July 23, 2014

Investors Pursue UBS's Puerto Rico Brokerage Over Closed-End Bond Funds

The Financial Industry Regulatory Authority is reporting that roughly 400 claims have already been filed against UBS Financial Services Inc. of Puerto Rico (UBS) and other brokerage firms over the fallout of municipal bonds and bond funds related to the Commonwealth of Puerto Rico. As the U.S. territory’s bonds continue to drop in price, more investors are likely to file cases.

According to Securities Attorney Sam Edwards, one of the partners at Shepherd, Smith, Edwards & Kantas currently representing dozens of investors who lost money in these investments, ““The recent drop in Puerto Rico bond prices have resulted in Puerto Rico bonds, and the bond funds holding Puerto Rico bonds, to give back most, if not all, of the gains of the last nine months. Bond prices have largely returned to the lows suffered in the Fall of 2013.” Mr. Edwards continues, “This is likely to result in new groups of clients coming forward as the rally in Puerto Rico debt appears to have been short-lived.”

Investors, many of them locals, took huge financial losses when two dozen Puerto Rico bond funds sponsored by UBS and Popular Securities, Inc. (Banco Popular) declined in value last year. Many of the investors are retirees and other senior investors that have now lost their life savings. However, they are not the only ones impacted.

Even investors who did not directly invest in Puerto Rico bonds are feeling the effects. That is because there are many single-state and nationally marketed municipal bond funds in the U.S. that also got involved in the island’s debt. Many of the bond funds that were constructed for residents of different states hold Puerto Rico bond funds because of their advantageous tax status. However, with that tax advantage came significant risks.

Franklin Templeton Investments (BEN) and Oppenheimer Funds offer the 10 bond mutual funds with the most exposure to Puerto Rico bonds. Recently, these two fund managers filed a lawsuit seeking to have a new Puerto Rico law, known as the Public Corporation Debt Enforcement and Recovery Act, struck down.

The law, which lets parts of the U.S. territory restructure its debt, is causing investors to worry about significant losses to principle. The funds are arguing that the law violates the U.S. Constitution because it lets the territory impair certain contracts. They contend that the federal government is the only entity allowed to make bankruptcy law.

Puerto Rico is now asking a federal court to throw out the lawsuit, arguing that states are only barred from making bankruptcy law if this conflicts with federal law. It says that contracts are allowed to be impaired if this means fulfilling an “important government purpose.” Puerto Rico also noted that existing bankruptcy laws are not applicable to the island.

Additionally, the U.S. territory argues, the lawsuit was not timely because the specific local bonds at issue are from the Puerto Rico Electric Power Authority (PREPA) and the electric authority has not yet attempted to restructure its debt. The fund managers collectively hold around $1.7 billion in PREPA debt.

At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico bond fraud law attorneys are representing many Puerto Rico residents. We have already filed more than 20 case against UBS and others, with dozens more pending. We represent investors in the U.S. and in the Commonwealth.

The first securities arbitration hearings will likely happen sometime this year. FINRA arbitrators will hear most of the muni bond fraud cases in Puerto Rico.

If you are an investor who has suffered losses from investing in these Puerto Rico bonds or bond funds holding Puerto Rico debt, please contact us today. There is still time to try to get your money back.


A Deluge of Legal Claims Hit UBS’ Puerto Rico Unit Over Closed End Bond Funds, The Wall Street Journal, July 21, 2014

Puerto Rico seeks dismissal of U.S. bond funds' lawsuit, Reuters, July 21, 2014

Puerto Rico Electric Power Authority


More Blog Posts:

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

UBS AG Under Criminal Investigation Over Puerto Rico Bond Fund Sales, Stockbroker Fraud Blog, June 21, 2014

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

July 22, 2014

Net Asset Value of Tony Thompson's Former Nontraded REIT Strategic Realty Trust Plunges

Investors in Strategic Realty Trust Inc. have been notified that the NAV of the nontraded real estate investment trust has dropped almost 30% from $10/share to $7.11/share. The REIT, previously known as TNP Strategic Realty Trust Inc., has a portfolio that includes over a dozen shopping centers.

Shareholders received a letter telling them that while the REIT has experienced significant property appreciation, different transaction costs have offset gains. This includes transaction costs at $1.54/share, organization and offering expenses at $1.23/share, capital returned to investors via distributions at $1.04/share, and other expenses.

