Articles Posted in Fraudulent Trading

Equinox Fund Management Resolves SEC Charges For Over $5.8M
A Denver-based alternative fund manager has consented to settle Securities and Exchange Commission charges accusing it of misleading investors about the way certain assets were valued and for overcharging management fees. According to the regulator, Equinox Fund Management LLC determined its management fees differently from the method it described in registration statements for The Frontier Fund, which is a managed futures fund.

Although registration statements said that management fees would be calculated based on each series’ net asset value, Equinox used the assets’ national trading value instead. Also, the firm is accused of straying from the valuation methodology it had disclosed for certain holdings.

The fund manager will pay back investors about $5.4M in excessive management fees that it was paid over seven years, in addition to $600K in prejudgment interest. It also will pay a $400K penalty.

Futures Trader Goes to Jail, Pays Restitution for Securities Fraud
RXM Holdings Ltd. futures trading director Robert Scott Wiens is sentenced to one year in prison after pleading guilty to securities fraudhttp://www.stockbroker-fraud.com/legal-news.html. He also will pay $260k in restitution to investors he harmed.

Wiens was an unlicensed securities professional in 2010 and 2011. He sold fraudulent investments, which he traded on the futures market.

Wiens directed investors to open bank accounts under RXM’s name for their funds. He told them that there was zero risk and returns were guaranteed. He then used the money in the accounts to pay off earlier investments and cover his own spending.
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In separate securities lawsuits, the Securities and Exchange Commission and the Commodity Futures Trading Commission are both suing EagleEye Asset Management LLC, which a Massachusetts asset management firm, and Jeffrey A. Liskov, its principal.

The CFTC is accusing the two defendants of defrauding at least one US-based client while trading forex on a margined or leveraged basis for her. Per the CFTC’s lawsuit, the client decided to grant permission to EagleEye and Liskov to trade part of her retirement money because Liskov allegedly advised her that this type of trading was appropriate for her conservative investment objects.

However, Liskov allegedly did not warn her of the risks involved or tell her that he did not have a successful track record with forex trading. While the trading did generate short-term profits for the woman, she lost most of the money that she invested. The CFTC contends that instead of revealing the trading losses, Liskov allegedly forged the client’s name and set up a new account opening documents and on more than $3 million in secret wire transfers from her mutual fund account to her forex account so that trading wouldn’t have to stop. The woman client lost more than $3.24 million, while Liskov and EagleEye made about $235,000 in performance incentive fees.

Per the SEC, between 4/08 and 8/10, Liskov made misrepresentations to clients to persuade them to move funds they’d placed in securities investments into forex trading. The SEC contends that these investments were not appropriate for elderly clients that had conservative investment objectives and that this caused them to sustain significant financial losses totaling almost $4 million. EagleEye and Liskov allegedly earned performed fees of over $300K, plus management fees. The Commission believes that having clients make short-term investment gains and then earning performance fees before these gains were lost was the defendants’ plan.

Liskov allegedly did not even help some investors understand the nature of forex trading. With other clients, he deemphasized the degree of investment risk involved. The SEC also says that Liskov made false statements with claims that he had achieved success with forex trades when, in fact, the opposite was the case.

Meantime, Massachusetts Secretary of the Commonwealth William Francis Galvin (D) has also filed administrative charges against the investment advisor firm and Liskov. Galvin is accusing them of violating Massachusetts’s Uniform Securities Act.

Our securities fraud law firm has helped thousand of investors recoup their losses caused by broker misconduct and investment adviser fraud. Working with a stockbroker fraud law firm is the best way to help you get back your lost investment.

Read the SEC’s Complaint (PDF)

CFTC Charges Massachusetts Man Jeffrey Liskov and His Company, EagleEye Asset Management, LLC, with Committing a $3 Million Forex Fraud, CFTC, September 8, 2011
State files complaint against local investment advisor, WickedLocal, September 13, 2011
Mass. Adviser Sued by Regulators Over Alleged Forex Trading Scheme, BNA Securities Law Daily, September 9, 2011

More Blog Posts:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011
Commodity Options Fraud Charges by CFTC Prompts District Court to Freeze Assets and Records of 20/20 Trading Co. Inc. & 20/20 Precious Metals Inc., Stockbroker Fraud Blog, May 6, 2011
$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011 Continue reading

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

RBC Capital Markets Corp., Equity Station Inc., Fagenson & Co. Inc., Olympic Securities LLC, and Alpine Securities Corp. have consented to pay $385,000 to settle Financial Industry Regulatory Authority that they sold collectively over 7.5 billion in “unregistered” penny stock in Universal Express Inc. shares and made about $8.4 million as a result. By settling, the broker-dealers are not agreeing to or denying the securities fraud accusations.

FINRA says that “in each instance” the investment firm’s clients deposited certificates that consisted of huge blocks of thinly traded securities and then liquidated the positions right away. The firms conducted the sales even after a 2004 Securities and Exchange Commission complaint accused Universal Express of illegally issuing over 500 M shares in unregistered stock to be distributed to the public. The SEC claimed the company’s leaders put out bogus press releases and false and misleading statements to promote the sale of the unregistered stock.

According to FINRA:

• RBC Capital Markets reported making $68,000 in commissions from the unregistered stock sale. The broker-dealer has consented to a $135,000 fine.

• Equity Station made $13,575 in commissions. The investment firm is fined $25,000.

