Stock Broker Fraud Blog

Former broker-dealer Chanin Capital LLC says it will pay a $75,000 fine to settle Securities and Exchange Commission charges that it failed to set up procedures and policies to prevent employees and others from misusing inside information. The firm’s compliance officer at the time, A. Carlos Martinez, agreed to cease and desist from further violations and to pay $25,000 in a related SEC administrative proceeding.

According to the SEC, from January 1999 through September 2003, Chanin did nothing to enforce the policies it had designed to prevent others from misusing its material nonpublic data. The former broker-dealer showed an improvement in honoring its own polices after September 2003 and even revised its compliance procedures twice. However, the SEC says that Chanin still lacked the necessary policies and procedures to maintain and enforce its revised compliance program.

The SEC says that Martinez aided and abetted Chanin’s violations because the compliance officer was in charge of putting into place and enforcing the broker-dealer’s insider trading and compliance policies.

In October 2006, Chanin Capital stopped functioning as a broker dealer. It deregistered beginning April 1, 2007.

Chanin and Martinez are not admitting to or denying the charges by agreeing to settle.

Shepherd Smith and Edwards is a stockbroker fraud law firm that has helped thousands of US and international investors recover their losses. If you are a victim of investor fraud or broker misconduct, contact Shepherd Smith and Edwards today.

Related Web Resources:

Former Broker-Dealer and Compliance Officer Fined For Violating Securities Exchange Act Provision Designed to Prevent Use of Material Nonpublic Information, SEC.gov, May 1, 2008

Read the SEC Complaint (PDF)

In the Matter of A. Carlos Martinez (PDF)

GunnAllen Financial Inc. has settled Financial Industry Regulatory Authority charges that it was allegedly involved in a trade allocation scheme, in addition to several reporting, anti-money laundering, supervisory, and recordkeeping deficiencies. The trade allocation scheme was allegedly conducted by Alexis J. Rivera, the former head trader at GunnAllen.

FINRA says that in 2002 and 2003 and acting through Rivera, GunnAllen participated in a “cherry picking” scam. Rivera took profitable stock trades and put them into his wife’s personal account instead of GunnAllen customer accounts. Rivera allegedly made over $270,000 in illegal profits.

The ex-trader has been barred from FINRA. The trade allocation scheme violated FINRA rules and the federal securities laws’ anti-fraud provisions. Rivera’s supervisor, Kelley McMahon, has agreed to a six-month suspension from taking part in a principal role with any FINRA-registered company. She has also agreed to a $25,000 fine.

Also according to the SRO, GunnAllen "never put any stock of a company on a restricted or watch list” before 2005 nor did the investment firm notify its own compliance department of its investment banking activities. GunnAllen also reportedly did not tell its parent company that it was involved in a consulting contract with someone that had been banned from FINRA in the past.

FINRA also sanctioned GunnAllen for a number of other failures, including complaint reporting and supervisory deficiencies, failure to keep a record of instant messages and e-mails, and neglecting to put in place a proper AML compliance program.

By settling, GunnAllen and McMahon are not admitting to or denying FINRA’s allegations.

If you are the victim of broker misconduct, contact Shepherd Smith and Edwards for a free consultation to discuss your case.

Related Web Resources:

GunnAllen Resolves Past FINRA Regulatory Issues; Looks Confidently Toward the Future, PR Newswire, May 8, 2008

GunnAllen Financial Pays $750,000 to Settle Charges Involving Former Head Trader's Trade Allocation Scheme, AML and Supervisory Deficiencies, Additional Charges, FINRA, May 8, 2008

UBS Financial Services Inc. and UBS Securities LLC, both units of UBS AG, have agreed to pay 19 Massachusetts public agencies and local governments over $35 million for their losses in the auction-rate securities market. The sum represents the return of principal payments by the municipalities.

The settlement agreement follows a probe by the Massachusetts Attorney General’s Office into accusations that the two UBS units misled the local entities by convincing them that the investments were low-risk enough that they were allowable for towns and cities under Massachusetts law.

According to a UBS spokesperson, the investment bank agrees that the auction-rate securities investments are not in fact permissible under this law. The spokesperson said that the repayment and agreement with the Massachusetts entities only apply because of this specific law.

