August 22, 2014

Securities Regulations News: SEC Looks to Delay Principal Trading Rules, FINRA Adds More Time to REIT Price Changes and 2nd Circuit Says Dodd-Frank’s Whistleblower Protections Don’t Apply Overseas

SEC Wants To Extend Temporary Rule Letting Dually-Registered Advisers Get Principal Trading Consent

For the third time in four years, The Securities and Exchange Commission wants to extend a temporary rule that makes it easier for investment advisers that are also registered as brokers to sell from the proprietary accounts of their firms. The regulator issued for comment its proposal that would move the interim’s rule expiration date to the end of 2016 instead of the end of 2014.

Under the temporary rule, dually registered advisers can either get verbal consent for principal trades on a transaction basis or give written prospective disclosure and authorization, in addition to yearly reports to the clients. With principal trades, a brokerage firm uses its own securities in the transaction.

The Investment Advisers Act of 1940 mandates that advisers get written disclosure and consent prior to every principal trade. This is supposed to prevent possible conflicts of interest when a firm trades from its proprietary account. By extending the interim rule, the regulator wants more time to think about whether there should be a separate rule that would enhance the standards of brokers when it comes to offering investment advice.


FINRA Gives SEC More Time to Act On REIT Price Notification Rule
The Financial Industry Regulatory has extended the deadline for when the SEC must act on its proposed change to Rule 2340, about real estate investment trust price notifications, to until October 17. This is the second extension the self-regulatory organization has given to the Commission over this matter this year.

Last month, FINRA requested that the SEC allow independent brokerage-firms and nontraded real estate investment trust sponsors 18 months to get used to new guidelines that would require them to provide investors with a better idea of the costs involved in buying nontraded REIT shares and other direct placement programs/private placements.

Under the proposed rule change, which would apply to the account statements of brokerage firm clients, the per-share value of a nontraded REIT would not longer be listed at the common price of $10. Instead, the various commissions and fees that dealer mangers and brokers get would have to be factored. This would lower the amount of each private placement’s share price on an account statement. If the SEC decides to follow FINRA’s recommendation, investors with illiquid investments won't see this information on their account statements until April 2016.


Appeals Court Agrees that Dodd-Frank’s Anti-Retaliation Provision Only Apply Domestically
The US Court of Appeals 2nd Circuit held that Dodd-Frank’s anti-retaliation provisions do not apply overseas. The ruling upholds a lower-court decision that granted Siemens' motion to dismiss a lawsuit brought by a former compliance officer at its China offices. The ex-employee, Meng-Lin Liu, said he was retaliated against after reporting alleged wrongdoing at the company.

Under the 2010 Dodd-Frank Act, companies are not allowed to take action against certain whistleblowers. However, the whistleblower provisions don’t stipulate whether these protections extend abroad.

Citing a U.S. Supreme Court ruling, the appeals court affirmed that they only apply in the United States. It noted that Liu, his employer, and the entities involved in any of the alleged acts were foreigners located overseas and that these actions would have occurred outside the country.

Liu turned in a whistleblower tip to the SEC after leaving the company. Like the district court, however, the Second Circuit did not delve into whether or not Liu's failure to qualify for whistleblower protection was because he didn't file this information with the Commission until after he was let go by Siemens China.

Finra tacks on more time to REIT pricing change, Investment News, August 14, 2014

SEC seeks to delay principal trading rule for two years, MorningStar, August 13, 2014

Ruling Leaves Cloud on Whistleblowers, The Wall Street Journal, August 18, 2014

FINRA Rules


More Blog Posts:
SEC Examines Municipal Advisers and Alternative Mutual Funds, Reviews “Wrap-Fee” Accounts, Stockbroker Fraud Blog, August 20, 2014

FINRA Investor Alert Warns About Scams Touting Ebola Cure and Other Viral Disease Stock Schemes
, Stockbroker Fraud Blog, August 19, 2014

Lehman Brothers' Unsecured Creditors to Get $4.6B Payout, Institutional Investor Securities Blog, August 21, 2014

August 20, 2014

SEC Examines Municipal Advisers and Alternative Mutual Funds, Reviews “Wrap-Fee” Accounts

The Securities and Exchange Commission introduced a two-year plan to examine municipal advisers who assist localities and states to raise money in the $3.7 trillion municipal bond market. During this period, regulators plan to look at a significant chunk of the approximately 1,000 SEC-registered municipal advisers.

