April 12, 2014

FINRA Doesn’t Want Oversight Over Financial Advisers, Says CEO Ketchum

According to Financial Industry Regulatory Authority CEO Richard G. Ketchum, the regulator no longer wants to be given oversight over financial advisers. Speaking to The Wall Street Journal, Ketchum said the self-regulatory agency had done all it could to be granted authority over investment advisers and has decided to stop with additional attempts.

FINRA currently oversees brokers. Meantime, the Securities and Exchange Commission and the states oversee registered investment advisers. The SEC had been exploring having FINRA or another agency police RIAs instead. However, the majority of investment advisers were against such a move because of the way FINRA handles enforcement. They don’t think the regulator understands the way investment advisers operated.

Ketchum is now saying that Congress should give the SEC the resources it needs to enhance its examination program of advisers. The Commission has been asking for more money because it can only afford to examine investment advisor firms about once a decade, which isn’t much oversight at all.

Ketchum also said that he approves of the way investment advisers, like brokers, must now uphold fiduciary standards that mandate that they always act in the best interests of a client. However, it is only brokers who need to ensure that the investment strategies and products they recommend are suitable for a customer.

Meantime, reports InvestmentNews, a five-year bull market is causing advisers to experience the highest levels of compensation and assets under management in seven years. A study just released by Fidelity Investments reports that in the last year approximately 95% of advisers saw their business grow. Also, average compensation was at about $24,000 and average assets under management was at around $60 million. However, many advisory firms are finding it hard to draw in young clients, which could slow long-term growth.

Our securities lawyers represent investors that have lost money because of investment adviser fraud and other forms of financial fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Financial Industry Regulatory Authority

Finra Backs Off From Expanding Oversight, The Wall Street Journal, April 10, 2014

Advisers' business booming, but dark clouds looming, Investment News, April 10, 2014


More Blog Posts:
SEC Says Investment Advisors Can Publish Third-Party Endorsements Online, Stockbroker Fraud Blog, April 1, 2014

SEC Reveals Plans to Examine Never-Before-Inspected RIAs, Stockbroker Fraud Blog, February 24, 2014

SEC Sanctions Three Investment Advisory Firms for Custody Rule Violations, Institutional Investor Securities Blog, October 30, 2014

February 14, 2014

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

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

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

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

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

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

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


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

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

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

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


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

January 18, 2014

Advisors in the Spotlight: Ex-SAC Capital’s Martoma on Trial for $276M Insider Trading Scam, Financial Industry Recruiters Say LinkedIn Hurts Their Business, & A Fugitive Bank Director Wanted for Securities Fraud is Arrested

Former SAC Capital Portfolio Manager Mathew Martoma On Trial for Securities Fraud
Mathew Martoma, the ex-SAC Capital Advisors portfolio manager accused in the insider trading scam that involved $276 million in Wyeth and Elan stocks, is now on trial. Martoma allegedly used tips from a doctor involved in Alzheimer drug trials. The government says that due to the information SAC liquidated a $700 million position and sold its stocks in the firms, which allowed it to make money while avoiding losses.

In court this week, one doctor testified that he was surprised that Martoma knew so much about the results of a clinic trial before they were publicly disclosed. Already, prosecutors have filed charges against 83 people and four SAC entities over what the US is calling the largest illegal trade in our nation’s history. There have been several convictions.

Last year, SAC pleaded guilty to securities fraud over the insider trading charges and agreed to shut down its investment advisory as part of its $1.8 billion settlement.


Financial Industry Recruiters Blame LinkedIn For Their Lost Business
According to industry recruiters, their own jobs are suffering because of LinkedIn. Whereas companies typically had to use recruiters to fill their job openings, they now can post them on LinkedIn and look for candidates.

One reason for this is that many financial firms have gotten more involved in social media ever since 2011 when the Financial Industry Regulatory Authority provided them with guidance. Now, the majority of independent brokerage firms let their advisers used LinkedIn.


