Stock Broker Fraud Blog

The Securities and Exchange Commission has issued a staff letter reporting on the “common weaknesses and deficiencies” shared by SEC-registered companies. The findings were based on examinations given to the firms.

The “ComplianceAlert Letter” is intended to provide key information, encourage compliance officer to address these issues, and foster “robust compliance” within the industry. The letter, the second one sent in as many years by the SEC, is sectioned into distinct areas focusing on broker-dealers, investment advisers/mutual funds, and transfer agents.

Among the deficiencies:

• Failure to comply with procedures and polices
• Questionable personal trading practices
• Proxy service provider issues
• Proxy voting
• Valuation and liquidity issues
• “Free lunch” seminars

Examiners recently finished a review of a number of big broker-dealers to evaluate their “valuation and collateral management practices” and how these impact subprime mortgage-related products. The SEC examiners noted that it had become increasingly difficult for firms to confirm inventory valuations because of insufficient market liquidity.

Issues of concern included:

• Inadequate staff and supervisory procedures
• Insufficient documentation standards
• Pricing inconsistencies
• Lack of margin call processes

The agency also expressed concern that transfer agents may be engaged in a conflict of interest because they receive a partial search fee related to the search process for “lost” security holders and using third-party search companies.

Contact the stockbroker fraud law firm of Shepherd Smith Edwards and Kantas LLP today.

Related Web Resources:

Read the SEC ComplianceAlert, July 2008

SEC Compliance Alert Warns Investment Advisers on Ethics, Hedgeco.net

At the 28th Annual Ray Garrett Jr. Corporate and Securities Law Institute, Securities and Exchange Commission's Chicago Regional Office Director Merri Jo Gillette told lawyers that the challenges of maintaining and deploying enforcement resources continues for the SEC.

Gillette says that the fiscal challenges brought about by the flailing US economy and the Iraq war that have affected other federal agencies are also impacting the SEC. Because of this, the SEC’s enforcement group’s 1,000 staff members are choosing to focus on the most urgent matters while maintaining an effective presence in “as many areas as we can.”

The SEC Enforcement Official said the division had developed a number of working groups, each one focusing on one securities enforcement issue. Working groups currently are concentrating on the issues of municipal securities, insider trading and hedge fund misconduct, sub-prime lending-related fraud, and options backdating.

Members of each groups are experts from across the United States that meet regularly via conference calls to discuss any new developments or concerns. The groups also are tasked with giving SEC staff members that are not part of the groups the latest information on the respective issues.

The SEC has also organized a number of issue-specific enforcement teams currently concentrated on frauds involving financial fraud, microcap stocks, Internet-based frauds, and Foreign Corrupt Practices Act violations.

Gillette said that issuers that take meaningful internal steps to remedy problems and work with agency investigators would receive credits that could reduce penalties against them and allow them to potentially escape prosecution.

During her speech, Gillette emphasized that her commentary did not necessarily reflect the SEC’s views.

The stockbroker fraud law firm of Shepherd Smith and Edwards represents victims of investor fraud. Contact Shepherd Smith and Edwards and ask for your free consultation.

Related Web Resources:

28th Annual Ray Garrett Jr. Corporate and Securities Law Institute, Northwestern Law, May 1 and May 2

Merri Jo Gillette Named Regional Director of the SEC's Midwest Regional Office, SEC.gov, June 8, 2004

SEC Division of Enforcement

The Securities and Exchange Commisison is charging vFinance Investment Inc., its President Richard Campanella, and former New Jersey Branch Manager Nicholas Thompson for failing to keep records and show them to Commission staff. The SEC’s need for the e-records stemmed from possible securities fraud involving a company that vFinance is the market maker for.

The Securities and Exchange Commission is accusing Thompson of erasing documents, e-mails, and instant messages from his computer’s hard drive even though he knew that the records had been requested by the commission. By law and according to vFinance’s policies, e-mails and instant messaging communications with clients must be preserved.

The SEC says that vFinance Investment President Campanella should have made sure that the documents were being preserved. He was reportedly “on notice” that vFinance was not keeping Thompson’s business records.

The SEC says that Campanella should have made sure that the document requests were met. For more than 18 months, Campanella allegedly failed to search for and produce the requested documents.