Local US governments throughout the United States have invested over $300 billion in auction-rate securities markets. Auction-rate securities investments were once considered “safe.” These investments, however, have been frozen for months because of insufficient market liquidity—their value dropping as a result.

Many holders have been unable to get rid of their securities because of inevitable losses. The agreement between UBS and the Massachusetts entities allows the municipalities to recover their frozen funds.

UBS has had to note down over $37 billion in bad investments ever since the start of the subprime mortgage crisis.

Shepherd Smith and Edwards has helped thousands of US and international victims of investor fraud recover their losses.

Related Web Resources:

UBS to return $35M to Massachusetts governments, agencies in settlement over risky investments, International Herald Tribune, May 7, 2008

UBS to return $35 mln to US state over investments, AFP, May 8, 2008

UBS Financial to return $37M to cities, towns, MTA, Massachusetts Municipal Association, May 7, 2008

In Los Angeles Superior Court, a number of life insurance companies, mutual funds, retirement systems, and other investors are suing Wachovia Securities LLC for alleged fraud related to the sale of senior subordinated notes for beverage maker Le Nature's Inc. The Pennsylvania-based company filed for bankruptcy in 2006.

Causes of action include fraud, negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement. California Public Employees' Retirement System (CalPERS) and the Nature Conservancy are among the scores of plaintiffs.

The plaintiffs are accusing Wachovia of knowing about the fraud and financial problems at Le Nature’s but keeping this information from investors so that the beverage company would keep paying the firm substantial fees. They say the lack of disclosure also helped Wachovia’s high-yield debt business.

Also named in the lawsuit are BDO Seidman and Ernst & Young. The companies had worked for Le Nature’s as auditors on different occasions. The plaintiffs say that the “clean” audit reports aided in the fraud. BDO Seidman denies the accusation and vows to vigorously defend itself against the charges.

Wachovia claims that it too was the victim of fraud by the drink company. One Le Nature's accounting director that pled guilty to fraud acknowledged that the company had issued false information to Wachovia.

About 75 plaintiffs claim they suffered aggregate losses worth over $70 million. The plaintiffs are accusing Wachovia Securities of minimizing its own losses by purposely reducing its own exposure to Le Nature’s notes.

The complaint says that the drink company massively inflated its profits and revenue for years even though it was failing badly. Yet Wachovia market analysis gave Le Nature’s an “outperform” rating despite the fact that it was struggling to survive.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents investor fraud victims in cities across the United States.

Related Web Resources:

Lawsuit alleges fraud in LeNature's dealings, Pittsburgh-Tribune Review, May 1, 2008

Former Le-Nature's employee pleads guilty in fraud scheme, Forbes.com, April 24, 2008

More than 80 days into the auction-rate securities crisis, about $300 billion
in investor funds continue to remain inaccessible. It is important to note that taxpayers, in addition to investors, are suffering in this frozen market because the municipal issuers (including schools, towns, highway authorities, and other entities) of auction notes are being asked to pay up to help restructure and redeem the debt.

$78 billion in auction-rate securities—many of them involving municipal notes that come with high interest penalty rates—are expected to be redeemed. Investors with remaining issues, however, aren’t us lucky.

According to Saber Partners Chief Executive Joseph S. Fichera, one option is for investors to try and sell on the Restricted Securities Trading Network, which would allow them to exit while letting municipal issuers repurchase securities at a savings. He also says that issuers might also want to renegotiate contracts to get rid of payments for failed auctions and unsold securities.

Meanwhile, Wall Street continues to generate money from this ongoing debacle. Investment firms continue to tell municipal issuers to repurchase their securities at par, because to recommend that they redeem at discounts could cause the firms’ own customers to record losses—and lead to potential arbitration cases.

The investment banks also continue to generate fees for their services in running these auctions even though 70% of these weekly securities auctions are failing. Investment companies also earn banking fees when municipal issuers redeem their securities and/or unwind derivative contracts tied to the securities.

On April 28, U.S. Representatives Deborah Price (Ohio) and Spencer Bachus (Ala) asked SEC Chairman Christopher Cox to grant “temporary relief” from current regulations so that closed-end fund investors with auction-market preferred stock (AMPS) could be afforded some protection.

