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July 28, 2010

Raymond James Ordered to Buy Back $2.5M in ARS by FINRA

A Financial Industry Regulatory Authority arbitration panel is ordering Raymond James & Associates Inc. and Raymond James Financial Services Inc. to buy back $2.5M in auction-rate securities from an investor. Greg Merdinger has accused Raymond James Financial Inc. of failing to warn him about the risks associated with ARS. In 2009, he filed a claim accusing the broker-dealer of breach of both contract and fiduciary duty.

Merdinger claims that from October 2006 to February 2008, Raymond James & Associates Inc. recommended that he purchase the securities while claiming that they were more liquid than money market funds, which Merdinger wanted to invest in until he was persuaded otherwise. He contends that Raymond James never told him that the ARS could become illiquid and that even into February 2008, when the market froze, Raymond James continued to advise him to buy the securities. One more purchase was even made.

Raymond James Financial’s General Counsel, Paul Matecki, has been quick to note that the broker-dealer has provided evidence that it did not know that the ARS market was at risk of failing before February 2008 when it did collapse. He also claims that there is no evidence indicating that any of its employees knew that the securities would fail.

However, Merdinger’s securities lawyer says there are copies of emails showing that Raymond James Financial managers knew the ARS market was experiencing difficulties way before it collapsed. Early last year, Raymond James chief executive and chairman issued a letter, filed with the Securities and Exchange Commission, apologizing to clients for the role the investment bank played in their ARS buys.

In addition to the $2.5M ARS repurchase, Merdinger has been awarded 5% interest on the amount until Raymond James buys back the securities. He is also to receive an additional $86,000.

Related Web Resources:
Raymond James faces $2.5 million payback ruling, BizJournals, July 27, 2010

Raymond James Ordered To Buy Back $2.5M in Auction-Rates, WSJ, July 26, 2010

Tom James apologizes for auction rate security purchases, BizJournals, January 5, 20009

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Posted In: Auction-Rate Securities , FINRA , Financial Advisers , Financial Firms , Raymond James

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June 26, 2010

Texas Attorney General Candidate Barbara Ann Radnofsky Says State Should File Securities Fraud Lawsuit Against Wall Street Firms

Barbara Ann Radnofsky, the Democratic candidate for Texas attorney general, says that the state should sue Wall Street firms for securities fraud. Earlier this week, she published a legal brief accusing investment banks of being responsible for the financial crisis. Her Texas securities fraud briefing, which is modeled on the multibillion-dollar tobacco settlements from the 1990’s, is seeking approximately $18 billion in securities fraud damages and other reparations for Texas. She targets Morgan Stanley, Goldman Sachs Group, AIG insurance, and other leading financial firms, banks, and bond-rating agencies.

Radnofsky’s brief is not a securities fraud lawsuit, but it is a framework for one. She hopes that it will push incumbent Texas Attorney General Greg Abbott to take action. She contends that if Abbott fails to sue the firms by September, “he is committing legal malpractice.” She is accusing him of failing to act despite the “clear evidence.”

Radnofsky has noted that the financial meltdown has forced Texas to make cuts to social programs, environmental enforcement, and child protective services. She says the “Great Recession” has lead to child illness, hunger, death, and abuse. She also contends that foreclosures and abandoned homes have severely affected neighborhoods.

Radnofsky launched Suewallstreet.com earlier this week. The Web site includes a petition pushing for Texas and other US states to file a securities fraud complaint against numerous financial firms. The aim is to garner 100,000 signatures. Randofsky, who is an attorney, offered to handle the securities fraud lawsuit at no cost to taxpayers. Soon after Radnofsky launched her appeal, Attorney General Abbott’s office revealed that Texas, other states, and the US Department of Justice are conducting a broad investigation into the Wall Street firms that may have played a key role in the economic crisis.

Shepherd Smith Edwards and Kantas, LLP founder and Stockbroker Fraud Attorney William Shepherd is applauding Radnofsky’s move. ““I have no doubts that Wall Street’s actions, including intentional and grossly negligent acts, have caused severe harm worldwide. States such as Texas could be in a unique position to seek relief based on the history of similar suits. States and municipalities have been big losers as a result of financial woes caused by Wall Street and I congratulate Ms. Radnofsky for her efforts.”

Related Web Resources:
Radnofsky Urges legal action against Wall Street, Dallas News, June 26, 2010

Barbara Ann Radnofsky

Read the Brief

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Posted In: Financial Advisers , Goldman Sachs , Morgan Stanley , Texas Securities Fraud

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April 13, 2010

Linsco Private Ledger Clients File FINRA Arbitration Claims Accusing Former Financial Adviser Raymond Londo of Running Multi-Million Dollar Ponzi Scam

A number of FINRA arbitration claims have been filed accusing former Linsco Private Ledger (LPL) financial advisor Raymond Londo of running a multi-million dollar ponzi scheme to defraud investors. The claims allege fraud, conversion, misrepresentation and omissions, and negligence. LPL is accused of failing to supervise, discover, and stop the investment fraud scheme within a reasonable amount of time even though there were numerous signs, such as red flags and customer complaints, to indicate that Londo should have been more closely supervised or even fired.

Per the FINRA statement of claim, for nearly 10 years Londo accepted funds from LPL clients. He told them that he was investing their money in a LPL account where he could help them avail of exclusive investment opportunities. The former LPL financial adviser would then take the money he was supposed to invest and used it to support his lavish lifestyle and gambling addiction.

Linsco finally fired Londo in March 2008, but by then funds belonging to 95% of the victims had been stolen. Londo’s victims, located in different parts of the US, included his own neighbors, family members, and fellow country club members.

