October 28, 2014

Investors Have Filed Close to $1B of Puerto Rico Bond Fraud Claims against UBS

In its third-quarter earnings reports this week, UBS noted that claims involving its Puerto Rico closed-end municipal bond funds are reaching close to $1 billion. That is a significant jump from the $600M mark those cases reached during the second quarter of this year, and this shows that the number of cases being filed against UBS continue to grow. According to multiple reports, the investors seeking almost $1 billion in losses are alleging unsuitability, fraud, and misrepresentation.

The third quarter has been a rough one for the Swiss banking giant. Reuters reports that the entity has put aside $1.9 billion for possible legal costs.

In the past year, UBS has been in the spotlight over claims that brokers in UBS's Puerto Rico unit persuaded customers to get involved in the proprietary bond funds even if the funds were not suitable for the investors’ portfolios. Some clients reportedly were even encouraged to borrow so they could invest more.

When the muni bond funds dropped in price last year, many investors sustained huge losses. Additionally, many investors have claimed the funds and the bonds associated with the funds were misrepresented to investors on the island.

In addition to investors,regulators have expressed concern over UBS’s sale of Puerto Rico Bonds and Puerto Rico Bond funds. UBS recently agreed to pay Puerto Rico regulators $5.2 million for bond improprieties. That amount included $1.7 million in restitution to senior investors with low-net-worth who lost money in closed-end funds. However, despite the losses and regulatory scrutiny, UBS said that it intends to keep selling Puerto Rico municipal bonds.

Currently, Puerto Rico is still mired in $73 billion of debt. According to Bloomberg, the island’s lawmakers are developing a plan that would let the Infrastructure Financing Authority, known as PRIFA, sell up to $2.9 billion of bonds backing petroleum taxes to pay back the loans from the Government Development Bank. This would raise the U.S. territory’s petroleum-tax rate to $15.50 a barrel. Earlier this month, Puerto Rico paid $1.2 billion in a short-term financing deal. The notes that were sold come with a general obligation guarantee.

Traditional muni investors have started staying away from Puerto Rico, as have traditional muni funds. In the last six weeks, the Commonwealth’s junk-rated bunds have slumped, with the S&P Municipal Bond Puerto Rico Index dropping 3.25%. The territory recently borrowed $900 million from big banks, including Bank of America (BAC), J.P. Morgan (JPM), and Morgan Stanley (MS). Puerto Rico agreed to almost an 8% interest rate to borrow through the middle of next year, which is a very high rate for such short-term borrowing.

According to TheHill.com, with investor confidence in Puerto Rico declining and the island’s other financial woes, the U.S. Congress may feel compelled to set up a federal oversight board to manage the territory’s fiscal problems. However, the U.S. government previously indicated it would not bail out Puerto Rico or guarantee its debt to save it from a financial crisis.

At Shepherd Smith Edwards and Kantas, our Puerto Rico bond fraud lawyers are representing customers of UBS, Banco Santander (BNC), Banco Popular, and other brokerage firms that sustained losses caused by broker negligence and other misconduct, including the sale of Puerto Rico bonds and bond funds. Please contact our securities fraud law firm today for a free, no obligation consultation about your legal rights.

UBS facing nearly $1 billion in Puerto Rico claims, Investment News, October 28, 2014

Puerto Rico pays heavy price in $1.2 bln note sale, Reuters, October 10, 2015

Puerto Rico Sells $900 Million of Short-Term Notes, The Wall Street Journal, October 10, 2014

Puerto Rico May Raise Petroleum Tax to Back $2.9 Billion of Debt, Bloomberg, October 29, 2014


More Blog Posts:
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

UBS Brokers Are Still Selling Puerto Rico Muni Bonds, Stockbroker Fraud Blog, October 20, 2014

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

October 25, 2014

SEC Fines E*TRADE Subsidiaries Over $1M Penalty for Unregistered Microcap Securities Sales, Puts Out Risk Alert Regarding Broker-Dealer Duties To Clients

Earlier this month, the U.S. Securities and Exchange Commission put out a Risk Alert reminding brokerage firms about their duties when they take part in unregistered transactions for customers. The guidance came, along with the announcement that the agency had filed an enforcement action against former and current E*TRADE Financial Corporation (ETFC) brokerage subsidiaries that did not successfully act as gatekeepers and improperly engaged in the unregistered sales of microcap stock for customers.

