June 5, 2013

FINRA Headlines: New ATSs Sweep Letters Issued, SRO to Provide Surveillance for Direct Edge Market Exchanges, Court Says Ex-AP of Defunct Member Firm Can Enforce Arbitration Pact, & Madoff Feeder Funds Are Not Required to Arbitrate Claims Against KPMG

FINRA Issues Sweep Letters About Alternative Trading Systems
The Financial Industry Regulatory Authority has put out a new round of sweeps letters asking for more information about its review of alternative trading systems. The SRO’s Trading Examinations Unit is reviewing the off-exchange trading venues.

FINRA wants firms to provide information about how subscriber order flow is identified within the ATS, whether they are tracking the different kinds of order types in use, and where the ATSs orders are routed. Sweep letters let the regulator determine how to better focus its exams and discover what new issues may have arisen.

FINRA to Provide Market Surveillance Services for Two Direct Edge Licensed Stock Exchanges
FINRA and Direct Edge, which is the biggest stock exchange operator in the country, have arrived at an agreement in which the SRO will provide market surveillance services for two licensed stock exchanges. This will give FINRA surveillance of over 90% of U.S. equities trading volume. Already, the agency conducts examination and disciplinary services for Direct Edge.

The agreement will go into effect during this year’s fourth quarter. Richard Ketchum, FINRA’s CEO and Chairman, said that not only does this strengthen the SRO’s ability to make sure that the market is integrity while protecting investors, but also, it will allow the regulator to do a better job of going after possible cross-market abuses. FINRA currently conducts market oversight and surveillance services for NYSE Euronext, Nasdaq, and others.


Ex-Associated Member of Defunct FINRA Member Firm CapWest Securities Inc. Can Enforce Arbitration Pact
The Fourth District of the California Court of Appeal held that third party beneficiaries of agents of a FINRA arbitration agreement can enforce that agreement by compelling arbitration even if the contracting member firm is not allowed to because its membership status with the SRO lapsed. Plaintiff Ronay Family Limited Partnership is suing Robert R. Tweed and Tweed Financial Services, Inc. over securities it bought that were offered by CapWest Securities, Inc. Tweed and his firm served as CapWest registered agents.

When the plaintiff opened an account with CapWest, it signed an agreement that included an arbitration clause with the defendants. However, after Ronay Family Limited Partnership sustained losses, it sued Tweed, his firm, and others, contending that the clause could not be enforced because CapWest had gone defunct and its membership with FINRA cancelled. The trial court agreed with the plaintiff. However, the California Court of Appeal disagreed.


Madoff Feeder Funds Not Required to Arbitrate Claims Against KPMG
The Massachusetts Court of Appeals says that investors in two Bernard Madoff feeder funds don’t have to arbitrate their claims against external auditor KPMG and, instead, they can proceed with their lawsuit. The plaintiffs, limited partners of the Rye Funds, sued fund manager Tremont Partners, its parent company Tremont Capital Management Inc., KPMG, and others after they lost $20 million in the wake of the Madoff Ponzi scam collapse. They are accusing KPMG of negligent misrepresentation, fraudulent inducement, and fraudulent inducement.

KPMG sought to throw out the claims against it, aruing that they were derivative and belonged only to the Rye Funds, which has arbitration agreements with Tremont. The court, however, says that the plaintiffs claims are direct, rather than derivative, and are therefore not subject to the arbitration terms noted in the engagement letter between Tremont and KPMG.

Targeted Examination Letters, FINRA

Direct Edge Selects FINRA for Market Surveillance, FINRA

Ronay Family Limited Partnership v. Tweed (PDF)

Askenazy v. KPMG LLP (PDF)


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

FINRA Chief Ketchum Calls for Brokers To Better Inform Investors of Fixed Income, Structured Product Risks, Stockbroker Fraud Blog, May 29, 2013

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog,

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Posted In: Arbitration , FINRA , Madoff Ponzi Scheme

June 4, 2013

FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales

The Financial Industry Regulatory Authority Inc. says that Merrill Lynch, Pierce, Fenner & Smith Incorporated (MER) and Wells Fargo Advisors LLC must pay $5.1 million for losses sustained by customers who bought floating-rate bank loan funds.

According to the SRO, brokers at Banc of America and Merrill recommended the purchase of floating-rate bank loan funds to customers who didn’t have investment goals, risks tolerance, or financial conditions that were consistent with the features and risks of these kinds of mutual funds. Instead, these were customers whose risk tolerance levels were conservative and wanted to preserve principal. FINRA says that the sale recommendations were made even though there wasn’t reason to believe that floating-rate bank loan funds would be suitable for these investors.

In regards to the allegations against Wells Fargo, FINRA, in its acceptance, waiver and consent letter, said that brokers there warned about the funds but that the firm failed to act on their worries. The SRO says that the brokers had even confused the funds with bank certificates of deposit and other less risky investments.

Now, Wells Fargo Advisors, which is Wells Fargo Investments, LLC successor must pay $1.25 million and pay back 239 customers about $2 million in losses while Merrill Lynch, as Banc of America Investment Services, Inc.’s successor most pay 214 customers about $1.1 million and a $900,000 fine. By settling, the two financial firms are not denying or admitting to the allegations. They are, however, consenting to an entry of FINRA’s findings.

It was in July 2011 that the SRO issued a warning to investors about going after returns in floating-rate loan funds. These funds tend to invest in loans that financial institutions extend to entities that have lower than investment-grade credit quality. The companies that put out these high interest rate loans usually posses a high debt-to-equity ratio. Meantime, the loans’ yields are usually higher than investment-grade bonds. A fund invested in these loans can be appealing in a rising or low interest rate atmosphere because along with higher yields, the funds’ interest rate goes up when rates rise.

That said, the market for floating-rate loans is pretty unregulated and the loans don’t trade on an organized change. This makes them generally illiquid and hard to value. Often, funds that invest in these loans are promoted as products that aren’t as vulnerable to fluctuation in interest rate while providing inflation protection. That said, the loans in the fund are subject to substantial liquidity, credit, and valuation risk.

If you sustained losses in floating-rate bank loan funds and you feel that these funds were recommended to you even though they may not have been suitable for your investment needs or goals, you may have grounds for a FINRA arbitration case or a securities fraud lawsuit. Contact our securities law firm today.

