Stock Broker Fraud Blog

Security regulators in Missouri, Utah, and a number of other US states are accusing World Financial Group of making variable annuities sales that are unsuitable and misrepresenting investment returns. A number of World Financial customers have filed private arbitration claims making similar allegations.

World Financial is owned by Dutch insurer Aegon NV. World Financial's agents sell annuities, life insurance, and mutual funds. Unlike more traditional sales teams, however, agents make money based on a pyramid-like multilevel sales system. The agents receive most of their compensation from their recruitment of new agents rather than products sales, including a portion of the commissions that the new agents make.

In a 2006 investor presentation, Aegon USA CEO Patrick Baird called World Financial a “real recruiting machine.” The company reportedly has over 18,000 licensed insurance agents and brokers and, according to an Aegon executive in 2006, about 80,000 “producers,” which includes unlicensed and part-time members. Those who meet sales goals are awarded jewelry and trips to the top of the Transamerica Building in San Francisco that is owned by Aegon. Clients are sometimes invited to join the company’s sales force.

Some state securities officials, including those in Iowa, Alabama, and Minnesota, have filed lawsuits to bar inappropriate sales practices by World Financial. In 2006, Missouri’s securities commissioner fined World Group Securities and broker Jolee Martin $150,000 for enticing seniors to invest $1.2 million in “unsuitable” variable annuities.

Martin and World Group Securities earned $98,000 in commissions from these transactions. Martin accepted the sanctions, including a four-month suspension and a five-year bar from handling accounts or selling variable annuities to anyone over 65 years of age, but did not admit or deny wrongdoing.

Utah’s Division of Securities has cited at least four World Group Securities brokers since 2006. One couple, Robert and Raleine Allen, filed an NASD arbitration claim against World Group Securities last year alleging misrepresentation that caused them to lose over $500,000 on products that were unsuitable for their risk tolerance. A judge forced the company into arbitration over the proceedings, and a settlement with the Allens was reached.

If you are the victim of inappropriate investment sales practices or any other kind of broker misconduct, contact Shepherd Smith and Edwards today.

Related Web Resources:

World Financial Group Inc.

Aegon NV

Former Securities and Exchange Commissioner Annette Nazareth says that those in charge of overseeing the US financial markets are years behind when it comes to “rethinking regulation” and modernizing the structure required to keep up with the changing investment markets. Nazareth voiced her concerns to the US Chamber of Commerce during a forum about financial regulation last month and talked about how US regulation was lacking compared to other “respectable jurisdictions with robust economies that have rethought regulation.”

Recently, the US Treasury Department recommended the merging of the Securities and Exchange Commission and the Commodity Futures Trading Commission as part of a “blueprint” to restructure financial regulation. Nazareth did not directly endorse this recommendation, but she did talk about how a lot of existing regulation either leaves gaps or is redundant.

Nazareth also noted that while Sarbanes-Oxley imposed “burdensome” regulations, Congress has deregulated the futures markets. She said that there is a lot of business that exists on the cusps of securities and futures and that major issues that are key to the economy are not being systematically tackled.

The former SEC commissioner called for a return to “first principles,” including a renewed focus on the issues of who should regulate, why regulation is necessary, and who the regulations there to protect. She suggested that policy makers forego ego concerns and focus on what is good for the economy and for the markets.

Another former SEC Chairman, Harvey Pitt, was also part of the panel. He criticized the current focus on enforcement and regulation, which he says appears to blame and punish more than focus on what will help the capital markets work better. He also recommended that regulated entities work together with their regulator to ensure that everyone is aware of expectations and how to meet them.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents the victims of investor fraud. Your first consultation with one of our securities fraud attorneys is free.

Treasury Recommends SEC, CFTC Merge, CCH Wallstreet, April 7, 2008

Sarbanes-Oxley

An AARP Financial Inc. survey says that many U.S. investors make investment errors and miss out on opportunities to invest because they find financial jargon confusing, technical, and hard to understand. GfK Custom Research North America of New York interviewed 1,203 adults by phone for the survey.