These advisers are usually small firms with one or two employees. They are not affiliated with banks. Municipal advisers are retained to time, price, and market muni-bond transactions.

The SEC has been clamping down on municipalities for not updating investors about their financial health. The regulator wants the U.S. Congress to give it more authority in the market. Right now, muni issuers are exempt from disclosure requirements that corporations have to make when selling securities. Now the agency wants to know whether municipal advisers are meeting their fiduciary duty and placing clients’ interests before their own.

It was the 2010 Dodd-Frank law that established this obligation. Also under the law, municipal advisers have to register with the SEC and follow the rules that the the Municipal Securities Rulemaking Board is developing.

In other SEC news, the regulator is conducting a broad examination of alternative mutual funds. This will include scrutiny of big investment firms, including BlackRock Inc. (BLK) and AQR Capital Management LLC, as well as smaller firms that didn’t use to offer mutual funds as investment products to customers. According to sources that spoke to The Wall Street Journal, the regulator's focus appears to be more on collecting information about the industry rather than coming up with specific related enforcement actions.

Alternative funds, also known as liquid alternative funds, are a category of mutual funds that use hedge fund-like strategies. Fund companies tout them as vehicles for hedging against market risk that are usually less costly for individual investors who want to employ strategies previously reserved for sophisticated investors.

The SEC wants to look at the funds’ liquidity, the way they use leverage, and how much oversight the funds’ boards provide. Previously, the regulator expressed concerned with the risks involved in alternative mutual funds.

Meantime, the agency is also looking to suss out conflicts of interest involving the possible use of flat-fee wrap accounts at registered investment advisers. Customers pay a yearly or quarterly fee for wrap products that manage a portfolio of investments. They do this instead of paying individual commissions for traders.

The market includes mutual fund advisory programs, separately management accounts, unified managed accounts, and certain kinds of brokerage-based managed account. If an adviser is charging fees according to assets under management, money management charges for wrap products are additional.

With wrap accounts, reverse churning can happen. This involves placing a client that doesn’t trade often into an account that is fee-based instead of commission-based. Typically, there is hardly (if any) activity to justify the fee.

The SEC recently won a court case against an adviser that improperly placed clients into wrap programs. The investment adviser, Benjamin Lee Grant, was accused of improperly persuading clients to go with him when he left Wedbush Morgan Securities to establish Sage Advisory Group.

According to the regulator, Grant convinced clients to make the move by claiming they would save on fees. Rather than paying 1% plus commissions for trading like they did at Wedbush, they would just pay Sage a 2% wrap fee.

However, says the SEC, Grant did not tell clients that the brokerage expenses would be much lower at Charles Schwab & Co. (SCWH), which was the discount broker that Sage used. Grant then pocketed the savings.

Contact our securities fraud law firm today.

SEC cracks down on wrap accounts, InvestmentNews, August 14, 2014

SEC Launches Examination of Alternative Mutual Funds, The Wall Street Journal, August 12, 2014

U.S. SEC launches municipal adviser exams, Reuters, August 19, 2014

Federal jury sides with SEC against Boston investment adviser in fraud case
, Business Journals, August 14, 2014


More Blog Posts:
SEC Charges Linkbrokers Derivatives in $18M Securities Fraud, Institutional Investor Securities Blog, August 18, 2014

FINRA Investor Alert Warns About Scams Touting Ebola Cure and Other Viral Disease Stock Schemes, Stockbroker Fraud Blog, August 19, 2014

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds, Stockbroker Fraud Blog, August 15, 2014

August 19, 2014

FINRA Investor Alert Warns About Scams Touting Ebola Cure and Other Viral Disease Stock Schemes

The Financial Industry Regulatory Authority has put out an investor alert warning against buying stocks in companies claiming to combat viral diseases. The self-regulatory organization says it knows of several possible schemes involving stock promotions employing tactics such as pump-and-dump scams to inflate share prices. The scammers will then sell their shares at a profit while leaving investors with shares that have lost their value.