Soon after the Ponzi scam was discovered, Londo died.

LPL is one of the largest brokerage firms in the US. The alleged Ponzi scam surrounding Londo is not the first time the broker-dealer has been linked to securities fraud allegedly committed by one of its employees. In 2002, FINRA awarded more than $500,000 to an investor who claimed investment losses because LPL did not properly supervise one of its independent brokers.

In 2008, LPL Financial and Michael McClellan, one of its ex-brokers, lost a $1.8 million arbitration claim accusing them of securities fraud, violation of securities laws, unauthorized tradings, breach of fiduciary duties, and other violations.

Related Web Resources:
Former Financial Advisor Faces Stock Fraud Arbitration over Multi-Million Dollar Ponzi Scheme, Lawyers and Settlements, April 9, 2010

Securities Fraud Law Firm Shepherd Smith Edwards and Kantas LLP Investigates Ray Londo, Londo Financial Group, and Linsco Private Ledger For Improper Lending/Borrowing of Client Funds, Stock Broker Fraud Blog, October 20, 2008

Continue reading "Linsco Private Ledger Clients File FINRA Arbitration Claims Accusing Former Financial Adviser Raymond Londo of Running Multi-Million Dollar Ponzi Scam" »

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Posted In: Financial Advisers , LPL Financial , Ponzi Scams , Securities Fraud

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April 10, 2010

Stockbroker Fraud?: Extent of Main Street Natural Gas Bonds’ Tie to Lehman Brothers May Not Have Been Disclosed to Investors

Investors of Main Street Natural Gas Bonds are claiming that not only did brokers fail to disclose the risks associated with investing in them, but they also failed to inform their clients that the bonds could be affected by the financial health of Lehman Brothers. Wall Street firms had marketed and sold Main Street Natural Gas Bonds as conservative, safe municipal bonds when, in fact, they were Lehman Brothers-backed complex derivative securities. As a result, when the investment bank filed for bankruptcy in 2008 the bonds’ trading value dropped.

If you were an investor who lost money because you invested in Main Street Natural Gas Bonds that you were told were safe, conservative investments, please contact our stockbroker fraud lawyers immediately to request your free case evaluation. You may have grounds for a securities fraud claim.

Main Street Natural Gas
Set up by the Municipal Gas Authority of Georgia in 2006, Main Street Natural Gas, a non-profit corporation, was supposed to borrow money to purchase natural-gas derivatives—contracts that bet on natural gas’s future price. According to USA Today, the objective was to secure low cost, long-term, natural-gas supply for 73 municipal-owned securities.

In April 2008, Main Street gave $700 million in borrowed money to Lehman investment bank. In exchange, Lehman promised it would deliver 160 billion cubic feet of natural gas at a price that was lower than market value for the next three decades.

When Lehman Brothers filed for bankruptcy in September 2008, it had delivered under 1% of the gas that was promised. The $700 million, instead of being used to purchase natural gas, ended up in a pool to pay back the investment banks’ creditors. Now, investors are the ones that are having to pay the price with their investment losses.

Related Web Resources:
A bad investment ripples through Main Street, USA Today, October 22, 2008

The Main Street Natural Gas Bond Debacle, istockanalyst.com, January 17, 2010

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Posted In: Financial Advisers , Lehman Brothers , Municipal Bonds

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April 8, 2010

Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC

The Securities and Exchange Commission has filed claims against Morgan Keegan & Co, Morgan Asset Management and employees James C. Kelsoe, Jr. and Joseph Thomas Weller for securities fraud that allegedly involved inflating the value of subprime mortgage-backed securities.

According to investors and a number of state regulators, RMK Funds (RMK Advantage Income Fund, RMK High Income Fund, RMK Multi-Sector High Income Fund, RMK Select High Income Fund, RMK Strategic Income Fund, and the RMK Select Intermediate Fund) were marketed and recommended as funds that would provide a consistent income level while the actual risks involved were misrepresented and the funds’ net asset value pricing was manipulated.

The SEC’s enforcement division is accusing Morgan Keegan of failing to put into place reasonable procedures to internally price the portfolio securities in five funds, and as a result, being unable to accurately calculate the funds’ “net asset values.” These inaccurate daily NAVs were published while investors bought shares at inflated prices.

The enforcement division is also accusing fund portfolio manager Kelsoe of acting arbitrarily when he told Morgan Keegan’s Fund Accounting department to adjust prices in a manner that would make certain portfolio securities’ fair value go up. He had his assistant send about 262 “price adjustments” to Fund Accounting between at least January and July 2007.

On numerous occasions, adjustments were arbitrary, disregarded lower values that other dealers had quoted for the same securities, and neglected to reflect fair value. They were entered into a spreadsheet to determine the funds’ NAVs—even though there were no supporting documents. Kelsoe also is accused of regularly telling Fund Accounting to disregard broker-dealers’ month-end quotes that should have been used to validate the prices Morgan Keegan had assigned to the securities in the funds, as well as manipulated pricing quotes he received from at least one broker-dealer.

The Division of Enforcement is accusing Weller, a CPA who belonged to the Valuation Committee and served as the Fund Accounting Department head, of failing to fix the deficiencies in the valuation procedures, as well as not ensuring that fair-valued securities were accurately priced or that NAVs were correctly calculated.

