November 24, 2014

FINRA Orders Houston-Based USCA Capital Advisors LLC to Pay $3.8M to 19 ExxonMobil Retirees

A Financial Industry Regulatory Authority arbitration panel said that USCA Capital Advisors LLC must pay over $3.8 million to 19 ExxonMobil retirees whose investments were mismanaged the Houston-based wealth management firm. The self-regulatory organization also says that the Texas investment advisory firm misled the investors about its trading strategy.

It is not uncommon for Houston financial advisers to target ExxonMobil retirees as clients. The oil company has a huge outfit and other operations in the area. According to the investors, USCA was tasked with handling their retirement savings because of promises the investment advisors made to protect, oversee, and grow their accounts.

At a presentation by USCA RIA LLC, which is USCA’s investment advisory arm, advisers told investors about their Total Return model program, which they claimed would up S & P 500 gains while lowering the risks involved in trading equities. Investors said they were told the strategy would hold primarily exchange-traded funds and U.S. stocks in a rising market and turn the money into cash when the markets dropped. Trades were to be stimulated by “objective technical factors.”

While some investors thought the program would handle trading, others thought that the firm would monitor computerized results, using the information to trade. They invested close to $40 million. They believe that they could have made $3 million from the strategy they thought the firms’ advisers were going to employ. Instead, they sustained $1.25 million in losses.

Of the $3.8 million FINRA arbitration award, $853,000 is punitive damages. $1.9 million are damages and interest. Nearly $1 million will go to legal bills and other expenses.

Shepherd Smith and Kantas, LTD LLP is a Texas stockbroker fraud law firm.

Texas Advisory Firm Ordered to Pay Exxon Retirees $3.8 Million, NASDAQ.com, November 20, 2014

Houston wealth management firm must pay $3.8 million to retirees: panel, Reuters, November 19, 2014


More Blog Posts:
Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

November 22, 2014

SEC Enforcement: Wedbush Settles SEC Probe for $2.4M, High-Frequency Trading Firm Gets $16M Penalty, and the Regulator Suspends Companies Touting Ebola Treatment

Wedbush Settles Market Access Violation Case for $2.44M
Wedbush Securities has agreed to settle a market access violations case with the U.S. Securities and Exchange Commission by admitting to wrongdoing and paying $2.44 million. The brokerage firm has also agreed to hire an independent consultant.

According to the SEC order, Wedbush violated the market access rule because it didn’t have the proper risk controls in place before giving customers access to the market. Among the customers that were given this access were thousands of anonymous overseas traders.

Per the SEC’s order instituting administrative proceedings, from July 2011 into 2013, Wedbush let most of its market access customers send orders straight to U.S. trading venues via platforms to which the firm did not have exclusive and direct control.

Also settling with the SEC ex-Wedbush executive vice president Jeffrey Bell and senior VP Christina Fillhart, who are accused of causing the firm’s violation of market access rules. The SEC said that Bell should have known that the firm’s risk management controls and supervisory procedures were not in compliance with the market access rule.

The agency claims that Fillhart, whose job it was to oversee the market access business and get notice of possible violations by Wedbush and its customers, did not get the firm to implement reasonably designed risk management controls even when there were red flags. In combined total, the two of them will pay over $85,000 in disgorgement, penalties, and prejudgment interest.


SEC Imposes $16M Penalty Against High-Frequency Trading Firm Latour
In the SEC’s first enforcement action against a high-frequency trading company, Latour Trading LLC will pay a $16M penalty. The regulator claims that the high-frequency trading firm employed faulty calculations in complex trading strategies, which allowed it to purchase and sell stocks without retaining substantial capital. The SEC says that the New York firm violated rules that are supposed to prevent trading firms from taking on too much risk.

By settling, Latour is not denying or admitting wrongdoing. The $16 million penalty, however, is the largest one to date for violating the net capital rule. The rule offers different methods that brokerage firms must employ to ensure that they are properly factoring in the risk they are exposing themselves to when engaged in the market. The Commission says that Latour routinely violated these requirements in 2010 and 2011.

