April 28, 2013

Controversial Democratic Appointee Pushes SEC for Less Talk About Investor and Securities Market Protections and More Action

According to Securities and Exchange Commissioner Luis Aguilar, the growing number of registered investment advisers, the increasing complexity of the financial instruments they use, and the recent trends in securities examinations show that there is a need for the regulator to up the vigorousness of its investment adviser examinations and enforcement activities. He noted that even as the SEC is working to give the regulated community best practices and guidance to enhance compliance, it also intends to increase its scrutiny of advisers, including more exams (especially for private fund advisers). Alternative investment managers will also get more attention.

Aguilar pointed out that with the number SEC registered investment advisers having gone up about 50% to over 10,000 last year, the value of the assets that they manage also increasing from about $22 trillion in 2002 to approximately $44 trillion in 2011, as well as a rise in the number of complex financial instruments that advisers use, there are more chances for “mischief” to happen. Hence, there is the need for more robust enforcement.

Also, as our securities fraud law firm mentioned in a previous blog post, the SEC commissioner wants there to be an end to mandatory arbitration agreements. Per the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC now can prohibit or limit pre-dispute arbitration agreements, which have become standard fare for brokerage firms. Aguilar is concerned that they are also becoming routine for investment advisory firms. He wants the government to ponder the possibility of adopting rules that would stop or limit broker-dealers and investment advisers from mandating that customers sign clauses in their agreements with one another that prevents them from filing securities fraud lawsuits and instead only resolve their disputes via arbitration.

Regarding retail investors, Commissioner Aguilar doesn’t believe they are getting the same degree of protections in both the corporate bond and municipal securities markets. While corporate bonds that the investing public can buy have to be registered with the SEC, no statutory authority exists that requires the same of municipal securities. Also, before municipal securities offering documents are made available to the public, the SEC does not get or even look at these documents. Aguilar says investor protections in this arena are mainly through the regulation of municipal securities dealers and brokerage firms.

Further scrutinizing the SEC, Commissioner Aguilar recently said that the regulator is still missing the mark on certain important initiatives involving investor protection, including the lack of regard he says it exhibited for regulators and investor’ suggestions about the lifting of the ban on private offering-related general advertising. Per the Jumpstart Our Business Startups Act, the Commission has to amend the 1933 Securities Act’s Rule 506 to get rid of the existing ban on general advertising in specific situations. However, the ban’s removal has led to fear that offerings that are mass-marketed under the rule will place investors at even more risk of abuse and financial fraud.

Aguilar Says SEC Will Ramp Up Examinations To Deal With Increases in Violative Behavior, Bloomberg/BNA, April 19, 2013

Aguilar Speech: Outmanned and Outgunned: Fighting on Behalf of Investors Despite Efforts to Weaken Investor Protections, SEC, April 16, 2013

Aguilar Speech: Keeping a Retail Investor Focus in Overseeing the Fixed Income Market, SEC, April 16, 2013


More Blog Posts:
SEC Commissioner Aguilar Calls For the Abolishment of Mandatory Arbitration Agreements, Stockbroker Fraud Blog, April 21, 2013

Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

US Supreme Court Once Again Upholds Enforcement of Arbitration Agreements, Institutional Investor Securities Blog, February 17, 2013

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Posted In: Arbitration , Investment Advisers , SEC Enforcement , Securities Fraud

April 4, 2013

SEC Submits Request for Data on Whether to Make Brokers & Investment Advisers Abide by Uniform Fiduciary Standard

The Securities and Exchange Commission has put out its request for information to help it decide whether to impose a uniform standard of care on both investment advisers and broker-dealers that give advice to retail customers. The comment period ends 120 days after the data request, which was issued on March 1, is published in the Federal Register.

Responding to the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 913, the SEC conducted a study on the effectiveness of the current standards for investment advisers and brokers. Following its examination, Commission staff recommended that the regulator take part in rulemaking to establish a uniform fiduciary standard for those that provide customized retail investments. However, last year, after then-SEC Chairman Mary Schapiro announced that the agency was putting together a request for information so it could decide whether to follow this recommendation, the initiative had to be delayed due to a lack of support from other commissioners.

Now, in this latest request request, the Commission was quick to stress that it has yet to decide whether such a rulemaking needs to happen or what one would entail. It also asked for data regarding others areas impacting both investment advisers and brokers that could benefit from harmonization, including business conduct rules, licensing advertising, registration, and books and records.

Please contact our securities law firm and ask to speak with a stockbroker fraud lawyer or an investment adviser fraud attorney. Your no-obligation, case assessment with Shepherd Smith Edwards and Kantas, LTD, LLP is free.

SEC Seeks Information to Assess Standards of Conduct and Other Obligations of Broker-Dealers and Investment Advisers, SEC, March 1, 2013

Read the SEC Data Request (PDF)

Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF)


More Blog Posts:
Deutsche Bank Settles Massachusetts CDO Case for $17.5 Million, Stockbroker Fraud Blog, April 1, 2013

2nd Circuit Eases MBS Lawsuits by Reinstating Pension Fund’s Case Against Wells Fargo, Royal Bank of Scotland, Wachovia, & Others, Institutional Investor Securities Blog, March 28, 2013

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Posted In: Broker-Dealers , Dodd-Frank , Investment Advisers

April 3, 2013

SEC OCIE Finds Custody-Related Deficiencies Involving Investment Advisers

According to the Securities and Exchange Commission Office of Compliance Inspections and Examinations, it discovered “significant deficiencies” related to custody issues with a third of the investment advisers that it examined, including:

• Failure of an investment adviser to recognize when it has custody
• Failure to satisfy the rule’s surprise exam requirements
• Failure to fulfill the rule’s qualified custodian requirements

Custody by investment advisers refers either to the holding of securities or client funds or the authority to possess them, including the power of attorney to get securities or funds from client accounts. The 1940 Investment Advisers Act’s Rule 206(4)-2 regarding custody prescribes specific requirements for client asset safety.

According to SEC Chairman Elisse B. Walter, it is important for investment advisers to follow this rule, which pertains to the custody of client funds and is supposed to protect investors. Per the custody rule, which is supposed to strengthen safeguard for client assets, SEC-registered investment advisers must:

• Use “qualified custodians” to hold the assets of clients. These custodians can be registered brokerage firms, banks, futures commissions merchants, or specific foreign entities.

• Provide written notice to clients providing details of who is holding their assets and how they are being held.

• Send clients accounts statements that provide details of their holdings at least every quarter. This lets clients oversee their investments and look at their holdings.

• Agree in writing to an annual surprise exam by an independent public accountant each year.

• Provide additional protections when a related qualified custodian is involved.


Investor Due Diligence
If you are an investor setting up an investment account with an adviser, you should:

• Inquire about custody arrangements and make sure you understand how everything works.

• Make sure you get account statements from your qualified custodian at least once a quarter.

• Contact the custodian and the investment adviser if you notice a discrepancy between the account statements that you received from each of them.