FINRA Orders Wells Fargo and Banc of America to Reimburse Customers More Than $3 Million for Unsuitable Sales of Floating-Rate Bank Loan Funds, FINRA, June 4, 2013

Wells Fargo, Merrill to pay $5.1 million to settle charges over bank loan funds, Investment News, June 4, 2013


More Blog Posts:
Investors of Highland Floating Rate Funds File Securities Fraud Claims and Lawsuits Over Poor Performance, Stockbroker Fraud Blog, February 10, 2012

Chase Investment Services Corporation Ordered by FINRA to Pay Back $1.9M for Unsuitable Sales of Floating-Rate Loan Funds and UITs, Institutional Investor Securities Blog, November 19, 2011

FINRA Chief Ketchum Calls for Brokers To Better Inform Investors of Fixed Income, Structured Product Risks, Stockbroker Fraud Blog, May 29, 2013

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Posted In: FINRA , Financial Firms , Foreign Currency Scam , Merrill Lynch , Wells Fargo

May 29, 2013

FINRA Chief Ketchum Calls for Brokers To Better Inform Investors of Fixed Income, Structured Product Risks

Financial Industry Regulatory Authority CEO and Chairman Richard G. Ketchum says that with more investors getting involved in sophisticated investments, broker-dealers must do a more thorough job of informing them of the risks involved in complex financial instruments. Speaking at FINRA’s yearly conference in DC, Ketchum said that now is when brokerage firms should be talking to clients about the possible drawbacks of having concentrated holdings in fixed-income securities that are more speculative or for a longer duration. He also talked about letting clients know that bond funds are not the equivalent of owning fixed securities directly.

Acknowledging that it can be more difficult to train financial advisers on how to make effective disclosures to customers about structured products, Ketchum suggested that using simple language is one way that broker can provide potential investors with more information, rather than just satisfying disclosure requirements. The FINRA chief spoke about how it essential it was to sure that investors have a better comprehension of the risks involved in what they are buying.

Ketchum also scolded financial firms for being more direct when it comes to marketing on their websites than they are with the disclosure and legal sides. He noted that providing investors with disclosures that they don’t fully understand creates more risks for the firms in the long run.

If you invested in a complex instrument that resulted in losses and you believe that your financial representative failed to fully apprise you of the risks involved and/or did not make sure that you thoroughly understood what you were getting involved in, please contact Shepherd Smith Edwards and Kantas, LTD LLP today. You may have been the victim of securities fraud.

Ketchum suggests brokers falling short in discussing risk, Investment News, May 21, 2013

FINRA


More Blog Posts:
FINRA Orders LPL Financial to Pay $7.5M Over Allegedly Inadequate Supervision of E-Mails, Stockbroker Fraud Blog, May 23, 2013

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2013

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Posted In: FINRA

May 23, 2013

FINRA Orders LPL Financial to Pay $7.5M Over Allegedly Inadequate Supervision of E-Mails

In what is being called the SRO’s largest fine to date over e-mail violations, the Financial Industry Regulatory Authority announced that it is fining LPL Financial LLC $7.5 million over 35 key e-mail system failures. The financial firm also has to set up a $1.5 million fund to compensate customers that may have been impacted. That is a total of $9 million.

According to FINRA, the e-mail and retention issues took place between 2007 and 2013, with LPL’s systems failing a minimum of 35 times. The brokerage firm allegedly did not fulfill its duty to supervise representatives, capture email, and answer regulator requests.

For more than four years, LPL purportedly did not supervise 28 million business emails that involved thousands of independent contractor representatives. The broker-dealer also is accused of making misstatements to the SRO during the latter’s investigation into the matter (email systems failures made it impossible for the firm to give over certain documents).

By settling, LPL is not denying or admitting to the securities fraud allegations.

Under securities industry rules, broker-dealers must keep and review emails for a certain length of time to make sure that procedure compliance is happening and to prevent possible wrongdoing. In a statement, the financial firm said that it was the one that notified FINRA about the e-mail issues. LPL says that not only did it fully cooperate with the SRO’s probe but also, regretting what happened, it is redesigning email systems and related compliance procedures and policies and working with independent experts. The firm says it is training employees so that in the future these kinds of oversights are identified and dealt with more quickly. Meantime, Reuters is reporting that in the wake of recent fines LPL has agreed to pay over abusive securities sales practices allegations, it is redoing its procedures related to its supervision of 13,000 advisers.

If you believe that broker negligence or misconduct is a cause of your investment losses, do not hesitate to contact our securities fraud law firm right away. Your first case evaluation is free.


FINRA fines LPL Financial $9 million for email violations, Reuters, May 21, 2013

LPL to Pay $9 Million for Systemic Email Failures and for Making Misstatements to FINRA, FINRA, May 21, 2013


More Blog Posts:
LPL Financial Continues to Stay on Regulators’ Radar, Stockbroker Fraud Blog, April 10, 2013

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients, Institutional Investors Securities Blog, April 14, 2012


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Posted In: FINRA , Financial Firms , LPL Financial

May 15, 2013

FINRA Securities Activities: SRO Withdraws Proposal to Make Financial Firms Link to BrokerCheck, Gets Request from SIFMA to Modify ‘Inability to Pay’ Rule, and Says Broker-Dealers Can Give Investors PIP Data About ETPs

SRO Says Brokerage Can Institutional Customers PIP Data About ETPs Under Certain Conditions
Financial Industry Regulatory Authority staff have determined that under certain conditions, broker-dealers are permitted to include pre-inception performance information in communications with institutional investors about exchange-traded products, also known as ETPs. Staffers said that FINRA Rule 2210, which governs institutional communications, allows for the use of this data in the way that a fund company is proposing. ALPA Distributors is proposing using the PIP information just in institutional communications, per FINRA Rule 2210 and subject to certain criteria.

However, in “applying the suitability standards” for recommendations to institutional customers,” the SRO said brokerage firms should be cautious about putting too much “weight” on PIP information, while taking into consideration the correlation between performance of other, similar ETPs managed by the investment adviser, sponsor, or index provider and the PIP data. The staff’s letter was in response to a letter written by the fund company, which sees value in giving institutional investors the information for ETPs analysis.


FINRA Withdraws Proposed Rule Change Mandating That Firms Add BrokerCheck Web Link
FINRA has temporarily withdrawn its proposed rule change to Rule 2267 that would have upped investor use of information from BrokerCheck and mandated that member firms include a link and reference to the free online database on their respective websites. This resource, found on the SRO’s website, provides information about brokerage firms, brokers, investment adviser firms, and investment advisers. FINRA said it took back the filing to have more time to look at the comments it received regarding proposed rule change but that it intends to refile.

Although North American Securities Administrators Association, the Public Investor Arbitration Bar Association, and certain lawyers commented with their support of the proposal, the Investment Company Institute, the Securities Industry and Financial Markets Association, and a number of financial firms found the proposal “vague” and “unworkable.” They believe that the proposed rule change should be modified.

SIFMA Wants ‘Inability-to-Pay’ Rule Modified
The Securities Industry and Financial Markets Association wants FINRA to amend its Rule 9554 so that respondents would be precluded from making an “inability-to-pay defense” against a claimant. SIFMA says that should a respondent successfully bring up the defense, this should be reported to the public for the good of retail customers, regulators, and prospective employees.