Related Web Resources:
SEC Charges Morgan Keegan and Two Employees With Fraud Related to Subprime Mortgages, SEC.gov, April 7, 2010

SEC Order (PDF)

Morgan Keegan, 2 Employees Face SEC Fraud Charges, The Wall Street Journal, April 7, 2010

Continue reading "Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC " »

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Posted In: Financial Advisers , Morgan Keegan , SEC Enforcement , Securities Fraud

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April 5, 2010

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award

U.S. District Judge Deborah Batts says that Credit Suisse Group AG must pay STMicroelectronics NV the rest of the $431 million arbitration award owed for unauthorized auction-rate securities-related investments. FINRA had issued the securities fraud award last year.

STMicroelectronics NV says that Credit Suisse invested in high risk securities, including ARS with collateralized debt obligations, for the company when the investment bank was only supposed to invest in student loans backed by the US government. The European-based semiconductor maker sued Credit Suisse when the ARS’ value dropped. STMicro accused the broker-dealer of securities fraud, unjust enrichment, breach of contract, failure to supervise, and breach of fiduciary duty.

A FINRA panel ruled in favor of STMicro, awarding the company $400 million in compensatory damages, $3 million in expert witness and legal fees, and $1.5 million in financing fees, while directing Credit Suisse to pay 4.64% on the illiquid ARS in STMicro’s account until the fees and damages were paid.

Credit Suisse sought to vacate the FINRA award and argued that a panel arbitrator had been prejudicial toward the investment bank. The broker-dealer also accused the panel of disregarding the law. The court, however, decided that Credit Suisse’s claims were meritless. The remaining balance owed to STMicroelectronics is approximately $354 million, including $23 million in interest.

Earlier this year, Credit Suisse broker Eric Butler received a 5-year prison sentence for selling subprime securities to investors. His fraudulent actions cost them over $1.1 billion.

Since the ARS market meltdown in February 2008, at least 19 broker-dealers and underwriters have been sued. Regulators forced some of them to repurchase billions of dollars worth of auction-rate securities.

Our Shepherd Smith Edwards and Kantas founder and Stockbroker fraud lawyer William Shepherd says, “One issue which investors face when they are required to arbitrate is that they have little hope of appealing the arbitrators’ award if he/she lose. However, this works both ways: It is also very difficult for the brokerage firm to appeal as well, and few even try. Thus, an investor can finish a case, win, and get paid in about a year. In court, the process can drag out for 5 years or more."

Credit Suisse Ordered to Pay STMicroelectronics Award, BusinessWeek/Bloomberg, March 24, 2010

STMicroelectronics Sues Credit Suisse Over Securities, NY Times, August 7, 2008

FINRA Awards STMicroelectronics $406 Million Against Credit Suisse Securities (USA) LLC, STMicroelectronics, February 16, 2009

Continue reading "Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award " »

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Posted In: Auction-Rate Securities , Credit Suisse , Financial Advisers

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March 16, 2010

Five Years Later Ex- Knight Securities Supervisors are Exonerated? Just Call it “Par for the Course.”

The Financial Industry Regulatory Authority’s National Adjudicatory Council has dismissed the charges against former Knight Securities, L.P. CEO Ken Pasternak and John Leighton, the investment firm’s ex- Institutional Sales Desk head. The two men were accused of supervisory failures over allegedly fraudulent sales. Specifically, they allegedly inadequately supervised Leighton’s brother Joseph Leighton, who, at the time, was the firm’s top institutional sales trader. Regulators had accused Joseph of inflating the price of securities when selling them to institutional clients and keeping the extra profit.

The National Association of Securities Dealers found that the two former executives failed to take reasonable steps to make sure that Joseph was in compliance with industry standards. He settled with NASD and the Securities and Exchange Commission in 2005.

A lower FINRA panel had also ruled against two men. Pasternak was suspended from supervisory positions for two years and John was barred from supervisory roles. Both men were each ordered to pay $100,000.

Now, however, NAC is disagreeing with the lower panel, claiming that FINRA failed to establish that Joseph Leighton violated regulatory and market standards. The council also found that John Leighton did enforce Knight’s compliance procedures and that there was evidence that does not support allegations accusing Pasternak of not responding properly to “red flags” that surfaced over the way that Joseph handled his institutional client orders. However, institutional clients have come forward to testify that the pricing they received was fair. Also, in 2008, a federal judge threw out similar charges that the SEC filed against Pasternak and Joseph Leighton.

“This is another case at FINRA of the soldiers getting punished while the officers in charge ultimately get a walk,” said Shepherd Smith Edwards and Kantas founder and securities fraud lawyer William Shepherd. “The primary regulator of brokerage firms may have recently changed its name to the ‘Financial Industry Regulatory Authority’ but it remains a ‘National Association of Securities Dealers’ - a non-profit private corporation (similar to a country club) with a vested interest in seeing to it that favored members do not have to answer for misdeeds. After all, a precedent of fines or sanctions for the bosses might affect the treatment of other bosses in the future.”

Related Web Resources:
COMPLIANCE WATCH: Complying As Your Brother's Keeper, The Wall Street Journal, March 5, 2010

National Adjudicatory Council, FINRA

Continue reading "Five Years Later Ex- Knight Securities Supervisors are Exonerated? Just Call it “Par for the Course.”" »

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Posted In: Broker Fraud , Financial Advisers , Inadequate Supervision , Knight Securities

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February 5, 2010

Securities Claims Over Morgan Stanley Mutual Funds Dismissed by Appeals Court

Upholding a lower court’s decision, the U.S. Court of Appeals for the Second Circuit affirmed that investors’ securities claims in two Morgan Stanley (MS) mutual funds—the Morgan Stanley Technology Fund and the Morgan Stanley Information Fund—should be dismissed. The claimants had accused the investment firm of failing to disclose conflicts of interest between investment banking arms and its research analysts.