The SEC will determine whether it will fine the brokerage firm, Campanella, and Thompson.

The stockbroker fraud law firm of Shepherd Smith and Edwards has helped thousands of victims of investor fraud recoup some—if not all—of their losses. Contact Shepherd Smith and Edwards for your free consultation today.

Related Web Resources:

Enforcement Proceedings, SEC.gov, January 3, 2008

vFinance Investments Inc.

The Securities and Exchange Commission says that it has brought about over 45 enforcement actions involving scams targeting senior investors in the past two years. At the ALI-ABA Life Insurance Company Products Conference earlier this month, SEC Enforcement Director Linda Thomsen talked about the agency’s efforts to fight fraud against the elderly. She expressed concern over the fact that there are so many investment schemes out there focused on defrauding the elderly.

Thomsen said that the SEC has targeted a number of cases involving supervisory deficiencies. In one case, a Georgia broker convinced the Fulton County Sheriff’s Office that it was investing with a MetLife affiliate, when, in fact, the affiliate was actually affiliated to the broker.

Thomsen says MetLife knew their broker had compliance issues yet failed to supervise him properly and let him work in a “detached location.” The broker also convinced the sheriff’s office that an investment was permissible when it was not.

Variable insurance products sometimes sold by representatives primarily in the insurance sales business also raised red flags for the SEC. Thomsen raised concerns that these representatives may not be committed to obeying federal securities laws.

Sales practices and suitability issues were among other concerns that Thomsen cited for making variable insurance products an area with opportunities for defrauding investors. She cited the high level of exchange activity involving complex variable insurance products and the high commission payouts that representatives received for the sales.

Many “free lunches” for seniors are actually “hard sell” sessions that, once again, create opportunities for the sale of variable insurance products. Thomsen also mentioned conflicts of interest involving fiduciaries as a common problem.

Trying to recover your lost investment without the help of an experienced stockbroker fraud lawyer on your site can be difficult. At Shepherd Smith and Edwards we have helped thousands of investors recover their losses caused by broker misconduct. We have represented our clients in arbitration and in state and federal courts. Contact Shepherd Smith and Edwards today.

Related Web Resources:

Remarks Before the 2007 ALI-ABA Life Insurance Company Products Conference, SEC.gov, November 8, 2007

Senior Investment Fraud News and Alerts, NASAA.org

For Seniors, SEC.gov

The Securities and Exchange Commission and U.S. Attorney for the Eastern District of New York have filed cases accusing a former MetLife employee of what is perhaps a new low in securities fraud: Misappropriation of funds from the widow of a victim of the September 11 terrorist attack on the World Trade Center.

The SEC said that defendant Kevin James Dunn Jr., then an employee of MetLife Securities Inc., was friends with the widow and convinced her to invest her terror-attack compensation funds with him and MetLife. The SEC said Dunn "then proceeded to betray the customer's trust" by engaging in a "series of material misrepresentations" about the purchase and sale of securities in her account. That and other fraudulent actions were "aimed at swindling [the client] out of a substantial portion" of her 9/11 widow's compensation.

Dunn allegedly misappropriated $248,000 from the client by creating a joint account in both their names, forging her signature on transaction documents, and "telling her outrageous lies" concerning the status of the account. He also deceived her into providing him with blank checks which he used to deposit funds into his own bank account.

Although MetLife terminated Dunn in February, the SEC claims he continued to deceive the widow for two months by acting as if he still was a broker employed at MetLife. It is unclear whether MetLife had knowledge of the brokers’ activities at the time of his departure or whether it provided any warning of those activities to any client.

Shepherd Smith and Edwards represents investors nationwide in claims against securities firms. We have represented investors in more than 1,000 securities cases. To learn whether we could assist you with a claim contact us to arrange a free consultation with one of our attorneys.

38 stock loan traders from A.G. Edwards, Morgan Stanley, Oppenheimer, and Nomura Securities are accused of stealing over $12 Million in stock loan kickbacks from their Wall Street firms. The Securities and Exchange Commission has charged the employees with the more than $12 million theft.

The SEC says that from 1998-2006, the traders worked with fake stock loan finders to skim profits from their employers through finder fees as well as cash kickbacks from finders. The stock loan traders conducted actual, legal stock loans but logged that the transactions involved finders, so there would be finder’s fees.