The SEC also charged Nicolas Niquet, the ex-Latour COO, with violating the net capital rule. Niquet, who designed the method that Latour employed to determine risks exposure to net capital, must pay a $150,000 fine.

Trading is Suspended in Companies Involved in Supposed Ebola Treatment or Prevention
The Commission has suspended trading in four companies claiming to develop services or products related to the treatment or prevention of the Ebola outbreak. The agency said there wasn’t enough information available to the public about their operations. The four companies are Bravo Enterprises, Wholehealth Products, Immunotech Laboratories, and Myriad Interactive Media Inc.

The SEC has put out an Investor Alert warning about financial scams involving Ebola-related companies. In the alert the agency noted that it is not uncommon for fraudsters to try taking advantage of a news development. The SEC noted that microcap stocks are especially at risk of fraudulent investment schemes.

Read the SEC Order Against Wedbush (PDF)

Investor Alert: Investment Scams Involving Ebola-Related Companies, SEC, November 20, 2014

High-Frequency Trading Firm Latour to Pay $16 Million SEC Penalty, The Wall Street Journal, September 17, 2015

SEC Suspends Trading in Ebola Companies (PDF)


More Blog Posts:
Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed, Stockbroker Fraud Blog, November 18, 2014

Insider Trading Roundup: Ex-Broker Pleads Guilty to Securities Fraud Involving IBM Acquisition, BNP Officials Are Under Scrutiny, and Ex-Billionaire Is Tried In Historic Brazilian Case, Institutional Investor Securities Blog, November 19, 2014

Rajaratnam Brother Settles Insider Trading Charges Involving Hedge Fund Advisory Firm Galleon Management, Stockbroker Fraud Blog, October 23, 2014

November 20, 2014

RBS Must Pay $88M to UK Regulators

Royal Bank of Scotland Group Plc (RBS) will pay an $88 million fine to Britain’s Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority for the 2012 computer system failure that left millions of customers without account access for weeks. Some 6.5 million customers, which is about 10% of the U.K. population, were impacted.

According to FCA enforcement head Tracey McDermott, the technical glitch happened because of RBS Groups’ failure to identify and handle the risks that can occur from IT incidents. The failure, he noted, exposed customers to the risks.

The system failure happened after a third-party contractor installed a software upgrade. Because of the collapse, bank customers, as well as those in its Ulster Bank and NatWest divisions were unable to take out, transfer, or withdraw funds.

RBS said it would invest a significant amount of money to enhance its computer system. Following the 2012 incident, the banks says it performed a complete accountability review, reduced compensation of 16 individuals that affected their bonuses and outstanding unvested awards, as well as lowered the bonuses of the division tasked with overseeing the IT services.

By settling early, RBS received a 30% discount off the fine from regulators. This is the first fine that the PRA has levied since it was established last year. The regulator is tasked with overseeing the stability of Britain’s financial system. PRA said RBS’s technology failure could have adversely impacted the nation’s banking system because it interfered with core operations of lenders, as well as affected third parties.

RBS has paid over 70 million pounds to customers, other individuals, and companies for the system failure.

If you suspect that you were the victim of securities fraud, please contact Shepherd Smith Edwards and Kantas, LTD LLP today. Your first case consultation with us is free.