They say the move could inject much needed liquidity into the marketplace that would benefit both preferred and common shareholders. They also noted that several affected funds might be interested in issuing a new kind of preferred stock with a “put” option that could restore auction market functioning for these kinds of securities.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents investors that have lost money because of the negligence, carelessness, or misconduct of investment banks, brokers, and other securities industry members.

Related Web Resources:

Securities investors say they were misled, Chron.com, April 30, 2008

Restricted Securities Trading Network

Sidney Mondschein, a former WFG Investment stockbroker, must disgorge $53,000 in ill-gotten gains he allegedly obtained when he defrauded over 500 senior investors by selling their confidential data to insurance brokers. Last month, Mondschein settled Securities and Exchange Commission charges before the U.S. District Court for the Northern District of California.

By settling, the SEC says that the former broker is not admitting to or denying the charges. As part of his agreement, Mondschein agreed to a bar preventing him from associating with any dealers or brokers for five years. He is also permanently enjoined from violating the 1934 Securities Exchange Act’s Section 10(b) and Rule 10b-5, as well as Regulation S-P. He must also pay a $45,000 penalty.

The SEC complaint has alleged that Mondschein illegally sold for profit the confidential data of over 500 clients, almost all of them senior citizens, to six insurance agents. Information included contact information and, sometimes, the dollar figure that an investor had spent on the last annuity. This sale allowed the insurance brokers to sell the investors more annuity products, even though the majority of them already had purchased equity-indexed or fixed annuities.

The insurers reportedly paid the stockbroker anywhere from $50 to $150 for the information. Mondschein also allegedly received customer commissions from the investors that employed his services to sell securities so they could buy the new annuities.

Mondschein allegedly created UNCI Inc. so that he could carry out his investment scam. He did not tell the Financial Industry Regulatory Authority or WFG Investment that UNCI Inc. existed.

Elderly investor fraud is a problem that must be stopped. Our stockbroker fraud attorneys at Shepherd Smith and Edwards have helped many senior investor fraud victims recover their losses. Contact Shepherd Smith and Edwards today.

Related Web Resources:
SEC Makes Broker Pay for Selling Client Info, CCH Wall Street, April 29, 2008

Broker Allegedly Sold Customers' Personal and Confidential Information to Insurance Agents as Sales "Leads" for Annuity Products, SEC.gov, December 6, 2007

The U.S. District Court for the Northern District of Texas says that ex-Southwest Securities Inc. brokers Scott B. Gann and George B. Fasciano acted fraudulently when they purposely tried to circumvent policies designed to prevent market timing trades. The Securities and Exchange Commission had brought the case against the two men.

Fasciano has agreed to the entry of judgment that he violated the 1934 Securities Exchange Act’s Section 10(b) and Rule 10b-5.

The court also found Gann culpable under the act’s antifraud provisions and ordered him to disgorge $56,640.67 in commissions. The court also ordered a $50,000 civil penalty and granted the SEC’s request for injunctive relief.

The SEC’s complaint alleges that Fasciano opened Southwest Securities accounts to engage in market trading for Haidar Capital Management and Capital Advisor ("HCM"). He then allegedly asked Gann, who did not have a license to trade mutual fund shares, to be his partner.

The two men allegedly received a “block notice” after attempting to place the first market timing trade for HCM. They received more block notices after making more trades.

They allegedly responded by adopting a new branch office number and using several broker numbers. Witnesses say that there is no legitimate reason to use multiple broker numbers and they often are an attempt to conceal an investor’s identity so that he or she can keep trading.

According to the court, Gann may have contacted the mutual funds prior to making any trades, but “he acted with scienter, that is, he had the intent to deceive or defraud the mutual funds in which he traded on behalf of HCM."

If you are a victim of investment fraud or broker misconduct, contact Shepherd Smith and Edwards today for your free consultation with an experienced stockbroker fraud lawyer.

Related Web Resource:

Read the SEC Complaint

An AARP Financial Inc. survey says that many U.S. investors make investment errors and miss out on opportunities to invest because they find financial jargon confusing, technical, and hard to understand. GfK Custom Research North America of New York interviewed 1,203 adults by phone for the survey.

