May 26, 2016

FINRA Approves Wider Public Arbitrator List, Proposes Rule Change, and is Accused by Lawmakers of Not Doing Enough to Protect Investors From Bad Advisers

The Financial Industry Regulatory authority has broadened its list of public arbitrators to preside over cases. The self-regulatory organization will provide dispute participants with the names of 15 public arbitrators, instead of 10, from which to choose. FINRA’s Board also modified its eligibility requirements for who can chair an arbitration panel.

FINRA allows plaintiffs and defendants of arbitration cases to choose three arbitrators.

In other FINRA arbitration news, the SRO is asking the U.S. Securities and Exchange Commission to approve a proposed rule change that would allow monetary awards mandating that parties pay one another damages to be offset. This rule change is for situations in which an arbitration panel awards damages to both the respondent and claimant and one party can’t or doesn’t pay what it owes.

If approved, the rule would allow the party that owes more money to only have to pay the net difference. If arbitrators don’t mean for an award to be offset when both parties owe one another money, they must state so in the award notice.

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May 23, 2016

Emotions Make Older Investors More Vulnerable to Fraud, Says FINRA/Stanford/AARP Study

According to research, some financial fraudsters may try to manipulate investors by getting them to feel strong emotions so that they will hand over their money, and older investors are the ones who most vulnerable to this type of manipulation. Research was conducted and funded by the FINRA Investor Education Foundation, the AARP Fraud Watch Network, and Stanford University psychologists. They said that inducing certain emotions in older individuals may make them more likely to purchase items that were falsely advertised.

The team studied adults in the 65- 85 age group and adults in the 30-40 age group. They sought to find out whether inciting anger or excitement in either demographic made them more susceptible to fraud.

According to their findings, feeling excitement or anger enhanced an older investor’s desire to buy in investment item as opposed to when there was no emotional arousal. Furthermore, the emotional state felt by an older adult did not have to be positive or negative for him/her to become more vulnerable to fraud. As AARP Fraud Watch Network Dr. Shadel stated, whether a fraudster is trying to get an older investor excited about making a lot of money or angry about past or future financial losses, either approach, when used to get them to make a purchase, proved just as impactful. The elderly investor's rational thinking becomes suspended in the process.

The research found that in younger adults, experiencing strong feelings of excitement or anger did not appear to be a factor in whether or not they would make a purchase. This suggests that heightened feelings do not increase the younger group’s susceptibility to fraud.

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May 19, 2016

U.S. Government to Help Restructure Puerto Rico’s $70B Debt

U.S. lawmakers have come up with a bill that will help Puerto Rico restructure its debt. The territory has been asking for help from the federal government to deal with its debt crisis.

Unlike states and other municipalities in the U.S., territories are not allowed to file for bankruptcy protection under the U.S. Bankruptcy Code. The bipartisan legislation would offer the territory a legal remedy similar to filing for bankruptcy protection but without requiring the commitment of federal funds.

Puerto Rico has been in a huge economic crisis while struggling to repay its debt. Already, the island has defaulted on different bond classes, including the majority of a $422 million payment that was due this month. The Commonwealth also has another $2 billion debt payment due in July.

The purpose of the bill would be to lower the island’s debt burden, which absorbs over 30% of the Commonwealth’s revenues. The U.S. government is also trying to prevent the legal brouhaha that could arise in court between different creditors to which the island owes money. Per some of the terms of the bill, a control board would mandate that Puerto Rico’s government establish a fiscal plan, which would including providing sufficient funding for pensions. At the moment, according to Fox News, the territory has underfunded its public pension by over $40 billion. However, there are those who oppose the bill, including opposition groups cautioning that the legislation could establish a precedent for U.S. states that are in trouble. Already, Puerto Rico’s economic woes have compelled over 200,000 to flee the island.

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May 18, 2016

Securities Fraud Cases: Ex-Head of MICG Investment Management Firm Faces 13 New Charges, SEC Accuses Unregistered Brokers of Bilking Investors in $6M Scam, and $250M Pump-And-Dump Case Leads to Guilty Plea

Government Charges Convicted Broker with More Fraud Charges
Jeffrey Martinovich is charged with 13 new counts of fraud. He is is ex-head of MICG Investment Management and was convicted of 17 fraud charges three years ago.