The court ruled that mutual fund offering statements are not necessary to disclose possible conflicts of interest that occur due to the dismantling of the “information barrier” between stock researchers and investment bankers. The appellate panel also found that there are two class actions against the open-ended mutual funds that fail to identify illegal omissions in the funds’ prospectuses or registration statements.

According to investors, they should have been notified that objectivity could be compromised because the managers of the mutual funds heavily depended on broker-dealers for their stock research. Citing the Securities Act of 1933, they filed a securities fraud lawsuit against Morgan Stanley. The plaintiffs contended that the brokerage firm’s offering documents omitted the possible conflict of interest. The plaintiffs claimed that these omissions cost them $500,000 and that the combined losses for the class were over $1 billion.

A federal judge dismissed their broker fraud complaints, citing a failure to prove that the law mandates disclosure of possible conflicts of interest. The second circuit affirmed the lower court’s ruling, saying it agreed with the SEC’s amicus curiae stating that both Form 1-A and the Securities Act do not require defendants to reveal that the information the plaintiffs’ claimed had been left out and that what the plaintiffs considered to be risks specific to the Morgan Stanley funds were in fact ones that every investor faces.

Among the defendants: Morgan Stanley, Morgan Stanley DW Inc. (MSDWI), MS & Co, the Technology Fund, the Information Fund, Morgan Stanley Investment Management Inc. (MSIM), Morgan Stanley Investment Advisors Inc. (MSIA), and Morgan Stanley Distributors Inc.

Related Web Resources:
Second Circuit Rules Morgan Stanley Mutual Funds Not Liable for Failing to Disclose Conflicts of Interest with Stock Analysts, Law.com, February 1, 2010

Court Nixes Class Actions Against Morgan Stanley, Courthouse News, January 29, 2010

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Posted In: Financial Advisers , Morgan Stanley , Mutual Funds

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November 28, 2009

Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court

Braintree Laboratories Inc. is asking the U.S. Court of Appeals for the First Circuit to keep its auction-rate securities lawsuit against the brokerage division of Citigroup Inc. in court. A federal court had ordered the proceedings into arbitration.

Last April, the pharmaceutical company sued Citigroup for securities fraud, accusing the investment bank of misrepresenting $33.2 million in ARS as “liquid,” government-supported “money market” investments that could be sold following seven days notice when Citigroup allegedly knew that the investments were auction-rate securities that were illiquid, subject to failed auctions, and not redeemable until 2030.

Braintree also contends that Citigroup used misleading and false descriptions to prevent clients and regulators from finding out that it was still selling these “toxic instruments.” The pharmaceutical company is accusing Citigroup of destroying key evidence related to the alleged fraud.

Braintree purchased the ARS from Citigroup between June and August ’08. The ARS market froze in early 2008.

Citigroup has agreed to give back $7.5 billion to individual clients, charities, and small businesses that suffered ARS losses when the market collapsed. The broker-dealer is also promising to put its best efforts toward liquidating some $12 million in ARS that were purchased by institutional investors, including retirement plans, by the end of 2009.

As Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd points out, “Most securities firms have agreed to repurchase Auction Rate Securities from smaller investors, but our firm is representing many large investors who remain in ‘ARS limbo.’ It is very important for these investors to hire skilled attorneys to protect their rights before time limits expire to take action! We have found many firms are dragging out discussions with investors but only paying those who take legal action.”

Related Web Resources:
ARS Investor Fights To Keep Citigroup In Court, Law 360, November 11, 2009

Citi sued over auction-rate securities, Reuters, April 17, 2009

Continue reading "Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court" »

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Posted In: Auction-Rate Securities , Citigroup , Financial Advisers

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September 24, 2009

Regions Bank Settles SEC Charges Over Latin American Investment Fraud Scam

Regions Bank has agreed to a $1 million fine to settle SEC allegations that it helped defraud some 14,000 investors. Most of the affected investors are based in Latin America.

According to the SEC, Regions Bank helped two unregistered broker-dealers, U.S. College Trust Corp. and U.S. Pension Trust Corp., commit securities fraud against Latin American investors.

Beginning October 2001, Regions Bank played the role of “trustee” to the broker-dealers’ investment plans. It continued to accept USPT clients until January 2008. The SEC contends that this affiliation with a US bank gave the securities fraud scheme an aura of “legitimacy” and became a big draw for Latin American investors.

The SEC says that by taking on the role of trustee, Regions Bank formed individual trust relationships with investors, processed client contributions, and bought mutual funds on their behalf.

Investor had the option of paying one lump sum or making yearly contributions. Investors were not notified until March 2006 that USPT deducted substantial chunks of investors’ contributions—up to 85% of initial contributions made by investors who took part in an annual plan and up to 18% of single contributions—and used the money to pay for commissions and other fees.

The SEC says that Regions Bank either knew or should have known about USPT’s deceptive sales practices. The Commission is accusing Regions Bank of dispatching representatives to Latin America to meet prospective investors and allowing USPT to use the bank’s name in marketing and promotional materials.

The $1 million penalty will be placed in a Fair Fund to compensate investment fraud victims. Regions bank has also agreed to a cease-and-desist order.

SEC charges Regions Bank for role in Latin American fraud scheme, Investment News, September 21, 2009

Read the SEC Complaint (PDF)

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Posted In: Broker Fraud , Financial Advisers , Regions Bank , SEC Enforcement , Securities Fraud

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July 6, 2009

Stifel Financial Corp. Says 95% of Clients Agree to Auction-Rate Securities Buyback Plan

According to Stifel Financial Corp., 95% of its clients with frozen auction-rate securities have indicated that they will accept its offer to buy back the investments over a three-year period. Missouri Securities Regulator and Secretary of State Robin Carnahan, however, continues to maintain that the buyback plan is inadequate.

