March 20, 2014

SEC Fraud Charges Filed in $1.9M Microcap Stock Scalping Scam

The Securities and Exchange Commission has filed securities fraud charges against the promoter behind affiliated microcap stock promotion websites. The regulator us accusing John Babikian of using PennyStocksUniverse.com and AwesomePennyStocks.com to engage in “scalping” which is a type of securities fraud. The SEC has also obtained an emergency asset freeze.

According to the Commission, the websites, knowing collectively as “ABS,” sent out e-mails to about 700,000 people on February 23, 2012 and recommended that they invest in America West Resources Inc. (AWSRQ), which is a penny stock. However, the e-mails did not disclose that Babikian was the holder of over 1.4 million of the stock shares, which he had positioned and was going to sell right away via a Swiss bank.

Because of the emails, there was a huge increase in the share price of America West’s stock and trading value. Babikian used this to get rid of the stock during the last 90 minutes of the trading day and raked in over $1.9M.

Over 7.8 million in shares of America West stock were traded that day as the share price hit a record high. Prior to that the stock was thinly traded and low priced. The SEC says that without the emails, Babikian would have only been able to sell over a few thousands shares and at a much lower price.

Scalping
Scalping is when a financial adviser or stockbroker recommends a security to an investor and then sells the security right after to make a profit. The financial gain occurs because so many investors have raised the price with the purchases they made.

If you think you were the victim of securities fraud related to scalping or another type of financial scheme, contact our securities lawyers today.

SEC Obtains Asset Freeze Against Promoter Behind Microcap Stock Scalping Scheme, SEC, March 13, 2014

The SEC Complaint (PDF)

March 12, 2014

Jefferies LLC Settles SEC Charges for $25 Million

Broker-dealer and investment bank Jefferies LLC (JEF) has consented to pay $25 million to settle Securities and Exchange Commission charges that it did not properly supervise traders at its mortgage-backed securities desk. These same staffers purportedly lied to investors about pricing.

The regulator contends that Jefferies did not give its supervisors what they needed to properly oversee trading activity on the MBS desk and that these managers neglected to find out what bond traders were telling customers about pricing information in terms of what the bank paid for certain securities. This inaccurate information was misleading to investors, who were not made aware of exactly how much the firm profited from in the trading.

While Jefferies’ policy makes supervisors look at electronic conversations of salespeople and traders so any misleading or false information given to customers would be detected, the SEC says that the policy was not effected in a manner that price misrepresentations were identified. The supervisory failures are said to have taken place between 2009 and 2011.

Jefferies also is accused of not looking over conversations between customers and traders that took place on Bloomberg terminals. The SEC Enforcement Division’s director, Andrew J. Ceresney, says that proper supervision by Jefferies could have caught a lot of the misstatements made by employees.

As part of the securities fraud settlement, Jefferies will pay customers over $11 million (a combination of firm profits and ill-gotten gains). It will also pay a $4.2 million penalty and $9.8 million for its nonprosecution deal reached with the U.S. Attorney's Office for the District of Connecticut over a parallel action.

It was last year that the SEC charged ex-Jefferies Managing Director Jesse Litvak with securities fraud. Litvak is accused of bilking customers that he sold MBS to so he could make additional money for the brokerage firm. Investors lost about $2 billion as a result.

Earlier this month, Litvak was convicted by a federal jury on multiple criminal counts, including securities fraud, and fraud related to the Troubled Asset Relief Program. He is currently the only person charged with fraud involving the Public-Private Investment Program, which used billions of dollars from TARP to get more people to invest in mortgage-backed securities. Meantime, civil and criminal authorities are now investigating whether others Jefferies Group traders also defrauded investors over mortgage-bond prices.

Please contact our MBS fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP today. Our securities law firm represents investors with claims against brokerage firms, investment banks, investment advisers, brokers, and other industry members. The best way to maximize the chances of recovering your investment losses is to work with an experienced securities lawyer that knows how to do the job right. Your initial case consultation with us is a free, no obligation session.

The SEC Order (PDF)

SEC Charges Jefferies LLC With Failing to Supervise Its Mortgage-Backed Securities Desk During Financial Crisis, SEC, March 12, 2014

U.S. Probes More Jefferies Traders Over Mortgage Pricing, Bloomberg, March 12, 2014

More Blog Posts:
Ex-Jefferies Trader Found Guilty in Securities Fraud Case Over Bond Prices, Stockbroker Fraud Blog, March 8, 2014

Puerto Rico Senate Votes to Sell $3.5B in Bonds
, Stockbroker Fraud Blog, February 28, 2014

SEC Investigates Whether Currency Traders Distorted ETF and Options Prices, Manipulated Currency Markets, Institutional Investor Securities Blog, March 12, 2014

February 27, 2014

SEC Staff Sold Shares Before Enforcement Actions in Securities Cases Were Made Public, Reports Study

Bloomberg is reporting that according to a new study, US Securities and Exchange Commissioner employees who own stock in companies that the agency is investigating are more likely than other investors to sell their shares in the months prior to the regulator’s announcement of an enforcement action. Shivaram Rajgopal, an Emery University accounting professor, and one of the study’s co-authors, said that there appears to be a suspect pattern of behavior going on even though the findings are not proof of misconduct.