Intensified news coverage of the recent Ebola and Middle East Respiratory Syndrome outbreak will likely have attracted the attention of stock scammers wanting to take advantage of people’s fears. To avoid falling victim to a viral disease stock scam, FINRA is offering several tips, including:

• Be wary of promotional materials, correspondence, and press releases from senders you don’t know. Watch out for communications that say little about the risks involved while only touting the positives. Getting a barrage of information about the same stock opportunities can also be a red flag.

• Make sure to know who is behind a company you are thinking of investing in. Do your research. Think twice if company officials have past criminal records or you hear anything negative in the news. Be on the look out for fake business addresses and phone numbers.

• A lot of stock pump-and-dump scams don’t trade on the NYSE or other registered national securities exchanges. Instead, you can find them on OTC quotations platforms or alternative trading systems.

• Find out whether the company submitted an SEC filing. Compare the information there with what’s provided in promotional materials and other communications you’ve received. Watch out for solicitations to get you to invest in products that are still being developed or if there are losses on balance sheets.

• Watch out if a company keeps changing its name or business focus.

• Make sure you read the fine print and be wary when name-dropping is used to gain investor confidence or boost legitimacy.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities fraud law firm. Contact our fraud lawyers today to request your free case consultation.

Viral Disease Stock Scams: Don’t Let Them Infect Your Portfolio, FINRA

Investment scammers busy pumping Ebola stocks amid panic, NY Post, August 14, 2014


More Blog Posts:
SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

SEC Charges Linkbrokers Derivatives in $18M Securities Fraud, Institutional Investor Securities Blog, August 18, 2014

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds, Stockbroker Fraud Blog, August 15, 2014

August 18, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam

The SEC has filed charges against Chimera Energy, a Houston-based penny stock scam, and four individuals for their purported involvement in a pump-and-dump scam that made over $4.5 million in illicit proceeds. Investors were led to believe that the company was creating technology that would allow for oil-and-gas production that was environmentally friendly.

The regulator claims that Andrew I. Farmer set up Chimera Energy and secretly got control of all the shares issued in an IPO. He then set up a promotional campaign to hype the stock, touting technology that would extract shale oil without fracking.

In the alleged Texas securities fraud, Chimera Energy claimed that an entity named China Inland gave it an exclusive license to develop and commercialize the non-hydraulic extraction technologies. The SEC says that China Inland is not a real company and that Chimera Energy had no such technology or even a license.

When the stock became inflated due to the false claims made by Chimera Energy, entities under Farmer’s control dumped over 6 million shares on the public markets to generate the illegal gains. In 2012, the SEC suspended Chimera Energy stock and blocked Farmer and others from dumping additional shares or misleading more investors.

Also facing SEC charges are Chimera figurehead CEOs Charles E. Grob Jr. and Baldermar Rios, who are accused of running Chimera Energy at the minimum level and approving press releases that were misleading. Carolyn Austin is charged with helping Farmer make money off his scam when she dumped Chimera Energy stock. The regulator wants permanent injunctions, financial penalties, disgorgement, prejudgment interest, penny stock bars, and officer-and-director bars.

SEC Announces Charges in Houston-Based Scheme Touting Technology to End Fracking, SEC.gov, August 15, 2014

Read the SEC Complaint (PDF)


More Blog Posts:

SEC Wants Texas’ Wyly Brothers to Pay $750M For Securities Fraud, Stockbroker Fraud Blog, August 7, 2014

Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case
, Stockbroker Fraud Blog, July 11, 2014

Christ Church Cathedral Sues JPMorgan Chase Over Proprietary Product Sales, Institutional Investor Securities Blog, August 13, 2014

August 15, 2014

UBS Wealth, OppenheimerFunds Take Financial Hit From Puerto Rico Muni Bonds

Even though UBS Wealth Management Americas (UBS) has been generating record revenue, the financial firm saw its profits drop upon reporting that had it put aside $44 million for litigation costs primarily related to Puerto Rico bond fraud cases. UBS’s second quarter earnings of $238 million are 3% lower than last year.

Already, UBS clients have filed hundreds of arbitration cases and a number of securities class action lawsuits contending that the brokerage firm put investors’ money in highly leveraged and unsuitable Puerto Rico municipal bond funds that dropped in value last year. These funds begun to lose value again recently.