Fugitive Ex-Bank Director and Investment Fund Manager is Arrested and Charged with Securities Fraud, Wire Fraud
Aubrey Lee Price, a former bank director and investment fund manager who became a fugitive after he was indicted on securities fraud and wire fraud charges, was arrested in Georgia. Price is accused of managing funds and raising about $40 million from over 100 investors and then covering up his losses when the investments failed.

In a suicide note that he supposedly sent out before he disappeared, Price confessed to misappropriating the money and publishing bogus account documents. He was recently arrested during a routine traffic stop.

Price is accused of losing the capital of Montgomery Bank & Trust when he worked for that institution as a director by allegedly investing in riskier options and securities than what he represented he would get involved in and then covering up the losses.

Investment Adviser Fraud
Our securities fraud lawyers represent investors with claims involving broker fraud, investment advisor fraud, municipal advisor fraud, CDO fraud, ARS fraud, REIT fraud, MBS fraud, RMBS fraud, Ponzi scams, muni bond fraud, and other securities schemes. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Latest SAC trial begins with Martoma facing long odds, CNNMoney, January 10, 2013

LinkedIn disrupts the recruitment game, search consultants say, Investment News/Crain's Detroit, December 19, 2013

Aubrey Lee Price, fugitive banker, homeless before arrest, CSMonitor, January 3, 2014


More Blog Posts:
Advice to Advisors: Financial Advisors Taught Ways to Avoid SEC Scrutiny, Stockbroker Fraud Blog, November 11, 2013

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

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

September 6, 2011

Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds

A FINRA panel in Houston has ordered Morgan Keegan & Company to pay the Claimants of a Texas securities fraud $555,400 in compensatory damages. The Claimants had accused the financial firm of misrepresentation, negligence, vicarious liability, failure to supervise and violating the Texas Securities Act, the Texas Deceptive Trade Practices Act, and NASD Rules.

The securities claim is related to the sale and recommendation of a number of Regions Morgan Keegan proprietary mutual funds that were allegedly touted as diversified, conservative, and low risk despite a supposed higher rate of return:

• Regions Morgan Keegan High Income Fund
• Regions Morgan Keegan Advantage Income Fund
• Regions Morgan Keegan Multi-Sector High Income Fund
• Regions Morgan Keegan Strategic Income Fund

The funds were actually high-risk mortgage-backed securities that were not appropriate for the Claimants.

After a 5-day hearing, the panel found Morgan Keegan liable in the Texas securities case and ordered the financial firm to pay damages to the WCR Family Limited Partnership, as well as a 4% per annum interest on the $550,400 for the period of July 29, 2011 until payment is made in full. The panel did dismiss all claims brought by the Wilhelmina R. Smith Estate.

Morgan Keegan Securities Fraud Cases
For the past couple of years, our Texas stockbroker fraud law firm has been diligently pursuing claims against Morgan Keegan related to their Regions Morgan Funds. The cases came following claims by investors that the financial firm defrauded them by misrepresenting the risk involved in the investments. Investors sustained many of the losses when the subprime mortgage market collapsed.

Over 400 securities claims have been filed over Morgan Keegan’s RMK funds. Already tens of millions of dollars have been awarded to claimants.

Other RMK funds named in the claims include the:

• RMK Select Intermediate Bond Fund
• RMK Select High Income Fund

Earlier this summer, Regions Financial Corp. agreed to pay $210 million to settle more securities allegations that it fraudulently marketed mutual funds with subprime mortgages while artificially raising the prices of the funds. FINRA, SEC, and regulators from Kentucky, Alabama, South Carolina, and Mississippi agreed to the settlement.

Examples of FINRA arbitration settlements that Morgan Keegan has been ordered to pay over the RMK Funds:

• $881,000 to several investors. The claimants said their actions were over SEC and FINRA violations, breach of fiduciary duty, negligence, failure to supervise, vicarious liability, negligence, and breach of contract.