Findings included:

*Over 52% of respondents said they made an investment mistake because they did not understand or were confused about the investment.

*Over half of the participants surveyed say that they do not read financial information because they can’t understand it.

*Two-thirds of the survey participants say they would rate the financial services industry’s ability to explain investing and savings with a C, a D , or an F grade.

*Survey respondents said the two most common investment mistakes that they’ve made included waiting too long to invest and failing to invest.

*41% of the participants that they didn’t find financial services information to be very helpful.

AARP Chief Investment Officer Richard Hisey said the survey results showed a clear failure to communicate.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents victims of investor fraud and broker misconduct. Contact Shepherd Smith and Edwards today.

Related Web Resources:

AARP Financial Inc. Survey Finds: When it Comes to Financial Jargon, Americans are Befuddled, PR Newswire, April 2008

AARP FInancial

The North American Securities Administrators Association announced that a number of its members are continuing to probe complaints about auction-rate securities (ARS). They are also coordinating efforts to help investors whose money was placed by brokers in these complex investment products get access to their funds.

An ARS Task Force, comprised of state securities regulators from Massachusetts, Illinois, Florida, Missouri, Georgia, New Jersey, New Hampshire, Texas, and Washington all working in their individual jurisdictions, is investigating these ARS-related complaints.

NASAA President Karen Tyler, also North Dakota's securities commissioner, says that regulators will seek the proper remedies to any violation. Tyler says that task force members are focused on determining whether any broker violations, including omission and misrepresentation, took place during the point of sale. She also stressed the securities regulators’ commitment to making sure that investors can access their funds.

In the wake of the subprime mortgage, many investors that were told that ARS were similar to money market accounts or making cash deposits now cannot touch their money because of ARS trade failures.

ARS Task Force head Bryan Lantagne says that many investors are have complained that they did not know that brokers had placed their money in auction-rate securities or, if they were aware that they had invested in ARS, they were not notified of the liquidity risks.

In New York, Attorney General Andrew Cuomo has subpoenaed 18 securities firms and banks to determine how brokers market ARS to investors. The companies subpoenaed include UBS AG, Merrill Lynch, Citigroup, Inc., JP Morgan Chase and Co., and Goldman Sachs Group.

Shepherd Smith and Edwards represents victims of investor fraud. Your first consultation with us is free.

Related Web Resources:

Credit Crisis Backlash as States Probe Auction-Rate Securities, IBTimes.com, April 18, 2008

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

U.S. Representative Barney Frank, the chairman of the House Financial Services Committee, is calling on the Securities and Exchange Commission to expand its probe into whether any improper trading in investment banks’ shares has recently taken place. He wants the SEC to determine whether the rumors of misconduct are being circulated to drive certain investment banks, such as Bear Stearns, out of business.

In a letter addressed to SEC Chairman Christopher Cox, Frank noted that there had been an “unusually high level of short-selling activity” in Bear Stearns stock right before the company fell apart. He also noted that similar trading in the stocks of other large investment banks has occurred.

Frank cited concerns that some of this trading may be orchestrated by market participants that are trying to bring the share prices down. Frank is calling on the SEC to investigate trading activity of stocks in all the big investment banks.

Other companies that have been heavily shorted recently include Citigroup, Washington Mutual, Wachovia, Wells Fargo, CIT Group, and Countrywide.

Bear Stearns executives say that short-sellers are part of the reason the firm collapsed. They also blame circulated false rumors as a reason that customers abandoned the investment bank, which resulted in its liquidity crisis.

Short-sellers borrow shares and sell them in the hopes that the stock will fall. They can then purchase the shares at a lower price, return them to the lender, and keep the difference. To increase the speed of short-selling, traders are allowed to find someone who will say they have the shares to lend them out. This allows traders to lie and say they have the trade.

A few weeks ago, the Financial Industry Regulatory Authority (FINRA) issued a warning to broker-dealers and others under its supervision, stating that it would not tolerate the intentional spreading of false rumors or the “engaging in collusive activity to impact the financial condition of an issuer.”