OppenheimerFunds Inc. (OPY), which is the biggest mutual fund to hold Puerto Rico debt, has also taken a financial hit. Bloomberg reports that in the past year, the firm has seen a loss of close to a third of its funds’ assets. For example, the Oppenheimer Rochester Maryland Municipal Fund (ORMDX) directed approximately 35% of its holdings to the islands as of the end of June. As of August 4, its assets had dropped to $64.9 million. At this time last year, the fund had $96.1 million in assets.

On Thursday, the Puerto Rico Electric Power Authority (Prepa) and creditors arrived at a deal that will give the public agency time to restructure. Prepa will appoint a chief restructuring officer and must come up with a five-year business plan. The agreement will allow the Puerto Rican power authority to utilize $280 million that was in a construction fund to cover capital improvements and current costs. Prepa had until yesterday to extend its credit line with banks or restructure around $9 billion in debt.

Last month, the power authority arrived at deals with Citigroup (C), Bank of Novia Scotia (BNS) and other banks, which has allowed it to delay about $671 million in payments that it owed them. Standard & Poor’s has lowered the utility bonds’ ratings into junk territory.

Puerto Rico lawmakers recently approved legislation that would let a number of public agencies overhaul their finances. Public utilities can work out deals with bondholders to reduce their debt load. Oppenheimer Funds and Franklin Templeton (BEN) have since gone to court to challenge the constitutionality of the law. Their investment funds hold approximately $1.6 billion in Prepa bonds.

The firms believe that the power authority can fulfill its obligations without having to restructure. Puerto Rico wants the judge to dismiss the lawsuit. BlueMountain Capital Management LLC., which holds over $400 million in Prepa-issued bonds, has also filed a lawsuit.

At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico Bond fraud lawyers have already filed dozens of securities fraud claims against UBS and other brokerage firms related to Puerto Rico bonds or mutual funds holding Puerto Rico Bonds. We represent investors in the U.S. and in Puerto Rico. Please call us for a fee, no obligation, consultation if you or someone you know has lost money investing in Puerto Rico Bonds or funds tied to the Puerto Rico bond market.

Puerto Rico debt depresses UBS Wealth earnings, InvestmentNews, July 29, 2014

OppenheimerFunds Sees Some Funds Shrink 33% on Puerto Rico Bonds, Bloomberg, August 5, 2014

Puerto Rico PREPA Utility Announces Creditor Agreement, Extension, Barron's, August 14, 2014


More Blog Posts:
Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

OppenheimerFunds, Franklin Templeton Sue Over Puerto Rican Debt Law, Stockbroker Fraud Blog, July 2, 2014

Hedge Funds Are Moving in on Municipal Debt, Including Puerto Rico Debt, Institutional Investor Securities Blog, November 15, 2013

August 14, 2014

Former MIT Professor and His Son Plead Guilty to $140M Hedge Fund Fraud

Gabriel Bitran, an ex- Massachusetts Institute of Technology professor, and his son Marco Bitran have pled guilty to securities fraud charges accusing them of bilking investors of $140 million. Through their company, GMP Capital Management, the father and son placed investor money in hedge funds linked to Bernard Madoff, who ran the Ponzi scam that defrauded clients of billions of dollars.

According to prosecutors, from 2005 to 2011 Bitran and Marco collected $500 million from investors by promising to invest their funds using an original complex mathematical trading model. The money was supposed to go into exchange-traded funds and other securities but were instead placed in hedge funds.

When the financial crisis of 2008 happened, a number of the hedge funds got into trouble. Some of their investors lost up to 75% of their principal.

The Bitrans allegedly took out around $12 million of their own money from the hedge funds but made customers wait to redeem their funds from GMP Capital Management. (In 2011, the firm name was changed to Clearstream Investments LLC.) The two of them paid themselves millions of dollars in management fees.

The father and son are accused of lying to investors by telling them that they had delivered average yearly returns of 16-23% over eight years. The U.S. Attorney said that e-mails between the Britans show evidence of this. They also purportedly made false statements to the U.S. Securities and Exchange Commission during its related investigation.

In that civil probe, the Bitrans consented to settle the hedge fund fraud charges by paying $4.8 million. The two did not deny or admit wrongdoing. They did, however, agree to an industry bar.

