January 29, 2016

Hedge Fund Manager to Repay Investors $2.87M for Losses

QED Benchmark Management LLC and its hedge fund manager Peter Kuperman will resolve U.S. Securities and Exchange Commission charges accusing them of misleading investors about the QED Benchmark LP hedge fund’s historical performance and investment strategy. As part of their settlement they will pay back investors $2.8M in losses. However, by settling they are not admitting or denying the charges.

According to the SEC, the investment advisory firm and Kuperman did not disclose to investors that there were heavy trading losses. They purportedly did this by using a combination of real and hypothetical returns when giving out information about performance history. Marketing strategy included proposing to abide by a scientific stock-selection strategy using algorithms to concentrate on over 280 metrics in the areas of value, momentum, risk, growth, and estimates. The fund was supposed to select investments using the metrics to determine which ones would do better in the market.

QED's offering memorandum and its limited partnership agreement said that no more than 20% of assets could be invested in any one security, while no more than 5% could be invested in a security that was illiquid. The SEC said that none of these agreements were honored.

Because of these alleged misrepresentations, QED Benchmark and Kuperman were able to secure millions of dollars from investors. The two of them are accused of not following the fund’s stated investment plan and placing most of the assets into one penny stock. Misleading and incomplete disclosures about the investment’s liquidity and value were also purportedly made. In just the first quarter that stock earned a 79% loss. When Kuperman presented potential investors with 2009 results, he did not disclose the bad returns and used hypothetical returns instead.

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January 27, 2016

Ameriprise Must Pay Woman’s Estate Over $2M For Broker Fraud

A Financial Industry Arbitration panel says that Ameriprise Financial (AMP) must pay over $2M to the estate of Glenny B. White for losses related to fraud committed by an ex-firm broker. The executor of White’s estate claims that Ameriprise Financial Services did not properly supervise former broker Jeffrey Davis.

In 2014, Davis admitted to stealing money from White and other clients. White was his client for almost ten years before she found out in 2013 that he was stealing funds from her. She died at the age of 91 in 2014.

Davis has since been fired from Ameriprise, and FINRA barred him from the brokerage industry. Last year, he was sentenced to over four years in prison after pleading guilty to wire fraud and admitting to stealing almost $200K from clients.

On Finra’s BrokerCheck report about Davis, it is noted that in at least two cases involving Ameriprise clients the firm had reported to the regulator that their funds were misappropriated.

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January 25, 2016

UBS Shutters MLPL and MLPV Funds Following Millions of Dollars in Investor Losses

UBS AG (UBS) is reportedly closing down two of its exchange traded note (ETN) funds that were concentrated in master limited partnerships:

· The $11M ETRACS 2x Monthly Leveraged S&P MLP Index ETN (MLPV), which was just issued last July

· The $113M ETRACS 2x Monthly Leveraged Long Alerian MLP Infrastructure ETN (MLPL)

The move comes following the collapse of the MLPV, which is down to just $6.6/share and the MLPL, which is now at $12.60/share.

With the MLPL and MLPV, their notes weren’t due to expire until after 2040. UBS, in its press release, noted that an “Acceleration Event" occurred, which was sparked by intraday indicative value hitting $5.00 or less on 1/20/16. It was oil’s sharp price decline that activated the acceleration event.

It appears that investors may not have known that such an event could compel the funds to instantly liquidate holdings at prices that could wipe out shareholder value. Some of their advisers may not have been aware of the ETNs mandatory liquidity provisions or that they were exposed to volatile commodities, including oil, to such a degree. For example, master limited partnership investments are heavily connected to natural and energy resource companies that are very dependent on oil prices staying high.

If your financial adviser recommended that you invest in either the ETRACS 2x Monthly Leveraged Long Alerian MLP Infrastructure ETN or the ETRACS 2x Monthly Leveraged S&P MLP Index please contact our securities fraud law firm right away. Shepherd Smith Edwards and Kantas, LTD LLP is looking into possible securities claims against broker-dealers and investment advisers who recommended that investors back these securities.

It is important that advisers and brokers make sure that investing in gas and oil and commodities-related investments is suitable for an investor, his/her risk tolerance, and investment goals. Also, financial representatives have a responsibility to understand the risks involved and properly communicate these to clients so that the latter understand what they are getting involved in.

If you are an investor who backed one or both of these UBS MLP ETNs, please contact our securities law firm right away. Shepherd Smith Edwards and Kantas, LTD LLP is also investigating claims involving investors whose brokers or investment advisers recommended that they invest in structured notes, leveraged ETFs, exchange traded notes, private placements, individual stocks, mutual funds, and other oil and gas commodities products.