Brokerage firms/a financial adviser can invoke the “inability to pay” defense when they are told to pay an arbitration award in expedited proceedings involving industry and customer claimants. While the SEC did approve FINRA’s proposal to preclude a respondent from raising this defense against a customer claimant., now SIFMA wants FINRA to amend the rule so respondents also are barred from raising this defense against industry claimants.

At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers represent investors with claims against financial advisers and brokerage firms.

Read the FUND company letter

BrokerCheck, FINRA

SIFMA's letter (PDF)


More Blog Posts:
Medical Capital Fraud Lawsuit Against Wells Fargo Must Proceed, Institutional Investor Securities Blog, April 10, 2013

Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012
 

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Posted In: Arbitration , Exchange Traded Funds , FINRA

May 6, 2013

FINRA Notifies Brokerage Firms About Non-traded REIT Information that Can Mislead Investors

The Financial Industry Regulatory Authority is alerting broker-dealers that the way they market certain non-traded real estate investment trusts could be misleading investors. The regulator said its recent reviews of brokerage firm communications with the public about these investments showed “deficiencies.” The SRO has been trying to improve the sales practices related to illiquid REITs and increase their transparency.

Among the identified information shortcomings:
• Inaccurate and misleading statements about the benefits of investing
• Failure to adequately explain the risks involved
• Describing a real estate security as a “yield,” which can incorrectly suggest that it is a bond

FINRA said it is necessary for brokerage firms to provide “fair and balanced” distribution rates, while explaining that distribution payments are not a given. The regulator observed that some broker-dealers are prone to highlight these payments, which are given to investors as soon as the nontraded REITs are sold, but fails to inform that some distributions are the return of their principal or borrowed money. FINRA reminded broker-dealers that they have to wait until an REIT has paid distributions for six months before it can make claims about the instrument’s yearly return rate.

The SRO noted that data about related or affiliated REITs should be as prominently visible as other information, and past performance information about REITs involving the current investment being promoted cannot be cherry picked.

REITs and Non-traded REITs
REITs invest in commercial real estate, which gives investors a chance to benefit from the increase in property values, and they are publicly traded. Non-traded REITs, which don’t trade on securities exchange, can be tough to sell in secondary markets or illiquid. Investors usually have to pay higher fees for them.

FINRA has been targeting the improper-sale of non-traded REITs for some time now. This latest notification to brokerage firms doesn’t mention how many broker-dealers it looked at (or which ones) to reach its conclusions.

Our REIT lawyers represent investors throughout the US. For over two decades, Shepherd Smith Edwards and Kantas, LTD LLP has helped thousands of investors recoup their investment losses by going through arbitration via FINRA, NYSE, NASD, and AAA, as well as through the state and federal courts.

FINRA Provides Guidance on Communications With the Public Concerning Unlisted Real Estate Investment Programs, FINRA.org (PDF)

FINRA warns about misleading investors in non-traded REITs, Reuters, May 3, 2013

Public Non-Traded REITs—Perform a Careful Review Before Investing, FINRA


More Blog Posts:
Majority of Non-Traded REITs Underperform Compared to Benchmarks, Reports New Study, Stockbroker Fraud Blog, August 25, 2012

Private REITs: The Need for Tougher Oversight?, Institutional Investor Securities Blog, June 28, 2011

Apple REIT Arbitration: FINRA Rules Against David Lerner Associates in First of Hundreds of Cases, Stockbroker Fraud Blog, May 26, 2012

Continue reading "FINRA Notifies Brokerage Firms About Non-traded REIT Information that Can Mislead Investors" »

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Posted In: FINRA , Non-Traded REITs , REITs

April 22, 2013

NBA, NFL Players Among Alleged Promissory Note Fraud Victims of Success Trade Securities, Says FINRA

The Financial Industry Regulatory Authority has issued temporary cease-and-desist order against Fuad Ahmed, the president and CEO of Success Trade Securities, Inc., to stop his alleged financial fraud activities. It also put out a complaint against him and the online brokerage firm, charging them with promissory note fraud. The notes were issued by Success Trade, Inc. Ahmed is one of its majority owners. Success Trade Securities runs LowTrades and Just2Trades.

FINRA issued the TCDO over concerns that if it didn’t, investors’ assets and funds would continue to be misused. The SRO contends that the brokerage firm, its financial representatives, and Ahmed sold over $18M in promissory notes to nearly five dozen investors, including ex- and current NBA and NFL Athletes, while omitting or misrepresenting material facts, such as how they were raising $5 million via the selling of the notes or that the sales went over 300% above the original offering.

The majority of notes promised a 12.5-26% yearly interest rate payment monthly over three years. Also, Success Trade Securities and Ahmed allegedly did not disclose both how much the brokerage firm owed investors and that it couldn’t keep paying interest payments unless it brought it new investor money. The SRO believes that note sale proceeds went to unsecured loans to Ahmed, past investor payments, and firm operations.

The majority of notes promised a 12.5-26% yearly interest rate payment monthly over three years. Also, Success Trade Securities and Ahmed allegedly did not disclose both how much the brokerage firm owed investors and that it couldn’t keep paying interest payments unless it brought it new investor money. The SRO believes that note sale proceeds went to unsecured loans to Ahmed, past investor payments, and firm operations.

FINRA says that beginning the end of last year, Success Trade tried to get note holders to roll over notes that were maturing at higher rates or invest in Success Trade. Per the order, Success Trade has consented to stop selling the notes.

In the US, please contact our promissory note fraud law firm to schedule your free, no obligation consultation.

FINRA Files Temporary Cease-and-Desist Order Against Success Trade Securities and CEO Fuad Ahmed to Halt Fraud, FINRA, April 11, 2013


More Blog Posts:
Texas Securities Fraud: SEC Charges Talk Radio “MoneyMan” Over Promissory Note Offerings, Stockbroker Fraud Blog, April 4, 2011
In the US, please contact our promissory note fraud law firm to schedule your free, no obligation consultation.

FINRA Files Temporary Cease-and-Desist Order Against Success Trade Securities and CEO Fuad Ahmed to Halt Fraud, FINRA, April 11, 2013


More Blog Posts:
Texas Securities Fraud: SEC Charges Talk Radio “MoneyMan” Over Promissory Note Offerings, Stockbroker Fraud Blog, April 4, 2011

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

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Posted In: FINRA , Promissory Notes

April 19, 2013

Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud

A FINRA arbitration panel is ordering ex-broker Karl Hahn, who previously worked with Bank of America Corp's (BAC) Merrill Lynch (MER), Oppenheimer & Co. (OPY), and Deutsche Bank AG’s (DB) Deutsche Bank Securities, to pay investor Chase Bailey $11 million because he sustained about $6 million in losses allegedly caused by securities fraud. Bailey contends that Hahn made excessive trades and misrepresented securities related to transactions involving a number of investments, including a variable annuity, approximately $2.3 million in fraudulent real estate financing involving East Coast properties, and covered calls.