Tony Thompson was the REIT’s head until last year when he was forced to step down as president and co-chief executive officer by the board. Several months ago, he relinquished his director position and stopped a proxy battle against the board. The real estate investment trust consented to purchase his more than 130,000 shares at $8/share.

The latest $7.11 valuation brings attention to Tony Thompson’s claim early last year that the REIT’s estimated NAV had risen to $10.60/share from $10/share. He then hawked the nontraded REIT to brokerage firms. He told them that sales were about to shut but that they still had time to sell the real estate investment trust to investors for $10/share.

2013 was also when Thompson shut down his brokerage firm. He no longer has a securities license. The self-regulatory organization still has a securities complaint pending against him. FINRA is accusing Thomson of defrauding investors who had purchased Thompson National Properties-sponsored high-yield promissory notes.

If you suspect you were the victim of nontraded REIT fraud, contact our real estate investment fraud law firm today. Shepherd Smith Edwards and Kantas, LTD LLP can help you explore your legal options.

Thompson's former nontraded REIT drops nearly 30%, Investment News, July 21, 2014

TNP Strategic Retail Trust Replaces Advisor and Announces Other Changes, Yahoo Finance, August 12, 2013


More Blog Posts:
California Regulators Probe Inland American Real Estate Trust REIT, Stockbroker Fraud Blog, May 15, 2014

Non-traded REITS Exhibit Unbelievable Resistance to FINRA Disclosure Rules, Institutional Investor Securities Blog, March 19, 2014

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

July 17, 2014

FINRA Wants To Delay Implementing Rule Impacting Nontraded REIT Customers' Statements

The Financial Industry Regulatory Authority wants the Securities and Exchange Commission to grant a delay in the implementation of proposed changes to rule 2340, which impacts customer account statements. The self-regulatory organization had originally asked for the modifications to go into effect six months after the SEC approves the rule change. Now, FINRA wants to give nontraded REIT sponsors and brokerage firms 18 months to adjust to the revised guidelines.

Nontraded REITs are currently not required to show an estimated per-share valuation until 18 months after the sponsors cease to raise funds. Under the proposed rule change, broker-dealer client account statements would eliminate the existing practice of listing at $10 the value, for every share, of a nontraded REIT. This is usually the price that registered representatives sell them at.

The rule change would factor the different commissions and fees that dealer managers and brokers get. It would lower the price per share for every private placement or nontraded REIT found on the account statement of a customer.

Also, trusts would have to show what the valuation is per-share within three to six months. At that point investors would see a below $10/share valuation.

Also, broker-dealer and representative commissions would be able to subtract 12% for the original investment, as well as offering and organizational costs, off a client’s original investment so that an REIT’s estimated sold value would be reduced to $8.80/share price.

The rule that FINRA wants to implement provides two methodologies for broker-dealers to apply after an estimated value is considered reliable: The first method is the independent valuation and can be used at any time. The net investment methodology may be applied for up to two years under certain conditions.

Investors of non-traded real estate investment trusts often find their original investment eroded when the real estate investment trusts give back capital as distributions and dividends to investors. The proposed rule would give investors a better understanding of the costs in buying nontraded REITS shares.

Our non-traded REIT lawyers represent investors who have suffered losses in real estate investment trusts and non-traded REITs that were caused by securities fraud, including the inappropriate solicitation and marketing of these investments. Maybe your broker did not apprise you of the risks or costs involved. Or, perhaps they promoted REITs or Nontraded REITs to you as suitable for your investment goals even though your portfolio was never going to be able to handle the risks.

At Shepherd Smith Edwards and Kantas, LTD LLP, we help investors recoup their REIT fraud losses. Contact our real estate investment trust firm today and ask for you free case consultation. We have helped thousands of investors get their money back.

Finra asks for delay in implementing rule affecting nontraded REIT customer statements, Investment News, July 15, 2015

FINRA Rules


More Blog Posts:
Natural Blue Resources Inc. & Microcap Stock Scammers Accused of Hiding Previous Violations, Stockbroker Fraud Blog, July 16, 2014

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

Barclays and Deutsche Bank Under Scrutiny Over Barrier Options Transactions, Institutional Investor Securities Blog, July 17, 2014

July 16, 2014

Natural Blue Resources Inc. & Microcap Stock Scammers Accused of Hiding Previous Violations

The Securities and Exchange Commission has filed charges against microcap company Natural Blue Resources Inc. and four persons for purportedly hiding from investors that two of them had previously broken the law. The regulator has suspended trading in Natural Blue stock.