She also disagrees with the broker-dealer’s claim that customers are endorsing the buyback plan by accepting it. Rather, she believes that it is the only option that Stifel has given clients that will allow them to get all of their funds back—and that means that many of them will have to wait three years. Carnahan noted that over 20 other broker-dealers were able to give their clients immediate relief.

Some 1,200 Stifel clients bought ARS before the market collapsed. The firm’s clients currently hold about $170 million in ARS. Some 40% of eligible accounts reportedly were to have received 100% liquidity by June 30. The remaining accounts are to obtain full liquidity by June 2012.

Stifel Chief Executive Officer and Chairman Ronald J. Kruszewski maintains that the broker-dealer did not know that the ARS market was in trouble until it collapsed. This is the main reason that Stifel has given for why it isn’t buying back their clients’ holdings in full the way other brokers have from their clients.

Carnahan’s office, however, alleges that Stifel was aware of the risks involved with investing in ARS and that the broker-dealer should have worked harder to protect investors. Her office sued Stifel in March 2009 over the way the firm marketed ARS and misled investors.

Related Web Resources:
Most Stifel clients accept auction rate securities buyback; Carnahan calls offer ‘inadequate’, St Louis Business Journal, June 23, 2009

Carnahan Sues Stifel Over Auction Rate Securities, iStockAnalyst, March 13, 2009

New Trouble in Auction-Rate Securities, The New York Times, February 15, 2008

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Posted In: Auction-Rate Securities , Broker-Dealers , Financial Advisers , Stifel, Nicolaus, & Co. Inc.

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June 22, 2009

Raymond James and RBC Capital Markets Fined $1.4 Million in Total Over Improper Stock Lending Activities

The Financial Industry Regulatory Authority says that RBC Capital Markets Corp., Raymond James & Associates, Inc., and an RBCCMC head trader have settled charges over alleged broker misconduct connected to stock loan improprieties. RJF is to pay a $1 million fine, while RBC Capital Markets will pay $400,000.

Meantime, RBCCMC Stock Loan Department head trader Benedict Patrick Tommasino has agreed to a $30,000 fine, a 20-month suspension from working for a securities firm, and another two-month suspension from acting in a principal role.

According to FINRA, RJF allegedly executed payments that were improper and unjustified to finder firms even though the companies didn’t provide services to locate the securities and they weren’t involved in the stock loan transactions for which they were receiving payments. For example, in March and 2004, Raymond James paid two finder firms for 11 transactions even though they didn’t perform a service. A Raymond James loan trader’s son was employed at one of the finder firms.

FINRA is also accusing the two broker-dealers of allegedly letting Dennis Palmeri, Sr. perform stock loan functions. Only registered individuals are allowed to perform this role.

Palmeri is a non-registered person that had been barred from the securities industry. He was previously convicted of federal securities law violations in 1994. Following his conviction, the SEC barred him from working for an investment advisor, a broker dealer, or an investment company. While Palmeri can act as a non-registered finder, he cannot perform roles requiring that the individual be registered.

Susan Merrill, the FINRA enforcement chief, says the two firms exposed the market to an individual that was non-registered, unqualified, unsupervised, and was not allowed to work in the securities industry. FINRA also claims that the two broker-dealers failed to reasonably supervise their Stock Loan Departments. By agreeing to settle, Tommasino and the two broker-dealers are not denying or admitting misconduct.

Related Web Resources:
FINRA Fines Raymond James, RBC Capital Markets Corporation, Stock Loan Trader for Improper Stock Loan Practices, FINRA, June 17, 2009

FINRA fines Raymond James, RBC Capital Markets, Forbes, June 17, 2009

Continue reading "Raymond James and RBC Capital Markets Fined $1.4 Million in Total Over Improper Stock Lending Activities" »

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Posted In: Bond Dealers , Broker Fraud , FINRA , Financial Advisers , Financial Firms , RBC Capital Markets Corp. , Raymond James

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June 15, 2009

Ex-Morgan Keegan Adviser Pleads Guilty to Stealing from Senior Investor

A former Morgan Keegan adviser has pleaded guilty to charges that he stole from an elderly investor. Charges included investment adviser fraud and making and subscribing a bogus tax return. Now, Harold “Hal” Blondeau could be facing up to eight years in prison. He also may have to pay restitution to his victim. Martha B. Capps is now 83.

Blondeau received power of attorney over the senior investor’s accounts as she was experiencing the beginning stages of Alzheimer’s. She wanted him to keep her inheritance away from her husband. Large sums were taken out of Capps’ accounts.

The former Morgan Keegan adviser is accused of using some of the stolen funds to pay for personal expenses, including a beach house and $24,000 in wine. The beach house, purchased in Capps’ name, would have gone to Blondeau upon her death.

Almost $3 million was taken from the account of Martha B Capps. In 2007, attorneys for the elderly woman filed a lawsuit against Blondeau, his son Neal Knight, and Knight’s two daughters. The complaint contends that the group stole money from Capps. Blondeau and Knight are accused of establishing a non-profit foundation in the name of Capps’ father and donating the money to different organizations to enhance their own images. Capps’ money was also used for the college education of the two men’s children.

In 2007, Blondeau was let go from Morgan Keegan because he failed to disclose a loan that was obtained from a client. To date, Blondeau is the only one out of the four civil lawsuit defendants that is facing criminal charges in federal court.

Taking advantage of an elderly investor is a crime and can be grounds for an investor fraud lawsuit. Unfortunately, senior investors—especially those that have inherited money or have retirement savings—are easy targets of investor fraud.