In the filmmaker/Internet entrepreneur’s securities arbitration claim, Bailey named the three financial firms where Hahn previously worked. It is during this period that Bailey was allegedly defrauded. (He had moved his funds from one brokerage firm to the other each time Hahn was hired by that employer.) Bailey settled his case with Merrill for $700,000, while claims against Deutsche Bank and Oppenheimer were tossed out.

Per the FINRA arbitration ruling, Bailey is awarded $6.4 million in punitive damages and $4.1 million in compensatory damage. Ordering brokers to pay punitive damages is uncommon.

In February, Deutsche Bank & Hahn were ordered to pay $934,000 to Susan and Michael Myers. The couple, who had sued on their behalf and for a number of trusts, had claimed civil fraud, while contending that financial firm had negligently supervised Hahn, who worked in its private wealth management division between 2008 and 2009.

The Myerses had bought high-risk life insurance in which policyholders use loans usually tied to variable interest rates to finance premiums. Hahn, who advised the couple via Deutsche Bank, allegedly failed to tell them that his dad would get a “significant” commission from that life insurance policy. They said that this might have been the reason he recommended that they invest in the policy. (Brokers are not supposed to make investment recommendations that will benefit them or those that they know.) The Myerses claimed substantial losses.

Hahn has been involved in other securities cases. He was charged with wire fraud involving an alleged $1.1 million real estate scam in 2010. He also was involved in a $2.55 million federal court judgment that Deutsche Bank obtained in 2012. That lawsuit involved the unpaid balance of a $2.8 million bonus he got when he joined the financial firm.

Contact Our Securities Fraud Law Firm
If you believe that you too were the victim of securities fraud involving Mr. Hahn or another broker, please contact Shepherd Smith Edwards and Kantas, LTD LLP today to request your free case evaluation. You may have reason to file your own stockbroker fraud claim.

Ex-Merrill, Deutsche Bank Broker Ordered to Pay Client $11 Million, Fox, April 5, 2013

U.S. panel orders Deutsche Bank, ex-adviser to pay $934,000, Reuters, February 14, 2013


More Blog Posts:
Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

UBS Loses Appeal to Have FHFA’s $6.4 Billion MBS Fraud Lawsuit Dismissed, Institutional Investor Securities Blog, April 18, 2013

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Posted In: Arbitration , Deutsche Bank , FINRA , Financial Firms , Merrill Lynch , Oppenheimer , Securities Fraud

April 8, 2013

Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court

The U.S. District Court for the Middle District of Florida is holding that an arbitration award granted to investors cannot be vacated under the Federal Arbitration Act just because an arbitrator exhibited obvious partiality when failing to reveal that he wrote a dissent in an unrelated arbitration that allegedly showed he had prejudged issues of law. The securities case is Antietam Industries Inc. v. Morgan Keegan & Co.

Petitioners Antietam Industries Inc., Janice Warfel, and William Warfel contend they sustained financial losses over their RMK fund investments. In 2011, they filed a Financial Industry Regulatory Authority arbitration case claiming that their money was lost because Morgan Keegan had made misrepresentations while failing to disclose how risky the funds were.

Last year, the panel awarded the petitioners $100,000 in compensatory damages and $100,000 in punitive damages, plus fees and interest, for negligence, breach of fiduciary duty, and other claims. When they sought to confirm the award, Morgan Keegan submitted a motion to vacate, pointing to FAA and contending that arbitrator Christopher Mass allegedly showed partiality and “misbehavior” with his failure to disclose his previous dissent. The court, however, rejected Morgan Keegan’s argument, saying it was not convinced that Mass was predisposed or had prejudged.

“Many investors do not realize that the securities arbitration process is much different than court, said Shepherd Smith Edwards and Kantas, LTD, LLP and Securities Fraud Lawyer William Shepherd. “When investors open a brokerage account, they agree to resolve disputes in arbitration and will not be able to file a lawsuit against the firm or broker. However, this has some advantages to the investor. Court cases can last for years, but the arbitration process is usually completed in just over a year. As well, it is more difficult to overturn an arbitration decision than a court case. In this case, the investor was able to avoid losing a victory on appeal.”

To schedule your free consultation, contact our FINRA arbitration law firm today.

Antietam Industries Inc. v. Morgan Keegan & Co.


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

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012

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Posted In: Arbitration , FINRA , Financial Firms , Morgan Keegan

March 28, 2013

Investors are Not Raymond James Financial Customers for FINRA Arbitration Purposes, Rules 4th Circuit

The U.S. Court of Appeals for the Fourth Circuit affirmed that, for purposes of Financial Industry Regulatory Authority arbitration, investors who lost the investment they made on stock they purchased from a lawyer connected to a Raymond James Financial Services (RJF) Inc. broker are not the brokerage firm’s client. The appeals court said that the investors dealings with the broker-dealer were “too remote.”

Tax lawyer David Affeldt had been recruited by an Inofin Inc. executive to recommend to investors that they buy securities from the company. That employee happened to be the college roommate of then-Morgan Stanley (MS) representative Kevin Keough, who also informally acted in a sales capacity for Inofin.

Because of his employment with the financial firm at the time, Keough had Inofin pay his compensation for the referrals to his wife instead of to him. He and Affeldt, however, agreed to equally share these referral fees—an agreement that continued even after Keough went to work with Raymond James.

In 2011, the investors filed a FINRA claim against that Raymond James, which then proceeded to file this case—Raymond James Financial Services Inc. v. Smith—in a bid for declaratory and injunctive relief. The broker-dealer noted that per Rule 12200, the claimants seeking financial recovery had never been its customers.

A district court granted the brokerage firm’s motion and the investors went on to appeal, claiming that Affeldt had been linked to Keough, who worked for Raymond James. They believed that if the rule were to be interpreted broadly, they would be considered the firm’s clients. The Fourth Circuit, however, disagreed.

Raymond James Financial Services Inc. v. Smith (PDF)

Code of Arbitration Procedure, FINRA


More Blog Posts:
Investment Advisors Report: SEC Division Reviews Application of Investment Advisers Act, New Commission Unit Will Watch For Adviser Risk, & Just 1 in 10 SEC Exams Leads to Enforcement Action, Stockbroker Fraud Blog, March 26, 2013

2nd Circuit Eases MBS Lawsuits by Reinstating Pension Fund’s Case Against Wells Fargo, Royal Bank of Scotland, Wachovia, & Others, Institutional Investor Securities Blog, March 28, 2013

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Posted In: FINRA , Financial Firms , Raymond James

March 22, 2013

FINRA CEO Says Now is Time to Make Investment Advisers and Brokers Adhere to a Fiduciary Standard

According to Financial Industry Regulatory Authority Chairman and Chief Executive Officer Richard Ketchum, now is the right time to make brokerage firms and investment advisers that provide personalized retail financial advice adhere to a uniform fiduciary standard. However, he warned that such a standard, whether by itself or combined with other regulatory harmonization, does not guarantee misconduct will not happen.