According to the SEC, E*TRADE Capital Markets and E*TRADE Securities sold billions of penny stock shares for customers between 2007 and 2011. During this time, there were numerous occasions when they disregarded red flags indicating that the offerings were taking place without an applicable exemption from federal securities laws’ registration provisions.

The two brokerage firms consented to repay over $1.5 million in disgorgement plus prejudgment interest from commissions they made on the improper sales. They also have to pay a $1 million combined penalty.

The SEC’s Risk Alert provides a summary of deficiencies found during a sweep by the SEC’s Office of Compliance Inspections and Examinations of 22 brokerage firms that frequently engage in microcap securities sales. Widespread deficiencies included inadequate policies and steps for monitoring and noticing possible red flags in sales initiated by customers, insufficient controls for assessing the way a securities was acquired by a customer, as well as whether the securities can be resold legally sans registration, and failure to submit reports of suspicious activity as mandated by the Bank Secrecy Act.

Contact our microcap fraud lawyers today to request your free case assessment.


Certain accounts, such as omnibus account, appeared to be among the ones most frequently associated with unregistered illiquid microcap shares sales. Accounts that belong to supposed stock loan companies, under the name of an LLC or a corporate entity, utilize a sub-/master structure, or belong to foreign financial institutions are some of the omnibus accounts noted.

BROKER-DEALER CONTROLS REGARDING CUSTOMER SALES OF MICROCAP SECURITIES, National Exam Program Risk Alert

The SEC Order Against the E*TRADE subsidiaries (PDF)


More Blog Posts:

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

SEC to Reject BlackRock Inc. Proposal for Nontransparent Exchange-Traded Fund
, Institutional Investor Securities Blog, October 23, 2014

SEC To Examine Exchange Traded-Fund Regulation Again, Stockbroker Fraud Blog, March 22, 2014

October 23, 2014

Rajaratnam Brother Settles Insider Trading Charges Involving Hedge Fund Advisory Firm Galleon Management

Rajarengan “Rengan” Rajaratnam, the brother of Raj Rajaratnam, has consented to pay over $840,000 to settle insider trading charges filed, against him by the U.S. Securities and Exchange Commission. Rengan, who has not admitted to or denied wrongding, also has agreed to an industry bar. A court must still approve the settlement.

Rengan was a portfolio manager at Galleon. He also co-founded Sedna Capital Management, which is another hedge fund advisory firm. Raj was convicted of insider trading in 2011.

It was in 2013 that the SEC filed charges against him for his involvement in the insider trading scam conducted by his brother Raj and Galleon Management.

According to the Commission from 2006 to 2008 Raj, who was a Galleon founder, repeatedly gave Rengan insider data. The latter made over $3 million in illicit gains for himself and the funds that he managed at Sedna Capital and Galleon. Rengan also purportedly worked with his brother to nurture highly-placed sources and obtain confidential information so that they would benefit over other traders. Some of his illicit trades are said to have involved securities of Hilton Hotels, Akamai Technologies, Polycom and others. Rengan, however, was acquitted in the criminal case against him.

The financial scheme involved securities in over 15 companies that resulted in illicit gains of close to $100 million. To date, the regulator has settled or obtained court order judgments in enforcement actions related to the Galleon fraud against 35 defendants. Some $165 million in monetary sanctions have resulted thus far.