The finders were usually friends or relatives of the traders who were in charge of illegitimate “shell companies” that were not even a part of the stock loan business. The “finder” would then pay traders with kickbacks. The more sophisticated scams involved traders using their kickbacks to pay the other traders who had pushed through the loan transactions.

21 stock shell companies/stock loan finders (including a perfume salesman, a mailman, a dental receptionist, and a pharmacist) and 17 former and current stock loan traders now face SEC charges. The SEC says a few of these illegal operations took place in bars and restaurants throughout New York City where participants passed around payments worth thousands of dollars. The money was wrapped in newspapers or in envelopes.

In one case, two stock loan traders from Morgan Stanley are accused of stealing $1 million in undisclosed kickbacks from a shell company run by one of the trader’s relatives.

Federal prosecutors have filed charges of criminal fraud and conspiracy against 5 of the stock loan traders. 10 people have pled guilty in the case.

If you are an investor that has lost money because a member of the securities industry engaged in illegal activities, you should contact Shepherd Smith and Edwards today. We have helped thousands of people recover their financial losses. One of our experienced securities litigation attorneys would be happy to speak with you.

Related Web Resources:

US SEC charges 38 traders in stock loan scheme, Reuters, September 20, 2007

SEC Charges 38 Defendants in Multi-Million Dollar Stock Loan Scams, SEC.gov, September 20, 2007

The Securities and Exchange Commission has filed Morgan Stanley $7.5 million to settle charges that it provided insufficient written trade confirmations to its customers for municipal securities and bonds.

Morgan Stanley Dean Witter, Inc, a subsidiary of Morgan Stanley, furnished customers with trade confirmations that had missing or incorrect information relating to yield, call dates and/or prices and other features of the bonds, the SEC said.

This sanction by the SEC against Morgan Stanley Dean Witter comes on the heals of $10.4 million in fines against 14 other broker-dealer firms by the New York Stock Exchange over similar charges. Morgan Stanley agreed to pay the settlement without admitting or denying the commission's findings in its investigation.

Shepherd Smith and Edwards represents investors nationwide in claims against securities firms. We have represented investors in more than 1,000 securities cases, including dozens against Morgan Stanley Dean Witter. To learn whether we may be able to assist you with a claim contact us to arrange a free consultation with one of our attorneys.

Morgan Stanley to pay $7.5 mil., Reuters, October 10, 2007

The Securities and Exchange Commission and the Department of Justice have separately filed charges against a number of people for their alleged involvement in a $12 million stock-loan fraud scam.

The criminal case involves charges filed for securities fraud conspiracy and other charges against stock-loan traders at Janney Montgomery Scott LLC and Morgan Stanley, including Anthony Lupo, Peter Sherlock, Donato Tramontozzi, Craig DeMizio, and Andrew Caccioppoli.

The DOJ says charges stem from its going investigation kickbacks and bribery that are allegedly happening within the securities industry. It says that securities firms frequently borrow and lend securities to each other, as well as coordinate short-sale transactions. Stock-loan finders look for inventories of a given security and match lenders and borrowers for transactions.

the DOJ says that several stock-loan traders illegally funneled millions of dollars in fraudulent finder fees to co-conspirators, even when finders’ services had not occurred. In return, the traders received cash bribes or payments made to their family members.

The defendants are facing up to 25 years in prison for conspiracy. A conviction of money laundering carries up to 20 years in prison. “Structuring” and false statement convictions can lead to up to five years in a federal penitentiary.

The SEC filed two lawsuits against 38 defendants. 17 current and ex-stock-loan traders from a number of brokerage firms, such Morgan Stanley, Janney Montgomery, Van der Moolen, Oppenheimer, A.G. Edwards, and Nomura Securities, are among the defendants.

The SEC says that the defendants regularly defrauded the brokerage firms that they worked for, as well as other people, by taking part in collusive loan transactions. As a result, the firms had to pay sham finder fees to firms that the traders, their friends, or family members controlled. These firms acted as fronts. They received large finder fees on thousands of stock loan transactions even though they did not provide a finder fee service. In many instances, the firms were not involved in the stock loan industry at all.