Related Web Resources:
Raleigh investment adviser pleads guilty to fraud, Triangle Business Journal, June 11, 2009

Financial advisor admits to stealing from client, News & Observer, June 11, 2009

Elderly heir claims fraud by advisers, News & Observer, October 13, 2007

Fraud Target: Senior Citizens, FBI

Senior Investment Fraud News & Alerts, NASAA

Continue reading "Ex-Morgan Keegan Adviser Pleads Guilty to Stealing from Senior Investor" »

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Posted In: Financial Advisers , Morgan Keegan , Senior Investors

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May 28, 2009

Lawsuit against Fisher Investments a possible indicator that more investment lawsuits and arbitration claims against financial advisers may be in the works

Earlier this month, our securities fraud law firm published a blog post about a $1.2 million arbitration claim filed against Fisher Investments by a couple accusing the investment adviser of breach of fiduciary duty. Fisher Investments head Ken Fisher called the allegations “nonsense.”

He also brushed off claims made in an investment adviser lawsuit, this one filed in Houston federal court by investor Maurine Ford. The plaintiff contends that Fisher Investments is responsible for substantial losses sustained by a living trust that the firm began managing for her in June 2008. Before then, Lighthouse Capital Management LLP of Houston managed the trust. That is, until Fisher Investments purchased the client assets.

According to Ford’s complaint, the asset allocation in the trust’s account when it was transferred to Fisher Investments was 27% cash, 41% equities, and 32% fixed income. She contends that Fisher Investments recommended that the plaintiff reallocate the portfolio so that 100% would be invested in equities.

The $1.2 million investment advisor arbitration claim, filed in Georgia by Michelle and Brent Murphy, accuses Fisher Investments of keeping nearly 100% of the senior couple's investments in equities despite the market collapse that was taking place.

Mr. Fisher maintains that both cases against his firm are going to hit concrete walls. He has called the lawyers handling both cases “incompetent” and said that the clients “will be sorry in the end” for paying for legal fees when they end up empty-handed.

In response to Fisher’s claims, Stockbroker Fraud Attorney William Shepherd says, “While it is true that attorneys not accustomed to handling investors’ claims are indeed not competent to handle such cases, Mr. Fisher may discover that all lawyers are not incompetent in this area of the law. Investors who hire a legal team that has handled hundreds – or even thousands - of claims by investors, such as our firm, very well may surprise Fisher. We look forward to providing him with that learning experience.” Mr. Shepherd is the founder of securities fraud law firm Shepherd Smith Edwards and Kantas, LLP.

Following the majority of past market collapses, investors were most likely to try recouping their investment losses from broker-dealers and stockbrokers. Industry experts, however, are anticipating that this time around, investors may also seek to get their money back by filing lawsuits and arbitration claims against liable financial advisers.

Related Web Resources:
Lawsuits against Fisher Investments may lead to other adviser litigation, Investment News, May 17, 2009

Fisher Investments Hit with $1.2 Million Arbitration Claim by Senior Investors Alleging Breach of Fiduciary Duty, Stockbrokerfraudlawyer.com, May 14, 2009

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Posted In: Financial Advisers , Fisher Investments

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April 28, 2009

Hennessee Group Settles with SEC over Bayou Group Fraud

Hedge fund investment adviser Hennessee Group, LLC has reached an agreement with the Securities and Exchange Commission over its securities fraud probe into Bayou Group and hedge fund manage Samuel Goldberg. Investors lost some $400 million in the scam. Now, Hennessee Group and principal Charles J Gradante will pay over $814,000 to settle charges that Hennessee failed to do the correct due diligence before recommending Bayou Group to investors.

According to the SEC, investors placed over $65 million with Bayou Group between 2002 and 2005. Hennessee collected over $500,000 in advisory fees. However, the SEC charges that Hennessee failed to perform the type of due diligence they told investors that they engage in. The firm failed to check up on Bayou Group’s relationship with its auditor and did not follow up on emails sent by investors questioning the ties between the auditor and Bayou Group cofounder Daniel Marino. It would later come to light that Israel and Marino established a bogus accounting firm and Marino signed fake audits.

Israel was sentenced to 20-years in jail but pretended to kill himself and disappeared on the day he was supposed to go to jail. He later turned himself into authorities and is waiting to receive his sentence for fleeing. Marino is serving a 20-year prison term.

Also last week, Marino’s brother, Matthew Marino, was sentenced to 21-months in prison for his role in the investment fraud scam. He has been ordered to pay $60 million in restitution.

Prosecutors had accused Matthew of knowing that Bayou executives were committing investment fraud and that Richmond-Fairfield Associates was a bogus accounting firm. He was accused of helping conceal the fraud by taking part in the scheme, concealing documents, and making changes to a certain bogus document.

Related Web Resources:
Hennessee Group Settles SEC Charges In Bayou Hedge Fund Fraud; Agency Says Hennessee Skimped On Due Diligence, Ponzi News, April 22, 2009

Hennessee Settles SEC Case Over Bayou, Hedgefund.net, April 22, 2009

Ex-Bayou Exec's Brother Sentenced To 21 Months In Prison, Wall Street Journal, April 22, 2009

Continue reading "Hennessee Group Settles with SEC over Bayou Group Fraud" »

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Posted In: Financial Advisers , Investor Fraud

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March 17, 2009

Despite Financial Market Volatility, Most Investment Advisors Are Telling Clients To Stick With Their Investment Plans

According to a TD Ameritrade Institutional survey, most investment advisers continue to tell their clients that now is a great time to invest in the financial market rather than encouraging them to cash out their investments in the wake of the financial crisis:

• 93% of investment advisers are not telling clients to cash out investments.