If you believe you were the victim of investment fraud, contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

Read the SEC Alert (PDF)

Read the SEC's Bulletin to Investors


More Blog Posts:
Deutsche Bank Settles Massachusetts CDO Case for $17.5 Million, Stockbroker Fraud Blog, April 1, 2013

Galleon Group Founder’s Brother Pleads Not Guilty to Insider Trading, Institutional Investment Fraud Blog, April 2, 2013

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Posted In: Investment Advisers , SEC , SEC Enforcement

March 26, 2013

Investment Advisors Report: SEC Division Reviews Application of Investment Advisers Act, New Commission Unit Will Watch For Adviser Risk, & Just 1 in 10 SEC Exams Leads to Enforcement Action

SEC Division Reviews Investment Advisers Act As It Applies to Private Fund Advisers
Currently examining the way applies the 1940 Investment Advisers Act to private fund advisers, the Securities and Exchange Commission is reportedly concentrating specifically on the areas of Form ADV and advertising. SEC Division of Investment Manager Director Norm Champ, who recently spoke at an Investment Adviser Association compliance conference, said that rules related to both areas might have to be modified in the wake of changes brought about due to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Advisers Act’s Rule 206(4)-1 doesn’t let adviser use advertising that includes misleading or false statements or refers to testimonials. Champ, however, noted that because of the advent of new forms of communications, including social media, as well as the birth of new business models since the rule was promulgated decades ago, there might be a need to revise the rule. As to Form ADV, which new registrants to the SEC must fill out, Champ pointed out that the way it is designed may not be take into consideration the sometimes complex nature of private funds.

New Commission Unit REG to Watch For Adviser Risk
Champ also spoke about how the Division of Investment Management’s Risk and Examinations Group has a dual role. REG is tasked with monitoring risks involving the asset management industry , as well as examining registrants under the Division of Investment Management’s jurisdiction.

He said that not only will REG staff conduct qualitative and quantitative financial analyses of the industry and make sure that other SEC divisions understand the risks, but also the group will work with the Office of Compliance Inspections and Examinations to create and execute its own exam programs. It was the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 965 that mandated the creation of a group such as REG.

Just 1 in 10 SEC Exams Leads to Enforcement Action, Says OCIE Official
According to Office of Compliance Inspections and Examinations Deputy Director Andrew Bowden, over the past two years, just 1 in 10 SEC examinations have led to a referral for enforcement. Among the questions asked to determine when such an action is necessary:

• Can remediation occur without a referral?
• Is there an ongoing fraud?
• Are there investors who are being egregiously harmed?
• Is a cover-up taking place?
• Is a recidivist violator is involved?

Bowden talked about how registrants that show Commission examiners that they are committed to dealing with any problems lower their chances of getting a referral. She said that a common mistake registrant makes is not making sure the right people are placed before examiners.

Shepherd Smith Edwards and Kantas, LTD, LLP represents investment adviser fraud victims throughout the US. We have helped thousands of investors recoup their losses.

Related Web Resources:
Only One in 10 SEC Exams Referred For Enforcement Action, Official Says, Bloomberg/BNA, March 11, 2013

Read Mr. Champs' remarks to the IAA Investment Adviser Compliance Conference, SEC, March 8, 2013

1940 Investment Advisers Act, SEC (PDF)


More Blog Posts:
Houston-Based Receiver Files $1.8B Class Action Filed Against Law Firms Accused of Helping R. Allen Stanford Carry Out His $7B Ponzi Scam, Stockbroker Fraud Blog, December 5, 2012

SEC Gets Initial Victory in Lawsuit Against SIPC Over Payments Owed to Stanford Ponzi Scam Investors, Institutional Investor Securities Fraud Blog, February 10, 2012

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Posted In: Investment Advisers , SEC

March 22, 2013

FINRA CEO Says Now is Time to Make Investment Advisers and Brokers Adhere to a Fiduciary Standard

According to Financial Industry Regulatory Authority Chairman and Chief Executive Officer Richard Ketchum, now is the right time to make brokerage firms and investment advisers that provide personalized retail financial advice adhere to a uniform fiduciary standard. However, he warned that such a standard, whether by itself or combined with other regulatory harmonization, does not guarantee misconduct will not happen.

Establishing a uniform fiduciary duty for investment advisers and setting up new oversight for them were both recommended in Securities and Exchange Commission studies that were conducted over two years ago under the order of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Earlier this month, the SEC requested quantitative and economic information to help it decide what that standard of care should be. It also engaged in the conversation of whether investors would benefit more if rules were harmonized in other sectors of investment adviser and broker-dealer regulation, including supervision, firm licensing, advertising, individual qualification, books and records, and others.

Addressing the Consumer Federation of America earlier this month,
Ketchum noted that even if such standard were to be imposed, compliance must be regularly and thoroughly studied and enforced to make sure that investors are protected. The self-regulatory organization, which has been pushing for new laws mandating that an SRO supervise and examine advisers, has been lobbying for the job.

Securities Fraud
Our securities fraud law firm represents investors that have sustained losses due to investment adviser fraud. Please contact Shepherd Smith Edwards and Kantas, LTD, LLP and ask for your free securities case evaluation.


Related Web Resources:
FINRA Chairman and CEO Ketchum's Presentation, FINRA

Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF)


More Blog Posts:
New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M, Stockbroker Fraud Blog, March 14, 2013

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

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Posted In: FINRA , Investment Advisers

March 14, 2013

New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M

Focus Capital Wealth Management and its owner Nicholas Rowe are now barred from having a license to serve as either an investment adviser or a broker-dealer in New Hampshire. Rowe and his financial firm are accused of elder financial fraud. Per the settlement with the state, they must pay $2.4 million in client restitution.

The Bureau of Securities Regulation acted against Rowe last year following complaints from clients claiming they’d lost significant amounts of money in risky investments of leveraged exchange-traded funds, which are also known as ETFs. According to the bureau, these investments are not for clients who have a low or medium tolerance for risk. Rowe also allegedly misrepresented his credentials and charged investors unreasonable fees, claiming that these were going to third parties with close Wall Street ties, when, actually, he was keeping part of that money.

Rowe eventually consented to FINRA arbitration over claims filed by a number of his former clients, who alleged civil fraud and negligence. One of the arbitrator’s panels ruled against him for $1.8M in restitution.

Following the ruling, Rowe and Focus Capital Wealth Management filed for Chapter 11 bankruptcy.

Inverse and Leveraged ETFs
Leveraged and inverse ETFs comprise about $28 billion of the $1.2 trillion US ETF market. These types of exchange-traded funds are meant to enhance short-term returns via the use of derivatives and debt. They tend to be more appropriate for professional traders, rather than long-term retail investors. In 2009, regulators began to issue warnings over concerns that brokers were selling these instruments to buy-and-hold investors—a strategy that is more than likely to end in serious losses for a customer.

Senior Financial Fraud
Unfortunately, seniors are a favorite target of those seeking to commit securities fraud. Many elderly investors are not investment savvy and/or due to health and/or aging issues may lack the ability to fully comprehend what they are agreeing to by investing. For seniors, becoming the victim of investment fraud can mean the loss of their retirement and life savings, which can adversely affect their life and care during their later years.

Questions to Ask About Financial Products (From the SEC)
Regardless of your age or whether you are a seasoned or novice investor, there are key questions you need to ask your financial representative, including:

• Is the investment product registered with state and federal regulators?
• Is this investment in line with your investment objectives? Is it suitable/appropriate?
• What makes this investment profitable?
• Are there any accompanying fees and what are they for?
• Is the investment liquid?
•
Make sure you document what is said to you. Also, you shouldn’t only base your decision to invest on the word of the financial adviser. Ask to see financial statements, the most current annual report, or the prospectus. You can even go online for information about a prospective investment.