If the judge accepts their plea deal in the criminal securities case, the Britans are facing up to five years behind bars and then supervised release. They would have to pay back $10 million in profits.

Ex-MIT official and son plead guilty to securities fraud, Boston.com, August 12, 2014

Ex-MIT dean, son plead guilty to hedge fund scam, CNN, August 12, 2014


More Blog Posts:

LPL Financial to Pay Illinois $2 Million Fine Related to Variable Annuity Exchanges, Stockbroker Fraud Blog, August 13, 2014

SEC Tells J.S. Oliver Capital to Pay $15M for Alleged Cherry-Picking Scam, Stockbroker Fraud Blog, August 11, 2014

Kansas Settles SEC Charges Over Allegations it Misled Investors about Risks in Muni Bond Offerings Totaling $273 Million, Stockbroker Fraud Blog, August 11, 2014

August 13, 2014

LPL Financial to Pay Illinois $2 Million Fine Related to Variable Annuity Exchanges

In a settlement reached with the Illinois Securities Department, LPL Financial (LPLA) agreed to pay a $2 million fine and $820K in restitution for inadequate books and records maintenance involving 1035 exchanges. According to the firm’s BrokerCheck file, LPL Financial did not enforce “supervisory system and procedures” when certain persons documented variable annuity exchange activities.

Following the settlement, a company spokesperson said that LPL Financial is enhancing its procedures related to surrender charges resulting from variable annuity exchange transactions. This is to make sure these are accurately documented in records, books, and any disclosures that are issued to clients. The brokerage firm is also taking steps so that advisers are properly documenting why variable annuity recommendations were made.

State regulators have been taking a closer look at LPL as they investigate investment product sales. Last year, the broker-dealer settled with the Massachusetts for at least $2 million and a $500,000 fine over nontraded real estate investment trusts. Financial Industry Regulatory Authority fined the firm $7.5 million for 35 e-mail system failures.

In response to the scrutiny, LPL Financial CEO Mark Casady told 3,500 advisers they will need to provide more documentation and background to show regulators. The firm has implemented automated processes to enhance data focus and is looking at other ways to meet regulatory obligations.

According to InvestmentNews.com, a rise in administrative and general costs, primarily because of the regulatory scrutiny, led to flat second-quarter earnings for LPL Financial Holdings Inc. Meantime, UBS Wealth Management (UBS), which also has had to deal with more scrutiny in the wake of the Puerto Rico municipal bonds, debacle, also took an earnings hit. The firm has put aside $44 million for litigation by investors claiming muni bond fraud. Oppenheimer Holdings (OPY), which is under investigation not just by FINRA but also the Securities and Exchange Commission and the U.S. Treasury Department, has reportedly put aside $12 million for possible fines.

LPL Financial hit with $2M fine, ordered to pay $820K in restitution, Investment News, July 30, 2014

LPL Tells Brokers To Expect More Paperwork, The Wall Street Journal, August 13, 2014


More Blog Posts:
LPL Financial Fined $950K by FINRA for Supervisory Failures Involving Alternative Investments, Stockbroker Fraud Blog, March 25, 2014

FINRA Bars Ex-LPL Broker Over Nontraded REIT Sales, Stockbroker Fraud Blog, December 27, 2013

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

August 11, 2014

SEC Tells J.S. Oliver Capital to Pay $15M for Alleged Cherry-Picking Scam

SEC Chief Administrative law judge Brenda Murray has fined J.S. Oliver Capital Management $15 million for securities violations and breach of fiduciary duty related to an alleged cherry-picking scam that bilked clients of approximately $10.9 million. The registered investment adviser must also pay $1.4 million in disgorgement.

According to the regulator, the RIA awarded profitable trades to hedge funds associated with the firm, while other clients, including a charitable foundation and a widow, were given the less profitable trades that resulted in major losses. These hedge funds that benefited were those in which J.S. Oliver founder Ian Oliver Mausner was an investor. Mausner is also accused of using soft-dollar commissions inappropriately.

Mausner continues to deny the SEC charges. He claims that the profitable trades were disproportionately allocated because of market volatility and that clients’ investment goals played a part.