RBS Fined $88 Million by U.K. Regulators for IT Failures, Bloomberg, November 20, 2014

Prudential Regulation Authority

Financial Conduct Authority


More Blog Posts:
Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed, Stockbroker Fraud Blog, November 18, 2014

Insider Trading Roundup: Ex-Broker Pleads Guilty to Securities Fraud Involving IBM Acquisition, BNP Officials Are Under Scrutiny, and Ex-Billionaire Is Tried In Historic Brazilian Case, Institutional Investor Securities Blog, November 19, 2014

RBS Securities’ Japan Unit to Pay $50M Criminal Fine Over Libor Manipulation, Institutional Investor Securities Blog, January 7, 2014

November 18, 2014

Puerto Rico’s Prepa Sees 219% Rise in Overdue Accounts With At Least $1.75 Billion Owed

Puerto Rico’s Electrical Power Authority, also known as PREPA, is experiencing a surge in overdue accounts. According to a report from an FTI Consulting subsidiary, since 2012, the U.S. territory’s electrical authority has seen a 219% increase in the number of company and residential accounts that are at least 120 days late in making their payments. The report was generated as part of an agreement with the creditors, which retain more than $9 billion of the electrical utility company’s debt.

By September 2014, late balances owed to PREPA not just among businesses and residents, but also by government entities had hit $1.75 billion. At least $708.6 million were payments that were late by a minimum of four months.

Puerto Rico’s governmental entities owe about $758 million, with certain public corporations unable to even pay their electricity bills and refusing to agree to payment plans to get their accounts current. The FTI report recommends that Prepa put into place an amnesty period for clients that are delinquent, retain a collection agency, increase late fees and charges for reconnection, and push for timely payments.

Prepa is getting ready to unveil a plan early next year to restructure its $8.6 billion of debt. Its debt has been issued a junk rating by credit rating agencies.

Meantime, Puerto Rico is talking to four bond insurers to get at least part of up to $2.9 billion in bonds insured. These are bonds the financially beleaguered Commonwealth wants to put out later this year. The bond issues would let the territory access a deeper capital pool in the municipal bond market than the small hedge funds that purchased $3.5 billion of its debt earlier this year.

Puerto Rico is also seeking to refinance a $2.2 billion loan that the Government Development Bank made to its Highways and Transportation Authority to try and improve its poor financial health and give the territory more time to reverse its failing economy. To make the sale, the island has to pass laws that would increase an oil tax that could allow it to back the bonds.

Puerto Rico Bond Fraud
Puerto Rico’s muni bonds are the focus of hundreds of FINRA arbitration claims, with many investors complaining that they sustained huge losses because they were sold investments that were too risky for what they could afford.

Brokers for UBS (UBS), Banco Santander (BNC), and Banco Popular are among those identified as having made inappropriate recommendations to customers. A number of investors lost everything.

At Shepherd Smith Edwards and Kantas LTD LLP, our Puerto Rico muni bond fraud lawyers represent investors with FINRA arbitration claims that are seeking to recover their money. Contact our securities fraud law firm today to request your free case consultation.

Puerto Rico Electric Utility’s Late Accounts Surge 219% From ’12, Bloomberg, November 17, 2014

Read the FTI Capital Advisors Report

Puerto Rico's PREPA urged to get tough on $1.8 bln owed, Reuters, November 17, 2014

PREPA


More Blog Posts:
Investors File Close to $1B of Puerto Rico Bond Fraud Claims against UBS, Stockbroker Fraud Blog, October 9, 2014

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts, Institutional Investor Securities Blog, November 13, 2014

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


November 17, 2014

SEC Wants $602M Fund Set Up for Victims of SAC Capital’s Insider Trading

The U.S. Securities and Exchange Commission is asking a district judge to authorize a fair fund to pay back people shareholders who didn't participate in an insider trading scam involving shares of Wyeth LLC and Elan Corp. PLC. The regulator is seeking to reimburse people who traded the stocks over a seven-day period in July 2008, which is the week when SAC Capital Advisors LP liquidated a $700 million position in both companies because of illicit tips obtained by former fund manager Mathew Martoma. The SEC is suggesting that the $602 million it collected from SAC Capital over the matter should be used to repay the shareholders.