N.H. Advisor Ordered To Pay $2.4M In Restitution For Client Losses, Insurance News, March 15, 2013

Questions You Should Ask About Your Investments ... and What To Do If You Run Into Problems, SEC

N. Hampshire investment adviser must pay $1.8 mln in ETF case, Reuters, December 3, 2012


More Blog Posts:
Financial Industry Representatives Settle FINRA Cases Over Securities Fraud, Stockbroker Fraud Blog, March 12, 2013

Financial Representatives Settle with FINRA Over Allegations Related to Excessive Commissions, Elder Financial Fraud, and Funneling Client Funds for Personal Gain, Stock, Stockbroker Fraud Blog, March 8, 2013

Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013

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Posted In: Broker-Dealers , Exchange Traded Funds , Investment Advisers , Senior Investors

February 23, 2013

Virgin Islands-Based Investment Adviser Faces SEC Fraud Charges Involving Alleged Kickbacks

The Securities Change Commission is charging TAG Virgin Islands owner James S. Tagliaferri with securities fraud. The investment adviser is accused of getting kickbacks from putting investors’ funds in companies that were being thinly traded in and then employing a Ponzi-like scam to give clients their supposed “returns.”

According to the SEC’s Enforcement division, Tagliaferri allegedly exercised his discretionary authority over his clients’ accounts to buy promissory notes that were put out by certain private companies. TAG was given millions of dollars in compensation, including cash in return for financing these companies—a conflict that investors didn’t know about. When it was time to pay these investors, Tagliaferri then used other clients’ funds to meet these obligations.

Specifically, contends the regulator, after 2007 the Virgin Islands-based investment adviser began placing TAG clients’ money in securities that were highly illiquid, including in promissory notes put out by different private companies that actually were holding companies, as well as $40M of investor funds in notes in International Equine Acquisitions Holdings, Inc.

The SEC’s securities fraud order says that TAG got $3.35M and about 500,000 stock shares of a microcap company in exchange for placing investments with these companies. Such compensation is a conflict of interests that investors must know about.

Tagliaferri also allegedly defrauded investors by putting their money in public companies that were thinly traded to raise a minimum of $80M to pay principal or interest owed to other clients on promissory notes. In its securities case, the SEC is accusing him violating sections of both the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940.

Meantime, the US government is also going after Tagliaferri. In a 15-count criminal indictment, prosecutors are claiming that he invested over $120 million of funds at TAG Virgin Islands LLC to commit securities fraud. The allegations are related to the ones noted in the SEC’s civil claim. The criminal charges against Tagliaferri included eight counts of violating the Travel Act and seven counts of fraud.

U.S. charges adviser in fraud tied to microcaps, NY horse firm, Reuters, February 21, 2013

Read the SEC order (PDF)


More Blog Posts:
FINRA Pulls Back on Regulating Registered Investment Advisers, Stockbroker Fraud Blog, February 19, 2013

NH Investment Adviser to Pay $1.8M to Investors in FINRA Securities Arbitration Case Over Leveraged and Inverse Exchange-Traded Funds, Stockbroker Fraud Blog, February 14, 2013

UBS Fails in Bid to Block $125M ARS Arbitration Case by Allina Health System, Institutional Investor Securities Fraud, February 14, 2013

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Posted In: Investment Advisers

February 19, 2013

FINRA Pulls Back on Regulating Registered Investment Advisers

According to Financial Industry Regulatory Authority Chief Executive and Chairman Richard Ketchum, the SRO is pulling back from its bid to regulate Regulating Registered Investment Advisers. This move comes after FINRA spent the last couple of years lobbing to become the main regulator for RIAs.

However, according to Ketchum, in the wake of the current political climate and changes in leadership during the 2012 election, he does not expect that the House of Representative Financial Services Committee will try to revamp the way RIAs are currently regulated, which is via the Securities and Exchange Commission. For advisers that did not want FINRA overseeing them, this is good news.

However, not all of those that were against the SRO taking over RIA regulation are convinced that FINRA has completely given up. Some are worried that the regulator intends to return to the issue at a later date.

For example Investment Adviser Association executive editor David Tittsworth doesn’t believe Ketchum’s remarks are confirmation that FINRA has truly given up. He thinks that seeing as Congress may have other priorities at the moment, the SRO is choosing to focus on other issues for the time being. There are also those that believe that FINRA's pullback is good for investors. Some have questioned whether the SRO would be able to meet the current standard set by the SEC.

Investment adviser fraud costs investors money every year. Our securities law firm is here to help our clients recoup their losses.

Advisors Cheer as FINRA Drops Bid to Regulate RIAs, Financial Planning Staff, February 7, 2013


More Blog Posts:
Securities Roundup: Lawmaker Presses SEC to Tackle High-Frequency Trading, Approval of Nasdaq’s Plan to Payback FB IPO Investors is Delayed, & Less Investors Filed Securities Lawsuits Against Corporate Firms in 2012, Stockbroker Fraud Blog, February 18, 2013

Judge that Dismissed Regulators’ Claims Against Morgan Keegan to Rule on ARS Lawsuit Again After His Ruling Was Reversed on Appeal, Institutional Investor Securities Blog, November 27, 2012

Amendments Clarify FINRA’s Right to Look at Firm Records, Books, Stockbroker Fraud Blog, February 9, 2013

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Posted In: FINRA , Investment Advisers

February 14, 2013

NH Investment Adviser to Pay $1.8M to Investors in FINRA Securities Arbitration Case Over Leveraged and Inverse Exchange-Traded Funds

A Financial Industry Regulatory Authority panel has ruled that Focus Capital Wealth Management Inc. and its owner Nicholas Rowe must pay investors $1.8 million over securities fraud allegations related to the sale of high-risk exchange-traded funds. The investment adviser is accused of civil fraud, negligence, and other misdeeds related to the funds’ sale to nine clients, some of them older investors.

The claimants’ investments had been heavily concentrated in inverse and leveraged ETFs. They contend that Rowe upped their risk by purchasing and holding the ETFs for up to a few months—a strategy that some consider practically guaranteed there would be loss. Focus and Rowe have been named in civil proceedings initiated by the New Hampshire Bureau of Securities Regulation. Meantime, a state court has put out a temporary order barring Rowe and his firm from conducting business.

Exchange-Traded Funds
Inverse and leveraged ETFs are supposed to amplify short-term returns through the use of derivatives and debt. They are more appropriate for traders that are professionals than long-term retail investors or any party that cannot properly weather a risky portfolio. According to some ETF fraud lawyers, many investors don’t comprehend the degree of risk involved.

Leveraged and inverse ETFs comprise $27 billion of the $1.29 trillion ETF market in the US. A few years ago, regulators started putting out warnings about selling these particular ETFs over concerns that brokers were using them to buy-and-old investors.

If you believe that you were the victim of ETF fraud, contact our investment fraud law firm today.