Our stockbroker fraud lawyers at Shepherd Smith and Edwards represent clients throughout the United States that are the victims of investor fraud. Contact Shepherd Smith and Edwards today and ask for your free consultation.

Related Web Resources:

Get Shorty, Forbes.com, April 7, 2008

Frank Letter to Cox Short Sales of Bear Stearns and Other Investment Bank Stock, House Committee on Financial Services, April 4, 2008

In the U.S. District Court for the Southern District of New York on April 10, ex-Assent LLC registered broker Samuel Childs pled guilty to a conspiracy charge to commit securities fraud, wire fraud, and commercial bribery for agreeing to receive $100,000 in exchange for concealing insider trading activities from Assent senior executives. In court, Childs, 35, announced that he was 100% guilty.

This case is part of a broader criminal probe involving 13 people that have pled guilty to a massive insider trading scheme involving data they acquired from Wall Street brokerage companies. Defendants included ex-employees from Morgan Stanley, UBS AG, Bear Stearns Co, and Bank of America Corp.

The Justice Department says that one of the defendants, former UBS Securities executive Mitchel Guttenburg, had sold nonpublic data prepared by UBS stock analysts to another defendant, trader David Tavdy.

Tavdy and David Glass, also a defendant, then used an Assent account to execute trades and earn illegal profits. Data regarding UBS analysts’ upgrades and downgrades were used for hundreds of transactions that netted over $17.5 million.

Childs found out about their illegal activities and agreed to receive $100,000 in exchange for not reporting them. He had received just $30,000 before his arrest.

Childs’s sentencing will take place in July. As part of his plea agreement, he will likely face up to two years in prison and be ordered to give up the $30,000.

If you believe that you have been the victim of securities fraud, contact the stockbroker fraud law firm of Shepherd Smith and Edwards for your free consultation to discuss your investor fraud case.

Related Web Resources:

Broker pleads guilty in U.S. trading case, Washington Post, April 10, 2008

A 13th Plea in Insider Case, Wall Street Journal, April 10, 2008

Related Web Resources:

Trading on Tips About UBS Research Analyst Upgrades and Downgrades and About Morgan Stanley Client Merger Deals Netted Defendants More than $8 million, New York.FBI.gov, March 1, 2007

Assent LLC

Investors that bought Schwab YieldPlus Investor Funds Investor Shares and Schwab YieldPlus Funds Select Shares have filed a securities class action lawsuit against the Schwab Corporation, the underwriter and investment adviser connected to the funds, and several Schwab officers and directors.

The investor plaintiffs claim that the defendants misled them when they provided false statements about the funds’ lack of diversification and the degree to which the funds were exposed to subprime-backed securities. The plaintiffs say that the funds—marketed as a safe alternative to money market funds—actually had more than half of its fund assets invested in the mortgage industry.

The funds are down significantly. Through March 26, The Schwab YieldPlus Investor Fund (SWYPX) has fallen 17% , while the Schwab California Tax-Free YieldPlus Fund (SWYCX) has dropped by 9% . Investors say that the defendants were in violation of Section 11 of the Securities Act of 1933 when they misrepresented the funds to investors, marketing them with the goal of looking for high current income coupled with minimum share price changes.

Anxious investors left the Schwab YieldPlus Investor Fund when it dropped by about 3.6% in 2007. Fund assets reportedly fell from $13.5 billion in June 2007 to $2.5 billion last month. Fund managers must now sell bonds at depressed rates.

The Schwab California Tax-Free YieldPlus Fund (SWYCX)’s assets are down from $1.1 billion in mid-2007 to under $600 million this March. The source of the significant drop is attributed to its investments in variable-rate bonds connected to the London Interbank Offering Rate (LIBOR) index, which has fallen as liquidity has disappeared.

The investor fraud law firm of Shepherd Smith and Edwards represents investor clients that have lost money because investment advisers or stockbrokers engaged in misrepresentation, omissions, unsuitability, overconcentration, churning, failure to supervise, failure to execute trades, breach of promise/contract, breach of fiduciary duty, negligence, margin account abuse, registration violations, or unauthorized trading. Contact Shepherd Smith and Edwards for your free consultation to discuss your case.

Related Web Resource:

Schwab YieldPlus Fund