Rajaratnam’s Brother Settles SEC Lawsuit for $841,000, Bloomberg, October 23, 2014

Rengan Rajaratnam's Prosecutors Had Concerns About the Case, The Wall Street Journal, July 9, 2014

Read the SEC Complaint Charging Rengan with Insider Trading (PDF)


More Blog Posts:
Galleon Group Founder’s Brother Pleads Not Guilty to Insider Trading, Institutional Investor Securities Blog, April 2, 2013

Ex-Goldman Sachs Board Member Accused of Insider Trading with Galleon Group Co-Founder Seeks to Have SEC Administrative Case Against Him Dropped, Institutional Investor Securities Blog, April 19, 2011

Galleon Group LLC Co-Founder Raj Rajaratnam Sentenced to 11 Years in Prison Over Insider Trading Scam, Stockbroker Fraud Blog, October 13, 2011

October 22, 2014

During Fiscal Year 2014, SEC Files Record Number of Enforcement Actions

According to the U.S. Securities and Exchange Commission, the agency filed a record number of enforcement actions in 2014. Concluding the fiscal year on September 30, the regulator announced that it filed 755 SEC enforcement actions and obtained orders of $4.16 billion in disgorgement and penalties. Last year, the agency filed 686 actions and brought in $3.4 billion in fines.

The SEC credited new investigative strategies and innovations with analytical tools and data as playing a part in contributing to what it considers a solid year for enforcement. There were also first-ever cases, including actions over market access rules, “pay-to-play” for investment advisers, whistleblower retaliation, and stopping a municipal bond offering.

During fiscal year 2014, the SEC said that it charged over 135 parties with reporting and disclosure-related actions, focused resources on fighting microcap fraud and market manipulation—including penny stock scams—fought international fraud schemes, pursued firms for not setting up adequate risk controls, obtained the biggest penalty yet against an alternative trading system, enhanced oversight of dark pools, and imposed penalties for net capital rule violations.

Other actions by the SEC this year include:

• Filing charges for Regulation SHO violations over securities lending practices
• Pursuing the NYSE and others for not complying with exchange rules
• Filing cases over hidden customer fees and failure to protect client’s material nonpublic data.
• Filing claims against investment advisory firms for not maintaining adequate controls on custody of customer accounts
• Pursuing asset managers for wrongdoing
• Issuing $35 million in awards to whistleblowers
• Bringing charges against a hedge fund advisory firm for retaliating against a whistleblower
• Holding auditors, accountants, and lawyers accountable for deficiencies or wrongdoings
• Charging 80 people with insider trading
• Holding local and state governments accountable for maintaining standards of disclosure in securities issuances
• Filing enforcement actions over misconduct related to collateralized debt obligations and mortgage-backed securities
• Filing actions under the Foreign Corrupt Practice Act
• Obtaining successful securities fraud verdicts, including a court decision ordering the Wyly brothers of Texas ordering them to pay $187 million and prejudgment interest

Among the SEC’s successful actions were cases against Merrill Lynch, Pierce, Fennel and Smith Inc., RBS Securities Inc. (RBS), three Morgan Stanley (MS) entities, Wells Fargo (WFC, Bank of America Corp. (BAC), and others.

SEC Chairperson Mary Jo White also credited the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative. Among the settlements reached because of it were with a California school district accused of misleading bond investors.

If you are investors that has sustained losses because of securities fraud or some other form of wrongdoing committed by a securities industry professional or entity, you may have reason to pursue a claim to recover your funds. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC’s FY 2014 Enforcement Actions Span Securities Industry and Include First-Ever Cases, SEC, October 16, 2014


More Blog Posts:
UBS Brokers Are Still Selling Puerto Rico Muni Bonds, Stockbroker Fraud Blog, October 20, 2014

Wells Fargo to Pay $5M Over Inadequate Controls, Altered Documents, October 21, 2014