Establishing a uniform fiduciary duty for investment advisers and setting up new oversight for them were both recommended in Securities and Exchange Commission studies that were conducted over two years ago under the order of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Earlier this month, the SEC requested quantitative and economic information to help it decide what that standard of care should be. It also engaged in the conversation of whether investors would benefit more if rules were harmonized in other sectors of investment adviser and broker-dealer regulation, including supervision, firm licensing, advertising, individual qualification, books and records, and others.

Addressing the Consumer Federation of America earlier this month,
Ketchum noted that even if such standard were to be imposed, compliance must be regularly and thoroughly studied and enforced to make sure that investors are protected. The self-regulatory organization, which has been pushing for new laws mandating that an SRO supervise and examine advisers, has been lobbying for the job.

Securities Fraud
Our securities fraud law firm represents investors that have sustained losses due to investment adviser fraud. Please contact Shepherd Smith Edwards and Kantas, LTD, LLP and ask for your free securities case evaluation.


Related Web Resources:
FINRA Chairman and CEO Ketchum's Presentation, FINRA

Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF)


More Blog Posts:
New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M, Stockbroker Fraud Blog, March 14, 2013

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

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Posted In: FINRA , Investment Advisers

March 12, 2013

Financial Industry Representatives Settle FINRA Cases Over Securities Fraud

These financial representatives have settled the Financial Industry Regulatory turned in their Letter of Acceptance, Waiver, and Consent in the securities cases made against them by the Financial Industry Regulatory Authority. By consenting to the sanctions described and the entry of findings, this does not mean they are denying or admitting to the allegations.

New York Registered Principal Accused of Making Misrepresentations and Missions
Neftali Mercedes must pay $97,000, in addition to interest as restitution to customers. He is accused of intentionally making material omissions and misrepresentations about the risks related to speculative securities and an issuer’s financial state.

Per the findings, Mercedes had no reason to make the statements and he made no effort to verify the information that he gave customers or discuss with them the investments’ negative financial performance and condition, which could have altered their purchase choices. FINRA contends that through his actions, which took place over a number of months, the New York registered principal was able to gain financially while investors lost money.

California Registered Principal Allegedly Took Part In Private Securities Transactions Outside His Employment Scope
James Michael O'Brien is now facing an 18-month suspension from associating with any FINRA member. However, because of his financial state, he doesn’t have to pay a financial sanction. The entry of findings accuses him of engaging in private securities transactions that were outside the scope of his employment and he failed to notify the member firm that he worked for of these transactions.

O’Brien allegedly referred investors to an entity that sold the securities as promissory notes. These investments totaled over $2.6M. He is said to have made $125,416 for making the referrals.

Colorado Registered Representative Settles FINRA Case Alleging Inappropriate Recommendations Made Related to REIT and Regulation D Offerings
According to FINRA, Michael Lee Romero recommended that customers buy $760,000 of non-publicly traded real estate investment trusts and non-publicly traded Regulation D offerings that were not in line with these investors’ financial needs and situation. Now, he must pay a $10,000 fine and cannot associate with any FINRA member for 45 days.

Per the new account application that customers signed, they believed they were investing in instruments that came with moderate risks to meet their goals of capital preservation, income, and long term growth. The REITs and Regulation D offerings comprised nearly all of the clients’ liquid net worth and about 46% of their total net worth.

California Registered Representative Ordered to Disgorge Ill-Gotten Gains of $5,000 Plus Interest to Customer
Sean Placido Rodriguez is accused of executing discretion in a client account without that customer’s written consent or his member firm’s written acceptance that the account was discretionary. He allegedly did not have reasonable grounds for recommending that this woman take part in short-term trading or that she have her account concentrated in equity purchases. Yet, per the FINRA findings, Rodriguez proceeded to make the recommendation that the client buy and sell equity securities in amounts that caused undue concentrations of these securities (25-50% of her account’s value when the transactions happened) in her account.

Now, Rodriguez must disgorge ill-gotten gains in partial restitution of $5,000 and interest to this customer.

If you believe you lost money in any of these (or any other) securities cases, contact our securities lawyers today.

FINRA Disciplinary Actions



More Blog Posts:
Financial Representatives Settle with FINRA Over Allegations Related to Excessive Commissions, Elder Financial Fraud, and Funneling Client Funds for Personal Gain, Stock, Stockbroker Fraud Blog, March 8, 2013


Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

Financial Firms Settle with FINRA: ES Financial Services Resolves Solicitation of Non-US Investors Allegations and Lincoln Financial Securities Consents to Entry of Findings Alleging Inadequate Supervision, Institutional Investor Securities Blog, March 11, 2013

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Posted In: FINRA , Securities Fraud , Senior Investors

March 8, 2013

Financial Representatives Settle with FINRA Over Allegations Related to Excessive Commissions, Elder Financial Fraud, and Funneling Client Funds for Personal Gain

Without denying or admitting to the allegations, the following financial representatives have turned in their Letter of Acceptance, Waiver, and Consent in the securities cases made against them by the Financial Industry Regulatory Authority:

New York Registered Rep. Fined $7,500 for Charging Excessive Commissions
Enver Rahman Alijaj has been suspended for two months from associating with any member of FINRA. He is accused of charging excessive commissions in equity security trades that took place in a member firm’s client account. The trades involved the buying of common stocks. The commissions for them ranged from 4.3% to 4.9% per trade.

According to FINRA, regardless of the trade amount or the stock involved, Alijaj would generally charge clients 4.5%-4.9% commission on all stock buys while not charging commission on sales. Per the SRO’s findings, the registered representative did not take into consideration the factors noted in NASD IM-24440 when deciding how much commission to charge clients. Instead, notes the regulator, the commissions were not justified by the market conditions, special services rendered, trade execution expenses, or any other factor. Alijaj must pay a $7,00 fine.


Rhode Island Financial Representative Accused of Elder Financial Fraud
Martin Benjamin Feibish has been banned from associating with any FINRA member following allegations that he created a scam to misappropriate over $5 million from an elderly client. He is accused of placing her money in bogus investment vehicles and forging the signatures of her relatives.