• $2.5 million to investor Andrew Stein and his companies. Panel members held Morgan Keegan liable for negligence, failure to supervise, and the sale of unsuitable investments.

Related Web Resources:

Regions Settles S.E.C. Case Over Former Morgan Keegan Funds, NY Times, June 22, 2011

Regions settles fraud case, may sell Morgan Keegan, Reuters, June 22, 2011

Texas Securities Act

More Blog Posts:
Morgan Keegan Settles Subprime Mortgage-Backed Securities Charges for $200M, Stockbroker Fraud Blog, June 29, 2011

Morgan Keegan Ordered by FINRA to Pay RMK Fund Investors $881,000, Stockbroker Fraud Blog, April 24, 2011

Morgan Keegan Ordered by FINRA Panel to Pay Investor $2.5 Million for Bond Fund Losses, Stockbroker Fraud Blog, February 23, 2010



Continue reading "Morgan Keegan & Company Ordered by FINRA to Pay $555,400 in Texas Securities Case Involving Morgan Keegan Proprietary Funds" »

June 2, 2011

District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS

The U.S. District Court for the Southern District of Texas has ruled that Credit Suisse Securities shouldn’t have to pay Luby’s Restaurants another $186,000 as part of its arbitration to the investor. The case is Luby's Restaurants LP v. Credit Suisse Securities (USA) LLC. Shepherd Smith Edwards and Kantas Founder and Texas Securities Fraud Attorney William Shepherd had this to say about the ruling: “Attorneys for each side have the opportunity to submit language to the arbitrators that it desires to be reflected in an award. In cases where the award sought is anything more than payment of a specific amount it is wise to submit such language.”

Luby's Restaurants LP bought over $30 million in auction-rate securities from Credit Suisse. The investor bought the ARS based on the financial firm's representation that the instruments were very liquid, safe, and a suitable investment.

Luby’s later filed its arbitration claim with FINRA for ARS losses. By then it had gotten back everything but $8.9 million in securities. Then, after initiating the proceedings—but prior to the arbitration hearing—Luby’s redeemed another one of its securities for less than par and lost $186,000.

The arbitration panel would go on to rule in favor of Luby’s. Credit Suisse was directed to buy back the ARS from Luby’s at par and with interest. While both parties sought to confirm the award, they were in dispute over whether the $186,000 that Luby’s lost after it filed its arbitration case should be included.

The court says that Credit Suisse does not have to pay that amount to Luby’s. The court noted that the Award doesn’t mention the additional damages that Luby’s sustained when it sold some of the securities under par during pendency of the arbitration but prior to the hearing.

Related Web Resources:
$186K Under Arbitration Award, BNA Securities Law Daily, May 31, 2011

Luby's Restaurants LP v. Credit Suisse Securities (USA) LLC, Justia

More Blog Posts:
Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award, Stockbroker Fraud Blog, April 5, 2010

Texas Securities Commissioner's Emergency Cease and Decease Order Accuses Insignia Energy Group Inc. of Misleading Teachers, Stockbroker Fraud Blog, May 23, 2011

Goldman Sachs and Wells Fargo Investments Repurchase $26.9M in Auction-Rate Securities from New Jersey Investors, Institutional Investors Securities Blog, May 25, 2011


Continue reading "District Court in Texas Decides that Credit Suisse Securities Doesn’t Have to pay Additional $186,000 Arbitration Award to Luby’s Restaurant Over ARS" »

February 28, 2011

China-Based Hackers Broke into Morgan Stanley Network, Reports Bloomberg

According to Bloomberg, Morgan’s Stanley’s network experienced a cyber break-in. The culprits were hackers based in China that broke into Google Inc.’s computers over a year ago. The break-in is documented in e-mails stolen from HBGary Inc, a cyber-security company that works for the investment bank.