Natural Blue’s mission was to acquire, establish, or invest in companies that are environmentally friendly. However, investors weren’t told that Joseph Corazzi and James E. Cohen were running the operations.

Cohen had previously served time for financial fraud and Corazzi was charged with federal securities law violations. He is permanently barred from acting as a director or officer of a public company.

The two men referred to themselves as outside consultants when really they were in charge. This allowed Cohen and Corazzi to serve as de facto officers of the company and profit from it without having o disclose their past violations.

The SEC is charging Cohen, Corazzi, and Natural Blue with numerous violations, including those involving certain sections of the Securities Act of 193,3 the Securities Exchange Act of 1934, and Rules 10b-5(a) and (c).

Also charged are ex-Natural Blue CEOs Erik Perry and Toney Anaya. The regulator believes that when both were running the company, they still let Corazzi and Cohen make the management decisions, which led to no revenue made.

Now, Anaya, who is cooperating with the SEC, has agreed to the cease-and-desist order’s entry without denying or admitting to the charges. He also has to serve a five-year bar from taking part in any penny stock offering.

Perry also settled. He is permanently barred from serving as director or officer of a public company or from taking part in any penny stock offerings. Perry must pay a $150,000 penalty.

Our securities fraud lawyers are here to help investors get back their losses. We have helped thousands of clients recoup their money over the years. We represent individual investors and institutional clients in arbitration and litigation. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC Announces Charges in Scheme to Secretly Enable Lawbreakers to Run Microcap Company, SEC, July 16, 2014

SEC order against Natural Blue, Cohen, and Corazzi

SEC Order Against Anaya (PDF)

SEC Order Against Perry (PDF)


More Blog Posts:
SEC Suspends 225 Dormant Shell Companies to Prevent Pump-and-Dump Scams, Stockbroker Fraud Blog, February 4, 2014

Trading in Securities of 379 Microcap Companies Suspended in SEC’s Fraud Crackdown,
Stockbroker Fraud Blog, May 14, 2012

Citigroup Settles Mortgage-Backed Securities Probe with DOJ for $7 Billion, Institutional Investor Securities Blog, July 14, 2014

July 15, 2014

FINRA May Expel Ex-Broker For $6M Hedge Fund

Dean Mustaphalli, an ex-Sterne Agee Financial Services Inc. broker, could be barred from the industry over allegations that he ran a $6 million hedge fund on the side. According to the Financial Industry Regulatory Authority Inc., Mustaphalli founded and got commissions from Mustaphalli Capital Partners in 2011 but did not tell his brokerage-firm.

Already, Mustaphalli has been named in at least two arbitration claims. He ran the hedge fund through Mustaphalli Advisory Group. It is not known time whether any of the 25 investors he solicited were Sterne Agee clients. Over a four-month period, he was paid about $41,800 in management fees.

Mustaphalli was fired from Sterne Agee in 2011. After he was let go, he purportedly kept soliciting clients for his hedge fund through the investment adviser.

FINRA rule 3040 lets brokers run hedge funds but this must be completely disclosed, approved by, and overseen by the member firm. If a FINRA hearing panel discovers that Mustaphalli withheld information he could also be subject to action for not making sure the hedge fund was properly disclosed.

The self-regulatory organization says that Mustaphalli failed to provide the documents it asked for that would let the regulator know the identities of the hedge fund clients, as well as bank account statements documenting the funds moving in and out of the hedge fund.

Mustaphalli is also under investigation by FINRA for allegedly making variable annuities transactions that were not suitable when he worked at Citigroup Global Markets Inc. (C) He denies those claims.

If you suspect your losses are because of hedge fund fraud, contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Former Sterne Agee broker accused of running $6M hedge fund side business, July 14, 2014

Ex-Sterne Agee broker faces expulsion over $6 million hedge fund, Investment News, July 11, 2014

Conduct Rules, FINRA

More Blog Posts:
SEC Accuses California School District of Misleading Municipal Bond Investors, Stockbroker Blog Fraud, July 11, 2014

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

NY Hedge Fund Adviser Faces SEC Charges Over Conflicted Transactions and Whistleblower Retaliation, Institutional Investor Securities Blog, June 16, 2014

July 11, 2014

SEC Accuses California School District of Misleading Municipal Bond Investors

The Securities and Exchange Commission is accusing Kings Canyon Joint Unified School District of not giving municipal bond investors the financial data and notices to which they were entitled. The California school district settled the SEC’s findings without denying or admitting to the charges. Kings Canyon has consented to an order to cease and desist from future violations of the Securities Act’s Section 17(a).