UBS Shuts Two MLP ETNs After Steep Declines, Barron's, January 20, 2016

UBS ETRACS Launches 2X Leveraged S&P MLP Index ETN Offering Significant Income Potential, Yahoo, July 15, 2015

January 23, 2016

SEC Wants Lawyer to Pay $2.5M Penalty in Texas Securities Case

The U.S. Securities and Exchange Commission has filed a motion for summary judgment in its case against Gregory Jones. The Texas lawyer is facing civil charges accusing him of defrauding investors in two securities offerings, including a fracking water filtration deal and an oil and gas exploration venture.

Now, the SEC wants Jones to pay a $2.5M civil penalty, disgorgement of $985K, further disgorgement of $480K, and $17K in prejudgment interest.

The regulator, in its original complaint that it submitted last year, claims that Jones represented Swiss and French investors who invested about $6M in Edwards Exploration. The attorney had a deal with the company in which he would get paid for providing due diligence related to the investors' shares. The fees he received under the agreement were about $480K. However, claims the Commission, Jones did not tell investors that the money came from their principal cash.

The SEC also says that from ’13 through at least ’14, Jones sold and offered securities that were put out by Aquaphex, which was supposedly a business that was involved in recycling fracking water. He raised about $64K from nine investors. However, contends the Commission, the investment documents for the company included false statements, including a claim that investors could end up making over 115% a year on the securities the they bought.

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January 22, 2016

Investors Files Texas Securities Case Alleging Violations by United Development Funding IV

Investors have filed a class action securities case claiming that the Texas nontraded real estate investment trust United Development Funding IV (NASDAQ:UDF) and certain of its officers violated federal securities laws. The complaint come a month after the Harvest Exchange website published a report accusing the Company of running a Ponzi-like scam. The UDF umbrella is accused of raising capital to bail out its earlier vintage entities.

On December 10, 2015, the day that the report went out, UDF’s shares dropped significantly. The Company then put out a press release disclosing that its UDF IV and UDF III have been cooperating for nearly two years with the U.S. Securities and Exchange Commission, which has been conducting a non-public probe since early 2014. Following that announcement, Company shares fell even further, negatively impacting investors.

The Texas securities case accuses the defendants of, from June 4 – December 10, 2015, failing to disclose that:


· New UDF companies gave older UDF companies substantial liquidity, letting them pay earlier investors.

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January 21, 2016

FGIC Sues Puerto Rico Over Bond Payment Default

A third bond insurer is now suing Puerto Rico over the way its government officials diverted tax money to fulfill certain bond payments that were due while defaulting on other payments. The latest plaintiff is Financial Guaranty Insurance Company (FGIC). Its complaint has been consolidated with a lawsuit brought by Ambac Assurance Corporation (Ambac) and Assured Guaranty Corp. (Assured) that makes similar allegations.

FGIC contends that government officials violated the U.S. Constitution when they diverted over $164 million to pay off some of the Commonwealth’s general obligation debt. As a result of the diversion, Puerto Rico defaulted on $37 million in interest on bonds and FGIC says that because of this it had to pay over $6 million in claims.

The fund diversion lets the territory avoid default on general obligation bonds, which, under its own Constitution, are the priority in terms of making payments. However, according to the three insurance companies, the island expects to make about $9 billion in the fiscal year that ends in June and this goes beyond its debt-service costs. The insurance companies do not believe that money had to be redirected away from the government agencies.

Puerto Rico owes over $70 billion in debt. Recently, U.S. Treasury Secretary Jack Lew pressed Congress to pass legislation to help the beleaguered territory. Lew visited the island on Wednesday.

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January 19, 2016

Securities News: Alternative Fund Manager Accused of Misleading Investors, Futures Trader Goes to Jail for Fraud, Ex-NBA Player Gets Sentence for Ponzi Scam, and 9th Circuit Upholds Investment Manager’s Conviction

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

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

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


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

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

Wiens directed investors to open bank accounts under RXM’s name for their funds. He told them that there was zero risk and returns were guaranteed. He then used the money in the accounts to pay off earlier investments and cover his own spending.

Continue reading " Securities News: Alternative Fund Manager Accused of Misleading Investors, Futures Trader Goes to Jail for Fraud, Ex-NBA Player Gets Sentence for Ponzi Scam, and 9th Circuit Upholds Investment Manager’s Conviction " »

January 15, 2016

Securities Headlines: Ohio Financial Adviser Faces Criminal Charges, Petters Ponzi Scam Investors Still Waiting for Their Money, and FINRA Recommends Disciplinary Action Against Ex-Jefferies Bond Trader

Ohio Financial Adviser is Indicted in $15M Securities Fraud
Evolution Partners Wealth Management owner Larry Werbel has been indicted on criminal charges accusing him of involvement in a securities scam to bilk at least 100 investor of over $15M. Werbel recruited investors for shares of VgTel Inc. He and other brokers purportedly promised high dividends even though the shares were sold and purchased by companies belonging to the alleged scammers so that they could artificially inflate the share price.

According to prosecutors, over $9M of investor funds were pockets by the fraudsters. Werbel, who prosecutors say got investors to purchase $3M in VgTel shares, received over $300K in kickbacks.