Pension Fund Securities Lawsuits: JPMorgan to Face MBS Case, PERSM Files Class Action Case, & Institutional Clients Can Sue BP
, Institutional Investor Securities Blog, October 17, 2014

October 20, 2014

UBS Brokers Are Still Selling Puerto Rico Muni Bonds

Even after the slew of municipal bond fraud arbitration claims from investors blaming UBS AG (UBS) for their losses sustained in Puerto Rico municipal bonds, the brokerage firm has told its brokers to continue selling the funds to clients. However, notes the broker-dealer, representatives should make sure to evaluate their recommendations in a way that is in line with UBS policies and those of the Financial Industry Regulatory Authority.

The instructions to keep selling the bond funds were documented in a four-page, unsigned memo from UBS. The firm also instructed brokers to direct any questions about the suitability of any investment recommendations to the compliance department or a branch manager. According to Financial Adviser Magazine, a UBS spokesperson said that individual financial plans are customized to a client’s goals and wealth management needs. She also pointed out that Puerto Rico municipal bonds and closed-end funds had for over a decade rendered excellent returns and tax benefits.

Nevertheless, over the past twelve months, the losses from both Puerto Rico bonds and UBS’s closed-end bond funds tied to Puerto Rico debt have been huge. Already, UBS has been named in over 500 arbitration claims after there was a sharp drop in the value of Puerto Rico bonds last year. According to Reuters, FINRA intends to add another 800 arbitrators in Puerto Rico to hear these securities cases. Previously, there were about 70 arbitrators designated to preside over the muni bond fraud claims.

Recently, UBS Financial Services of Puerto consented to pay $1.7 million in restitution to 34 Commonwealth residents who had invested in the funds. The firm also agreed to pay $35 million to an investor education fund.

UBS said it would enhance its supervision of six brokers that may have improperly advised their clients to borrow money to purchase certain funds. This borrowing may have involved use of home equity loans or margin accounts. While this strategy can increase returns it also may up the risks, which is why so many investors sustained such devastating losses. Representatives are also accused of getting investors who did not have the risk tolerance or necessary liquids assets to put their money in closed-end funds that were too big or risky for what their financial profiles could handle.

Not too long ago, credit ratings agencies cut Puerto Rico’s debt to junk status. This ratings downgrade, which was anticipated by most, has resulted in worsening losses for clients who purchased Puerto Rican debt either in Puerto Rico or in the United States.

Our Puerto Rico bond fraud lawyers represent investors with claims against UBS Puerto Rico, Banco Santander (BNC), Banco Popular, and other brokerage firms. Contact us today to request your free case consultation.


UBS Tells Brokers To Keep Selling Risky Puerto Rico Funds, Financial Adviser Magazine, October 20, 2014

Exclusive: UBS tells brokers to keep selling risky Puerto Rico funds, Reuters, October 17, 2014


More Blog Posts:
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

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

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

October 18, 2014

SEC Approves Regulations Involving REIT Prices and Arbitration Fraud Intervention

The U.S. Securities and Exchange Commission has approved a Financial Industry Regulatory Authority-proposed rule that would create greater transparency of Nontraded real estate investment trusts. Under the new rule, investors will have to be provided with more information about the costs involved in buying shares of nontraded REITs.

With the existing practice, brokerage firms can list nontraded REITS as having $10/share price. The new rule would obligate broker broker-dealers to include a per share estimated value for an REIT or unlisted direct participation program on customer statements and make other disclosures.

Firms would calculate an REIT or DPP per share estimated value by either using the appraised value methodology or the net investment methodology. The appraised value method involves using the liabilities and assets of the REIT or DPP to determine the valuation upon which the share value would be based. The valuations would have to be conducted at least once a year by a third-party valuation expert. The net investment method involves brokerage firms articulating in customer statements that a portion of return of capital is included in a distribution and that this return lowers the estimated per share value listed on the statement.