N. Hampshire investment adviser must pay $1.8 mln in ETF case, Reuters, December 3, 2012

Exchange-Traded Fund, Investopedia


More Blog Posts:
Morgan Stanley, Citigroup, Wells Fargo, and UBS to Pay $9.1M Over Leveraged and Inverse ETFs, Stockbroker Fraud Blog, May 3, 2012

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients, Institutional Investor Securities Blog, April 12, 2012

Ex-Goldman Sachs Director Rajat Gupta Pleads Not Guilty to Insider Trading Charges, Stockbroker Fraud Blog, October 26, 2011

 

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Posted In: Exchange Traded Funds , Investment Advisers

January 7, 2013

Ernst &Young Auditor Suspended Over Part Played in Botched 2004 Audit of AA Investors Management LLC

In a divided decision, the SEC has decided that suspending Ernst & Young auditor Wendy McNeeley from Commission practice for half a year for her conduct as manager of the audit of investment adviser AA Investors Management LLC and a related fund is appropriate. According to the agency, McNeeley and her engagement partner Gerard Oprin did not apply due professional care when assessing a $1.92 million related-party “tax loan” from client accounts to alleged fraudster John Orecchio, who co-owns AA Capital. She is also accused of choosing not to investigate further even after she encountered a number of red flags over a material transaction involving a related party.

The SEC filed its administrative proceedings against her and Oprin for not conducting the 2004 audit of AA Capital Equity Fund LLP and AA Capital, per generally accepted auditing standards. This alleged misconduct, contends the Commission, resulted in Ernst & Young putting out audit reports that were not properly qualified yet came with disclosures noting that they conformed to general accounting principles. McNeeley and Oprin are accused of not getting enough “competent evidential matter” or exercising the professional care required to their evaluation and disclosure of the loan to Orecchio. Instead, they allegedly depended on information from AA Capital's chief financial officer that hadn’t been substantiated. Oprin was also accused of not properly supervising the audit.

While an administrative law judge would go on to dismiss the allegations facing Oprin, McNeeley was barred from appearing as an SEC accountant for a year. She appealed.

Now, the SEC is saying a six month-suspension is appropriate for McNeeley’s misconduct. (its Enforcement Division had sought a three-year suspension against her.) The Commission found that there were certain specific under these circumstances, including McNeeley’s inexperience and youth and the fact that her supervisor wasn’t in full compliance with his own auditing duties, that warranted she be given a sanction that was “more measured.”

For years, our investment adviser fraud law firm has represented clients that were the victim of securities fraud. Contact our stockbroker fraud lawyers today.

CPA Suspended for Six Months Over Role in Flawed 2004 Audit, BNA/Bloomberg, December 18, 2012


More Blog Posts:
SEC Intends to Examine 25% of Investment Advisers That Had To Register, Per Dodd-Frank Act, by End of 2014, Stockbroker Fraud Blog, December 26, 2012

FINRA Provides Guidance As It Opens Up Arbitration Process to Investment Advisers, Stockbroker Fraud Blog, December 10, 2012

GAO Says Most Financial Regulators Don’t Have the Procedures/Policies to Coordinate Dodd-Frank Rules, Institutional Investor Securities Blog, December 24, 2012

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Posted In: Investment Advisers

January 5, 2013

SEC Roundup: Massachusetts Investment Adviser Gets $1.78M Judgment and Allianz to Pay $12.3M to Settle Foreign Corrupt Practices Act Lawsuit

Massachusetts Investment Adviser Gets $1.78M Judgment
In a final judgment, the U.S. District Court for the District of Massachusetts says that EagleEye Asset Management LLC and its principal Jeffrey A. Liskov must pay a $1.78M judgment for using a foreign currency exchange trading scam to defraud clients. The Securities and Exchange Commission contends that Liskov fraudulently got several of his investment advisory clients to liquidate securities investments and place the money in forex trading. While EagleEye and Liskov made about $300,000 in performance fees, their clients allegedly lost $4M.

Liskov is accused of perpetuating the investment adviser fraud by issuing material misrepresentations about forex investments, their risks, and his track record. Also per the SEC’s complaint, Liskov more than once took old forms that advisory clients had signed and changed the dates, asset transfer amounts, and other information, and, without their knowledge, opened forex trading accounts.


Allianz to Pay $12.3M to Settle Foreign Corrupt Practices Act Lawsuit
Allianz SE, a German insurance firm, has consented to pay $12.3M to settle SEC administrative allegations that committed Foreign Corrupt Practices Act violations by issuing improper payments to Indonesian officials. Allianz is settling the case without denying or admitting to the allegations.

The Commission contends that over a seven-year period the insurer’s Indonesian subsidiary paid about $650,000 to employees of entities that were owned by the state and received approximately 295 insurance contracts—eventually leading to $5.3M in profits—as a result. The agency says that even after Allianz received two complaints about possible FCPA violations and discovered that company employees had a special fund for making bribes, the allegedly illicit payments continued, and in some instances, were disguised so as not to be detected.

Stockbroker Fraud
If you suspect that you lost money because of securities fraud, please contact Shepherd Smith Edwards and Kantas, LTD, LLP today. Our stockbroker fraud lawyers have successfully represented thousands of institutional and individual investors.


SEC Charges Allianz SE With FCPA Violations, InsuranceNetNews, December 17, 2012

Court Enters Final Judgment Against Massachusetts Investment Adviser and its Principal, Orders Payment of Over $1.7 Million in Illicit Gains and Penalties, SEC, December 14, 2012

Spotlight on Foreign Corrupt Practices Act


More Blog Posts:
SEC Intends to Examine 25% of Investment Advisers That Had To Register, Per Dodd-Frank Act, by End of 2014, Stockbroker Fraud Blog, December 26, 2012

Clearing House Association Wants Greater Protections for Clearing Members, Institutional Investor Securities Blog, December 31, 2012

SEC Inquiring About Wisconsin School Districts Failed $200 Million CDO Investments Made Through Stifel Nicolaus and Royal Bank of Canada Subsidiaries, Stockbroker Fraud Blog, June 11, 2010

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Posted In: Foreign Currency Scam , Investment Advisers , SEC Enforcement

Tags: FCPA Violations

December 26, 2012

SEC Intends to Examine 25% of Investment Advisers That Had To Register, Per Dodd-Frank Act, by End of 2014

According to SEC Office of Compliance Inspections and Examinations Director Carlo di Florio, by December 31, 2014, the Commission plans to have examined 25% of the investment advisers that had to register with it after the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 issued its mandate. This will be done via “presence exams” at these investment firms.

The exams will concentrate on the issues of marketing, valuation, conflicts of interest, portfolio management, and asset verification. Also, the agency’s enforcement division will focus on private fiduciary duties.

According to di Florio, based on “preliminary observations” from initial presence exams it appears that even though a lot of longtime private
investment firms have done a good job in constructing compliance risk management and control programs that work, OCIE examiners still noticed that there were numerous issues when they conducted initial exams, such as deficiencies related to conflicts of interest mismanagement. One example of this is the inflation of certain fees to conceal losses. Also, examiners found that some expenses, such as property rent and salaries, were inappropriately charged to funds instead of to the fund manager.

According to BNA, sources report that these on-site presence exams started in October, right after Deputy OCIE Director Drew Bowden sent a letter to the newly registered investment advisers letting them know these would take place. The in-person exams are supplemented with approximately 30 questions that are sent to the advisers.

SEC Division of Enforcement Asset Management Unit Chief Bruce Karpati, who spoke along with diFlorio at the Regulatory Compliance Association conference, noted that some of the recent private fund exams have uncovered compliance programs that were “ineffective or inadequate.” He believes that some of these registrants were not totally ready to undergo a federal agency examination.

Karpati also spoke about incidents involving not enough cooperation with exam staff. Such occurrences will only more quickly turn the matter into an enforcement matter, he said.