A few of the SEC defendants have already settled the charges by agreeing to be barred from the securities industry and from future violations. By settling, the defendants are not admitting to or denying wrongdoing. Three of the civil defendants say they will disgorge $94,262 in total and prejudgment interest.

If you have lost money because of the fraudulent actions of a securities industry member, you should contact Shepherd Smith and Edwards right away. We are stockbroker fraud attorneys that are known for our ability to help our investor clients recover their losses.

Contact Shepherd Smith and Edwards today and ask for your free consultation.

Related Web Resources:

38 charged in alleged stock loan scam, Newsday.com, September 20, 2007

Five Wall Street Workers Accused Of Fraud, WNBC.com, September 20, 2007

Callan & Associates has settled charges made by the SEC that the pension consultant firm incompletely disclosed a conflict of interest in an investment adviser registration form. The firm has agreed to obey the SEC’s cease and desist order.

According to the SEC, Callan told clients that BNY Brokerage Inc. is its preferred securities broker, but failed to disclose that Callan received payments based on the amount of commission it could generate from investors for BNY. The SEC says that not revealing this key information resulted in Callan’s disclosure to be misleading.

Callan sent letters to retirement clients every year to let them know that BNY is the firm’s preferred broker and clients could use BNY to pay Callan for services through direct brokerage. The letters, however, failed to reveal that the amount of compensation that Callan received from BNY depended on how much commission came from Callan clients.

Under the Callan-BNY contract, BNY said it would pay Callan an annual fee, which was 8% of what was contingent on BNY’s generating gross brokerage commissions over a certain minimum threshold that had come from Callan clients. This contract was in effect from 1998 until 2006.

The Securities and Exchange Commission told Callan that it needed to cease and desist from violating Section 207 of the 1940 Investment Advisers Act, which makes it illegal to purposely misrepresent or mislead by omission when filing a commission report or in a registration application.

It is against the law for an investment consulting firm or a brokerage company to withhold, exclude, or misrepresent key information or facts about an investment from an investor. If an investor loses money because of an omission or misrepresentation, the consulting company or brokerage firm can be held legally liable.

In the United States, Shepherd Smith and Edwards has helped thousands of clients that have been the victim of investor fraud recover their losses. Contact us online or call us, toll-free, at (800) 259-9010 and ask for your free consultation with one of our experienced securities litigation lawyers.

Related Web Resources:

Pension adviser Callan cited by SEC on disclosure, Reuters, September 21, 2007

Callan Associates

Edward D. Jones & Co. will pay $75 million to settle charges by the Securities and Exchange Commission that it failed to adequately disclose financial incentives to sell mutual funds from its Preferred Families of mutual funds.

The SEC also said that Edward Jones did not make adequate disclosures on its website about its revenue sharing, its directed brokerage payments and other payments for distribution of mutual fund shares. The firm was also accused of failing to disclose information about college savings (or “529") plans it sold.

Edward Jones agreed to pay $37.5 million in civil penalties, as well as $37.5 million in disgorgement, and to alter its website disclosures about the preferred mutual fund family program and the college savings plan, but neither admitted or denied the claims against it.

Shepherd Smith and Edwards represents institutional and individual investors nationwide in claims against members of the securities industry. We have served thousands of victims of misconduct by investment firms and their representatives, including those at Edward Jones & Company. To learn whether our firm can assist you, contact us to arrange a free consultation with one of our attorneys.

After a widespread investigation into late-trading of mutual funds the SEC levied sanctions against various mutual fund management companies and others, including fines as well as orders to disgorge profits and to reimburse the victims of the fraudulent trading. In 2004, Invesco was ordered to pay $325 million and AIM Advisors was ordered to pay $50 million.

The basis of the fraud was simple: Closing prices of mutual fund shares are set based on closing prices of the shares held in the funds. However, inflow and outflow of funds can legitimately occur based on orders placed prior to the close. The fraudulent orders were placed after the market closed but were made to appear as earlier orders. Those transacting the late orders had the unfair advantage of news announced after the close as well as post-closing changes in stock prices.