Findings included:

*Over 52% of respondents said they made an investment mistake because they did not understand or were confused about the investment.

*Over half of the participants surveyed say that they do not read financial information because they can’t understand it.

*Two-thirds of the survey participants say they would rate the financial services industry’s ability to explain investing and savings with a C, a D , or an F grade.

*Survey respondents said the two most common investment mistakes that they’ve made included waiting too long to invest and failing to invest.

*41% of the participants that they didn’t find financial services information to be very helpful.

AARP Chief Investment Officer Richard Hisey said the survey results showed a clear failure to communicate.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents victims of investor fraud and broker misconduct. Contact Shepherd Smith and Edwards today.

Related Web Resources:

AARP Financial Inc. Survey Finds: When it Comes to Financial Jargon, Americans are Befuddled, PR Newswire, April 2008

AARP FInancial

The Financial Industry Regulatory Authority announced that 16 current and-ex State Farm VP Management Corp. registered representatives have settled charges of alleged misconduct regarding FINRA’s Continuing Education Requirements for taking tests. FINRA says that the representatives have agreed to fines ranging from $5,000 to $10,000 and suspensions from 30 days up to six months in length. One person agreed to a ban from working as a principal.

FINRA says that 9 of the 16 representatives were supervisors that allowed or directed subordinates to take State Farm's 'Firm Element' proficiency test for them. One supervisor told a subordinate to take the test for other reps. The other six registered representatives that settled were the ones that took the test for others.

The SRO says State Farm did not know about the misconduct and self-reported after it discovered that there were irregularities taking place in one of its regions. State Farm began investigating the incidents. It then expanded its probe nationally and reported its findings to FINRA.

The Firm Element portion of the mandatory two-part test, which is administered by FINRA, other SROs, and the Securities Industry/Regulatory Council on Continuing Education, requires that firms give registered employees who deal with clients, and their supervisors, the proper training that covers the areas of new products, risk disclosure, sales practices, and new regulatory requirements and concerns.

State Farm’s 2005 Firm Element test, according to FINRA, requires each test-taker to log onto an "internal, computer-based system" by inputting their user ID and password. The subordinates that engaged in the alleged misconduct are accused of using their supervisors’ user names and passwords to take the test for them.

By admitting to the charges and settling them, the respondents are not admitting to or denying the allegations.

The investment fraud law firm of Shepherd Smith and Edwards represents investors that have lost money because of the negligence or misconduct of a securities industry member. Contact Shepherd Smith and Edwards today.

Related Web Resources:

FINRA Fines, Suspends 16 State Farm Representatives for Test-Taking Irregularities in the Firm’s Continuing Education Program, Business Wire, March 6, 2008

FINRA and the Securities Industry Continuing Education Program, FINRA

State Farm Companies

A company owner and his two corporations have the right to sue their accountants for alleged defalcations at a third company because, at the time, the three companies were affiliated and only severed ties because of the misconduct at issue. The decision regarding whether or not the owner had standing was decided by the Wisconsin Court of Appeals last month when Judge Patricia S. Curley reversed the trial court’s grant of summary judgment.

Judge Curley found that plaintiffs do not have to be shareholders at the corporation where the alleged fraudulent accounting took place. She also said that the plaintiffs are trying to recover damages they had allegedly suffered, not damages sustained by another party.

Michael Vilione and Henry J. Krier were co-owners of three separate companies that were affiliated with each other. The companies, EOG Disposal Inc, EOG Environmental Inc, and Vil-Kri Investments LLC are involved in the hazardous waste storage business. Vilione and Krier became involved in a dispute over Vilione’s alleged personal use of corporate assets. In mediation, the two men decided to split the enterprise. Vilione got full ownership of EOG Environmental, while Krier took full possession of the other two companies.

The terms of the settlement purposely excluded from release claims that Krier and his two companies, EOG Disposal and Vil-Kri, might have against enterprise accountant Donald Vilione, who is the brother of Michael Vilione, and the accounting firm Virchow, Krause & Co. LLP. After the separation, Krier and his two companies sued Donald and Virchow Krause for a number of claims, such as negligent misrepresentation, accounting malpractice, injury to business, breach of fiduciary duty, and violation of the Wisconsin Organized Crime Control Act.