During a 2010 bond offering, Kings Canyon affirmed to investors that the school district was in compliance with previous continuing disclosure duties. In three bond offerings totally more than $30 million between ’06 and ’07—of 419 million, $4.5 million, and $6.7 million, respectively—Kings Canyon had a contractual duty to disclose specific yearly financial data and notices about certain bond-related events.

For example, says the SEC, when Kings Canyon performed a $6.8 million bond offering in 2010, the school district was obligated to describe whenever it hadn’t materially complied with previous disclosure duties. With its 2010 offering documents in a fourth, muni bond offering—this one of $6.8 million—the school district made statements that were inaccurate when it affirmed that in the last five years it had always complied materially with past ongoing disclosure duties. She SEC said that since Kings Canyon did not turn in certain contractually mandated disclosures related to the 2006 and 2007 bond offerings, the bond offering document in November 2010 had a statement about a material fact that wasn’t true.

Under the Securities Act’s Section 17(a)(2), it is illegal when selling or offering securities to get property or money through the use any false statement or mission to state a material fact. To establish there is a cause of action under this section, the SEC has to show that the omission/misrepresentations were material and in the sale or offer of the securities.

The Municipalities Continuing Disclosure Cooperation initiative is one under which the SEC’s Enforcement Division consented to recommend standardized settlement terms for underwriters and issuers that self report or were already probed for disclose duty-related violations. The initiative, which went into effect in March, expires on September 10.

The MCDC program lets issuers under investigation have the chance to accept the terms and settle any enforcement issues fairly and efficiently. King’s Canyon availed of this program to resolve the claims against it.

The case against King’s Canyon was resolved almost a year after a muni bond case was settled between the SEC and another school district. The regulator charged West Clark Community Schools and its municipal bond writer, City Securities Corporations, with making false statements to bond investors that made it seem as if the Indiana school district correctly provided all of the required yearly financial data and notices in earlier bond offerings.

In truth, says the Commission, the school district didn’t turn in any of the required comments for a 2005 bond offering. Meantime, the underwriter failed to perform the proper due diligence to detect the false statement during the 2007 bond offering.

City Securities consented to pay close to $580,00 to resolve the SEC charges. City Securities’ public finance & municipal bond department head Randy G. Ruhl and West Clark Community Schools also settled.

Contact our municipal bond fraud lawyers if you suspect you were the victim of securities fraud.

SEC Charges California School District with Misleading Investors, SEC, July 8, 2014

Read the SEC Order (PDF)

In a first, SEC charges muni bond issuer with misleading investors, Investment News, July 29, 2013

Securities Act of 1933, Legal Information Institute


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

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

SEC Chairman Mary Jo White Wants Reforms Made to Bond Market, Stockbroker Fraud Blog, June 23, 2014

July 7, 2014

SignalPoint Asset Management to PAY SEC Fine for Breach of Fiduciary Duty

The Securities and Exchange Commission is ordering the comptroller and principals of SignalPoint Asset Management to pay $215,000 for breach of fiduciary. The regulator claims that the Missouri-based registered investment adviser breached its fiduciary duty when it did not tell clients about certain conflicts of interest.

The SEC says that SignalPoint principals Dennis R. Walker, Jonathan C. Timson and John W. Handy Jr. failed to disclose that they had control of the RIA when they advised clients to invest in it. This failure to disclose the conflict is a violation of the Advisers Act.

Michael Orzel, SignalPoint’s comptroller, was responsible for filing and drafting the RIA’s Form ADVs that also failed to disclose that Walker, Timson, and Handy were not just the principals of the registered investment adviser but also its control persons.

SignalPoint Asset Management is the investment adviser to over 1,800 accounts. Asset under management is about $526 million.

Breach of Fiduciary Duty
a “fiduciary” has a legal obligation to act in another’s best interests. The duty is typically one that is performed in good faith and the fiduciary makes the clients’ interests the first priority over his/her own. Part of this is disclosing to a customer any conflicts of interest, especially when making an investment recommendation that will benefit the fiduciary. Examples of other duties that should be honored including: providing complete and fair disclosure of important facts, and exercising professional judgment, skill, care, and diligence.