SAC Capital, now known as Asset Management LP, had agreed to pay $1.8 billion to settle a criminal indictment for the insider trading allegations. Of that money, $616 million was a penalty to the SEC over related charges. However, not all SEC commissioners are on board with the regulator’s fair fund recommendation. Commissioners Michael Piwowar and Daniel Gallagher have expressed their dissent.

Meantime, Martoma has just lost a bid to stay out of jail while he appeals his conviction. Martoma was sentenced to nine years behind bars after he was found guilty of three counts of conspiracy and securities fraud.

He is accused of getting the confidential data from doctors involved in a clinic trial of an Alzheimer’s drug that both Wyeth and Elan were developing. Estimated ill-gotten gains in the insider trading scheme is about $275 million.

The illegal trades occurred between 2006 and 2008. SAC took most of the gains. Several other SAC capital employees also were convicted for insider trading.

At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers are here to help investors. Over the years, we have helped thousands of clients, including institutional investors and individual investors, recoup their fraud losses.

SEC Has SAC Capital Idea: Give Insider Fines to Victims, Bloomberg, November 15, 2014

Casting Doubt on Appeal, Court Rejects Bail for Ex-SAC Capital Trader, The New York Times, November 12, 2014


More Blog Posts:
Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg, Stockbroker Fraud Blog, November 13, 2014

Detroit Suburb Charged with Muni Bond Fraud
, Institutional Investor Securities Blog, November 6, 2014

Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

November 15, 2014

NASAA Identifies Investments Most Likely to Cause Harm in 2015

The North American Securities Administrators Association has named what it believes are the financial products that pose the greatest threat to investors. The group said that a lot of these dangers involve new products employed in classic financial scamshttp://www.stockbroker-fraud.com, some propelled by the Internet. Many involve unlicensed agents seeking to sell unregistered products.

The Investments That NASAA Says Pose the Greatest Emergent Threats:

Binary Options: These are securities as options contracts with a payout that is dependent on whether the underlying asset goes up or down in value. These typically have an all-or-nothing payout structure that either gives an investor a pre-determined amount of money if the asset’s value goes up or nothing at all if it goes down. The latter option can place an investor at risk of losing the entire investment. Related risks may include illegal distributions, promotional scams, identity theft, purposely created losing trades, and the use of online trading platforms that do not comply with regulatory requirements.


Marijuana Industry Investments: Marijuana, now legal in the District of Columbia and 23 states for medicinal purposes, has become a favorite investment for scammers in pump and dump scams. A lot of promoters are trying to capitalize on this new market. They are marketing and selling investments in companies that sells services and products to the marijuana industry. However, many of the companies micro-cap companies selling securities at low prices even thought the investments are extremely speculative and come with a lot of risks.

Stream-of-Income Investments: This involves investors purchasing monthly pension or disabilities payments belonging to individuals. However, because the seller typically keeps the legal right to redirect the payment, an investor could end up with an unenforceable contract right. Also, benefits are dependent upon the seller’s life. If a life insurance policy is cancelled, the investor has no protections.


Digital Currencies: There is the danger of promoters trying to illegally offer securities linked to digital currencies. Legitimate offerings linked to these currencies also come with considerable risk, including volatility and the threat of hackers.

NASAA also identified a number of ongoing threats to investors, including including Ponzi scams, Pyramid schemes, Regulation D offerings, affinity fraud, Internet fraud, real estate scams, and promissory note fraud.

NASAA also recently put out a report on enforcement statistics for last year. Per the report, state regulators took on 2,184 enforcement actions, imposed $75 million In penalties and fines, ordered $616 million in restitution for investors, and doled out 1,816 years of time behind bars. There was also an increase in enforcement actions against both registered broker-dealers and licensed investment adviser representatives. One reason for the latter is the move of advisers with $100 million in assets under management from the Securities and Exchange Commission to state oversight.

Please contact our securities fraud lawyers today. Your initial case consultation to find out whether you have grounds for a claim is free.