Firm members also will have to include certain disclosures stating that the REIT or DPP isn’t on a national securities exchange and that in general it is illiquid. They also need to note that if a client is able to sell the security, the price may be lower than the estimated value found on the statement.

Meantime, the SEC has also approved a rule that will allow securities arbitrators to immediately report a fraud that they discover while involved in a related case if they believe investors are being harmed. Currently, arbitrators have to wait until a case is over to notify Financial Industry Regulatory Authority staff members of a suspected fraud.

Attorneys for investors and broker-dealers have expressed worry about the way that arbitrators who report suspect behavior might be dealt with by FINRA. Some attorneys have expressed concern that arbitrators who stay on a case after reporting fraud concerns could become biased toward certain parties because of conclusions they might have already reached before hearing all the evidence. There is also anxiety over whether a ruling could be easier to challenge.

Please contact our REIT fraud lawyers if you suspect that you may have been the victim of securities fraud. Our securities arbitration lawyers represent investor in recouping their losses. Your case consultation with us is free.

Unfortunately, financial fraud continues to be a problem and investors are the ones that suffer. Investors who have legal representation are more likely to recoup their money. Contact us today.

U.S. SEC approves securities arbitration fraud intervention rule, Reuters, October 15, 2014

SEC approves rule change for greater transparency of nontraded REITs, InvestmentNews, October 14, 2014


More Blog Posts:
Boston Investment Firm Accused of $5 Million Real Estate Investment Fraud Targeting Senior Investors, Stockbroker Fraud Blog, June 19, 2014

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

Non-Traded REITs, Structured Products, and Private Placements Remain Under Regulator Scrutiny, Institutional Investor Securities Blog, July 7, 2014

October 17, 2014

SEC Wants to Bar Ex-Broker for Allegedly Misappropriating $2M

The U.S. Securities and Exchange Commission has taken action to bar Paul Marshall, an ex-investment adviser and broker from the industry. Marshall is accused of misappropriating $2M in client assets.

Last year, the SEC charged him and his related investment advisers, Bridge Securities and Bridge Equity Inc., with fraud. The regulator contends that Marshall took client assets to cover his own spending, including child support, alimony, expensive vacations, and tuition for his kids. He purportedly diverted the money into accounts under his control, set up misleading account statements, and raised cash for FOGFuels Inc., a private placement he controlled.

The Financial Industry Regulatory Authority Inc. has already barred Marshall from associating with all brokerage member firms. Last month, the SEC ordered him to pay $15 million in disgorgement because of the money he made from the alleged securities scam.

Marshall has to pay $1.35 million in penalties. The two investment advisers must pay $5.8 million. FOGFuels’s penalty is $725,000.

Marshall previously worked for eight brokerage firms. In 2008, he was let go from Oppenheimer & Co. (OPY) after a customer accused him of taking a loan from that client and taking part in private securities transactions.

Please reach out to our stockbroker fraud lawyers if you suspect that you were the victim of financial fraud. We represent investors with securities claims and financial fraud lawsuits and help them recover their investments losses.

Read the Administrative Proceeding Against Paul Marshall (PDF)

SEC: Cobb adviser used clients’ funds for trips, alimony
, AJC.com, September 16, 2013


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

DOJ Charges Another Two Ex-Rabobank Traders Over Libor Manipulation, Institutional Investor Securities Blog, October 16, 2014

LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches, Stockbroker Fraud Blog, October 15, 2014

October 16, 2014

Ex-Ameriprise Adviser Pleads Guilty To Nearly $1M Fraud

SusanWalker, an ex investment adviser with Ameriprise Financial Inc. (AMP), has pleaded guilty to bilking two dozen clients of $980,000. She stole the funds from clients between ’08 and ’13, using the money to cover her own spending, including costly vacations.

Walker is accused of setting up investment accounts under several customers’ names but without their consent. She took money from clients’ retirement and brokerage accounts, placed the funds into the accounts under her control, and took out the funds to spend as she pleased. Ameriprise has paid back the customers that were harmed.