The creation of five SEC enforcement units focusing on specific issues has resulted in a staff that includes former hedge fund managers and private sector employees. These specialists take part in investigations, assist in staff training, and take part in Commission policy decisions.

Of the over 4,000 private fund advisers that are SEC-registered, over 1,500 of them joined as a result of the Dodd-Frank requirement. Under the Act’s Title IV, the majority of private adviser exemptions from the Investment Advisers Act of 1940 were taken away.

If you believe that you were the victim of investment adviser fraud, do not hesitate to contact our securities fraud lawyers today. Shepherd Smith Edwards and Kantas, LTD, LLP has helped thousands of investors recoup their losses.

SEC Targets Registrants in Exam Program; Specialists Aid Agency Broadly, Officials Say, Bloomberg/BNA, December 19, 2012


More Blog Posts:
Investment Advisor Securities Roundup: Two Firms Settle SEC Claims That They Impeded with Examinations, FINRA Defends SRO Model, IA Allegedly Duped Private Equity Investors, & CDO Misrepresentation Accusations Against GSCP Executive Are Dismissed, Stockbroker Fraud Blog, December 10, 2012

FINRA Provides Guidance As It Opens Up Arbitration Process to Investment Advisers, Stockbroker Fraud Blog, December 10, 2012

SEC’s Investment Management Division Considers Applying 1940 Advisers Act to Private Fund Advisors, Institutional Investor Securities Blog, December 19, 2012

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Posted In: Investment Advisers

December 10, 2012

Investment Advisor Securities Roundup: Two Firms Settle SEC Claims That They Impeded with Examinations, FINRA Defends SRO Model, IA Allegedly Duped Private Equity Investors, & CDO Misrepresentation Accusations Against GSCP Executive Are Dismissed

Investment advisory firms EM Capital Management and Barthelemy Group have settled SEC administrative charges that they got in the way of Commission staff examinations. Both cases were settled without the parties involved denying or admitting to the allegations.

According to the SEC, Barthelemy Group and Evens Barthelemy allegedly misled examiners by inflating claimed assets under management to make it appear as if the firm qualified for SEC legislation. To settle the claims, Barthelemy has consented to a securities industry bar. He can reapply for admission again in two years. His firm consented to a censure.

As for the proceedings against Em Capital Management and Freeman, they allegedly waited a year and a half to produce the records and books for the firm’s mutual fund advisory business. Both have consented to pay a $20,000 penalty and be censured.

In SEC v. Steffelin, the Commission has dismissed its case against GSCP executive Edward Steffelin, who was accused of making misrepresentations in marketing the Squared CDO 2007-1, a 2007 collateralized debt obligation connected to the domestic housing market. (A separate but related lawsuit was filed against J.P. Morgan Securities, LLC (JPM), which the financial firm has resolved by agreeing to pay $153.6M.) Steffelin led the team that put into effect the process for purportedly choosing the CDO’s investment portfolio.

The Squared CDO 2007-1, contends the SEC, was structured mainly with credit default swaps referencing other CDO securities connected to the residential market. Although marketing materials for the CDO noted that that GSCP selected the investment portfolio, the SEC claims that no one notified the investors that Magnetar Capital LLC played an important role in selecting the securities and even had a short position in more than half the assets. The Commission believed that it was Steffelin who let the hedge fund participate in choosing the assets even though he knew that it was going to short the assets. However, because of information that has since come to light, the regulator has dropped its case against him.

In another civil case, the SEC is suing Joseph Hennessy and his firm Resources Planning Group Inc. for allegedly duping clients so they would invest in a failing private equity fund. The Commission is accusing the two of them of promising high returns to those that decided to invest in Midwest Opportunity Fund while failing to tell them that the fund was in poor financial health.

The SEC says that Hennessy issued a $1.65 million promissory note that he guaranteed in 2007 to finance the fund’s biggest portfolio company. Ultimately, however, the fund couldn’t pay back the notes and that is when Hennessy allegedly began to seek investors. He is denying the allegations.

Recently, Thomas Selman, FINRA's executive vice president for regulatory policy, defended a move to a self-regulatory organization model for investment advisor oversight. While some have raised questions about this regulatory model’s value, and pushback from lawmakers and the industry has been strong, Selman gave assurances that were FINRA to take on this role, it would not impose broker-dealer regulations on investment advisors and the SRO would not become prisoner to the industry it would regulate. Selman made his comments at an Investment Program Association event in Washington on November 15.

If you suspect that you may have been the victim of investment fraud, contact our securities law firm today.

In re EM Capital Management LLC, SEC, Admin. Proc. File No. 3-15101, 11/20/12, SEC (PDF)

FINRA Official Defends SRO Model for Investment Advisers, Bloomberg/BNA, November 26, 2012

SEC CHARGES CHICAGO-BASED INVESTMENT ADVISER WITH DEFRAUDING INVESTORS IN FAILING PRIVATE EQUITY FUND, SEC, November 29, 2012

SEC v. Steffelin, S.D.N.Y., No. 11-4204 (MGC) (PDF)


More Blog Posts:
FINRA Provides Guidance As It Opens Up Arbitration Process to Investment Advisers, Stockbroker Fraud Blog, November 9, 2012

House Financial Services Committee Hears Arguments Over Who Should Oversee Investment Advisers, Stockbroker Fraud Blog, June 9, 2012

Private Fund Advisers Have Fiduciary Duty to Client Funds, Says SEC’s Di Florio, Institutional Investor Securities Blog, May 10, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Collateral Debt Obligation , FINRA , Investment Advisers , Securities Fraud

November 9, 2012

FINRA Provides Guidance As It Opens Up Arbitration Process to Investment Advisers

The Financial Industry Regulatory Authority is now making its arbitration process available to all registered investment advisers. The SRO’s arbitration forum has in the past been for member broker-dealers, but not IA’s, to resolve disagreements. (That said, IAs that are dually registered with FINRA have had to arbitrate via the SRO’s arbitration process if the disagreement pertained to the adviser’s activities as a member of FINRA or as an associated person.) Now, however, FINRA is ready to take arbitration cases against investment advisers as long as the parties involved are both amenable to this.

Some people have expressed concern that opening up FINRA’s arbitration process to these advisers could create problems. For example, seeing as broker-dealers and investment advisers are upheld to different standards under federal law, there has been the worry that FINRA arbitrators might get confused as to which standard applied to a case.

FINRA arbitration lawyer William Shepherd, however, disagrees: “It is true that financial advisors are held to a fiduciary standard by statute, but securities brokers are often held to a ‘common law’ fiduciary standard. For example, brokers are held to a fiduciary standard when they use discretion to invest their clients’ money (either with or without written permission). As well, for decades the FINRA Arbitration Code has allowed cases to be filed for ‘any dispute, claim or controversy.’ Current FINRA arbitrators are savvy enough to make any distinction in the responsibilities of different investment professionals and are likely the most capable persons in existence to decide cases concerning financial advisors.”

FINRA’s decision to open its arbitration process comes during the ongoing discussion about possible self-regulatory oversight for advisers. Bill H.R. 4624 proposes bringing advisers under the supervision of at least one SRO, with FINRA as the potential watchdog. There has, however, been strong opposition to the legislation, and House Financial Services Committee Chairman Spencer Bachus (R-Ala.), who ushered H.R. 4624, has decided not to keep pushing it forward until a committee consensus is reached.