• Over 50% of these registered advisers believe now is the time to invest in equities.

• 43% of them are telling clients to increase their fixed income allocations.

• 53% are having clients increase cash allocations.

• 41% have dramatically increased their communications with clients so they can offer them reassurance.s

506 registered investment advisers participated in the survey. TD Ameritrade Institutional managing director of advisor advocacy and industry affairs Brian Stimpfl says that the results demonstrate how most advisors are staying committed to sticking with their clients’ investment strategies despite volatility in the financial market.

Shepherd Smith Edwards and Kantas LLP Founder and Stockbroker Fraud Lawyer William Shepherd, however, had this to say: "When markets fell 20% or so by early September, brokers and financial advisors should have been listening to their clients carefully to learn the true nature of their risk-tolerances. When any investor expresses strong feelings about losses in an account the investment advisor must act to revise the client’s objectives. Several of our clients told their advisors they were losing sleep over their investments. Yet, instead of revising the clients’ investment objectives – and their investments – as required, the advisors adamantly told their clients not to sell. Now that these investors’ nightmares have come true, the advisors want to hide behind objectives marked on the old forms without taking responsibility for their reckless inaction.”

Related Web Resource:
FA Magazine
TD Ameritrade Institutional

Continue reading "Despite Financial Market Volatility, Most Investment Advisors Are Telling Clients To Stick With Their Investment Plans" »

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Posted In: Broker-Dealers , Financial Advisers , Financial Firms

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August 13, 2008

Claims Continue over MasterShare - Prudential Securities’ Deferred Compensation Plan

Prudential Securities has been plagued by claims over its deferred compensation plan, known as MasterShare. A number of former representatives have filed claims and recovered damages.

Started in 1999, MasterShare allowed Pru employees to deduct up to 25 percent of their gross pay to purchase discounted shares of a stock index fund. This discount had the effect of a company match of the funds deducted. Yet, the plan also provided that if the employee left the firm early he or she not only forfeited the company's “match” but also the portion withheld from his or her check!

With the threat of forfeiture of a substantial portion of the employee’s pay, some representatives claim they became hostages of Prudential. One former broker trainee says the firm promoted the plan as a pension plan and that he was “strongly encouraged” to join with the further suggestion that those not participating were perceived as “transients”.

Pru faced a number of claims by ex-employees over the MasterShare program but was at first successful in fighting these. The firm relied on New York Labor Law which stated that employers can make deductions from employees’ wages that “are expressly authorized in writing by the employee and are for the benefit of the employee.” It also avoided claims under ERISA while noting that “the existence of the identical forfeiture provision did not stop six judges on the New York Court of Appeals from unanimously holding” the plan is valid under New York Labor Law.

But in late 2005 the tables began to turn when a panel of three securities arbitrators awarded almost $2 million to Robert J. Ostrowski, a former retail broker who had worked for over 41 years for Prudential Securities. The arbitrators also ordered Mr. Ostrowski's Form U-5 to be amended to state that he was terminated "without cause on July 25, 2001," while also ordering Prudential to pay the hearing costs of $15,000.00.

The following year, an arbitration panel ruled in favor of another former Prudential broker, Charles J. Hazlett. The arbitration Award states that “Prudential breached the MasterShare Agreement and shall pay to [Hazlett] compensatory damages in the amount of $243,045.22, plus interest …”

That same year, other arbitrators considered a claim by former agent Frederick J. O’Meally against Prudential and Wachovia Securities, which had merged. Included in the claim was $2 million of assets allegedly forfeited in O”Meally’s MasterShare account, plus $1.3 million in damages for other claims. Prudential never officially submitted to the arbitration and was dismissed by agreement, but the arbitrators ordered Wachovia, Prudential’s sister firm, to pay O’Meally the entire $3.3 million.

Since 1990, the securities law firm of Shepherd Smith Edwards and Kantas, LLP has represented clients, including registered persons, in claims against securities brokerage firms. Those who have dispute with their firm or former firm can call for a free confidential consultation with one of our attorneys. (Note: Law firms that represent investment firms are usually prevented by conflict from representing others in disputes against those firms.)

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Posted In: Financial Advisers , Prudential , Wachovia

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February 24, 2008

Ex-Credit Suisse Investment Banker Appeals Insider Trading Charges Conviction

Former Credit Suisse Securities USA LLC investment banker Hafiz Naseem says he will appeal his conviction for insider trading charges, which include 1 count of conspiracy and 28 counts of securities fraud involving stolen nonpublic data allegedly used for insider trading that generated at least $7.5 million. He faces a maximum 5-year prison sentence and fines two times the gross loss or gain of the violation.

The Justice Department says that the ex-Credit Suisse Securities investment banker told Ajaz Rahim, a Pakistan resident and the former head of Faysal Bank, about nine upcoming merger and acquisition deals from April 2006 to February 2007 including:

- Apollo Management LP’s Jacuzzi Brands acquisition
- NorthWestern Corp.’s acquisition by Babcock & Brown Infrastructure
- Veritas DGC Inc.’s acquisition by Compagnie Generale de Geophysique SA
- The merger between Energy Partners Ltd. and Stone Energy Corp.
- The TXU buyout

Rahim then used a Bahrain-based brokerage account to purchase stocks in the deals’ target companies. Although Naseem was not involved in working on any of the acquisition deals, he allegedly poured through internal databases and papers on his coworkers’ desks for confidential data that he passed on to Rahim.