In addition to creating false promissory notes, false investment vehicles, and false documentation showing the purported mortgage-backed securities and IRS Form 1099s to persuade the client that her investments were legitimate, Feibish allegedly took the funds from these bogus investments and put them in a bank account under his control in the name of a company he set up to coordinate these sham investments. He even is said to have sent checks to the customer, claiming that that they were interest payments when actually the money was hers to begin with. Febbish is accused of getting her to reinvest the funds in more fictitious investments.

Pennsylvania Registered Principal Accused of Funneling Client Funds
Also barred from associating with any FINRA member is James Douglas Grimes, a registered principal from Lawrence Pennsylvania. He allegedly transferred $306,000 from the accounts of customers to a business account belonging to another customer without the approval or knowledge of any of the customers.

Per the findings, Grimes made these unauthorized transfers by turning in written journal request forms with client signatures that were forged. He also allegedly wrote checks, primarily “To Cash” worth $250,446 and then took the money from the business account before turning the proceeds for his personal use. The signature of the business account owner is said to have been forged by him. Through the falsifying of the checks and journal requests, FINRA claims he caused the books and records of his firm to be inaccurate.

If you think that you may have been similarly defrauded by a financial representative, contact our securities fraud law firm today.

More Blog Posts:
SEC Needs to File Securities Fraud Lawsuits Sooner, Rules the US Supreme Court, February 28, 2013

Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

Plaintiff Must Arbitrate Faulty Investment Advice Claim With TD Ameritrade But Can Proceed With Litigation Against Oakwood Capital Management, Stockbroker Fraud Blog, October 29, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: FINRA

March 7, 2013

Texas Securities Fraud: IMS Securities Settles FINRA Case Alleging Inadequate Supervision of Wholesale Representatives

IMS Securities Inc. has settled a Financial Industry Regulatory Authority case accusing the Houston-based brokerage firm of inadequately overseeing its wholesale representatives. Per the SRO’s claims, IMS Securities allegedly failed to customize its supervisory system to its business in a manner that could allow it to be in compliance with securities laws and FINRA rules. However, despite agreeing to the $100,000 fine and censure, the financial firm is not admitting to or denying the findings.

Per FINRA, IMS Securities failed to supervise several wholesale representatives for nearly the first four years of their employment and had insufficient WSP’s detailing the steps for assessing certain securities products (even though the financial firm sold number of direct participation plans and privately-traded real estate investment trusts (REITs)). The regulator also said that there was one year when the financial firm did not conduct annual audits at two of its OSJ branches, and, for close to two years IMS Securities failed to properly maintain sales/purchase blotters, checks forwarded/received blotters, and other receipts and financial records.The SRO believes that not only did IMS Securities’ wholesale representatives send securities business-related electronic communications through outside email addresses but also, the firm did not keep the emails.

Texas Securities Fraud
If you were the victim of Texas securities fraud or if you are a Texan investor who has lost money because of investor fraud, please contact Shepherd Smith Edwards and Kantas, LTD, LLP. Our main office is in Houston, Texas, but we also have offices in New York, NY, Chicago, IL, Los Angeles, CA, San Francisco CA, Troy, MI, and Alexandria, VA.

Related Web Resources:
FINRA BrokerCheck

FINRA Disciplinary Actions (PDF)

More Blog Posts:
Texas Courts Show Preference for Arbitration to Resolve Securities Fraud Claims and Other Business Disputes, Stockbroker Fraud Blog, February 15, 2013

Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Citigroup Ordered by FINRA to Pay $1.2M Over Bond Markups and Markdowns, Institutional Investor Securities Blog, March 27, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: FINRA , Texas Securities Fraud

February 21, 2013

ING Groep NV Broker-Dealers Fined $1.2M by FINRA Over Not Retaining Millions of E-Mails

FINRA is fining Directed Services LLC, ING Investment Advisors LLC, ING Financial Advisers LLC, ING America Equities Inc. and ING Financial Partners Inc. $1.2M for failing to keep or review million of email correspondence between ‘04 and ‘08. The five broker-dealers are affiliates of ING Groep NV (ING, INGA.AE).

According to ING Groep, the five ING units self-reported the problem to FINRA and that no customers were affected. In the wake of a thorough internal examination, the ING affiliates have taken significant steps to better its supervisory practices and email retention.

Per its findings, FINRA says the broker-dealers violated FINRA rules and federal provisions related to the retention of records when they did not properly configure the email accounts of staff to make sure correspondence was kept and reviewed. Also, because software wasn’t properly configured, close to 6 million emails that were marked for review at a supervisory level were not reviewed.

The ING affiliates are settling and have consented to the entry of FINRA’s findings but they are not denying or admitting to the charges.

Securities Fraud
Our broker fraud law firm is dedicated to helping investors get their money back. Please contact our FINRA securities arbitration lawyers today and ask for your free case assessment. We have helped thousands of clients recoup their money. Securities fraud law is what we do, and over the years, we have worked with both institutional and individual investors.

ING Units Fined $1.2 Million Over Record-Keeping, Capital.GR, February 19, 2013


More Blog Posts:
FINRA Pulls Back on Regulating Registered Investment Advisers, Stockbroker Fraud Blog, February 19, 2013

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

Some Private Fund Advisers are Exercising Inadequate Controls, Says SEC Commissioner Elisse Walter, Institutional Investor Securities Blog, December 15, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: FINRA

February 19, 2013

FINRA Pulls Back on Regulating Registered Investment Advisers

According to Financial Industry Regulatory Authority Chief Executive and Chairman Richard Ketchum, the SRO is pulling back from its bid to regulate Regulating Registered Investment Advisers. This move comes after FINRA spent the last couple of years lobbing to become the main regulator for RIAs.

However, according to Ketchum, in the wake of the current political climate and changes in leadership during the 2012 election, he does not expect that the House of Representative Financial Services Committee will try to revamp the way RIAs are currently regulated, which is via the Securities and Exchange Commission. For advisers that did not want FINRA overseeing them, this is good news.

However, not all of those that were against the SRO taking over RIA regulation are convinced that FINRA has completely given up. Some are worried that the regulator intends to return to the issue at a later date.

For example Investment Adviser Association executive editor David Tittsworth doesn’t believe Ketchum’s remarks are confirmation that FINRA has truly given up. He thinks that seeing as Congress may have other priorities at the moment, the SRO is choosing to focus on other issues for the time being. There are also those that believe that FINRA's pullback is good for investors. Some have questioned whether the SRO would be able to meet the current standard set by the SEC.

Investment adviser fraud costs investors money every year. Our securities law firm is here to help our clients recoup their losses.