Meantime, FINRA has put out guidance on how investment advisers who are not members of the SRO can use its mediation and arbitration forum to resolve disagreements with employees and members. Per the guidance on disputes between IAs that are firms not regulated by FINRA and investors/investment adviser employees, the SRO will accept disputes by parties seeking this forum as long as the investor and IA turn in a post-dispute agreement to arbitrate, the IA or other parties consent to pay arbitration surcharge fees, and the investor submits a written submission agreement to send the dispute to FINRA Dispute Resolution (the agreement has to be signed by all parties involved in the arbitration and the signatures need to have been written after the events that led to the dispute happened). FINRA mediation services will be offered for investment adviser disagreements on a voluntary basis.

Guidance on Disputes between Investors and Investment Advisers who are not FINRA-regulated firms, FINRA

FINRA Opening Arbitration Process To Investment Advisers, Spokeswoman Says, Bloomberg/BNA, October 29, 2012


More Blog Posts:
Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

Plaintiff Must Arbitrate Faulty Investment Advice Claim With TD Ameritrade But Can Proceed With Litigation Against Oakwood Capital Management, Stockbroker Fraud Blog, October 29, 2012

Citigroup Ordered by FINRA to Pay $1.2M Over Bond Markups and Markdowns, Institutional Investor Securities Blog, March 27, 2012

Continue reading "FINRA Provides Guidance As It Opens Up Arbitration Process to Investment Advisers " »

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Posted In: Arbitration , FINRA , Investment Advisers

August 29, 2012

SEC Securities Law Roundup: First Whistleblower Award Under New Program is Announced, Internet-Based Investment Adviser Seeks Regulator’s Recognition, & the Commission Stops Alleged $600M Online Ponzi Scheme

The Securities and Exchange Commission has made its first award to a whistleblower under its new program created under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Informants who give the commission “original information” leading to action resulting in $1 million or greater in penalties are entitled to receive 10-30% of whatever sanctions the regulator collects.

The SEC announced that it would pay $50,000 to this particular tipster for assistance provided in stopping a “multi-million dollar fraud.” This person gave “significant information” and documents, which helped speed up the agency’s probe. Now, the defendants in the securities case must pay about $1 million in penalties, of which the Commission has collected about $150,000. The $50,000 is about 30% of that amount. If a final judgment is issued against other defendants, the whistleblower could receive a larger amount.

In other SEC-related news, Larry Eiben the co-founder of Moxy Vote, an investment web site, wants the Commission to put into effect rules that recognize a new investment adviser category. He wants investors to be able to use a “neutral Internet voting platform” to get information about investments, as well as be able to not just vote shares during corporate meetings, but also “designate as the recipient of proxy materials” for transmission by companies with SEC-registered stock.

Eiben believes the rule changes is necessary because under existing regulations, retail investors cannot use the Internet to vote their shares or collect and get information through means that they might find most helpful when determining how to vote. He says the change will tackle what he considers an ongoing issue: “low participation by retail investors in voting shares of their portfolio companies.”

Unfortunately, the Internet continues to prove an effective tool for perpetuating financial fraud. Earlier this month, the SEC obtained an emergency asset freeze order stopping an alleged $600 million Ponzi scam that was about to collapse. The defendants are Rex Venture Group and its owner Paul Burkes, who is an online marketer.

Per the Commission, the two of them raised money from over one million clients on the Internet using ZeekRewards.com. They allegedly gave customers several options for earning money through a rewards program. Two of them involved the purchase of investment contracts. However, none of these securities were SEC registered, which they are required to be under federal securities laws. Meantime, investors were promised up to half of the company’s daily net profits via a profit sharing system. Also, despite the defendants’ allegedly giving them the impression that the company was profitable, investors received payouts that were unrelated to such profits, and instead, in typical Ponzi scam fashion, the money paid to them came from the newer investors.

The SEC said its order to freeze assets will allow the Ponzi scam victims to recoup more of their money so whatever is left of what they invested with ZeekRewards can be used as payouts to them. Burkes has agreed to settle the Commission’s allegations without denying or admitting to wrongdoing. He will, however, pay a $4 million penalty.

Whistleblower Program, SEC

S.E.C. Pays Out First Whistle-Blower Reward, The New York Times, August 21, 2012

Read Eiben's Petition to the SEC (PDF)

MoxyVote (PDF)

Read the SEC complaint in its case against Rex Venture Group (PDF)


More Blog Posts:
Merrill Lynch Agrees to Pay $40M Proposed Deferred Compensation Class Action Settlement to Ex-Brokers, Stockbroker Fraud Blog, August 27, 2012

Majority of Non-Traded REITs Underperform Compared to Benchmarks, Reports New Study, Stockbroker Fraud Blog, August 25, 2012

Ex-Fannie Mae Executives Have to Defend Against SEC Lawsuit Over Their Alleged Involvement in Understating Mortgage Company’s Exposure Risk, Institutional Investor Securities Blog, August 25, 2012

Continue reading "SEC Securities Law Roundup: First Whistleblower Award Under New Program is Announced, Internet-Based Investment Adviser Seeks Regulator’s Recognition, & the Commission Stops Alleged $600M Online Ponzi Scheme " »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Investment Advisers , Ponzi Scams , SEC , Whistleblower Lawsuits

July 31, 2012

Securities Roundup: Court Says Investors’ American Funds Securities Litigation Claims Were Timely, Nasdaq Proposes $62M Fund to Repay Facebook IPO Participants, Indictment Made in Alleged Muni Bond Rigging Plot, & Investment Advisers Could Pay User Fees

According to the US Court of Appeals for the 9th Circuit, a lower court was in error when it dismissed on the grounds of timeliness investors’ putative securities fraud class action lawsuit accusing the American Funds mutual fund family of charging marketing and management fees that were too high and giving brokers improper kickbacks. Now, the plaintiffs have the opportunity to amend their case to remedy scienter pleading-related deficiencies.

The district court had found the investors’ securities claims untimely because it said that the defendants provided evidence establishing that the media and regulatory agencies had already looked at the alleged financial scam in question at least three years before the plaintiffs filed their securities complaint. The appeals court, however, said none of the sources (from 2003 and 2004) that had implied that the defendants acted with the intent to deceive could have caused a plaintiff that was “reasonably diligent” to discover this intention (if it even existed). Because of this, the 9th circuit said that the two-year statute of limitations didn’t start running more than two years before the complaint was filed, which means that the lower court made a mistake when it said the case was time-barred.

In an unrelated securities fraud case, this one involving criminal charges, federal officials indicted ex-financial services executive Phillip Murphy over an alleged conspiracy to manipulate the bidding process for multiple finance contracts, including those involving municipal bonds. He is charged with one count of wire fraud, two counts of conspiracy, and one can of conspiring to falsify bank records.

The US Justice Department contends that Murphy was involved in a conspiracy with CDR Financial Products (Rubin/Chambers, Dunhill Insurance Services Inc.) to increase the size and quantity of investment agreements from different municipalities that were awarded to the firm with whom he was employed. Per the indictment, he won the investment agreements because CDR manipulated the bidding process.

Murphy allegedly would make losing bids for certain investment agreements and pay (or make sure that) CDR and other brokers got kickbacks. Prosecutors say that, as a result, Murphy put the bonds’ tax-exempt status in peril.