Top Investor Threats, NASAA


More Blog Posts:
SEC Sanctions UBS, Charles Swab, Oppenheimer, & 10 Other Firms For Improper Sales of Puerto Rico Junk Bonds, Stockbroker Fraud Blog, November 3, 2014

$13B JPMorgan Chase Mortgage Settlement Was Not Sufficient, Says Whistleblower, Institutional Investor Securities Blog, November 15, 2014

Fidelity, Schwab, and Pershing Suspend Trading of Schorsch Nontraded Real Estate Investment Trusts, Institutional Investor Securities Blog, November 13, 2014

November 13, 2014

Citigroup, Bank of America Are Selling Soured Home Loans, Sources tell Bloomberg

According to Bloomberg.com, sources are telling them that Citigroup (C) and Bank of America (BAC) are selling soured U.S. mortgages to satisfy the demand from investment firms that are raising the prices. For example, say the individuals who asked not to be named, Bank of America recently placed approximately $1 billion of beleaguered debt, including nonperforming loans. Meantime, Citigroup purportedly sold around $1 billion of re-performing and nonperforming mortgages.

Lenders are reportedly selling more defaulted mortgages to avoid the cost of holding the debt. Meantime, private-equity firms and hedge funds are trying to make money off of increasing home values. The number of firms looking to acquire debt that has soured is growing.

According to some critics, that housing regulators and other agencies have recently announced rulings that would decrease credit and lending standard for home mortgages is a sign that the government is making the kinds of errors that led to the 2008 housing crisis. With housing giants Freddie Mac (FMCC) and Fannie Mae (FNMA), handing over the majority of their earning to the Treasury Department, government-sponsored enterprises are now lacking the capital buffer they would need in the event there are losses. If the economy gets into trouble again, it may be up to taxpayers once more to bail these GSEs out. It was the U.S. Treasury that helped save Freddie and Fannie with $180 million as the government seized them, placing both under conservatorship.

Last month, the Federal Housing Finance Agency announced that even though sellers of certain asset-backed securities have to keep a minimum of 5% of the asset’s credit risks, securities backed by qualified residential mortgages are exempt from this requirement.

Our mortgage-backed securities fraud lawyers are here to help investors recoup their losses.

Bank of America, Citigroup Said to Sell Soured Home Loans
, Bloomberg, November 12, 2014

Feds to Back Risky Home Loans Again
, The Washington Free Beacon, November 10, 2014


More Blog Posts:
Detroit Suburb Charged with Muni Bond Fraud, Institutional Investor Securities Blog, November 6, 2014

Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

November 11, 2014

Survey by FINRA Shows Investors Want More Regulatory Protections

According to a Financial Industry Regulatory Authority-released survey of investors, 92% of participants believe that there needs to be a regulatory “cop” to protect investors. 94% said that regulators should use the latest technology and tools on the job. The survey is intended to evaluate how investors feel about regulatory protections.

1,000 investors participated in the survey. Overall, said the self-regulatory organization, investors were in strong agreement that regulation and investor protections are key. The majority of investors also said that it is important that regulators detect when customers are sold unsuitable securities, if brokers are making trades to their benefit rather than that of investors, and when firms are taking risks that could hurt customers. 74% of those surveyed said they are in support of additional regulatory protections against broker misconduct.

The Survey was conducted over several days last month. Respondents came from a nationally distributed online panel. They had to meet certain criteria: U.S. citizen, at least 21 years of age, with primary or shared responsibility in their home for investment choices, and at least $10,000 in securities investments.

According to InvestmentNews, Securities and Exchange Commission Chairman Mary Jo White is preparing to disclose what she thinks is the best way for the regulator to enhance investment-advice standards for brokers. At the yearly Securities Industry and Financial Markets Association meeting this week, White said that the SEC has not yet decided on whether to enhance the standard of care.

It’s been over four years now that the SEC has been debating on whether to propose a rule that would create a uniform fiduciary duty for retail investment advice. Such a rule would obligate brokers to act in their clients’ best interests—much like the fiduciary duty of investment advisers to their clients.