Advisors Cheer as FINRA Drops Bid to Regulate RIAs, Financial Planning Staff, February 7, 2013


More Blog Posts:
Securities Roundup: Lawmaker Presses SEC to Tackle High-Frequency Trading, Approval of Nasdaq’s Plan to Payback FB IPO Investors is Delayed, & Less Investors Filed Securities Lawsuits Against Corporate Firms in 2012, Stockbroker Fraud Blog, February 18, 2013

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

Amendments Clarify FINRA’s Right to Look at Firm Records, Books, Stockbroker Fraud Blog, February 9, 2013

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: FINRA , Investment Advisers

February 9, 2013

Amendments Clarify FINRA’s Right to Look at Firm Records, Books

The Securities and Exchange Commission has approved rule amendments that provide greater clarity about the Financial Industry Regulatory Authority’s right to examine and copy the records and books of its member financial firms and associated persons. Per amended Rule 8210, staff and adjudicators are entitled to copy and inspect “data in the “possession, custody or control” of members and any others that the SRO has jurisdiction over. This amended rule becomes effective on February 25.

The amendments makes clear that the records and books are covered by rule 8210.The phrase “possession, custody or control” was added to including concept of the existing body of case law that defines these three terms they way that they are used in the Federal Rules of Civil Procedure’s Rule 34. The broker-dealer and associated persons relationship is also clarified so it is obvious that all aspects of that affiliation are subject to a Rule 8210 request.

The SEC has also approved amendments to FINRA arbitration codes. This will let arbitrators order member firms and associated persons to serve as witnesses or produce documents without being subject to the subpoena process. Additionally, the amendments added procedures for non-parties to contest subpoenas and for non-parties and parties to oppose arbitrator orders of production.

Our FINRA arbitration lawyers represent individual and institutional investors. Contact Shepherd Smith Edwards and Kantas, LTD LLP today. You want to work with a securities firm that knows how to arbitrate your claim and has a history of helping clients recover their losses.

Subpoenas and Orders to Appear or Produce Documents, FINRA (PDF)

FINRA’s Information and Testimony Requests: SEC Approves Amendments to Rule 8210, FINRA (PDF)


More Blog Posts:
Federal Records Act Lawsuit Seeking to Make the SEC Reconstruct About 9,000 Enforcement-Related Documents is Dismissed, Institutional Investor Securities Blog, February 5, 2013

SEC Whistleblower Office Will Place More Emphasis on Anti-Retaliation Provisions and Publicity This Year, Institutional Investor Securities Blog, January 29, 2013

SEC’s Office of the Whistleblower In Early Phase of Evaluating Reward Claims, Institutional Investor Securities Blog, March 23, 2012

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Posted In: FINRA

January 22, 2013

FINRA News Roudup: FINRA Unveils Telephone Mediation Pilot and Proposes A More Stringent Definition of Public Arbitrator

FINRA Unveils Telephone Mediation Pilot
The Financial Industry Regulatory Authority says it now has a pilot program that allows parties with simplified cases to choose reduced-fee or pro bono phone mediation. Volunteers with arbitration claims involving $50,000 or under are welcome to participate. In cases involving damage claims of $25,000 or under, mediators would work on a pro bono basis. For cases between $25,001 and $50,000, there would be a reduced fee mediation rate of $50/hour. No administrative fees will be charged.

Benefits to this phone mediation pilot include getting rid of in-person mediation preparation and travel costs, as well as more flexibility and convenience. The pilot was launched on January 15.

FINRA Proposes A More Stringent Definition of Public Arbitrator
According to the Securities and Exchange Commission, FINRA is proposing that the definition of “public” arbitrator not include persons with associations to a hedge fund or mutual fund. The SRO is also proposing that there be a “cooling off period” of two years before individuals that have terminated certain affiliations can take on this arbitrator role.

FINRA wants to make the rule changes because of worries by investor representatives that they don’t consider certain arbitrators that have a specific experience or background and are listed on the public roster to actually be public. The SRO also thinks that the cooling off period will allow certain persons that have had certain affiliations to regain an impression of neutrality in the eyes of constituents.


FINRA Securities Cases
If you are an investor that has sustained losses due to securities fraud, you may be able to recover your investment by going through FINRA arbitration. It is a good do have good securities representation with a FINRA securities law firm that is experienced in handling such cases. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

FINRA Launches Small Claims Telephonic Mediation Pilot Program, FINRA, January 16, 2013

Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to Amendments to the Customer and Industry Codes of Arbitration Procedure to Revise the Public Arbitrator Definition, SEC, January 11, 2013 (PDF)


More Blog Posts:
After SCOTUS Overturns Oklahoma Supreme Court Decision Over Enforceability of an Arbitration Agreement’s Non-Complete Cause, Case Now Goes to Houston, Texas, Stockbroker Fraud Blog, November 12, 2012

US Supreme Court's Janus Ruling May Compel SEC to File More Aiding, Abetting, and Control Person Liability Securities Claims, Institutional Investor Securities Blog, March 7, 2012

Securities Fraud: Mutual Funds Investment Adviser Cannot Be Sued Over Misstatement in Prospectuses, Says US Supreme Court, Stockbroker Fraud Blog, June 16, 2011

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Arbitration , FINRA

December 13, 2012

Securities Headlines: Credit Suisse & J.P. Morgan to Pay $400M Over RMBS Misstatements, Fox Network’s FOIA Request for AIG Emails Granted, Expedited Discovery Approved in Real Estate ‘Flipper’ Case, & NY Brokerage Owner is Linked to Affinity Scam

Credit Suisse & J.P. Morgan to Pay $400M Over RMBS Misstatements
In SEC v. J.P. Morgan, the financial firm is accused of allegedly misstating information related to approximately 620 subprime mortgage loans’ delinquency status. The loans gave collateral for a $1.8M residential mortgage-backed securities offering that J.P. Morgan (JPM) underwrote six years ago and from which it was paid over $2.7 million in fees while investors lost at least $37 million. Now, the firm has agreed to pay nearly $297M to settle the allegations (without denying or admitting to them). The Commission is also accusing J.P. Morgan-owned Bear Stearns Cos. LLC of failing to disclose from 2005 to 2007 that it kept financial settlements from mortgage loan originators on problem loans that it sold into RMBS trusts.

Also settling RMBS Misstatement allegations with the regulator is Credit Suisse Securities (USA) LLC. In an administrative order, the SEC claims that between 2005 and 2010 the financial firm did not accurately disclose that it would keep cash from claims it settled against mortgage loan originators for issues involving loans that it had sold into RMBS trusts. Credit Suisse also allegedly misled investors about when it intended to buy back loans from trusts if those that borrowed did not make the initial payment. The firm has agreed to settle for $120M and is also not denying or admitting to the allegedly negligent conduct.

Money received from both settlements will go to investors that were harmed.