In other securities news, Nasdaq Stock Market LLC has submitted a proposal to the SEC that would allow it to establish a $62 million fund to pay back qualifying members that suffered losses due to technical glitches involving Facebook’s (FB) IPO in May. Nasdaq said cash would be the form of payment and the accommodations would be issued within six months upon the proposal’s approval.

Under certain conditions, the proposal would accommodate orders involving sells priced at $42 price or lower that either failed to execute or were executed at a lower price, buys priced at $42 or lower that were executed and not confirmed right away, and buys in this same price range that were not just executed, albeit not confirmed right away, but also that efforts had been made to cancel them. Nasdaq said that claims involving this latter category would get a 30% reduction.

Meantime, In an effort to enhance investment adviser oversight, Rep. Maxine Waters (D-CA) has unveiled a bill that, if approved, would give the US Securities and Exchange Commission the authority to make investment advisers pay user fees, which would allow for additional and more frequent exams as long as the regulator raises their level of activity relative to the last fiscal year. Right now, the SEC only examines 8% of the approximately 11,000 registered advisers each year. Waters believes that more oversight over investment advisers is essential, seeing as they manage the assets of millions of investors each year. Water’s Investment Adviser Examination Improvement Act of 2012 is co-sponsored by Rsep. Michael Capuano (D-MA) and Rep. Barney Frank (D-MA).

In re American Funds Securities Litigation (PDF)

Investment Adviser Examination Improvement Act of 2012

Nasdaq boost Facebook compensation plan to $62 million, Reuters, July 21, 2012


More Blog Posts:
FINRA, SEC Need to Employ Better Oversight Over Investor Education Funds, Says District Court, Stockbroker Fraud Blog, July 30, 2012

Reform the Municipal Bond Market, Says the SEC, Institutional Investor Securities Fraud Blog, July 31, 2012

Govt. Not Prepared for Next Inevitable Financial Crisis, Says Ex-SEC Chair, Institutional Investor Securities Fraud, July 30, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Investment Advisers , Securities Fraud

June 9, 2012

House Financial Services Committee Hears Arguments Over Who Should Oversee Investment Advisers

Last week, the House Financial Services Committee held a hearing about the Investment Adviser Oversight Act of 2012, a bill introduced by the committee’s chairman, Rep. Spencer Bachus (R-Ala.), and Rep. Carolyn McCarthy (D-N.Y.). The two lawmakers had come up with (HR 4624) because they believe that the US Securities and Exchange Commission, which has been supervising investment advisers, doesn’t have the resources to do this job effectively.

While there has long been discussion over this issue, the 2008 financial crisis and the discovery of Bernard Madoff’s multibillion-dollar Ponzi scam, which had been going on for years, served to some as evidence that the SEC wasn’t doing a thorough enough job of detecting financial fraud. Last year, the Securities and Exchange Commission issued a study acknowledging that its resources were limited. It too recommended that the Financial Industry Regulatory Authority or a new SRO be given the responsibility of overseeing investment advisers. Or, if it were to continue this oversight, then the Commission suggested that it work with an enhanced oversight program paid for with user fees.

While all sides involved in the debate are in agreement that registered investment advisers are not being examined on a regular basis, they can’t seem agree on how to make additional exams happen or on who should facilitate them. Unlike broker-dealers, investment advisers don’t have a self-policing group. They are usually examined by the states or the US.

The Securities Industry and Financial Markets Association, the National Association of Insurance and Financial Advisor, and the Financial Services Institute were among those that testified in support of a new SRO to oversee investment advisers. The North American Securities Administrators Association (NASAA) and the Investment Adviser Association are two of the opponents that want to keep the SEC and states in charge of investment adviser oversight.

Also, on May 29 the Project on Government Accountability wrote a letter to House Financial Services Committee leaders contending that nothing can replace having the government regulate investment advisers. POGO said that rather than giving private self-regulatory groups more authority, Congress should decrease the SEC’s reliance on SROs, enhance FINRA’s accountability and transparency policies, and give the SEC enough funding to make sure it can fulfill its responsibilities. POGO also foresaw potentially “serious conflicts of interest” if an SRO were given the job of investment adviser regulator.

The following day, in an e-mail to BNA, FINRA countered that POGO was disregarding the most key finding of the SEC’s study—that the Commission cannot properly examine and oversee the over 11,000 investment advisers in the US. FINRA wants to be the SRO that oversees investment advisers.

Our investment adviser fraud lawyers represent investors throughout the US. Your first case evaluation with Shepherd Smith Edwards and Kantas, LTD, LLP is free.

Investment Adviser Oversight Act of 2012 (PDF)

POGO Tells Lawmakers It Opposes SRO Model for Investment Advisers, Bloomberg/BNA, May 31, 2012

At crucial hearing, deck will be stacked against SRO opponents, Investment News, June 5, 2012

More Blog Posts:
AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty, Stockbroker Fraud Blog, April 14, 2012

FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisors, Stockbroker Fraud Blog, September 13, 2011

FINRA May Put Forward Another Proposal About Possible SEC Rule Regarding Fiduciary Duty, Institutional Investor Securities Blog, November 28, 2011

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Investment Advisers , Legislation

April 14, 2012

AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty

Several industry and consumer groups have written a letter to the Securities and Exchange Commission asking it to put into effect a uniform fiduciary standard for both investment advisers and broker-dealers. The groups are AARP, National Association of Personal Financial Advisors, Fund Democracy, Certified Financial Planner Board of Standards, Inc., Consumer Federation of America, Financial Planning Association, and the Investment Adviser Association. They want the SEC to extend the duty as it exists under the 1940 Investment Advisers Act to brokerage industry members and not just investment advisers.

“This has been my position since the subject arose. No new definition of ‘fiduciary duty’ is warranted. For hundreds of years laws and legal decisions have fully defined the term,” said stockbroker fraud lawyer William Shepherd. “ Why should this not simply apply to Wall Street as it does the rest of us, including lawyers?”

Currently, broker-dealers have to abide by the “suitability" standard, which is considers a less strict standard of care. For example, under the suitability standard, brokers don’t have to reveal the majority of conflicts of interest to a client to get out of any obligation to control investment expenses.

Last year, the SEC recommended that its staff engage in rulemaking to create a uniform fiduciary standard. The finding was a result of a study mandated by the 2010 Dodd-Wall Street Reform and Consumer Protection Act. After the study was released, the brokerage industry started advocating for a completely new standard. Last summer, the Securities Industry and Financial Markets Association also recommended that the Commission set up a framework that is separate and distinct from the existing statutory standard.

SIFMA wants the SEC to create “detail and structure” that would let broker-dealers apply the standard according to their own business models. The securities industry trade group also recommended that key principles be tackled, including the three main principals of a uniform standard, the definition of “personalized investment advice,” clear specification regarding obligations, preservation of principal transactions, and the set up of distinct guidance on disclosure.

In their letter to the SEC, the groups said that although they were in agreement with many components of the framework that SIFMA is recommending, there are others that they strongly oppose. For example, they are concerned that the proposed framework fails to meet Dodd-Frank’s requirement for brokerage firms and investment advisers to have the same standard and that it be “no less stringent” than any standard that is already in place. They also didn’t like the recommendation that the Commission give clear guidance about disclosure for the new fiduciary framework.

Financial Planning Association, e Certified Financial Planner Board of Standards, and the National Association of Personal Financial Advisors—all adviser groups—don’t want there to be an advisor SRO, which SEC staff had recommended in another Dodd-Frank mandated study.