At Shepherd Smith Edwards and Kantas, LTD LLP, our securities lawyers represent securities claims for investors who have lost money because a breach of fiduciary duty occurred. Contact our investment adviser fraud attorneys today.

SEC fines Missouri RIA for breach of fiduciary duty, InvestmentNews, July 3, 2014


More Blog Posts:
SEC Files Order Against New Mexico Investment Adviser Over Allegedly Secret Commissions, Stockbroker Fraud Blog, June 10, 2014

SEC Charges Total Wealth Management With Securities Fraud, Receiving Undisclosed Kickbacks, Stockbroker Fraud Blog, April 18, 2014

SEC Temporarily Shuts Down Investment Adviser Over Alleged $8.8M NY Securities Fraud, Institutional Investor Securities Blog, June 4, 2014

July 3, 2014

FINRA Official Says Variable Annuity Sales Top Investor Complaint List

According to Financial Industry Regulatory Authority chief risk officer Carlo di Florio, variable annuities continue to among the products named the most in customer complaints. He spoke at the Insured Retirement Institute’s Government Legal & Regulatory conference in D.C. on Monday.

Di Florio, who is also the head of strategy at the self-regulatory agency, said that some variable annuities are taking on features similar to complex structured products. This includes caps that restrict how high returns can reach during market rallies and buffers that place a limit on how much annuities are allowed to fall when the market drops.

Annuities that have caps and buffers are different from the more conventional annuities in that the two make a product even more complex by varying market volatility exposure. FINRA wants to make sure that investors know what they are getting involved in when they purchase any kind of variable annuity.

Complaints by investors have mentioned dissatisfaction with sales practices, disclosures, and surrender rules. When asked by a conference participant why FINRA hasn’t established a rule on when variable annuity weight is too much in a portfolio, di Florio said that “facts-and circumstances {review}” was a factor and a client’s goals also play a role. Di Florio said that it was essential that brokers discuss all of this with a client before placing the customer’s money into a complex variable annuity.

Di Florio said that FINRA is also monitoring other complex products, including exchange-traded funds and interest-rate sensitive products.

Variable Annuities
While variable annuities can be good investments, there are risks and costs involved. Variable annuities may be accompanied with high expenses, including an upfront fee, a surrender charge if you want your initial investment back, an annual rate for mortality and risk, a contract fee, an administration fee, and investment fees. All of this, along with inflation, can cut into income from the annuities.

It is important that investors are apprised of all of the risks and costs involved so that they know what you are getting involved in. If you think you may have been the victim of variable annuity fraud, contact our securities fraud lawyers today.

Variable annuity sales raising concern: Finra official, Investment News, June 30, 2014

Variable Annuities: What You Should Know, SEC

Variable Annuities a Top Source of Customer Complaints: FINRA, Think Advisor, June 30, 2014


More Blog Posts:
Variable Annuities Scam Sought to Profit From Terminally Ill Patients’ Deaths, Says SEC, Stockbroker Fraud Blog, March 15, 2014


More Blog Posts:
Insurance Companies Experiencing Sellers’ Regret Over Variable Annuities, Stockbroker Fraud Blog, July 15, 2013

Annuity Assets are Hot Commodities Among Investment Managers Private-Equity Groups, and Hedge Fund-Controlled Entities, Institutional Investor Securities Blog, October 20, 2012

SEC Focuses More Attention On Accounting Fraud, Variable Annuities, & Market-Maker Risk, Stockbroker Fraud Blog, June 26, 2013

July 2, 2014

OppenheimerFunds, Franklin Templeton Sue Over Puerto Rican Debt Law

Investment firms OppenheimerFunds Inc. and Franklin Templeton (BEN) have filed a lawsuit claiming that Puerto Rico’s new law, which lets certain government agencies restructure their debt, violates the constitution. Lawmakers in Puerto Rico approved the bill last month.

Aside from its power agencies, the entities that would be allowed to restructure the debt under the new law include Puerto Rico’s water and transportation agencies. Collectively, all of the agencies have about $19.4 billion in outstanding bonds. The Act does not have provisions for restructuring tax-backed bonds and general-obligation bonds.

The two fund managers together hold about $1.7 billion in Puerto Rico Electric Power Authority debt. They want the legislation, known as the Public Corporations Debt Enforcement and Recovery Act, blocked.