Martinovich is accused of improperly moving over $700K from a company hedge fund in 2010. According to prosecutors, he spent $170K of the funds for his legal defense fees and at least $59K on his personal expenses. He also purportedly took out over $147K more from the hedge fund account.

It was in 2011 that the Financial Industry Regulatory Authority expelled Martinovich and his firm for securities fraud, improperly using client money, and causing false statements to be sent to investors related to the MICG Venture Strategies LLC, a proprietary hedge fund. The self-regulatory organization said that Martinovich and MICG improperly assigned asset values that were excessive to two non-public securities.

FINRA said that the assets’ value were inflated so that incentive and management fee could be increased.

Offshore Broker Pleads Guilty in $250M Pump-and-Dump Scam
Gregg Mulholland has pleaded guilty to conspiracy for operating a pump-and-dump-scam that manipulated shares of over 40 companies in the U.S. One company, Cynk Technology, saw its share price increase by 24,000%.

Continue reading "Securities Fraud Cases: Ex-Head of MICG Investment Management Firm Faces 13 New Charges, SEC Accuses Unregistered Brokers of Bilking Investors in $6M Scam, and $250M Pump-And-Dump Case Leads to Guilty Plea " »

May 17, 2016

Texas Fraud Cases: Houston Municipal Employees Pension System Sues BOFl, Dallas Police and Fire Pension System Accuses Financial Adviser of Fraud, and SEC Accuses Two Attorneys of $13M Escrow Scheme

Houston Pension Fund Accuses Bank of Fraud
In the U.S. District Court Southern District of California, the Houston Municipal Employees Pension System has filed a securities fraud case against Bofl Holding (BOFI) Inc. The pension fund claims that the bank employed illegal lending practices and depended on off-balance-sheet entities to enhance profits.

According to the plaintiff, Bofl did not disclose its use of off-balance-sheet entities to buy lottery receivables, failed to put into place a healthy compliance system, and gave loans to foreign nationals even though they had suspect or criminal histories. The Houston pension fund also believes that Bofl did not fully disclose to investors that it had been subject to regulatory and government subpoenas or that there were pending federal probes against it.

Dallas Pension Fund Files Lawsuit Against CDK Realty Advisors
The Dallas Police and Fire Pension System is suing CDK Realty Advisors. The Texas pension fund claims that the advisory firm directed it toward risky deals while making excessively high fees and garnering other benefits. The plaintiff is seeking to recover millions of dollars.

CDK Realty Advisors once managed over $700M for the Dallas pension fund. Now, the latter is claiming multiple breaches of fiduciary duty. It is also claiming write-downs and losses of over $320M because of the risky investments. The Dallas Police and Fire Pension System says that CDK should have done a better job of protecting the fund’s members.

Continue reading " Texas Fraud Cases: Houston Municipal Employees Pension System Sues BOFl, Dallas Police and Fire Pension System Accuses Financial Adviser of Fraud, and SEC Accuses Two Attorneys of $13M Escrow Scheme " »

May 16, 2016

Oppenheimer Shuts Down Its Commodity Strategy Total Return Fund

After nearly twenty years, Oppenheimer (OPY) is liquidating its Commodity Strategy Total Return Fund (QRAAX) in mid-July. The reason for the shut down is underperformance.

According to the company’s website, the Oppenheimer Commodity Strategy Total Return Fund lost 49% since it was created in 1997, and average yearly returns have consistently declined by the double digits. The Wall Street Journal reported that the commodity fund has lost money annually since hitting an 8.5% return in 2010. It’s also been up 7.19% since the beginning of 2016. However InvestmentNews reports, the fund’s performance has been poor over the last five years. The Oppenheimer fund’s assets under management is down to $269M from over $2B in 2011.

While Oppenheimer said that it continues to believe in the value of its investment strategy, the firm is now saying that investors would benefit more from a multi-asset portfolio. The Commodity Strategy Total Return Fund is most heavily involved in energy, with agriculture and precious industrial metals also big presences. The decline in their prices have played a factor in the fund’s decline.