The jury handed out the conviction on February 4 during his second trial. Naseem’s first trial ended in December because two jury members did not follow instructions provided by the court.

If you are an investor who has lost money because of the misconduct of an investment adviser or another member of the securities industry, one of our stockbroker fraud attorneys may be able to assist you. Contact Shepherd Smith and Edwards today.

Related Web Resources:

Ex-Credit Suisse Banker Naseem Convicted Of Insider Trading, Wall Street Journal, February 4, 2008

Banker Convicted on NY Insider Trading, CNN, February 4, 2008

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Posted In: Credit Suisse , Financial Advisers

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February 4, 2008

SEC-Commissioned Report Finds that Investors Have A Hard Time Telling the Difference Between the Roles of Broker-Dealers and Investment Advisers

Investors have a hard time understanding the differences between investment advisers and broker-dealers, as well as distinguishing between the different services and protections that each group offer. This finding was reported last month in an SEC-commissioned study conducted by Nonprofit policy group Rand Corp.

Rand gathered its findings from data that came from six investor focus groups and a survey it conducted of 654 U.S. households.

Included among the findings:

• Many investors do not know whether they are receiving the standard of care they are owed by their financial service providers.
• Many of these same investors are satisfied with the services provided to them by their financial service providers.
• Accessibility, attentiveness, and trustworthiness in a financial service provider ranked higher than performance or expertise.
• Some investors find it difficult to understand the disclosures provided to them by their investment adviser or broker-dealer.
• Investors don’t always finish reading disclosures.

The SEC ordered the study because it wanted to factually determine the state of the brokerage and investment advisory industries and assess the regulatory and legal environment surrounding investment professionals. It commissioned the study after a federal appeals court struck down an SEC rule that let broker-dealers offer fee-based brokerage accounts and a certain degree of advice without needing to be in compliance with the 1940 Investment Advisers Act. Critics had called the rule controversial, and the SEC wanted to see if this criticism had any merit.

The boundaries between investment advisers and broker dealers are not as delineated as they used to be. Investment Advisers Association Executive Director David Tittswroth says the study's results confirm that many investors are confused.

The growing sophistication of the financial industry makes it harder for regulators to govern the different financial services. Shepherd Smith and Edward is a stockbroker fraud law firm that represents clients who have lost money because their investment accounts were inappropriately handled by a broker-dealer or an investment adviser. Contact Shepherd Smith and Edwards today to schedule a free consultation.

Related Web Resources:

Complexity of Financial Services Industry Makes It Difficult for Individual Investors to Distinguish Broker-Dealers and Investment Advisers, Rand.org, January 3, 2008

Read the Full Report, SEC.gov (PDF)

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Posted In: Broker-Dealers , Financial Advisers

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January 28, 2008

Commodity Futures Trading Commission Charges Argentine Investment Adviser With Defrauding Investors in $43.8 Million International Scam

The Commodity Futures Trading Commission (CFTC) is charging Diego Mariano Rolando, an Argentine investment adviser, for his role in a $43.8 scheme that defrauded some 400 investors in the United States, South America, and Europe. Earlier this month, the U.S. District Court for the District of Connecticut issued a restraining order to freeze his assets.

According to the CFTC, Rolando allegedly engaged in the following activities:

• Fraudulent trading of customer funds in options contracts and commodity futures.
• Provided investors with fraudulent account statements.
• Gave a U.S. clearing firm false customer contact information to prevent investors from discovering the scam.

The CFTC says that Rolando went online to solicit clients through Roclerman.com and IATrading.com. He told those he contacted that he could trade securities for them. The CFTC is charging Rolando with providing clients with materials about their investments that contained "misrepresentations and omissions of fact."

The CFTC says that Rolando solicited about $48.8 million through the scam. The commission is seeking a number of sanctions, including a permanent injunction, disgorgement of ill-gotten gains, restitution to investors, and a civil financial penalty.

If you are an investor that wishes to obtain financial restitution because of losses you incurred due to the fraudulent misconduct of a broker or an investment adviser, you should speak with a stockbroker fraud lawyer immediately. Shepherd Smith and Edwards dedicates its legal practice to helping professionals like you recover your financial losses. We represent stockbroker fraud clients in the U.S., as well as internationally. Contact Shepherd Smith and Edwards for your free consultation today.

Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

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Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award

Five Years Later Ex- Knight Securities Supervisors are Exonerated? Just Call it “Par for the Course.”

Securities Claims Over Morgan Stanley Mutual Funds Dismissed by Appeals Court

Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court

Regions Bank Settles SEC Charges Over Latin American Investment Fraud Scam

Stifel Financial Corp. Says 95% of Clients Agree to Auction-Rate Securities Buyback Plan

Raymond James and RBC Capital Markets Fined $1.4 Million in Total Over Improper Stock Lending Activities

Ex-Morgan Keegan Adviser Pleads Guilty to Stealing from Senior Investor

Lawsuit against Fisher Investments a possible indicator that more investment lawsuits and arbitration claims against financial advisers may be in the works

Hennessee Group Settles with SEC over Bayou Group Fraud

Despite Financial Market Volatility, Most Investment Advisors Are Telling Clients To Stick With Their Investment Plans

Claims Continue over MasterShare - Prudential Securities’ Deferred Compensation Plan

Ex-Credit Suisse Investment Banker Appeals Insider Trading Charges Conviction

SEC-Commissioned Report Finds that Investors Have A Hard Time Telling the Difference Between the Roles of Broker-Dealers and Investment Advisers

Commodity Futures Trading Commission Charges Argentine Investment Adviser With Defrauding Investors in $43.8 Million International Scam

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