Murray, however, found that the firm made over 4,000 potential cherry-picking transactions between ’08 and ’09. During that time, several favored accounts made substantial gains while three that were “disfavored” suffered a 99.7% loss. The Commission put out its cease-and desist order against J.S. Oliver last year.

During the purported scheme, the firm would wait until after trading closed for the day or the following day to allocate the trades. This let Mausner determine which securities had declined or appreciated in their value. He is said to have made over $200,000 in fees from just one of the hedge funds that benefited from winning trades. Mausner is also accused of marketing that very hedge fund to investors by bragging about its positive returns when really those results were because of his scam.

J.S. Oliver Capital is accused of misappropriating $1.1 million of client funds via the inappropriate use of soft-dollar funds. Soft dollars are rebates that brokerages pay investment advisers and customers for commission because the broker-dealers’ accounts were involved in transactions. Advisers are allowed to keep the money but they must disclose this and only use the funds in ways that could enhance clients’ investments.

The SEC claims that from ’09 through most of ‘11, J.S. Oliver and Mausner did not tell clients that soft dollars were used to pay his ex-wife money he owed from their divorce, cover J.S. Oliver’s “rent” at Mausner's home, pay portfolio manager Douglas Drennan, and take care of maintenance and other expenses at Mausner’s New York timeshare.

The SEC claims Drennan turned in false data to support the inappropriate use of the soft dollar credits and approved some of the payments to his company.

In addition to the $15 million fine against the firm, Mausner must pay a $3 million penalty and he is permanently barred from the industry. Drennan is also barred and must pay a $410,000 fine.

RIA slapped with $15 million fine; founder barred, Investment News, August 7, 2014

Read the SEC Order (PDF) (PDF)


More Blog Posts:

SEC Charges Chicago Investment Advisory Founder With Real Estate Investment Fraud, Institutional Investor Securities Blog, June 11, 2014
Alleged Cherry-Picking Scam Leads to SEC Charges Against California Hedge Fund Manager, Stockbroker Fraud Blog, December 18, 2012

Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges, Stockbroker Fraud Blog, August 30, 2013

August 9, 2014

Private Equity Firms, Including Blackstone, Settle ‘Club Deals’ Case with $325M Settlement

Blackstone Group (BX) LP, TPG, and KKR (KKR) will collectively pay $325 million to resolve a securities case accusing several private equity firms of working together to keep the prices they paid to acquire companies down during the takeover frenzy right before the financial crisis. The firms settled without denying or admitting to wrongdoing just three months before the lawsuit was scheduled to go to trial.

Their settlements follow those reached with former case defendants Bain Capital LLC and Goldman Sachs Group Inc. (GC) (collectively, the two paid $121 million) and Silver Lake, which paid $29.5 million. Carlyle Group (CG) LP is the only defendant left. It maintains that the investors’ claims have no merit.

The plaintiffs, who filed their securities case in 2007, sold their shares in numerous companies to private-equity firms during the boom-era buyouts. They contend that firms collude together to acquire companies via club deals and agreed not to compete with each other to lower the shareholders were paid. The investors claim that, as a result, they lost billions of dollars.

In one purported club deal, KKR is accused of backing off from acquiring Freescale Semiconductor because Blackstone was also considering making a deal. In another buy, KKR allegedly asked competitors to stand down in hospital chain HCA’s $32.1 billion buyout.

The case also involves buyout deals for TXU Corp. (now Energy Future Holdings) Clear Channel Communications, AMC Entertainment Inc., Harrah’s Entertainment Inc., Aramark Corp, HCA Inc., Sungard Data Systems Inc., Kinder Morgan Inc., Neiman Marcus Group, Freescale Semiconductor Ltd., and HCA Holdings Inc. Plaintiffs of this lawsuit include pension funds and individuals that were shareholders.

In the previous settlements, Goldman, Silverlake, and Bain, also did not have to admit wrongdoing. If any of these private equity firms had chosen to trial instead of settling, they would have risked paying much more in the event of a loss because of the way antitrust laws work.