Oppenheimer has also been in the spotlight of late because a lawmaker has asked the SEC to look into OppenheimerFunds and whether the firm has complied with securities laws when dealing with Puerto Rico bond investments. NY City Council Speaker Melissa Mark-Viverto believes that the firm helped to make the U.S. territory’s financial crisis worse. OppenheimerFunds is heavily invested in Puerto Rico. The Island owes more than $70B in debt.

Oppenheimer Shuts Down Its Commodity Strategy Total Return Fund, The Wall Street Journal, May 11, 2016

NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis, Stockbroker Fraud Blog, May 9, 2016

May 13, 2016

SEC Files Fraud Charges in Native American Tribal Bonds Scam

The U.S. Securities and Exchange Commission is charging John Galanis, his son Jason Galanis, and five other people with fraud involving a multimillion-dollar tribal bonds scam. The SEC claims that Jason ran the scheme to obtain a “source of discretionary liquidity.”

He and his father allegedly persuaded a Native American tribal corporation affiliated with the Wakpamni District of the Oglala Sioux Nation to put out limited recourse bonds that the two of them had structured. Jason then acquired two investment advisory firms and appointed officers to coordinate the purchase of $32 million in bonds. He used client money to purchase the bonds.

Investors were told that the bond proceeds would be invested in annuities to make enough money to pay back bondholders and to benefit the tribal corporation. Instead, the money went to a bank account owned by a company that Jason and his associates controlled. The funds were allegedly misappropriated to make luxury purchases and to pay lawyers representing Jason and his dad in a criminal case involving unrelated stock fraud charges.

The SEC wants disgorgement, interest, penalties, and permanent injunctions. Also named in the complaint are Devon Archer, Bevan Cooney, Hugh Dukerley, Gary Hirst, and Michelle Morton. They face charges of violating federal securities laws’ antifraud provisions and other rules.

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May 12, 2016

SandRidge Energy Stock Losses Has Cost Investors Over $7B

A sharp drop in the stock of SandRidge Energy Inc. (SDOC) has led to catastrophic losses of more than $7 billion for investors. Just last week, SandRidge Energy shares traded down at 3.8%, dropping to $0.0654. More than 2.3 million shares of the stock were exchanged. According to DailyPolitical, SandRidge Energy stock hit a 12-month high of $1.56; its low was $.03. This week, SandRidge Energy said it would not be able to file its quarterly results on time.

Unfortunately, brokerage firms and financial advisers may have recommended SandRidge Energy stock to investors as a safe proposition even for those seeking conservative, low risk investments. Instead, for some investors, the losses have been devastating. reports that the Oklahoma-based oil and natural gas company is doing so poorly that it could file for Chapter 11 bankruptcy by early next month. According to Reuters, the company is talking to creditors about a possible debt restructuring deal. SandRidge reportedly wants creditors to agree on how debt could be lowered with the hope that this would restrict how much time it has to stay in court should it seek bankruptcy protection.

On December 31, the company had $3.6B in debt. Its market capitalization is $70B. It will owe interest on June 1.

Analyst Ratings Network reports that in a recent research note, Zacks Investment Research downgraded SandRidge Energy Inc. to a “sell” rating from a “hold” one. It was just last March that the company reported $.09 earnings/share for the quarter.

SandRidge Energy Stock Claims
Shepherd Smith Edwards and Kantas, LTD, LLP is investigating claims of investors who have lost money in an investment in SandRidge Energy stock that they bought at the recommendation of a financial advisor. Contact our oil and gas fraud law firm today.

May 11, 2016

Texas Securities News: Round Rock Man Goes to Jail Over $4.5M Ponzi Scam, Linn Energy Files for Bankruptcy, Judge Says Wyly Brothers Committed Tax Fraud

Texas Oil and Gas Ponzi Scam Leads to 13-Year Prison Term
The owner of RHM Exploration has been sentenced to over 13 years months behind bars for a Texas oil and gas Ponzi scam that raised about $4.5M from investors. William Risinger must pay more than $3.7M to those whom he bilked.

Risinger pleaded guilty to criminal charges of money laundering and wire fraud. From 11/10 to 6/14 he stole funds from investors for three gas, oil, and mineral ventures that were scams. Court documents state that he used proceeds from his fraud for his own spending and for ‘lulling” payments to make it appear to investors as if the joint venture they put their money into was running promised.

