May 3, 2016

Puerto Rico Misses Most of Its $422M Debt Payment

Puerto Rico Governor Alejandro García Padilla announced this week that the U.S. territory would not be paying most of the $422 million in debt that was due on Monday. However, it did pay $23 million in interest. As the Puerto Rican government had swapped $33 million of debt for new debt that matured at a later date, the principal it missed on its Government Development Bank-issued bonds was $367 million.

This was a significant development in the stand-off between the Commonwealth and Washington DC, as well as investors in Puerto Rican debt. Moreover, there are much more significant sums due this summer and, if this week’s failure to pay is an indication, investors could be in trouble.

Puerto Rico currently owes more than $70 billion to bond holders. Over $2 billion in bond payments are due this summer, including $805 million in Puerto Rico general obligation bonds. In the wake of this latest default there is growing concern that there will be more defaults in the future.

One significant Puerto Rico bond issuer, the Puerto Rico Government Development Bank (“GDB”), says it has arrived at a tentative deal with a group of hedge funds holding $900 million of the bank’s debt in which the funds would agree to a possible reduction on the dollar of their original securities’ face value. This group of institutional investors, which is being called the “Ad Hoc Group of bondholders," include Claren Road Asset Management, Avenue Capital Management, Fir Tree Partners, Brigade Capital Management, Solus Alternative Asset Management, and Fore Research Management. The GDB arrived at a similar deal with credit unions that are holding about $33 million in debt. Regardless, according to Bloomberg, analysts at Moody’s Investors Service said that even if creditors agree to a non-payment, it would still be a default.

Mutual funds, bond insurers, hedge funds, and individual investors are among those still holding the Commonwealth’s debt. Many of them got involved with Puerto Rico closed-end bond funds because of the high yields and tax benefits. When the securities plunged in value a few years ago, thousands of investors lost a significant portion of their savings. Retail investors, retirees, and small business owners were hit especially hard.

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April 30, 2016

Oppenheimer Still Has Substantial Funds in Puerto Rico Municipal Bond Debt

According to InvestmentNews, even with Puerto Rico heading toward default on its $72 billion in municipal debt, there are a number of funds that continue to hold the U.S. Territory’s bonds in their portfolios, such as the:

· U.S. Oppenheimer Rochester Maryland Municipal (ORMDX)—Morningstar said that as of the conclusion of February the fund had 48.2% of assets in Puerto Rican debt.

· Oppenheimer’s (OPY) Virginia municipal bond fund (ORVAX) reportedly had 40.8% of its assets in the U.S. territory.

· Eaton Vance Oregon Municipal Income (ETORX) had 9.31% of its portfolio in Puerto Rico bonds.

· MainStay Tax-Free Bond (MKINX) had 8.8%.

InvestmentNews also reports that during a conference call on April 7, management for Oppenheimer Rochester said that about half of its funds’ holdings were in COFINA bonds or general obligation bonds, both from Puerto Rico.

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April 28, 2016

Ponzi Fraud: Victims of Tom Petters to get $172M, Court Affirms Former Madoff Employees’ Convictions, and Grand Jury Indicts Real Estate Investor Petters Ponzi Scam Victims to Get Back $172M

Petters Ponzi Scam Victims to Get Back $172M
Victims of Tom Petters’ $3.65B Ponzi scam collapse are about to get $172M. Petters were sentenced to 50 years behind bars for bilking investors out of all that money.

Investors thought they were putting their money into the purchase of consumer electronic goods that were to be resold at a profit to retailers. Instead, the funds went toward supporting Petters’ companies and his extravagant lifestyle. There are also over 100 lawsuits pending against specific investors that will hopefully bring in more money for the victims.

Petters was convicted of wire fraud, conspiracy to commit wire fraud, conspiracy to commit mail fraud, mail fraud, conspiracy to commit money laundering, and money laundering.

Potential investigators were given bogus documents listing goods that Petters Company' PCI had purportedly bought from vendors and then sold to retailers. Falsified records made it appear as if PCI had invested money, too. In Ponzi-like fashion, earlier investors were paid with the money of subsequent investors rather than from real profits.


Appeals Court Affirms Ex-Madoff Employees’ Convictions

The U.S. Court of Appeals for the Second Circuit said that the convictions of five former employees who worked for Bernard Madoff were proper. Daniel Bonventre, JoAnn Crup, Annette Bongiorno, George Perez, and Jerome O’Hara were convicted in 2014 for aiding Madoff in his $20B Ponzi scam and making money from the fraud.