Buyout Firms Settle Suit Alleging Collusion Over Deals, The Wall Street Journal, August 7, 2014

Goldman Sachs, Bain Pay $121 Million to End Buyout Suit, Bloomberg, June 11, 2014

Silver Lake to pay $29.5 million in LBO collusion settlement, Reuters, July 11, 2014


More Blog Posts:
As Brokers Peddle Junk-Loan Funds, Franklin Square Raises Billions of Dollars, Stockbroker Fraud Blog, April 9, 2013

Judge Rakoff Approves Citigroup’s $285M Mortgage Securities Fraud Deal with the SEC, Institutional Investor Securities Blog, August 5, 2014

Citigroup’s LavaFlow to Pay $5M to SEC For Not Protecting Subscriber Data in ATS, Stockbroker Fraud Blog, July 28, 2014

August 7, 2014

SEC Wants Texas’ Wyly Brothers to Pay $750M For Securities Fraud

The U.S. Securities and Exchange Commission wants Sam Wyly and the estate of his brother Charles to pay $750M for securities fraud involving an offshore tax scam. The Texas billionaire siblings were found liable in civil court earlier this year. Now, the case has gone to trial to determine how much the Wylys must pay in damages.

According to the federal jury that issued the verdict, the Wylys are liable for the offshore trusts and other entities on the Cayman Islands and the Isle of Man that garnered them $553 million in profits between 1992 and 2004 via concealed trades. The fraud involved offshore transactions with four of their companies in which they sold shares. The sales should have been noted in regulatory filings but were not listed.

Now, the SEC is saying that it should be entitled to all unpaid taxes on the profits from the scam in addition to interest. Lawyers for the brothers, however, are contending that the proper penalty is $1.38 million and that the law does not support the regulator’s disgorgement theory. They are also arguing that the SEC cannot step into the Internal Revenue Service’s shoes. (During the fraud, the U.S. government was not aware that the Wylys owed taxes because they did not disclose their control of the trusts. )

SEC Attorney Bridget Fitzpatrick acknowledged that the agency’s tax-based disgorgement theory is unique but appropriate, She pointed out that the trusts were set up specifically for the purpose of tax benefits. The SEC had originally wanted the Wylys to pay $1.4 billion according to every profit dollar made through the trusts. U.S. District Judge Shira Scheindlin, who is presiding over the nonjury trial, barred that effort. Scheindlin also cleared the brothers of insider trading charges in another nonjury trial last month.

Our Texas securities fraud law firm represents institutional investors and individual investors. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Texas tycoons Wylys should pay $750 mln for fraud, SEC tells judge, Reuters, August 4, 2014

SEC Seeks up to $750 Million in Sanctions From Wyly Brothers, The Wall Street Journal, August 4, 2014


More Blog Posts:
Jury Says Wyly Brothers From Texas Committed Fraud, Stockbroker Fraud Blog, May 14, 2014

$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial, Stockbroker Fraud Blog, April 2, 2014

FBI Probes Possible High-Speed Trading, Insider Trading Link, Institutional Investor Securities Blog, April 1, 2014

August 5, 2014

SEC Gets Nearly $70M Judgment Against Richmond, VA Firms, CEO Find Liable for Securities Fraud

AIC Inc., Community Bankers Securities LLC, and CEO Nicholas D. Skaltsounis must pay a nearly $70 million judgment for securities fraud, in the wake of an earlier trial that found them liable. The Securities and Exchange Commission had accused them of conducting an offering fraud while selling millions of dollars in AIC promissory notes and stocks to investors in different states, including unsophisticated investors and elderly customers.

The regulator accused them of omissions and misrepresentations of material information about the investments, their risks, the return rates, and how the money would be used by AIC, which is a financial services holding company, and Community Bankers Securities, its subsidiary brokerage firm. The SEC argued that the companies were not profitable and new investors’ money was used in Ponzi scam fashion to repay returns and principal to earlier investors.

Last year, a jury ruled in the SEC’s favor against AIC, Community Bankers Securities and Skaltsounis. Now, AIC must disgorge over $6.6 million, over $969,00 in prejudgment interest, and a $27.95 million penalty. Community Bankers Securities disgorgement is $2.8 million, over $400,000 in prejudgment interest, and a $27.95 million penalty. Skaltsounis is to pay over $2.5 million dollars in total.

SEC enforcement division director Andrew Ceresney said that these penalties should reinforce that the regulator is determined to aggressively go after companies and individuals to hold them accountable when they are not truthful with investors, even taking them to trial when necessary.