The Dodd-Frank Act gave the Commission the authority to put forth new regulation about fiduciary duty. The opposition by two of its commission members to such a rule is just one of the reasons the regulator has not yet acted on this authority. There are five members on the SEC Commission.

Meantime, SIFMA, at the same conference where White spoke, has voiced its opposition to the re-release of a proposed Department of Labor regulation that would extend fiduciary duties to advisers who sell individual retirement accounts. The DOL has said the rule would protect investors from advisers that had conflicts of interest.

However, ex-SIFMA chairman Jim Rosenthal said that the rule would only let IRAs be held in managed accounts that charge investors fees according to assets under management, while curtailing having them offered in brokerage accounts that charge investors on a per trade transaction basis. He believes this will keep brokers from servicing accounts that are small.

Our broker fraud lawyers and investment adviser fraud attorneys are her to help investors recoup their financial losses.


FINRA Investor Survey Reveals Strong Support for Additional Regulatory Protections, FINRA, November 6, 2014

The Survey (PDF)

SEC Chair Mary Jo White close to revealing her position on fiduciary duty, Investment News, November 10, 2014

U.S. Department of Labor

More Blog Posts:
SEC Files Charges in Massachusetts Pump-And-Dump Scam, International Microcap Fraud, and Issues Investor Alert, Stockbroker Fraud Blog, November 7, 2014


BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources, Stockbroker Fraud Blog, November 4, 2014

Detroit Suburb Charged with Muni Bond Fraud, Institutional Investor Securities Blog, November 6, 2014

November 10, 2014

Two Former Merrill Lynch Brokers Contend with Unauthorized Trading Claims

According to the Financial Industry Regulatory Authority (FINRA), Ameriprise Financial (AMP) broker Lorene Fairbanks, formerly with Merrill Lynch. Pierce, Fenner & Smith Incorporated, was recently sanctioned over allegations that she effected over 57 discretionary transactions for several customers without getting the required written authorization from the clients or the approval of the firm. Fairbanks also allegedly mismarked over 50 order tickets, noting them as “unsolicited” when they were “solicited” orders. Brokers are not allowed to exercise discretionary authority in a client account without written authorization.

The Ohio broker was registered with Merrill Lynch from 8/06 to 3/12. The firm fired Fairbanks in February 2012 for purportedly taking discretion in client accounts and mismarking customer orders. She has been associated with Ameriprise since June 2012. There also have reportedly been other customer complaints accusing Fairbanks of excessive trading and unsuitable trading.

Also sanctioned by FINRA for allegations of unauthorized trading is George Zaki, another ex-Merrill Lynch broker. The self-regulatory organization contends that Zaki implemented or executed about 3,600 trades in some 80 accounts without written customer authorization between 6/10 and 8/12.

Zaki was let go by Merrill Lynch in October 2012. The firm said the termination was because of conduct related to exercising discretion in client accounts that were not discretionary. FINRA rules prohibits a registered representative from exercising discretionary power in the account of a customer without that client’s prior written permission and firm acceptance of the account.

After Zaki was terminated from Merrill Lynch, he was registered with Barclays (BARC) Capital Inc. until earlier this year.

Our broker fraud lawyers represent investors in the U.S., as well as those headquartered abroad with claims against brokerage firms in the country.

BrokerCheck, FINRA


More Blog Posts:
FINRA May Expel Ex-Broker For $6M Hedge Fund, Stockbroker Fraud Blog, July 15, 2014

SEC Stops Fraudulent Bond Offering by Chicago Suburb, Institutional Investor Securities Blog, June 25, 2014

AIG Advisor Group, Securities America, LPL Financial, Cambridge, And Even Schorsch’s Broker-Dealer Stops Selling His REITs, Institutional Investor Securities Blog, November 7, 2014

November 7, 2014

SEC Files Charges in Massachusetts Pump-And-Dump Scam, International Microcap Fraud, and Issues Investor Alert

The U.S. Securities and Exchange Commission has filed charges against California Attorney Richard Weed, Coleman Flaherty, and Thomas Brazil. The regulator contends that Weed facilitated a pump and dump scam involving CitySide Tickets Inc. stock that allowed Flaherty and Brazil to get millions of supposedly unrestricted shares.