Krier, Vil-Kri, and EOG Disposal claim that Donald Vilione, while a Virchow Krause Partner, purposely falsified accounting records for the three companies so that the misappropriation of funds by Michael Vilione would not be noticed. Krier and the two entities claim the Virchow Krause was aware of the misappropriation, fraud, and misrepresentation but did not inform Krier of these illegal activities.

Krier and the two entities are seeking as damages for the diminished value of their business. They claim they lost out on certain opportunities and contracts because of the fraud and theft. Damages to Krier, Vil-Kri, and EOG Disposal are estimated at more than $11 million.

Virchow Krause said Krier did not have standing to recover because the allegations center around assets that were stolen from EOG Environmental, of which Krier no longer owns an interest. A trial court rejected Virchow Krause’s claim.

The Wisconsin Court of Appeals reversal of the ruling lets the claims move forward.

The securities litigation law firm of Shepherd Smith and Edwards represents clients who have lost money because of the misappropriation, fraud, misrepresentation, and other illegal acts performed by members of the securities industry. Contact Shepherd Smith and Edwards today and ask for you free consultation.

Related Web Resources:

Read the Wisconsin Court of Appeals Decision (PDF)

Vilkri.com

EOG Environmental, Inc.

On October 23, The House of Representatives passed Bill H.R. 2868, which allows the American Stock Exchange (Amex) to move forward with plans to create a second tier market for smaller companies that have less restrictive listing standards. The plan will hopefully improve the global competitiveness of U.S. financial markets.

H.R. 2868 was introduced by New York Representatives Vito Fossella and Gregory Meeks. Both men claim that the bill is intended to slow down the flow of U.S. initial public offerings from U.S. exchanges to foreign exchanges.

The proposed Small Cap Competitive Listing Act would take away the “inadvertent” legal impediment brought about by the 1996 National Securities Markets Improvement Act (NSMIA) and allow for developmental listing tiers on the three major U.S. stock exchanges.

Amex first submitted a proposed rulemaking to the SEC three years ago. At the time, state securities regulators disapproved of the plan because of the SEC’s strict interpretation of the 1933 Securities Act exemption under NSMIA. The exemption was an informal agreement that preempted state regulators from regulating any company regulated by the SEC and was listed on the New York Stock Exchange, Amex, or NASDAQ Stock Market.

H.R. 2868 modifies the exception so that both the SEC and state regulators could regulate securities in a second tier. Amex Senior Vice President for Government Affairs Mark Seetin says the legislation would improve investor protection by increasing regulation over these companies. It would also create an even playing field for domestic exchanges and increase their competitiveness in a global marketplace.

The securities litigation law firm of Shepherd Smith and Edwards represents investors throughout the U.S. who have lost money because of the inappropriate actions of investment advisers and investment firms. We also represent investors from outside the U.S. that wish to file claims against investment firms based in this country.

Contact Shepherd Smith and Edwards today to schedule your free case evaluation.

Related Web Resources:

H.R. 2868, Congressional Budget Office (PDF)

H.R. 2868, To eliminate the exemption from State regulation for certain securities designated by national securities exchanges, Washingtonwatch.com

American Stock Exchange

The North American Securities Administrators Association announced a series of investment adviser best practices that it is recommending after it conducted investment adviser tests that showed 2135 deficiencies in 13 compliance areas. 418 investment advisers in 43 states and provinces participated in the tests, which were overseen by NASAA's Investment Adviser Operations Project Group.

Five of the categories that had the largest amount of deficiencies included supervisory compliance (174 deficiencies), registration (504 deficiencies), books and records (384 deficiencies), unethical business practices (318 deficiencies) and privacy (142 deficiencies).