Just last month, the SEC filed administrative proceedings against a Seattle, WA investment advisor for misusing over $8 million in client moneys and making loans to himself. Dennis H. Daugs and his Lakeside Capital Management are accused of borrowing $3.1 million from one client without her consent.

The SEC also claims that Daugs and Lakeside Capital improperly directing an investment fund that the firm managed to make over $4.5 million in investments and loans. The money was used to facilitate personal real estate deals, purchase a luxury vacation home, refinance a vintage auto, and fend off claims of over $500,000 from firm clients.

Daugs and Lakeside Capital have repaid the diverted monies. They also consented to settle SEC charges and pay over $340,000 in disgorgement and interest to the investment funds and the one client. They also agreed to pay a $250,000 penalty. Daugs agreed to a 5-year minimum industry bar.

Our investment advisor fraud lawyers help investors recoup their money. Working with a securities attorney dramatically increases your chances of getting back all or most of your losses. You want to work with a securities fraud law firm that has the resources and experience to help you recover your money. Your case consultation with us is free. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC Obtains Nearly $70 Million Judgment Against Richmond, Va.-Based Firms and CEO Found Liable for Defrauding Investors, SEC, August 1, 2014

Adviser misused $8 million in client funds: SEC, Investment News, July 17, 2014


More Blog Posts:
SEC Charges Ex-UBS Broker With $730K Elder Financial Fraud Ponzi Scam, SEC, August 4, 2014

Deutsche Bank, UBS Being Probed Over Dark Pools & High-Frequency Trading, While An Investor Sue Barclays, Institutional Investor Securities Blog, July 30, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds, Stockbroker Fraud Blog, July 23, 2014

August 4, 2014

SEC Charges Ex-UBS Broker in $730K Elder Financial Fraud Ponzi Scam

The Securities and Exchange Commission has filed charges against ex-UBS Wealth Management Americas (UBS) broker Donna Tucker for a Ponzi fraud that allegedly bilked elderly investors of over $730,000. Tucker is accused of misappropriating the money from UBS customers over a five-year period while she worked at the financial firm.

According to the SEC, Tucker took part in unauthorized trading, made misrepresentations to customers about the status of their funds, and forged documents and checks. She allegedly gained customers’ trust by becoming friends with them.

For example, she helped one blind couple take care of their medical needs and pay their monthly bills. The latter action gave her access their checkbook. She used this authorization to forge checks written to cash that she then gave to herself.

She also purportedly lied to the couple about their holdings and gave them bogus documents showing fake brokerage account balances. The SEC says that inn one such instance, after she allegedly took money from the couple’s IRA account, the IRS sent them a delinquency letter about the premature distribution. When the couple asked Tucker about it she claimed that the letter was a mistake and no money had been withdrawn. She also generated a fake account statement to support her lie, as well as a fake letter that was supposedly from the IRA saying the matter had been resolved.

The SEC claims that Tucker took close to $350,000 from this couple alone and hid the theft by convincing them to bank online and use electronic statements because she knew they would not be able to get them.

She also allegedly took out unauthorized margin loans on accounts of customers to pay back other accounts. Tucker then used investors’ funds to pay for vehicles, vacations, clothes, and a country club membership.

UBS has since paid back several customers for Tucker’s fraud. She resigned from UBS last year. In September 2013, the Financial Industry Regulatory Authority barred her.

Tucker is settling the SEC charges and has agreed to disgorge the monies. The order she consented to permanently enjoins her from violating the Securities Act of 1933’s Section 17(a), the Securities Exchange Act of 1934’s Section 10(b), and Rule 10b-5. Meantime, the U.S. Attorney’s Office for the Western District of Virginia has filed a parallel criminal case against her.

Senior Fraud
Elder financial fraud is a serious problem. Shepherd Smith Edwards and Kantas, LTD LLP represents senior investors and others who have suffered losses because of securities fraud. Financial fraud by brokers and investment advisors may result in a huge financial strain for elderly investors. Many of them rely on their retirement monies to carry them through for the remainder of their lives. Our securities lawyers are here to help investors recoup their losses.

SEC Charges Virginia-Based Broker With Stealing Funds From Elderly Customers, SEC, July 31, 2014

Read the SEC's Complaint (PDF)


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