Puerto Rico’s Government Development Bank is backing the new law. The Bank said that the U.S. territory has the right to pass its own debt enforcement legislation over “areas not covered by federal law.” Franklin Templeton and Oppenheimer Funds, however, are contending that the new act is a bankruptcy law, which “treads” on Congress’s sole authority to enact this type of law.

The plaintiffs also claim that the legislation allows for the unconstitutional taking of property, since it would let the Puerto Rico Electric Power Authority, among others, take the collateral securing the bonds. Franklin Templeton and Oppenheimer Funds say they are standing up for bondholder rights and their shareholders with their lawsuit.

After the law was approved short-dated bonds that the Puerto Rican power company issued dropped almost 40% in value. Currently, the Power Authority ‘s outstanding debt is approximately $8.8 billion. These bonds, and the bond debt of other Puerto Rican agencies, are separate from the territory’s’ general obligation debt. In total, the island owes about $73 billion in debt.

Also, in the wake of the bill’s passing, Moody’s Investor Service (“Moody’s”) lowered its rating of $14.4 billion of Puerto Rico’s general-obligation debt. Moody’s reduced these general obligations bonds’ rating by three notches, going from B2 to Ba2. This significant ratings change embeds Puerto Rico’s bonds even further in junk territory.

Moody’s also downgraded bonds that the commonwealth’s sales-tax revenue is backing from Baa1 to Ba3, as well reduced ratings on the Puerto Rico Electric Power Authority, which is now a Caa2 from a Ba3. The credit rating agency said that letting the island restructure bonds put out by public entities could cause the bondholders to lose money.

Following the downgrade, some of the general obligation bond prices dropped. Another ratings agency, Standard & Poor’s Rating Services (“S&P”), has placed Puerto Rico ratings on its CreditWatch. It too is thinking of making a ratings downgraded. However, S&P still rates Puerto Rico’s sales-tax-backed bonds investment grade with an AA+.

Puerto Rico Muni Bond Fraud Lawyers
Our Puerto Rico bond fraud lawyers work with investors who have lost money in either Puerto Rico bonds or bond funds with exposure to Puerto Rico debt (including UBS’s proprietary closed-end bond funds sold only to Puerto Rico residents). Shepherd Smith Edwards and Kantas, LTD LLP currently represents dozens of investors in the U.S. and Puerto Rico. Contact our securities law firm today for a free, no obligation consultation.


Moody's Cuts Puerto Rico Rating Three Notches, The Wall Street Journal, July 1, 2014

U.S. bond funds sue Puerto Rico, worried about bankruptcy threat, Reuters, June 30, 2014

Muni bond funds face ongoing Puerto Rican woes, InvestmentNews, June 30, 2014

Public Corporations Debt Enforcement and Recovery Act (PDF)


More Blog Posts:

UBS AG Under Criminal Investigation Over Puerto Rico Bond Fund Sales, Stockbroker Fraud Blog, June 21, 2014

FINRA Sees 10% Rise in Arbitration Cases, Puerto Rico Bond Claims A Factor, Stockbroker Fraud Blog, April 27, 2014

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

July 1, 2014

Broker Fraud: Ex-Investors Capital Rep. is Indicted in Ponzi Scheme, Credit Suisse Sues Two Ex-Brokers Over Client Data Theft, and SEC Files More Insider Trading in IBM-SPSS Acquisition

Ex-Investors Capital Rep. Charged in $2.5M Ponzi Scam
Patricia S. Miller, a former Investors Capital Corp. representative, has been indicted on charges that she ran a $2.5 million investment fraud. She is accused of promising clients high yields for placing funds in “investment clubs.” Miller allegedly took this money and either gambled it away or used it to pay for her own spending.

According to prosecutors in Massachusetts, alleged fraud took place from 2002 through May 2014. Investors Capital fired Miller last month. Her BrokerCheck Report notes that the independent broker-dealer let her go because she allegedly misappropriated funds, borrowed client money, generated false documents, and engaged in “fraudulent investment activity.” Miller is charged with five counts of wire fraud.

Credit Suisse Sues Former Advisers For Allegedly Stealing Client Data
Credit Suisse Securities (CS) is suing John Delehanty and David Starker for violating their non-solicitation agreements when leaving the firm. The firm is accusing the men of taking client lists and sending confidential information to their personal accounts before going to work with J.P. Morgan Securities (JPM). The firm has also filed a claim with FINRA seeking damages.

In dispute was a contact list consisting of about 3,00 names that Starker sent from his Credit Suisse work e-mail account to his personal one. The list included notes about prospective clients. Delehanty is also accused of sending confidential client information to his personal e-mail account.