The leading three deficiencies in the category of registration involved:

• Inconsistencies between the first two parts of Form ADV
• Not amending the form in a manner that is considered timely
• Not providing or offering to give the disclosure document to clients

Leading unethical business practices included:

• Excessive fees
• Contract deficiencies,
• Misrepresenting qualifications, services, or fees
• Unsuitable recommendations

Maintaining appropriate financials and data was the number one books and records deficiency. Not having any written procedures was the number one deficiency in the supervisory/compliance area. Failure to provide privacy notices and create a privacy policy were the top privacy deficiencies.

NASAA is offering “Best Practices” to help advisers create compliance practices and procedures:

• Regularly review and update Form ADV and the disclosure brochure
• Keep all contracts current
• Prepare and keep current all records
• Prepare and keep client profiles up-to-date
• Create a written compliance and supervisory procedures manual
• Create and regularly distribute a privacy policy

NASAA is also recommending that advisory firms maintain accurate financial records and file documents and information in a timely manner. NASAA is encouraging advisory firms to properly supervise advisers’ activities.

If you have lost money because of the inappropriate actions of an investment advisor, call Shepherd Smith and Edwards today. We have helped thousands of investors recover their losses.

Related Web Resources:

Coordinated Examinations Identify Investment Adviser Deficiencies, NASAA.org, October 15, 2007

Nationwide NASAA Exams Reveal Advisor Deficiencies, Investment Advisor, October 16, 2007

Sentinel Management Group, the Chicago-based money manager that the Securities and Exchange Commission has accused of misappropriating client assets and defrauding clients, is reportedly missing $505 million in its accounts. The National Futures Association found the shortfall during a recent investigation.

The missing funds could bring up questions regarding a settlement that Sentinel made to creditors and Citadel Investment Group.

According to the SEC, the money manager allegedly mixed up funds from clients with its own funds. The Financial Times says that creditors from one account were given their money back after Citadel bought a number of assets. The SEC was opposed to the transfer, however, saying that the refunded assets likely belonged to creditors from a different account.

The FTA, however, says that there is currently no hard evidence to support the SEC’s conclusion that the assets that were refunded came from another account. The investigation will continue and the assets could still be found.

NFA president Daniel Roth says that customers of future traders have not lost any money due to Sentinel. He cited the $321 million that the Bank of New York lent to Sentinel as the main source of the missing funds.

The NFA is the in-house agency of the futures industry that examines trading practices. The Commodity Futures Trading Commission, the futures market overseer of the U.S. government, is also conducting its own probe of Sentinel.

Roth says that investigators are focusing on commingled accounts, rather than accounts that were kept separate.

If you are an investor that has lost money because of the wrongful or illegal actions of any individual or company within the securities industry, do not hesitate to call Shepherd Smith and Edwards and ask to speak with one of our securities fraud attorneys. We can represent you and protect your interests and we will do everything to recover your lost funds for you.

Related Web Resources:

Sentinel missing $505M, says NFA, Investment News, September 5, 2007

Investigator: Sentinel missing $500 mil., Chicago-Sun Times, September 1, 2007

Citadel removed from Penson suit, Chicagotribune.com, September 5, 2007

MERRILL LYNCH: The firm’s retail brokerage revenues increased 13% to $3.3 billion, and new profits were up 23.7 %. Its broker count rose to 16,200 and it claims “net positive recruiting against all our major competitors, along with its lowest turnover of top producers in years. The firm also reported a rise in fee-based business, as it and other Wall Street firms operate on a short reprieve from the SEC to either register its representatives under the Investment Advisor’s Act, reassign the accounts to those already registered or restructure those accounts.

BEAR STEARNS: The firm continues to suffer the slings and arrows of critics over its CMO hedge fund debacle. Meanwhile, head manager of those funds was previously reported to have maintained his golf scores at the climax of the funds. Or did he? It has been reported that a three-member committee at the Hollywood Country Club in Deal, N.J., is investigating his victory at a July 4 golf tournament, to determine whether he changed his scores. Apparently, allegations of such cheating by executives at the club are frequent.