• Fagenson & Co. has agreed to a $165,000 fine and made $44,000 in commissions.

• Olympic Securities is fined $20,000 after making $5,200 in commissions.

• Alpine Securities is fined $40,000 for earning $13,575 in commissions.

FINRA says that even with numerous red flags, all five firms did not take the necessary actions to find out whether selling the securities would violate violating federal registration requirements. FINRA contends that when the five broker-dealers conducted the majority of the illegal unregistered stock sales the SEC had either began or won its case against Universal Express, which was eventually sanctioned almost $22 million.

Related Web Resources:
FINRA Fines Five Firms $385,000 for Sale of Unregistered Securities, Other Violations Relating to Penny Stocks, FINRA, April 27, 2010
Regulatory Notice 09-05, FINRA
SEC wins case against Universal Express, CEO, Business Journal, March 2, 2007 Continue reading

The former chief administrative officer of Trautman Wasserman & Co. Inc. agreed to pay a $50,000 fine to settle SEC administrative charges he helped facilitate a scheme to engage in late-trading in mutual funds shares on behalf of certain favored customers and for the firm’s own account.

The man who once served as TWCO’s “de facto chief compliance officer” consented, without either admitting or denying wrongdoing, to be barred from the securities industry, cease and desist from future violations and cooperate in the SEC’s investigation.

Earlier this year, the SEC charged the executive, TWCO and five of its other officials over their alleged roles in the scheme. The SEC claims included that he and two others he supervised thwarted efforts by mutual fund companies to curtail excessive timing.

The U.S. Treasury Secretary announced the second stage of its “capital markets competitiveness plan” devoted to efforts to “modernize the structure” of the regulatory system for all U.S. financial services providers. The announcement was made before the New York Stock Exchange’s conference on deals and deal-making, hosted by the Wall Street Journal.

As the securities industry is rapidly being globalized, Wall Street insists it can not compete with loose regulations elsewhere in the world unless U.S. standards for reporting, fraud and other wrongdoing are relaxed. Frenzied cries to federal and state officials hype this theme as if the “sky is falling.” Meanwhile, Republicans and Democrats, including candidates for both state and federal office, are taking the bait. Or, perhaps, these candidates know that many of the largest campaign donors around are found on Wall Street.

The fear mongering about losing the battle for listing shares has even invaded the courts as observers, including the SEC, lobby even the U.S. Supreme Court, stating that our nation is on the brink of disaster since it can not compete with foreign markets with almost no oversight.

Shareholders of mutual funds Janus Capital Group may not pursue a class action claim that the company violated federal securities laws by permitting hedge funds to engage in market timing with the shares of mutual funds operated by Janus, the U.S. District Court for the District of Maryland ruled.

In recent years, the U.S. Congress has been persuaded to limit class actions involving securities only to claims under federal securities laws. Meanwhile, federal securities claims are limited to misrepresentations and omissions in the purchase and sale of securities and do not, for example, include claims for actions which are simply fraudulent or negligent. Furthermore, courts have decided that no one can be held liable for assisting, or “aiding or abetting”, others in violating federal securities law. Such limitations enabled Janus avoid its responsibility and have the class action against it dismissed.

In their complaint, the plaintiffs, purchasers of Janus Group stock, alleged that the Janus Funds misstated in their fund prospectuses their policies regarding market timing and late trading.

A employee of the Global Energy Group of Credit Suisse was arrested and charged for his role in an alleged scheme using material nonpublic information on nine merger transactions involving Credit Suisse clients to obtain over $7.5 million in profits. The Securities and Exchange Commission also brought charges against the country head of investment banking at the Pakistan-based Faysal Bank.

Prosecutors said the Faysal Bank agent traded on tips about forthcoming announcements on acquisitions of publicly traded companies Northwestern Corp., Energy Partners Ltd., Veritas DGC Inc., Jacuzzi Brands Inc., Trammell Crow Co., Hydril Co., Caremark Rx Inc., John H. Harland Co., and TXU Corp. Credit Suisse advised either the target company or the acquiring entity in transactions involving each of those companies, they said.

Based on tips from the Credit Suisse employee, the Pakistani banker allegedly purchased securities in advance of a public disclosure, then quickly sold the securities once the public disclosure of an acquisition was made. Through dozens of transactions, including trades in an offshore account, the alleged scheme netted more than $7.5 million in profits, prosecutors charge.

After his former boss was sentenced, a former head of American trading on the Citibank NA commodity desk was sentenced in May to 12 months and a day in prison and ordered to pay approximately $188,000 after pleading guilty to conspiring to falsify bank records and to commit wire fraud, said a U.S. Attorney for the Southern District of New York.

U.S. Attorney Michael Garcia said Charles Craig Gile schemed to inflate trading profits of the Citibank commodity desk by as much as $20 million during 2003 to increase his stature at the firm and make himself eligible for bonuses. Garcia added that Gile and David Becker, Head of Commodities Trading at Citicorp, understated the market risk and overstated the financial performance of Citibank’s commodity holdings that year. In March, Becker was sentenced to 15 months in prison.

Garcia said the defendants accomplished their scheme using various means, including inputting false data into computer models used to estimate the value of positions held by the commodity desk. Other false inputs were apparently made to artificially decrease the amount of risk being taken by the trading desk. The models therefore showed millions of dollars of artificially inflated profits for Citibank.

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