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April 27, 2016

Broker News: J.P. Morgan Firms to Pay $1M Fine, FINRA Bans Broker For Money Laundering, and Former Maine Broker Gets 3-Years in Prison for Fraud

Two J.P. Morgan Firms Fined over Deficiencies
J.P. Morgan Securities and J.P. Morgan Clearing Corp. have been fined $775K and $250K respectively for several deficiencies. J.P. Morgan Securities is a broker-dealer of the bank JPMorgan Chase (JPM). .J.P. Morgan Clearing is the custodian, clearing, lending, and settlement arm of the bank. The fines were imposed by FINRA.

According to the self-regulatory organization, the firms committed a number of breaches that violated FINRA and SEC rules. The alleged violations by the brokerage firm mostly affect clients of J.P. Morgan Private Bank and JPMS Heritage Private Client Services, which are two JPMS Global Wealth Management businesses.

From 9/07 to 2014, JPMS purportedly did not send letters to clients confirming modifications to their investment goals within 30 days of the changes. JPMS also allegedly did not collect and check the outside brokerage account statements of nearly 2,000 representatives from ’12 – ’13. Morgan Clearing Corp. is accused of, from ’11-’13, not sending out yearly privacy notices to hundreds of thousands of account holders at the broker-dealers where it provides clearing and custody.


Broker Banned by FINRA for Money Laundering
The Financial Industry Regulatory Authority said that it is barring James Van Doren. The broker was sentenced to 15 months behind bars for a money laundering scam.

According to FINRA, Van Doren took part in unethical behavior by helping to make it possible for a childhood friend and business associate to avoid certain legal duties. The former broker invested in a number of real estate deals with the friend’s company and helped conceal assets when the company couldn’t fulfill its duties.

He also accepted $244K from the friend to hide the assets that his creditors were looking for. He eventually returned most of the funds to the friend while keeping some for financial losses he sustained.

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April 26, 2016

Judge Dismisses Scottsdale Capital Advisor’s Lawsuit Challenging FINRA’s Enforcement Authority

U.S. District Judge Deborah K. Chasanow has dismissed Scottsdale Capital Advisors’ securities case claiming that the Financial Industry Regulatory Authority did not have legal authority to enforce securities laws. The self-regulatory organization had filed an administrative case against the financial firm, accusing it of selling unregistered penny stock shares.

In March, Scottsdale filed its complaint, contending that the claims brought by the regulator came out of violations of the Securities Act of 1933, which it believes that the Securities and Exchange Commission, and not FINRA, has purview over when it comes to enforcing it the act. However, Scottsdale also said that both the SEC and FINRA did not have the “realm of expertise” to make a ruling in the SRO’s case against it.

Judge Chasanow dismissed Scottsdale’s lawsuit citing lack of subject matter jurisdiction. She said that the allegations brought by FINRA as they pertain to the penny stock trades should not be in heard in federal court.

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April 21, 2016

Texas-Based Linn Energy Extends Deadline for Exchanging LINE Units for LNCO Shares

Linn Energy (LINE) says that its unit holders have until April 25 to exchange their units for LinnCo shares. According to SeekingAlpha.com, the Texas-based company is making the deal to avoid CODI (cancellation of debt income).

As it stands, Linn Energy has suspended its distribution and is making interest payments on its unsecured debt just in time before its 30-day grace period to make the payments ends in order to avoid a default. According to Nasdaq.com, the energy player paid interest of $60M on senior debt. At some point, Linn Energy may have to file for bankruptcy.

This month, Zach Investment Research downgraded Linn Energy shares from a buy rating to a hold one. It sent investors a research report with this new information. Stifel Nicolaus (SF) also lowered shares of the oil and gas company from a hold rating to a sell one in February. In March, Robert Baird lowered its target price on Linn Energy shares and established a neutral rating for the company in its research note. In December, Barclays (BARC) reaffirmed its hold rating of the shares. Ladenburg Thalmann downgraded Linn Energy from neutral to a sell rating and Citigroup (C) did the same in its research note.