Under the Protocol for Broker Recruiting, which has been signed by about 1,100 brokerage firms, a broker is not subject to litigation when recruited to another firm as long as they bring just a spreadsheet that contains only certain client data, such as phone numbers and names. Anything more is considered a violation. However, this can be undone if the broker gives back the information when resigning. Credit Suisse said that Delehanty and Starker did not answer request by the firm to follow this protocol.

SEC Files More Insider Trading Charges in IBM-SPSS Acquisition
The Securities and Exchange Commission is charging two more brokers with insider trading prior to IBM’s acquisition of SPSS Inc. in 2009. Ex-representatives Daryl M. Payton and Benjamin Durant III allegedly traded illegally on the information that the deal was going to happen. They got the tip from another broker, Thomas C. Conrad.

Now, the regulator wants ill-gotten gains of about $300,000 returned, along with financial penalties, interest, and permanent injunctions. The U.S. Attorney’s Office for the Southern District of New York has filed a parallel action against the two men.

The SEC had previously filed insider trading charges against Conradt and David J. Weishaus, also a broker and tippee. They got the information from Conradt’s roommate, research analyst Trent Martin, who received the data from an attorney who worked on the deal. The three men have settled with the SEC. They entered guilty pleas in their criminal cases.

SEC Charges Former Brokers with Trading Ahead of IBM-SPSS Acquisition, SEC, June 25, 2014

Ex-Credit Suisse brokers sued over alleged theft of client data, InvestmentNews, June 30, 2014

Advisor Indicted In Long-Running Ponzi Scheme, FA-Mag, June 30, 2014


More Blog Posts:
Ponzi Scams: FINRA Bars Ex-Raymond James Broker Over $3M Ponzi Scam, Expels Success Trade Securities, Inc. for Bilking NFL and NBA Players, Stockbroker Fraud Blog, June 27, 2014

BNP Pleads Guilty to Criminal Charges Over Sanctions Violations, Pays $8.8B Fine, Institutional Investor Securities Blog, June 30, 2014

Credit Suisse Admits Wrongdoing and Will Pay $196M to Settle SEC Charges That It Provided Unregistered Services to US Customers, Stockbroker Fraud, February 22, 2014

June 28, 2014

U.S. Supreme Court Issues Ruling in Halliburton Case Involving Fraud-On-The-Market Theory, Class Action Securities Cases

Ruling in Halliburton v. Erica P. John Fund, the U.S. Supreme Court has left the fraud-on-the-market theory intact. However, they may have made it easier for large companies to get the courts to throw out class action securities cases sooner.

Halliburton Co. wanted to block a class action lawsuit accusing the company of inflating its stock price. A number of investors are claiming that they lost money after the stock price fell following news that it misrepresented revenues, overstated a merger’s benefits, and understated its liability in asbestos litigation.

Under the theory, securities fraud lawyers can use stock prices as proof that a company took part in fraud without having to prove that investors depended on company statements (or omissions of statements) when making decisions. Many corporate lawyers had hoped that the court would get rid of the 1988 precedent it made when it ruled in Basic V. Levinson more than 25 years ago. However, Chief Justice John Roberts wrote in the opinion for the justices that Halliburton didn’t offer any “special justification” for overruling the fraud-on-the-market presumption. (Justice Clarence Thomas, who ruled unanimously with the court, issued a separate opinion and was joined by Justices Samuel Alito and Antonin Scala. He said that Basic should have been overruled.)

However, the court’s ruling did give a minor victory to defendants. The justices modified a rule just enough so that before a class gets certified defendants can give evidence to show that the alleged fraud did not impact its stock price. This is important seeing as most securities class actions are typically settled after a judge certifies a class. That’s because corporations want to avoid having to pay a jury verdict, which can be substantially higher than a settled amount.

This latest ruling will primarily benefit large-cap companies with stocks that can be impacted by so many factors that it would be hard for plaintiffs to prove that a false statement or fraud inflated a stock price enough that a loss was incurred when the real facts emerged. Corporate defendants will likely work harder to get a case thrown out sooner by trying to prove that the stock price wasn’t inflated. All of this could make it more costly and time consuming for plaintiffs during the early stages of their class litigation.

Halliburton now goes back to the lower courts. There, the company will get another opportunity to deter investors from becoming a class.