Known as the Operation Aurora attacks, the break-ins took place in June 2009 and lasted for about six months. More than 20 companies were hit.

The HBGary emails don’t detail what data might have been stolen from Morgan Stanley or which of its multinational operations were hit. The broker-dealer reportedly considers the details of the cyber attacks confidential. Hacker activist group Anonymous stole the emails.

Morgan Stanley hired HBGary last year because of suspected hacker-linked network breaches that resulted in break-ins into the financial firm’s Internet security system. These attacks were not related to Operation Aurora. Per HBGary emails, the hackers that made those breaches were able to implant software for stealing confidential files and communications.

According to FBI Deputy Assistant Director Steven Chabinsky, hackers have stepped up efforts to obtain information involving mergers and acquisitions. The China-based hacker attacks did not help the growing tensions between China and the United States. Calls were even made for Secretary of State Hillary Clinton to look at Google’s claims about the raids and make her findings available to the public.

Following the cyber attacks, Google stopped censoring search results from Google.cn, its Chinese search engine. Google started shuttering its site following lengthy negotiations with officials in China.

Related Web Resources:
Morgan Stanley Attacked by China-Based Hackers Who Hit Google, Bloomberg, February 28, 2011

Operation Aurora, Techie Buzz, January 15, 2010

HBGary


More Blog Posts:
Morgan Stanley Failed to Disclose Financial Adviser’s Felony Charge to FINRA, Claims Car Accident Victim’s Attorney, Stockbroker Fraud Blog, January 10, 2011

Wall Street Knew 28% of the Loans Behind Mortgage Backed Securities (MBS) Failed to Meet Basic Underwriting Standards, Stockbroker Fraud Blog, January 10, 2011


Continue reading "China-Based Hackers Broke into Morgan Stanley Network, Reports Bloomberg" »

December 6, 2010

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim

The US District Court has approved an amendment to the proposed Charles Schwab Corporation Securities Litigation settlement. The Supplemental Notice of Proposed Settlement of Class Action has been sent to the affected class members, which includes those who may have held Schwab YieldPlus Fund shares on September 1, 2006 and gotten more of them between May 31, 2006 and March 17, 2008. Shares may have been obtained through a dividend reinvestment in the Fund or through purchase. Affected class members cannot have been a resident of California on September 1, 2006.

The Supplemental Notice notes that there has been a clarification in the release claims’ scope that affected class members will be giving Schwab if they decide to take part in the settlement. More claims than those in the federal securities class litigation are now included in the amended release. Class members now have another chance opt out of the class action complaint.

Exclusion Deadline: Your notice of exclusion must be postmarked no later than January 14, 2011 and cannot be received after January 21, 2011.

Objection Deadline: Postmark must also be no later than January 14, 2011 and received no later than January 21, 2011.

There will be a fairness hearing on February 11, 2011.

For those that decide to proceed with the class, you don’t need to do anything to stay eligible. Class members will get the compensation for the federal securities claims that they were notified about in the previous notice about the settlement.

Filing an Individual Securities Claim Against Charles Schwab
For those of you that do choose to be excluded from the Charles Schwab class action case and any related benefits, you can file your own Section 17200 and/or federal securities claims and/or other possible claims. Filing an individual claim may allow a claimant to recover more than if he/she had stayed with the class action case. Individual investment fraud claims also take less time to resolve than do lengthy class action cases. Our stockbroker fraud lawyers represent clients with securities fraud cases against Charles Schwab.

To explore your legal options, contact our securities fraud law firm today.

Related Web Resources:
Read the Supplemental Notice

Schwab Yield Plus Settlement Frequently Asked Questions

Charles Schwab, Stockbroker Fraud Blog

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

Continue reading "Raymond James Ordered to Buy Back $2.5M in ARS by FINRA" »

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 & Kantas LTD 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

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 & Kantas LTD 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" »

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

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 " »

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 " »

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

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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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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

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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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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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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

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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

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