He is charged with securities fraud, conspiracy to commit securities fraud and wire fraud, investment adviser fraud, wire fraud, and making false statements to federal officers. Werbel claims he is innocent.

Meantime, the man accused of masterminding the securities scam, Edward Durante, was arrested in Germany and brought back to the US last month. He previously was convicted of securities fraud in 2011. The U.S. Securities and Exchange Commission has filed a civil case against Evolution Partners, Durante, and others.


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January 14, 2016

FINRA Files Securities Case Against Texas Firm Over Churning Allegations

The Financial Industry Regulatory Authority claims that Caldwell International Securities Corp. engaged in the churning of customer accounts and that this purportedly resulted in $1 million in excess commissions for the firm. The self-regulatory organization says that the alleged violations began in 2011.

According to FINRA, the Texas-based company’s founder Greg Caldwell and supervisors Lennie Freiman and Paul Jacobs decided to ignore that four OSJs (offices of supervisory jurisdiction), three in New York and one in New Jersey, were churning customer accounts and making yearly commission revenues of at least 100% of the customers' equity.

The regulator said that brokers at the OSJs contacted foreign investors to persuade them to take part in speculative stock and option trading. Even after 15 customers lost $1.1M and paid over $1M in commissions and fees, Caldwell and its supervisors purportedly still did not take any action.

Cost-to-equity ratios in customer accounts are believed to have varied from 18% to over 100%. The firm is also accused of not reporting that it had been the subject over three dozen customer complaints.

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January 12, 2016

Ambac Assurance and Assured Guaranty Sue Puerto Rico For Defaulting on Bond Payment

Municipal bond insurance companies Ambac Assurance Corp. (Ambac) and Assured Guaranty Corp. (Assured) are suing Puerto Rico in the wake of its failure to make $37 million in bond payments that were due on January 1. The U.S territory defaulted on paying certain bonds in order to have the funds to repay $355 million owed to holders of Puerto Rico general obligation debts. In the process, it diverted $163 million from revenue streams that should have gone to the island’s government agencies.

Ambac and Assured insure approximately $1.1 billion and almost $1.5 billion, respectively, of the debt still owed to government agencies. The insurance companies contend that the island’s decision to use tax money, which should have gone toward payments on the bonds that they insure, to pay the other bond obligations due is unconstitutional. Assured also said that this legally interferes with the insurer’s contractual rights and violates the U.S. Constitution’s Fifth and Fourth Amendments, as well as Article I, Section 10.

Because of the default, the two insurance companies are collectively compelled to pay $10.7 million on insurance policies. Their lawsuit seeks to stop Puerto Rico from completing the payment clawbacks.

According to the two insurers, clawback authority is only applicable when no other funds are available to pay debt. They say that the island has yet to prove this to be true.

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January 11, 2016

Massachusetts Charges Citizens Securities in Elder Fraud Case

William Galvin, the securities regulator of the state of Massachusetts, has filed charges against Citizens Securities for purportedly selling an older investor funds that were too high risk for her investment tolerance level. He wants restitution for the investor, who lost approximately $7,000.

Citizens Securities operates out of Citizen Bank locations. According to the state, even though she had a low risk tolerance level, the woman was sold alternative and emerging markets funds and funds that purchase high-yield bonds. She also purchased a market-linked CD, investing $100K, without comprehending that it was riskier than a regular CD.

Her financial consultant, whom she met at Citizens Bank, purportedly did not give adequate disclosures of the branch’s brokerage activities or tell her the name of his employer. This caused the investor to think that he worked for the bank.

The advisor is accused of disregarding the elderly investors stated goals and not asking about her investment experience or education. The administrative complaint says that she told the financial consultant that she didn’t want to be exposed to the stock market. It also said that financial consultants at Citizens Bank are not supervised daily or in-person.

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January 8, 2016

SEC Cautions Mutual Funds That They May be Misdirecting “Sub-Accounting Fees” And Impacting Investor Returns

The Securities and Exchange Commission’s Division of Investment Management has put out a guidance on its website cautioning mutual fund directors to more closely scrutinize the money that is paid to brokers and certain other intermediaries. The warning comes following a sweep exam, which found that fees that should be going toward record-keeping and other administrative services are instead being directed toward encouraging fund sales. A number of mutual funds, brokerage firms, investment advisers, and transfer agents were examined prior to the issuance of this guidance.

SEC rules stipulate that sub-accounting fees cannot go toward finance distribution. These fees should only go toward record-keeping and shareholder services. However, there is an issue with mutual fund-maintained omnibus accounts in which all the fees can be placed together. In such instances, payments made to brokers for selling certain funds may get buried in these administrative fees.

Now, the Commission wants fund directors to watch out for fees that intermediaries selling the funds are getting for account services. It wants these directors to establish processes to assess whether a sub-accounting fee is being harnessed to increase sales. It also is calling on fund service providers and advisers to explain distribution and servicing specifics to fund directors.

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