNA Chief for Lehman-Related Losses, The Wall Street Journal, December 23, 2010

UBS Must Pay Couple $530,000 for Lehman Brothers-Backed Structured Notes, Institutional Investors Securities Blog, November 5, 2010

Continue reading "UBS to Pay $2.2M to CNA Financial Head for Lehman Brothers Structured Product Losses" »

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" »

August 10, 2010

UBS Ordered to Pay Auction-Rate Securities Investor Kajeet Inc. $81 Million

A Financial Industry Regulatory Authority arbitration panel has ordered UBS Financial Services Inc. to pay investor Kajeet Inc. $80.8 million for failed auction-rate securities. The brokerage firm disagrees with the decision and intends to file a motion to have the claim vacated.

Although Kajeet had only invested $8 million in ARS through UBS, the company, which markets cell phones for kids, contends that because its securities were frozen, a “domino effect” resulted and it ultimately lost $110 million. Also, Kajeet was forced to significantly cut its 60-person work team and it lost a key distribution deal with a national retail chain.

UBS had previously resolved ARS-related charges with an agreement that it would pay a $150 million fine and buy back $18.6 billion of the securities. The brokerage firm was one of a number of broker-dealers that agreed to repurchase over $60 billion in ARS from investors because they had allegedly misrepresented the securities as safe investments. When the $330 million ARS market froze in February 2008, UBS had over $35 billion in ARS that were held by some 40,000 customers.

Our securities fraud lawyers continue fight for clients’ right to recover their losses from the ARS market collapse. We want to remind you of the special arbitration procedure that has been set up to allow clients with frozen ARS that couldn’t access their funds to claim “recovery of consequential damages.” The procedure does not allow investment firms to contest liability claims that are based on the argument that brokers issued misrepresentations when they caused investors to think that reselling the assets would be easy.

Related Web Resources:
UBS to Pay $81 Million in Auction-Rate Case, The Wall Street Journal, August 5, 2010

FINRA arbitrators order UBS to pay $81 million, Reuters, August 4, 2010

April 27, 2010

UBS Agrees to Settle HealthSouth Corp Accounting Fraud Litigation for $217 M

UBS AG will pay $217 million to settle an accounting fraud lawsuit filed by HealthSouth Corp. bondholders and shareholders. Under the settlements, bondholders will receive $100 million and shareholders will get $117 million. UBS is HealthSouth’s investment bank. Meantime, Ernst & Young LLP, the. health-care services provider’s accounting firm, had settled with shareholders for $109 million and will now settle with bondholders for $33.5 million.

The settlements are a result of litigation filed over a $2.7 billion fraud at HealthSouth. The accounting scheme occurred between 1996 and 2002. After the fraud was discovered in March 2003, nearly $6 billion in market value was lost when the company’s share price dropped. 15 executives pleaded guilty over their involvement in the scam.

By agreeing to settle, UBS & Earnst & Young are not admitting to or denying wrongdoing. UBS maintains that HealthSouth lied to UBS bankers numerous times. In 2008, UBS consented to pay $100 million to HealthSouth over claims the investment bank failed to discover the fraud.

Shareholders also settled the accounting fraud with HealthSouth in 2006 for $355 million and received another $20 million from UBS in an Alabama court case. Meantime, bondholders received $90 million in their settlement with HealthSouth and $5 million from UBS in state court case. Bondholders and shareholders will also receive compensation from a $2.88 billion judgment against Richard Scrushy. HealthSouth’s founder was acquitted of criminal charges related to the fraud but in 2006 was convicted over a different bribery case.

Related Web Resources:
UBS to Pay $217 Million to Settle HealthSouth Case, BusinessWeek, April 23, 2010

UBS, Ernst Settle HealthSouth Cases for $250.5 Million, ABC News, April 24, 2010

Continue reading "UBS Agrees to Settle HealthSouth Corp Accounting Fraud Litigation for $217 M" »