As part of his sentence, Risinger will spend 160 months in prison and serve three years of supervised release.

Linn Energy Seeks Chapter 11 Bankruptcy Protection
In other oil and gas news, Linn Energy LLC (LINE) has filed for Chapter 11 bankruptcy. The Houston-based company cited weak energy prices as a reason for having to seek protection.

Continue reading "Texas Securities News: Round Rock Man Goes to Jail Over $4.5M Ponzi Scam, Linn Energy Files for Bankruptcy, Judge Says Wyly Brothers Committed Tax Fraud " »

May 9, 2016

NY City Council Speaker Wants SEC to Investigate Oppenheimer Funds Over Puerto Rico Debt Crisis

According to InvestmentNews, New York City Council Speaker Melissa Mark-Viverito is asking the U.S. Securities and Exchange Commission (“SEC”) to conduct a probe into OppenheimerFunds, Inc. (“OPY”) and its impact on Puerto Rico’s financial woes. Speaker Mark-Viverito believes that the asset-management company played a part in making Puerto Rico’s financial crisis worse by investing even more in the island’s debt. She claims that just in the last eight months, OppenheimerFunds has added $500 million to investments it made in Puerto Rican debt.

Right now, the U.S. territory owes over $70 billion in debt, which it is struggling to pay. It recently defaulted on over $370 million of a bond payment that was due this month. Another $2 billion is due in July, including around $700 million in general obligation debt.

To satisfy investor redemptions, OppenheimerFunds has sold its non-Puerto Rico bonds, which would have raised the current allocation of the asset manager’s funds to the Commonwealth. In a letter to the SEC, Mark-Viverito, who was born in Puerto Rico, urged the agency to look into whether Oppenheimer has complied with all regulations and securities laws when handling its Puerto Rican bond investments. She believes banks, hedge funds, and other investors in the territory’s general-obligation bonds and utility debt are to blame for the island’s financial woes.

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May 6, 2016

Deutsche Bank Settles Silver Price Rigging Case

Deutsche Bank AG (DB) has settled a private lawsuit accusing the German bank of manipulating silver futures prices. The terms of the payment amount were not disclosed.

It was in 2014 that silver futures trades sued Deutsche Bank (DB), Bank of Nova Scotia (BNS), and HSBC Holdings Plc (HSBC), accusing the firms of unlawfully manipulating the price of metal and its derivatives. They claimed that the banks, which are the largest silver bullion banks in the world, abused their power so they could dictate the price of silver. The banks would hold secret meetings daily and allegedly manipulate the price so they could illegitimately profit during trading. Meantime, other investors utilizing the silver benchmark in billions of dollars of transactions purportedly were harmed.

Deutsche Bank has admitted to manipulating gold and silver prices. It promised to provide any evidence it might have about other banks’ and their involvement, including electronic communications.

Claims have previously brought against financial firms over alleged gold price rigging. In 2014, Barclays Plc (BARC) was fined $43.8M for internal control failures that let a trader rig gold prices.

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May 5, 2016

MetLife Securities Ordered to Pay $25M FINRA Sanction Related to Variable Annuities

The Financial Industry Regulatory Authority said that MetLife Securities Inc. (MSI) would pay a $20M fine as well as $5M to customers for negligent and material misrepresentations that it purportedly made related to variable annuity replacement applications. According to the self-regulatory organization, these alleged omissions and misrepresentations were on tens of thousands of applications, and they made each replacement variable annuity seem of greater benefit to the customer despite the fact that the variable annuities that were recommended were usually more costly than the ones that the customers already owned. MetLife Securities made at least $152M in gross dealer commissions over six years through its variable annuity replacement business.

Based on a sample of transactions that were randomly examined, FINRA said that from ’09 through ’14, MetLife Securities omitted or misrepresented at least one material fact connected to the guarantees and costs of existing variable annuity contracts in 72% of the 35,500 replacement applications that it approved. Among the alleged misrepresentations:

· Existing variable were costing customers more than the variable annuities they were recommending, when the opposite was true.

· Customers were not told that the variable annuity replacements promised to them would lessen or get rid of key features that their current variable annuity possessed.

· In disclosures, the value of customers’ existing death benefits was understated.

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