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April 20, 2016

Indiana Investment Adviser Sentenced for Bilking Older and Disabled Clients of Over $680K

Cindy L. Lampkins is sentenced to five years behind bars. The Bloomington, Indiana investment adviser stole over $680,000 in retirement money from elderly investors and disabled clients. Lampkins was convicted on count of money laundering and one count of wire fraud.

Lampkins was the VP of Kern Financial Group, which offers financial and insurance services. The investment firm belongs to her and her father.

According to investigators, between 2/10 and 11/13, Lampkins persuaded clients to pay Kern Financial Group for nonexistent products. The Internal Revenue conducted a probe, as did state police, who discovered that Lampkins lied to clients, gave them doctored financial statements, and concealed her actions from them. Investors thought their money was going into annuities with high interest rates or to buy a product that would cover funeral costs in the future.

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April 19, 2016

Former UBS Puerto Rico Employees Brought $25M Lawsuit Against the Firm

Over the last two years, more than 1,000 investors have sued UBS Puerto Rico (UBS-PR) in FINRA arbitration or other forums over mounting losses from the collapse of the Puerto Rico bond market. However, investors are not the only ones suing UBS-PR over its sale of risky bonds. Siblings Jorge and Teresa Bravo have sued UBS for $10 million in FINRA arbitration along with UBS-PR customers.

The Bravos, both ex-senior VPs at the brokerage firm, said management fooled not just customers but also UBS employees. They said they were coerced and threatened into selling Puerto Rico close-end bond funds and they were mistreated before being forced out.

Along with the Bravos, seven former UBS Puerto Rico employees have filed claims against UBS-PR seeking $25 million from their former employer. That group of former UBS-PR brokers claim UBS management made misleading statements to them, as well as customers, about the closed-end mutual funds. The brokers also said management pressured brokers at the firm to sell these Puerto Rico securities. News of the seven former brokers’ lawsuit broke last year around the time that Reuters disclosed the existence of a UBS letter noting that the collateral value of closed-end funds would be reduced to zero—an indication of their riskiness.

At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico bond fraud lawyers have been working with investors to recoup their money. Too many investors lost much of the money they invested with UBS-PR and other brokerage firms on the island when these securities began to fail three years ago. Our securities lawyers on the island and the U.S. mainland are representing clients who have FINRA arbitration claims.

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April 18, 2016

Commodity Trading Cases: Galileo Trading Fined Over $1.6M, Trader Ordered to Pay More than $141K for Aiding and Abetting Fraud, and Criminal Defendant Must Pay Over $4.7M in Restitution

Galileo Trading to Pay Penalties and Restitution to Settle Commodity Futures Fraud Charges
The U.S. Commodity Futures Trading Commission is filing fraud charges against Nathan Schleifer and his Galileo Trading LLC. Schleifer and his firm are accused of fraudulently soliciting customers to get them to trade commodity futures and for making a number of false statements and material representations to the National Futures Association about their trading practices.

The SEC said that from at least ’99 – ’14, Schleifer and his firm fraudulently obtained at least $2.8M from a number of people for supposed trading in a pooled investment in commodity futures. The Commission claims that Galileo and Schleifer misrepresented to pool participants that they’d had previous success trading in futures. They also purportedly claimed that they were making a lot of money for these pool participants when in reality there were substantial losses.

Schleifer is accused of falsely claiming that he was a skilled money manager. He guaranteed investors minimum returns and told them their money was safe. When at least one individual tried to take money out, Schleifer said he lost the funds during a flash crash in May. Later, he admitted that he lost all of the investor’s money years ago.


CFTC Permanently Bans Trader from Registering with the CFTC
The CFTC has settled charges against Brian Hinman for aiding and abetting a commodity pool fraud involving a number of Texas-based entities owned by Kevin G. White and for the fraudulent solicitation of participants to get involved in Revelation Forex Fund, a foreign currency exchange pool. It was in 2013 that the CFTC filed a federal court action against White and his KGW Capital Management, LLC and RFF GP, LLC. They were ordered to pay $3,365,888 in restitution and a civil penalty of over $4.1M. White is now serving prison time for mail fraud.