“We're FINRA - the Financial Industry Regulatory Authority”, announced the old NASD, plus the NYSE’s regulatory functions. As we reported weeks ago, it was the third try at names for the NASD. First it offended 1.4 billion Islamic persons, then embarrassed itself with an acronym that sounded like a disease. Finally, it chose FINRA, which brought criticism from those in the financial industry that it doesn’t regulate. As we predicted, the NASD was much too arrogant to make yet another change. As well, it was intent on replacing “association” with “authority,” so it would not appear to be a fox in charge of a henhouse, despite its structure being similar to a country club (see above).

SECURITIES ARBITRATION FILINGS: Only 1,650 securities arbitration cases were filed in the first half of 2007, an annualized rate of 3,400 compared to approximately 4.500 last year. During the same period, 2,752 cases were completed, also down about 30% from the same period last year. Turnaround on all cases fell to 13.5 months, but still over 16 months when hearings were required. The stated goal of the arbitration forums for years has been for such cases to be completed in an average of less than a year.

UBS: The Company’s CEO was replaced after its international hedge fund reported millions in losses. Peter Wuffli was replaced by Marcel Roehner, who was previously deputy CEO and head of global wealth management and business banking. The Swiss banking firm expressed disappointment in its U.S. Operations, which would include several units, including recently acquired Paine Webber, Piper Jaffray and McDonald Investments.

WACHOVIA SECURITIES: Federal anti-trust regulators (I envision one guy with a big rubber stamp) this week approved the acquisition of A.G. Edwards by Wachovia. The combined firm will have 15,000 brokers, second only to Merrill Lynch (see above). The securities operation will be based in the A.G Edwards headquarters in St. Louis. Wachovia’s banking base remains in Durham NC, while builds a huge new Manhattan headquarters for its New York operations. When you learn that Wachovia is moving its entire base of operations to New York, including securities, remember that you heard it here first.

WALL STREET & FEE-BASED BUSINESS: Will Wall Street lose its fee-based business? For decades Wall Street firms have sought assets under management and shied away from commission based business. Rather than “stock jockeys” they wanted “asset gatherers”. The goal was to earn a predictable 1% to 2% return on a larger asset base. A Federal Court in D.C. upset Wall Street’s applecart by deciding its brokers’ licenses did not exempt them from coverage under The Investment Advisor’s Act (IAA) when were acting as investment advisors. Wall Street sought time to adjust. They could simply license all their brokers under the IAA, some are already licensed, but they desperately seek to avoid the “fiduciary” duty of the IAA. Meanwhile, the SEC (Securities Executives’ Comrade) hurries to “tighten” the IAA. Mark my words, the final version of any bill will include an exemption for Wall Street!

Shepherd Smith and Edwards represents investors nationwide in claims against the securities industry. If you, your firm or your pension fund has sustained losses as a result of fraud, negligence or other wrongdoing and are curious whether you may be able to recover all or part of your losses contact us to arrange a free consultation with one of our attorneys.

For more almost forty years I could fell safe knowing that if a company's stock symbol had three letters it was listed on the New York Stock Exchange or possibly the American Stock Exchange. If the symbol had four or five letters, it was listed on the NASDAQ.

Delta Financial Corp. (DFC) recently transferred its listing to from the Amex to Nasdaq and sought to use the same symbol. Despite numerous (well-founded, I hasten to add) objections, the SEC decided to approved a rule change to permit an issuer to keep its three-character ticker symbol if it transfers its listing to Nasdaq from another domestic listing market.

The SEC says it approved the change to avoid the anti-competitive effect of the prior ban. It added that there was little reason to impose the costly and disruptive burden involved in changing a company's ticker symbol if it simply wants to list on another exchange.

So, Delta, are you happy now? Why ruin it for the rest of us? I do not really know why this is such a big deal for us diehards. There was just something comfortable in knowing that if it was three letters ... Look, I was finally learning how to post blogs on the internet when you hit me with this! If you think for one minute I will buy a single share of your stock, forget it.

By: William S Shepherd

After joining the securities industry in 1970, William Shepherd left in 1990 to found of the law firm of Shepherd Smith and Edwards. This securities law firm represents investors seeking to recover losses in accounts at investment firms. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.