The firm fired Walker and her mother Barbara Stark in early 2013. Stark is not charged in this criminal case.

In a separate but related order seeking civil damages, Walker is accused of making unsuitable investment recommendations to customers and taking client money to pay for her own expenses, including her certification with the Certified Financial Planner Board of Standards Inc.

The board suspended Walker certification last year after finding out that the Financial Industry Regulatory Authority barred her (and Stark) for not providing documents in the wake of allegations that client funds were misappropriated. The board permanently revoked Walker's certification this year.

The securities fraud was discovered two years ago during an inquiry by the Minnesota Attorney General's Office into an unrelated settlement involving annuity sales. The office discovered withdrawals had been made from a number of annuities products without the knowledge of the owners.

Securities Fraud
It is the investors that suffers most when a financial representative engages in fraud, especially when that individual has chosen to purposely steal funds from clients. At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers are here to help our clients get their money back. We help elderly seniors, married couples, young professionals, high net worth individuals, institutional clients, and other investors seeking tor recover their losses.

Even if the government or prosecutors are pursuing a case against a fraudster, it is important that you have an experienced investment fraud lawyer representing your interests and fighting for the recovery of your stolen funds. Over the years, we have helped thousands of investors get their money back. You should contact our securities law firm right away and ask for your free case assessment.

Reporting a securities fraud not only benefits you but it could prevent others from becoming victims as well. Unfortunately, until an unethical investment adviser or broker is exposed, their financial schemes can continue to cause harm. Even when the fraud is discovered, the financial representative may keep perpetuating a scam. Fraudsters have even known to move to another firm where they go on to bilk more clients. Contact us online or call (800) 259-9010.

Ex-Ameriprise adviser pleads guilty to stealing nearly $1 million, InvestmentNews, October 16, 2014

Former Ameriprise adviser from Plymouth admits to swindling $1 million from clients, Star Tribune, October 18, 2014


More Blog Posts:
LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches, Stockbroker Fraud Blog, October 15, 2014

Barclays to Pay $20M To Settle Libor Manipulation, Institutional Investor Securities Blog, October 14, 2014

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

October 15, 2014

LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches

According to his report on the central registration depository, LPL Financial (LPLA) branch manager James Bashaw was fired last month for allegedly engaging in selling away, which involves taking part in private securities transactions without written disclosure or approval from a brokerage firm, as well as borrowing from a client and taking part in a business transaction that created a possible conflict, again without obtaining the necessary firm approval or written disclosure.

Bashaw, also known as “Jeb” Bashaw, is considered one of the leading financial advisers in Texas. Barron's magazine ranks him as number one in the state with assets totaling $3.8 billion.

According to Investment News, while the CRD, which is the central licensing and registration system for the securities industries and regulators, provided these details regarding Bashaw’s termination, LPL has not elaborated, except to report on his BrokerCheck profile that the broker did not follow industry regulations and firm policies. Bashaw is now registered with Wunderlich Securities Inc.

In other LPL Financial news, the firm has reached a deal with Massachusetts regulators in which it will pay back elderly investors over $500,000 to resolve complaints related to switching variable annuities. The broker-dealer has admitted that certain annuity-switch transactions were performed without disclosing that there were fees for surrendering or cashing in the annuity.

Annuity switching occurs when a broker recommends that a client trade in an older annuity to purchase another one. Frequently, this can cost a customer while benefiting the financial representative.

The agreement with Massachusetts Secretary of State William Galvin’s office covers 157 transactions involving senior investors in the state. LPL reportedly now has new policies in place to make sure that customers get the mandated disclosures when there are transaction fees.