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April 16, 2016

SEC Cases: Litigation Marketing Company Accused of Defrauding Retirees, NY Town Officials Hide Money Problems from Municipal Bond Investors, and Ski Resort is Tied to Fraudulent E-B Five Offerings

Elder Financial Fraud: LA Based-Company Accused of Bilking Retirees and Others
The Securities and Exchange Commission is charging PLCMGMT LLC, also known as Prometheus Law or PLC, and co-founders David Aldrich and James Catipay of bilking retirees and other investors. The two men are accused of raising $11.7M by telling investors that their money would go toward bringing together plaintiffs for class action cases and other lawsuits. Investors were promised substantial returns of 100% to 300% from any settlements. PLC is a litigation marketing company based in Los Angeles.

The SEC contends that only $4.3M of the money was used to find prospective plaintiffs and not much revenue was made from any settlements reached. Instead, Aldrich and Catipay took $5.6M to cover their own expenses. The two men downplayed the risks involved and did not disclose that their business model was “unrealistic.” Instead, PLC and its founders claimed that investments were secure and guaranteed when they were actually very speculative and high risk, especially as not all potential plaintiffs typically qualify to become actual plaintiffs. Compound this factor with the reality that winning any lawsuit is never a guarantee.

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are here to help older investors recoup their losses.


Officials of Ramapo, NY Accused of Hiding Financial Woes from Muni Bond Investors
The SEC is accusing the New York town of Ramapo, its local development corporation, and four town officials of fraud. The Commission claims that the officials committed fraud to hide the financial stress caused by the $60M spent on constructing a baseball stadium, as well as the decline in sales and property tax revenues. The four individuals allegedly cooked the books of Ramapo’s main operating fund to make it seem as if it held positive balances of up to $4.2 million over a six-year period when actually the balance deficit at one point reached close to $14M.

The regulator said that since the town guaranteed the stadium bonds that Ramapo Local Development Corp. (RLDC) had issued, an operating revenue shortfall at the corporation was concealed and investors were not apprised that the town would likely have to subsidize bond payments, which would cause the general fund to lose even more money.

Continue reading " SEC Cases: Litigation Marketing Company Accused of Defrauding Retirees, NY Town Officials Hide Money Problems from Municipal Bond Investors, and Ski Resort is Tied to Fraudulent E-B Five Offerings " »

April 15, 2016

Broker Violations & FINRA: PNC Investments to Pay $225K for Overcharging for Mutual Funds and Stifel Nicolaus is Fined $750K For Not Following Reserve Requirements

The Financial Industry Regulatory Authority has announced that PNC Investments will pay nearly $225K in restitution for charging retirement clients too much for mutual fund investments. According to the regulator, the brokerage firm did not apply waivers for investors in certain Class A share mutual funds even though there was a waiver for front-end charges for eligible customers.

Instead, said FINRA, PNC Investments sold Class A shares customers with a front-end load or other shares that had a back-end load and higher fees and expenses, some of which were charged on an ongoing basis. Because of this, certain customers were charged excessive fees and paid them.

FINRA said that PNC Investments charged 121 customer accounts in excess of $191,740 for mutual funds—although the actual amount, with interest, was closer to $224,750. PNC will pay restitution to eligible investors.

The brokerage firm self-reported the overcharges after reviewing its own conduct last year to assess whether it was issuing the sales waiver to those that were eligible. FINRA said that the broker-dealer experienced lapses in supervision, did not keep up written policies and procedures that were adequate, and failed to help advisers assess when to waive the sales charges.

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April 14, 2016

Elm Tree Investment Advisors Founder, COO Charged in $17M Ponzi Scam

In Manhattan, prosecutors are charging Fred Elm, the founder of Elm Tree Investment Advisors LLC, and Ahmed Naqvi, its COO, of running a $17M Ponzi scam that allegedly bilked over 50 investors. According to the government, the two men falsely claimed they had access to pre-initial public offerings and that their funds would be placed in privately held companies, such as Uber Technologies and Twitter Inc.

Manhattan U.S. Attorney Preet Bharara said that only $7.1M of the $17M was actually invested and investor funds were mixed together in one account. Elm is accused of spending millions of these dollars in expensive purchases, including high-end cars and a nearly $2 million home.

Investors were told that Elm and Naqvi would receive a 2 % management fee and 20% of any profit made. Unfortunately, there never was any profit. $5.2M of new investors’ funds was used to pay earlier investors, which is typical of a Ponzi scam. The two men are accused of making misrepresentations that were fictitious to hide their scheme from investors.

Elm and Naqvi are charged with wire fraud, securities fraud, and conspiracy.

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