Investors were barraged with a misleading and false promotional campaign presenting CitySide Tickets as a company in the verge of expansion and success. As the stock price went up, Flaherty and Brazil sold their shares to investors, causing the two of them to make about $3 million in illicit proceeds. Weed purportedly was well compensated for the role that he played.

The Commission charges the three men with violating federal securities laws’ antifraud provisions and related rules. The agency wants disgorgement of ill-gotten gains, interest, penalties, permanent injunctions against further violations, and penny stock bars. Meantime, the U.S. Attorney’s Office for the District of Massachusetts has filed a parallel criminal case against Flaherty, Brazil, and Weed.

Also this week, the SEC charged two people with running an international microcap fraud scheme involving shares in a coal mining company. Bruce D. Strebinger and Brent Howard Chapman are accused of setting up multi-million dollar campaign to promote the stock, getting rid of their shares, and moving the money they made via accounts that were offshore. The Commission says that it was after Strebinger helped to make a merger between Americas Energy Company-AECo and another company that he and Chapman obtained over 5% of the common stock. They did not, however, publicly disclose that they had an ownership stake.

Their pump-and-dump scam purportedly involved offshore corporations, foreign financial institutions, and foreign accounts. Strebinger and Chapman reportedly made over $17 million.

It was just last week that the SEC and the Financial Industry Regulatory Authority issued an alert warning investors that certain penny stocks that are being promoted as ventures with great potential are actually dormant shell companies. The agencies said that to avoid such scams, they recommend that investors:


· Look into whether a company was previously dormant and then revived. You can do this by checking the SEC’s EDGAR database to see when the last periodic report was filed.

· Watch out for the letter “Q” at the end of a stock symbol, which is an indicator that the company had previously filed for bankruptcy.

· Find out where the company’s stock trades. If it doesn’t trade on a registered national securities exchange then consider this a red flag.

· Look out for frequent changes to the name of a company or its business focus.

· Look out for huge reverse splits.

Read the SEC Complaint Against Weed, Brazil, and Flaherty (PDF)

Investor Alert: Dormant Shell Companies – How to Protect Your Portfolio from Fraud, Investor.gov

SEC Charges Two Canadian Citizens With Penny Stock Fraud Involving Tennessee Coal Mining Company, SEC, November 3, 2014


More Blog Posts:

Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources, Stockbroker Fraud Blog, November 4, 2014

Detroit Suburb Charged with Muni Bond Fraud, Institutional Investor Securities Blog, November 6, 2014

November 5, 2014

Texas Pension Fund Sues Tesco For Securities Fraud

According to the Irving Firemen’s Relief and Retirement Fund, Tesco PLC and its directors misled investors, purportedly causing the Texas pension fund to buy the company’s stock at prices that were artificially inflated. Because of this, says the fund, it sustained substantial losses when Tesco announced in September that it had overstated profits because of accounting irregularities.

The supermarket chain’s shares plunged after it disclosed that certain income was booked prior to being earned and costs were identified after they were incurred. Last month, Tesco said that it had overstated profits by $422 million.

The Irving pension fund wants to get class action status. It wants to represent Tescho shareholders who bought the company’s American depository receipts, representing one ordinary share each, between February 2 and September 22, 2014. In its securities fraud case, the Texas fund contended that Tesco purposely deceived the public.

IFRRF is for retired firefighters. The pension fund is funded through the Texas city of Irving, its participants’ contributions, and investment earnings.