LPL Financial to reimburse annuity-switching fees to investors, Reuters, October 14, 2014

Selling away claims behind LPL's termination of James "Jeb" Bashaw
, Investment News, October 13, 2014

LPL Financial to pay back $541,000, Boston Globe, October 14, 2014


More Blog Posts:

Texas’ Wyly Brothers Ordered to pay More than $300M In Fraud Sanctions, Stockbroker Fraud Blog, September 28, 2014

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision, Stockbroker Fraud Blog, October 6, 2014

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

October 14, 2014

UBS is Fined $3.6M, Plus Must Pay $1.7M in Restitution Over Puerto Rico Closed-End Mutual Fund Sales

UBS Financial Services Incorporated of Puerto Rico (UBS) has reached a settlement with the Commonwealth’s Office of the Commissioner of Financial Institutions (OCIF) over UBS’s offering and sale of closed-end mutual funds in Puerto Rico. As part of the agreement, UBS will pay a $3.5 million fine, as well as $1.7 million in restitution to 34 clients. As is typical with such settlements, UBS is not denying or admitting to any wrongdoing.

After examining UBS’s operations between the periods of 1/1/06 through 9/30/13, OCFI discovered that UBS had placed clients with conservative risk tolerances in high concentrations of Puerto Rico Closed-End Funds (PRCEF). OCIF further alleged that UBS recommended or allowed these clients to use “non-purpose” loans to buy more PRCEF, which should have never happened. OCFI also reported irregularities in the way some clients’ accounts were managed and said UBS had engaged in inadequate supervision and recordkeeping.

The clients that are entitled to restitution are primarily elderly investors with low net worth and conservative financial profiles. UBS is going to pay them almost $1.7 million in restitution. This offer has to be made within 45 days of the settlement’s execution. The $3.5 million penalty will go to the Securities Trading, Investor Education and Training Fund.

UBS is also required to enhance its supervision of six of its agents, who may have committed practices that were objectionable, for at least six months. UBS has agreed to reassess, and perhaps even modify, its procedures and policies to make sure the firm is complying with regulations. UBS also will review additional customers’ accounts with similar profiles as the ones affected by these claims to see if further action and restitution are required.

UBS Puerto Rico is one of the firms accused of making inappropriate recommendations to investors in Puerto Rico muni bonds. When the bonds started to fail last year, many investors suffered huge losses.

Our Puerto Rico bond fraud lawyers have been meeting with investors on the island and in the U.S. to see how we can help recover their losses. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today for a free, no obligation consultation about your investment account.



UBS Settlement with OCIF


More Blog Posts:

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

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

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

October 8, 2014

Securities Fraud: Ex-Ameriprise Adviser to Pay $3M for Ponzi Scam, Four Insurance Agents Allegedly Defrauded Senior Investors, and Trading in Nine Penny Stocks is Suspended

Former Ameriprise Adviser Ordered to Jail, Must Pay $3M Restitution
Oscar Donald Overbey Jr., an ex-Ameriprise Financial Services (AMP) financial adviser, must pay back the $3 million he allegedly stole from investors while operating a Ponzi scam. The 47-year-old has been sentenced to three and a half years behind bars.

Court documents say that from 1996 into 2007, Overbey stole about $4 million of client funds that he was supposed to invest. Instead, the money was used to pay earlier investors, cover his personal expenses, and pay off his gambling debts.

In July 2012, Overbey was indicted. He pleaded guilty to wire fraud felony charges last year. Overbey reportedly told a doctor that many of his brokerage clients were fellow gamblers.

The Financial Industry Regulatory Authority barred him from the industry in 2007. Ameriprise fired him. It has since paid back the clients that were affected by Overbey’s fraud.

Insurance Agents Face SEC Charges Alleging Elder Financial Fraud
The U.S. Securities and Exchange Commission is charging four insurance agents over their involvement in a multi-million dollar securities fraud that targeted senior investors. The elder financial fraud charges come almost a year after the regulator filed charges against Gary C. Snisky for orchestrating the scheme and bringing in insurance agents to solicit investors.