Over several years, billions were reaped from such improper market timing activities. The victims of the fraud were the millions of legitimate owners of the mutual funds. The SEC has established what it calls “Fair Funds” to reimburse victims of late trading and other scams. This week over $300 million will be also distributed to Time Warner shareholders who bought based on improper financial data. The SEC says that, with these distributions, the total paid from Fair Funds now tops $2 billion.

Shepherd Smith and Edwards represents individuals and institutions who are victims of securities fraud. We have represented thousands of investors nationwide to recover. If you our your firm have lost money in because of misconduct by those in the securities industry contact us to arrange a free consultation with one of our attorneys.

The Securities and Exchange Commission recently made a $37 million disbursement to more than 300,000 investors in the Columbia Funds who were injured in the widespread fraudulent mutual fund market timing scandal. The SEC said this was the first of four anticipated distributions of approximately $140 million total to be paid to 600,000 affected Columbia account holders.

These funds were obtained in a settlement in 2004 with Columbia Management Advisors Inc. and Columbia Funds Distributor Inc. The SEC had charged that between 1998 and 2003, the two entered into or allowed arrangements to market-time Columbia funds.

The SEC has returned more than $1.8 billion through such distributions, said Linda Thomsen, director of the agency's Division of Enforcement. Additional information can be learned by contacting David P. Bergers, John T. Dugan, or Celia D. Moore in the SEC's Boston Regional Office at 617-573-8900.

Shepherd Smith and Edwards represents individuals and institutions with claims against investment firms. If you or your firm are the victim of misconduct by members of the securities industry, contact us to arrange a free consultation with one of our attorneys.

Related Web Resource:

Full Text of the Discribution Plan

The former chief administrative officer of Trautman Wasserman & Co. Inc. agreed to pay a $50,000 fine to settle SEC administrative charges he helped facilitate a scheme to engage in late-trading in mutual funds shares on behalf of certain favored customers and for the firm's own account.

The man who once served as TWCO’s "de facto chief compliance officer" consented, without either admitting or denying wrongdoing, to be barred from the securities industry, cease and desist from future violations and cooperate in the SEC’s investigation.

Earlier this year, the SEC charged the executive, TWCO and five of its other officials over their alleged roles in the scheme. The SEC claims included that he and two others he supervised thwarted efforts by mutual fund companies to curtail excessive timing.

According to the SEC, the three used various means to conceal from the fund companies the identities of the firm's market timing customers as well as the involvement of two TWCO brokers who were "widely known" to work with market timers.

Shepherd Smith and Edwards represents individuals and institutions with claims against investment firms. If you or your firm are the victim of misconduct by members of the securities industry, hiring an experienced law firm can increase your chances of recovery. Contact us to arrange a free consultation with one of our attorneys.

Related Web Resource:

In re Trautman Wasserman & Co. Inc., SEC, Admin. Proc. File No. 3-12559, 6/29/07

Text of SEC's Order

The Securities and Exchange Commission filed an emergency action in a Dallas federal court against Amerifirst Funding, Inc. and Amerifirst Acceptance Corporation alleging fraud.

The SEC contends that the offering of securities, known as Secured Debt Obligations ("SDOs"), are notes purportedly secured by automobile financing receivables created or purchased by the defendants. The district court entered temporary restraining orders suspending the offering, freezing the defendants' assets and requiring an accounting and repatriation of assets.

The court also appointed a receiver to secure assets for investors, and ordered defendants to preserve documents and submit to expedited discovery. The SEC says the ruling has frozen the assets of the investment firm, which it accused of running a scam that targeted senior citizens, mostly in Texas and Florida, since early 2006.

The complaint says the firm violated securities laws, including representing the investments were virtually risk-free when the fund instead invested in risky high-yield bonds, stocks and options. The firm's managing director is also accused of spending $4.7 million of investors' money for personal use, including land, cars, travel and child support.

Other individuals connected with Amerifirst and subsidiaries of the firm were also named in the civil action. An attorney for individuals named said they would vigorously contest the accusations.

SEC v. Amerifirst Funding, Inc., et al. (U.S.D.C., Northern District of Texas, Dallas Division, Civil Action No. 3:07-CV-1188-D)

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against investment firms. To learn whether our firm can assist you or your firm, contact us to arrange a free confidential consultation with one of our attorneys.