Our securities fraud law firm represents investors, both individual and institutional, throughout the country. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today.
 
A Standard for Brokers, The New York Times, August 26, 2011

Investment Advisers Act of 1940, SEC.gov (PDF)

A fiduciary relationship is generally viewed as the highest standard of customer care available under law, SIFMA


More Blog Posts:
Don’t Create Uniform Fiduciary Standard for Broker-Dealers and Investment Advisers, Say Some Republicans to the SEC, Institutional Investor Securities Blog, October 7, 2011

FINRA May Put Forward Another Proposal About Possible SEC Rule Regarding Fiduciary Duty, Institutional Investor Securities Blog, November 28, 2011

SEC’s Proxy Access Rule is Rejected by Appeals Court, Stockbroker Fraud Blog, August 5, 2011

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Broker-Dealers , Investment Advisers , SEC

February 25, 2012

SEC Revises Dollar Amount Thresholds Determining Whether to An Advisory Client Would Have to Pay Performance Fees

The Securities and Exchange Commission is adopting changes to the dollar amount thresholds, under the 1940 Investment Advisers Act, that are used to determine whether an advisory clients can be made to pay a performance fee. Per the current provision, an adviser has to be managing at least $750k of the client’s money or the adviser must have reasonable grounds for believing that the client’s net worth is over $1M. However, per the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 418, the SEC has directed that inflation adjustments to the dollar amount tests would be made every five years.

Last year the SEC put out an order modifying the “qualified client” assets management test from $750K to $1M. The test for net worth was changed from $1M to $2M. On February 15, 2012, the SEC said it was adopting these amendments to the Advisers Act’s Rule 205-3.

Per the amended rule, an individual’s primary residence worth and specific debt related to property would not be included when determining the net worth calculation. The amended rule comes with a grandfather provision that lets advisers keep charging clients who were qualified clients prior to the rule change performance fees. The amendments will be in effect 90 days after they are published in the Federal Register.

In other SEC-related investment adviser news, certain affiliated advisers may be able to take advantage of a no-action decision letting multiple advisers use one registration form when preparing Commission registration documents. The registration requirement comes in the wake of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which modified exemption provisions of the Investment Advisers Act of 1940. As a result, hundreds of investment advisers must register with the SEC for the first time because they are no longer exempt.

These advisers have until March 30 to register with the SEC. However, seeing as processing takes about 45 days, February 14 is the better day to register by.

In January, the American Bar Association’s Business Law Section sent a letter asking the SEC for interpretive direction regarding whether an adviser belonging to a group of related advisers in a controlled relationship dealing with one advisory business can fulfill their registration requirements with just one registration. The letter noted that certain business models have a single structure made up of many entities that now have to register with the SEC. The structures were established so that certain liability and tax matters were addressed or so that portfolio managers could give advice to different funds according to different investment strategies and goals.

SEC Division of Investment Management Branch Chief Tram N. Nguyen, in a no-action letter, acknowledged that while Form ADV, which is for registering, is supposed to be used by just one adviser, the Commission was aware that for certain advisers, using a single form might be appropriate.

Advisers wanting to avail of the no-action later have to satisfy certain criteria. For example, each adviser who is part of a joint registration submission with the SEC has to operate under ethical code and one set of procedures and policies. They also must advise just private funds and separate qualified account clients.

Shepherd Smith Edwards and Kantas, LTD, LLP represents individual and institutional investors. Contact our securities fraud lawyers today.

SEC Tightens Rules on Advisory Performance Fee Charges, SEC, February 15, 2012


More Blog Posts:
Senate Passes Bill Banning Congressional Insider Trading, Institutional Investor Securities Blog, February 8, 2012

With Confirmation of Richard Cordray as Its Director, The Consumer Financial Protection Bureau Can Finally Get to Work, Institutional Investor Securities Blog, January 4, 2012

SEC and SIPC Go to Court to Over Whether SIPA Protects Stanford Ponzi Fraud Investors, Stockbroker Fraud Blog, February 6, 2012

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Investment Advisers , SEC

October 5, 2011

SEC & DOJ File Charges Against San Francisco Investment Adviser For Alleged “Soft Dollar” Fraud

The Securities and Exchange Commission is suing investment adviser Kurt Hovan for allegedly misappropriating $178K in “soft dollars” that he claimed was used for investment research. The federal agency contends that, in fact, the money was used to cover other business-related expenses. When Kurt, as Hovan Capital Management president, was asked to provide documents supporting this, he generated bogus research reports. Meantime, the US Department of Justice is charging the 43-year-old with obstruction and mail fraud.

Soft dollars are rebates or credits. They come from brokerage firms on commissions for trades made in investment adviser’s client accounts. If the soft dollar credits are disclosed appropriately, the IA may keep the credits and use them to cover expenses related to a specific area research and brokerage services benefiting clients.

The SEC contends, however, that Kurt didn’t solely use the soft dollars for research services. Instead, $166,667 was used to pay for the salary of his brother Edward Hovan. Soft dollars were also used to pay for computer hardware and office rent. Edward and Kurt’s wife Lisa Hovan (Hovan Capital Management’s chief financial officer) are also named in the SEC’s complaint. The SEC is accusing all three of them for violating federal securities laws’ antifraud provisions. Kurt Hovan and HCM are also accused of recordkeeping violations.

The securities lawsuit also claims that conceal their soft dollar-related activities, Kurt, Lisa, and Edward set up a "Bolton Research,” which was a shell company that Edward Hovan secretly controlled. The company then billed Hovan Capital Management’s brokerage companies for research that was never conducted. Edward allegedly kicked back $65,000 of payments to Kurt and Lisa.

The allegedly false reporting to the SEC is said to have taken place during a January 2010 examination of HCM. Staff requested that the financial firm give over copies of the research reports that Bolton Research had prepared. Instead, Kurt allegedly gave the SEC phony research reports and doctored materials.

The SEC is seeking disgorgement with prejudgment interest, injunctive relief, and other financial penalties.

Securities Fraud
As you can see, securities charges and criminal charge can be filed against an investment adviser that commits securities fraud. You may want to file your own securities fraud lawsuit to recover your losses if you lost money because investment adviser misconduct was a factor.

Our securities fraud law firm knows that the thought of pursuing a financial firm to get your money back can be an overwhelming process, which is why you want to retain an experienced investment fraud lawyer that knows how to successfully pursue your recovery while protecting your rights.

SEC CHARGES BAY AREA INVESTMENT ADVISER FOR DEFRAUDING CLIENTS AND FALSIFYING DOCUMENTS DURING SEC EXAM, SEC, September 28, 2011

Belvedere investment adviser faces criminal charges in fraud case, Marin Independent Journal, September 28, 2011


More Blog Posts:
New Jersey Investment Adviser Who Pleaded Guilty to $11.5M Financial Fraud Gets 168-Month Prison Sentence, Stockbroker Fraud Blog, September 29, 2011

Investors Working with Incompetent Registered Investment Advisers Have Few Protections, Reports Bloomberg, Stockbroker Fraud Blog, August 11, 2011

Custodial Firms Get Tougher About Registered Investment Adviser Compliance, Stockbroker Fraud Blog, December 28, 2010

Continue reading "SEC & DOJ File Charges Against San Francisco Investment Adviser For Alleged “Soft Dollar” Fraud" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Investment Advisers , Securities Fraud

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