Meantime, a report from an independent probe by Deloitte into the accounting overstatement will be sent to regulators. Even U.K.’s Financial Conduct Authority has said it would look into the matter.

Shepherd Smith Edwards and Kantas LTD LLP represents investors who are the victim of securities fraud to get their money back. Our Texas securities lawyers represent individual investors and institutional investors.

Irving pension fund sues Tesco for fraud
, Pensions and Investments, October 24, 2014

Irving (Texas) Firemen’s Relief and Retirement Fund

Tesco Gets More Bad News as Pension Fund Sues in U.S., Bloomberg, October 4, 2014


More Blog Posts:

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

SEC Adds Children and Spouses of Texas Wyly Brothers to Securities Fraud Case Following $187M Verdict, Stockbroker Fraud Blog, October 28, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

November 4, 2014

BlackRock Buys Part of UBS Puerto Rico’s Mutual Fund Operations, Say Sources

According to sources, an announcement is expected this week regarding the sale of UBS Puerto Rico’s (UBS-PR) mutual funds operations to BlackRock Asset Management (BLK). The move, say sources, is part of the Swiss giant’s strategy to exit the island.

To date, investors have filed nearly $1 billion in securities arbitration claims against UBS Puerto Rico alleging fraud and other wrongdoing in the sale of the funds. The broker-dealer recently consented to pay a fine of $5.2 million over fund improprieties. The settlement, reached with the Commonwealth’s Office of the Commissioner of Financial Institutions, included $1.7 million in restitution to 34 local low net-worth residents who had invested in Puerto Rico closed-end bond funds that were sold by UBS.

One investor was not happy with the settlement and some of the terms and individuals involved, which have not been disclosed. He is now suing the regulator. Last week, Martínez-Umpierre asked a local court to order the release of the confidential documents used to arrive at the settlement. He wants to find out how the 34 investors who will be getting restitution were chosen and how much they lost. Investors who have filed Financial Industry Regulatory Authority arbitration claims against UBS are not eligible for compensation either.

Martínez-Umpierre also wants to find out whether his broker was one of the six UBS employees now subject to extra supervision, per the settlement terms. Rafael Blanco-Latorre, who is the Financial Institution’s commissioner, said that disclosing the documents would reveal UBS clients’ financial and personal information. He also pointed out that because his office is not taking action against any of the brokers, their confidentiality should be protected.

This week, UBS was one of 13 firms sanctioned by the SEC over the improper sale of Puerto Rico junk bonds. You can read more about the sanctions imposed and the firms involved here.

It was in the fall of last year when UBS first came under close scrutiny related to investor allegations that the firm’s brokers had misrepresented the risks involved in UBS-PR’s proprietary bond funds, even encouraging many clients to borrow funds so that they could invest more in the funds. Yet even as far back as 2012, UBS Financial Services Inc. of Puerto Rico was already settling allegations related to closed-end mutual funds.

In May of that year, the brokerage firm consented to pay the U.S. Securities and Exchange Commission $26.6 million to resolve allegations that it had bilked customers by concealing its control of the secondary market related to nearly two dozen proprietary, closed-end mutual funds. The firm settled without denying or settling wrongdoing.

In Puerto Rico and the U.S., Shepherd Smith Edwards and Kantas, LTD LLP represents clients who invested in Puerto Rico muni bonds and sustained substantial and unnecessary losses. Contact our UBS Puerto Rico bond fraud lawyers today for your free case consultation.


Lawsuit seeks documents in Puerto Rico fund settlement with UBS, Reuters, November 3, 2014

SEC Sanctions 13 Firms for Improper Sales of Puerto Rico Junk Bonds, SEC, November 3, 2014


More Blog Posts:
Investors Have Filed Close to $1B of Puerto Rico Bond Fraud Claims against UBS, Stockbroker Fraud Blog, October 29, 2014

UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Puerto Rico Closed-End Mutual Fund Sales, Stockbroker Fraud Blog, October 14, 2014

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