Our securities fraud lawyers handle individual claims for investors and institutional investors. It is our belief that filing your own securities claim or fraud lawsuit increases your chances of getting back all (or most) of your lost investment.

Supreme Court toughens standards for class-action securities fraud cases, AP/US News, June 23, 2014

Supreme Court Tinkering With Securities Class Act, NY Times, June 23, 2014

Halliburton V. Erica P. John Fund (PDF)

Basic V. Levinson (PDF)


More Blog Posts:
Supreme Court to Hear Texas-Based Halliburton’s Class Action Securities Fraud Case Again, Stockbroker Fraud Blog, November 18, 2013

Just Because Supreme Court’s Rulings in Amgen and Halliburton Give Defendants Less Tools to Beat Weak Class Certifications But Doesn’t Mean Plaintiffs Can Rest Easy, Institutional Investor Securities Blog, April 27, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013


June 27, 2014

Ponzi Scams: FINRA Bars Ex-Raymond James Broker Over $3M Ponzi Scam, Expels Success Trade Securities, Inc. for Bilking NFL and NBA Players

The Financial Industry Regulatory Authority is ordering Success Trade Securities Inc. and its President and CEO Fuad Ahmed to pay 59 investors, mostly current and ex-NBA and NFL players, about $13.7 million in restitution for losses they sustained in a Ponzi scam. Success Trade is now expelled from FINRA membership and Ahmed is also barred.

According to a FINRA hearing panel, between 2/09 through 3/13, the firm and Ahmed sold $19.4 million in bogus promissory notes to investors while omitting or misrepresenting material facts. These facts would have revealed that parent company Success Trade Inc. was in financial trouble.

Ahmed and the firm are also accused of misrepresenting that the funds would go toward costs for marketing and growing the businesses of the parent company. The SRO says that the funds instead went toward went toward unsecured loans to Ahmed for his personal spending and to pay interest payments to note holders.

In an unrelated Ponzi fraud, FINRA is barring Claus C. Foerster, a former Raymond James Financial Inc. (RJF) broker, for allegedly bilking clients of approximately $3 million. According to the SRO, Foerster convinced clients to move money they had in brokerage accounts into SG Investments, which was a nonexistent income fund that was actually a bank account that he controlled.

Clients received bogus account statements and some were paid dividends on a monthly basis. The fraud, which FINRA says began in 2000, purportedly went on until May 20014.

Earlier this month, Raymond James fired Foerster. The firm is the one that notified authorities and FINRA. It also has started paying restitution to clients.

Foerster accepted the industry ban and FINRA’s filing without denying or admitting to the charges.

Another alleged Ponzi scam artist is facing criminal charges in his alleged $15 million Ponzi scam. Race car driver Brian C. Rose. He has been indicted for allegedly bilking 164 investors in different states. These investors thought they were putting their money in coal mines.

Rose and eight others now face money laundering and fraud charges. He allegedly used investors’ money to purchase race cars, thoroughbred horses, and other luxuries, as well as to support his living expenses. $10 million of investor money has not been accounted for. Rose's father, David G. Rose, previously served time behind bars for his own $15.4 financial scam.


Ponzi Scams
A Ponzi scheme is an investment fraud. This type of scam typically involves using new investors' money to pay paying “ returns” to older investors. This gives the false appearance that investors are involved in an actual business that is making money.

Because Ponzi scams have no legitimate earnings, they can fail when the new investor money runs out or when too many investors want to cash out. Common signs you may be involved in a Ponzi scheme:

· You were promised high investment returns and hardly any/no risk

· Your returns are too consistent

· The sellers that are not licensed

· Investments are unregistered

· Complex investment strategies are involved

· You aren't receiving your payments

· You are having trouble cashing out

Please contact our securities fraud lawyers today. We can help you determine whether you have grounds for pursuing a civil lawsuit.

FINRA Hearing Panel Expels Success Trade Securities and Bars CEO Fuad Ahmed for Fraudulent Scheme, FINRA, June 25, 2014

Swindler's son accused of own $15M Ponzi scheme, The Courier-Journal, June 27, 2014

Finra Bars ex-Raymond James Broker Accused of $3 Million Scam, The Wall Street Journal, June 20, 2014


More Blog Posts:
Man Convicted in $46M Michigan Ponzi Scam, Stockbroker Fraud Blog, May 20, 2014

Finra Bars ex-Raymond James Broker Accused of $3 Million Scam, The Wall Street Journal, June 20, 2014