Fox Network’s FOIA Request on AIG Emails Granted
The US Treasury Department must to provide documents related to American International Group (AIG) employees’ retention and bonus payments from 2009 to Fox Business Network. Fox News had requested the papers under the Freedom of Information Act (FOIA). 2009 is when the Federal Reserve and US Treasury restructured the massive aid to AIG in 2008 and Fox Business wants to know more about the government’s bailout. Magistrate Judge Frank Maas of the U.S. District Court for the Southern District of New York is the one who granted the network’s request.

SEC Gets Expedited Discovery in Real Estate ‘Flipper’ Case
The Commission’s enforcement case against Michigan real estate businessman Joel Wilson and two of his companies now goes to expedited recovery. The SEC is accusing the entrepreneur of securities fraud and other violations related to his financing activities, including diverting at least $582K in investor funds toward his own spending. The U.S. District Court for the Eastern District of Michigan recounts that Wilson had gotten about $6.7M from 120 investors who had backed his entities, American Realty Funds Corp. and Group Partnership Management LLC.

The regulator wanted “some types of relief immediately,” and, hence, the court granted via expedited discovery. The SEC’s request for asset freeze and a preliminary injunction, however, has been deferred pending a hearing.

NY Brokerage Owner Linked to Affinity Scam
TWS Financial LLC-owner Roman Sledziejowski is accused of running an alleged affinity scam targeting members of the Polish investment community. The Financial Industry Regulatory Authority has filed disciplinary proceedings against him contending that he defrauded three clients of over $4M, with more than $3M still unaccounted for.

The alleged securities fraud would have occurred between June 2009 and August 2012 when his customers’ money was wired (either by them or by Sledziejowski) from their accounts to Innovest Holdings LLC, a majority TWS owner that he also owns. They allegedly concealed the affinity fraud through bogus account statements or with money that was wired back to the accounts of clients that wanted to take out funds.

SEC v. J.P. Morgan Securities LLC (PDF)

In re Credit Suisse Securities (USA) LLC (PDF)]

SEC v. Wilson (PDF)

Dep't of Enforcement v. Sledziejowski, FINRA (PDF)

Fox News Network, LLC v. United States Department of the Treasury (PDF)


More Blog Posts:
JPMorgan Chase Must Pay Oil Heiress’s Trust $18M For Derivatives Investments, Account Mismanagement, and Unsuitable Investment Advice, Stockbroker Fraud Blog, October 12, 2012

Barclays LIBOR Manipulation Scam Places Citigroup, Credit Suisse, Deutsche Bank, JP Morgan Chase, and UBS Under The Investigation Microscope, Institutional Investor Securities Blog, July 16, 2012

SEC Antifraud Lawsuit Against Goldman Sachs Executive Fabrice Tourre Won’t Be Reinstated, Says District Court, Institutional Investor Securities Blog, December 3, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Affinity Fraud , Credit Suisse , FINRA , Financial Firms , J P Morgan - Chase

December 10, 2012

Investment Advisor Securities Roundup: Two Firms Settle SEC Claims That They Impeded with Examinations, FINRA Defends SRO Model, IA Allegedly Duped Private Equity Investors, & CDO Misrepresentation Accusations Against GSCP Executive Are Dismissed

Investment advisory firms EM Capital Management and Barthelemy Group have settled SEC administrative charges that they got in the way of Commission staff examinations. Both cases were settled without the parties involved denying or admitting to the allegations.

According to the SEC, Barthelemy Group and Evens Barthelemy allegedly misled examiners by inflating claimed assets under management to make it appear as if the firm qualified for SEC legislation. To settle the claims, Barthelemy has consented to a securities industry bar. He can reapply for admission again in two years. His firm consented to a censure.

As for the proceedings against Em Capital Management and Freeman, they allegedly waited a year and a half to produce the records and books for the firm’s mutual fund advisory business. Both have consented to pay a $20,000 penalty and be censured.

In SEC v. Steffelin, the Commission has dismissed its case against GSCP executive Edward Steffelin, who was accused of making misrepresentations in marketing the Squared CDO 2007-1, a 2007 collateralized debt obligation connected to the domestic housing market. (A separate but related lawsuit was filed against J.P. Morgan Securities, LLC (JPM), which the financial firm has resolved by agreeing to pay $153.6M.) Steffelin led the team that put into effect the process for purportedly choosing the CDO’s investment portfolio.

The Squared CDO 2007-1, contends the SEC, was structured mainly with credit default swaps referencing other CDO securities connected to the residential market. Although marketing materials for the CDO noted that that GSCP selected the investment portfolio, the SEC claims that no one notified the investors that Magnetar Capital LLC played an important role in selecting the securities and even had a short position in more than half the assets. The Commission believed that it was Steffelin who let the hedge fund participate in choosing the assets even though he knew that it was going to short the assets. However, because of information that has since come to light, the regulator has dropped its case against him.

In another civil case, the SEC is suing Joseph Hennessy and his firm Resources Planning Group Inc. for allegedly duping clients so they would invest in a failing private equity fund. The Commission is accusing the two of them of promising high returns to those that decided to invest in Midwest Opportunity Fund while failing to tell them that the fund was in poor financial health.

The SEC says that Hennessy issued a $1.65 million promissory note that he guaranteed in 2007 to finance the fund’s biggest portfolio company. Ultimately, however, the fund couldn’t pay back the notes and that is when Hennessy allegedly began to seek investors. He is denying the allegations.

Recently, Thomas Selman, FINRA's executive vice president for regulatory policy, defended a move to a self-regulatory organization model for investment advisor oversight. While some have raised questions about this regulatory model’s value, and pushback from lawmakers and the industry has been strong, Selman gave assurances that were FINRA to take on this role, it would not impose broker-dealer regulations on investment advisors and the SRO would not become prisoner to the industry it would regulate. Selman made his comments at an Investment Program Association event in Washington on November 15.

If you suspect that you may have been the victim of investment fraud, contact our securities law firm today.

In re EM Capital Management LLC, SEC, Admin. Proc. File No. 3-15101, 11/20/12, SEC (PDF)

FINRA Official Defends SRO Model for Investment Advisers, Bloomberg/BNA, November 26, 2012

SEC CHARGES CHICAGO-BASED INVESTMENT ADVISER WITH DEFRAUDING INVESTORS IN FAILING PRIVATE EQUITY FUND, SEC, November 29, 2012

SEC v. Steffelin, S.D.N.Y., No. 11-4204 (MGC) (PDF)


More Blog Posts:
FINRA Provides Guidance As It Opens Up Arbitration Process to Investment Advisers, Stockbroker Fraud Blog, November 9, 2012

House Financial Services Committee Hears Arguments Over Who Should Oversee Investment Advisers, Stockbroker Fraud Blog, June 9, 2012

Private Fund Advisers Have Fiduciary Duty to Client Funds, Says SEC’s Di Florio, Institutional Investor Securities Blog, May 10, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Collateral Debt Obligation , FINRA , Investment Advisers , Securities Fraud

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