The financial scam raised about $4.3 million over 18 months. Now, the SEC is going after insurance agents Kenneth C. Meissner, Mark S. Tomich, James Doug Scott, and David C. Sorrells for soliciting funds even though they weren’t registered as a broker-dealer with the Commission.

The fraud primarily targeted annuity holders that were retired. The insurance agents sold interests in Arete LLC, which Snisky controlled. Investors were purportedly told that their money would be used to buy discounted agency bonds that were backed by the government. Instead, Snisky misappropriated about $2.8 million of their money.

Microcrap Fraud Probe Leads to Trading Suspension in Nine Penny Stocks
The SEC has suspended trading in nine penny stocks. The move is an effort to battle microcap fraud. The affected companies include Xumanii International Holdings Corp., All Grade Mining Inc., Solar Thin Films Inc., Global Green Inc., Bluforest Inc., mLight Tech Inc., DHS Holding Co., Inova Technology Inc., and Essential Innovations Technology Corp.

The SEC can elect to suspend trading in a stock if it believes that doing so is necessary to protect investors and the public. The regulator typically cannot announce in advance that a suspension is in the works because this could hinder its investigative efforts.

Ex-Ameriprise adviser gets jail time for using client money to pay gambling debts, Investment News, October 7, 2014

SEC Charges Four Insurance Agents in Securities Fraud Targeting Elderly Investors, SEC, September 26, 2014

Penny Stocks Trading Suspension Order, SEC (PDF)


More Blog Posts:

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision, Stockbroker Fraud Blog, October 7, 2014

Former Axa Advisors Broker Faces SEC Charges Over Alleged $1.5M Ponzi Scam, Stockbroker Fraud Blog, September 30, 2014

Shareholder’s $40B Class Action Securities Lawsuit Over AIG Bailout Goes to Trial, Institutional Investor Securities Blog, September 29, 2014

October 6, 2014

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision

The Financial Industry Regulatory Authority has barred Jo Ellen Fischer, an independent financial adviser with Raymond James Services Inc. (RJF), for purportedly stealing nearly $1 million from a 95-year-old client. At the time, Fisher worked for Peoples Bancorp.

According to the self-regulatory organization, from July to December 2013, Fisher converted $924,750 from the elderly customer’s trust without permission. She did this by moving funds and securities into a brokerage account under her daughter’s name. Fisher then liquidated securities and used the money to cover her personal spending, including two Rolexes, motor vehicles, a 2-carat diamond ring, and other expenses.

FINRA says that Fisher claimed that the elderly client was her daughter’s godfather and he wanted her to have the money when she was older. The SRO, however, contends that Fisher falsified documents regarding this matter. She has agreed to the bar without denying or admitting to the findings alleging elder financial fraud.

Raymond James, which terminated Fisher's registration earlier this year, is cooperating with investigators. The financial firm has filed its own action against her in federal court to get back the money she purportedly took. Raymond James has already paid back the investor.

In other FINRA-related news, the SRO is charging SWS Financial Services with approving variable annuity applications without conducting principal review to make sure they were suitable. The agency’s enforcement department claims that from 9/09 to 5/11 the firm did not have the required supervisory systems and written procedures in place for VA transactions.

SWS is accused of not conducting adequate supervisory reviews of variable annuity deals, failing to register principal reviews of VAs prior to turning the applications over to the insurer, not setting up and documenting a training plan for supervisory review of VA deals, and failing to establish surveillance procedures that could identify VA exchanges that were not appropriate.

FINRA says that during the time of these violations, variable annuity sales comprised up to 20% of the firm’s total revenue. It wants disciplinary action, including monetary sanctions, as well as an order mandating that SWS pay for the proceeding costs.

Finra Bars Ex-Raymond James Adviser Over Alleged Account Theft, The Wall Street Journal, October 3, 2014

Finra charges SWS with improper supervision of VA transactions, Investment News, October 2, 2014


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