Rajgopal and co-author Roger M. White, a Georgia State University doctoral student, obtained records from the SEC through a request they made under the Freedom of Information Act. Unfortunately, because individuals weren’t named, it was impossible to figure out whether the agency employees who traded were in jobs that might have given them insider knowledge about a pending action, and whether the action could lower stock prices, or if money was lost or made in the transactions.

Beginning August 2010, SEC ethics rules have forbidden employees from selling or buying shares in companies that are under investigation. They also have to get permission before trading, cannot trade in any financial firm that the SEC directly regulates, and they generally must hold any stock that they buy for six months before selling.

White and Rajgopal looked at 7,200 recorded trades from 2009, the year when most of the Commission’s employees were required to start notifiying the agency about their trades and investments, through 2011. Per the SEC data they obtained, Commission employees with shares in JPMorgan Chase & Co. (JPM), General Electric Co. (GE), Citigroup Inc. (C), Bank of America Corp. (BAC), and Johnson & Johnson made 87 trades in shares in the three months prior to the SEC announcing that the companies had agreed to settle enforcement claims.

As an example, prior to the SEC’s announcement that Bank of America would pay $150 million in 2010 to resolve securities claims that it misled shareholders about losses and bonuses while Merrill Lynch (MER) was acquired, over 70% of SEC employee trades were sell orders. Rajgopal noted that while some of the sales may have been done to comply with ethics rules regarding prohibited stocks, the timing was questionable.

The co-authors, offering a broader analysis of all the trades, noted that profits typically didn’t come from selecting stocks but were from excess returns, which seemed to be a result of selling shares that later dropped in value in relation to the wider market. Rajgopal and White say that this could mean that SEC employees may have sold shares belonging to companies they knew were under investigation even if the probe had not yet been made public.

Our securities fraud lawyers represent investors that have sustained losses. Shepherd Smith Edwards and Kantas, LTD LLP has helped thousands of clients get their money back.


Study Finds SEC Staff Sold Shares Before Cases Made Public, Bloomberg, February 27, 2014


Freedom of Information Act

Securities and Exchange Commission

More Blog Posts:
SEC Restructures Trial Unit in an Effort to Decrease Courtroom Losses, Stockbroker Fraud Blog, February 13, 2014

SEC Stops Texas Securities Scam Involving Oil and Gas Investments, Stockbroker Fraud Blog, January 6, 2014

SEC Accuses Private Equity Manager of $9M Securities Fraud, Institutional Investor Securities Blog, January 30, 2014

February 21, 2014

SEC Charges Investment Banker in $950K Insider Trading Scam Involving Child Support Payments

The Securities and Exchange Commission has put out an emergency action against Frank “Perk” Hixon Jr., an investment banker based in New York. Hixon Jr. is charged with insider trading that garnered him $950,000 in illicit profits that he purportedly used in lieu of making child support payments to the mother of his son.

According to the regulator, Hixon Jr. regularly went into Destiny “Nicole” Robinson’s account and made trades using confidential information that he got from his job. Illegal trades or tips in three public companies’ securities were involved, including trading using nonpublic data about Titanium Metals Corporation before its merger announcement, trading prior to a number of big announcements by Westway Group, and trading in his firm Evercore Partners’ securities before record earnings were made public in early 2013. Hixon Jr. also allegedly made illegal trades in his dad’s brokerage account.

However, when asked by his employer about the suspicious trading in both accounts, Hixon Jr. denied that he knew either his father or Robinson. He even swore in a declaration that he didn’t recognize the name of the city where his father had been residing for over a quarter of a century. Hixon Jr. has since been fired.

Now, a federal judge is granting the SEC’s request for an emergency order to freeze the brokerage account under Robinson’s name. The SEC is accusing Hixon Jr. of violating the Securities and Exchange Act of 1934’s antifraud provisions. The agency wants permanent injunction, disgorgement, and financial penalties. Meantime, the US Attorney’s Office for the Southern District of New York has filed a criminal case against Hixon Jr.

Our broker fraud lawyers represent investors who have lost money because of the misconduct of others. Call Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC Charges Wall Street Investment Banker With Insider Trading in Former Girlfriend’s Account to Pay Child Support, SEC, February 21, 2014

Read the SEC Complaint (PDF)


More Blog Posts:

Mixed Securities Verdict Reached in SEC Case Against Texas-Based Life Partners Holdings, Stockbroker Fraud Blog, February 19, 2014

Judge Reject’s AIG’s Bid to Delay $8.5B Billion Mortgage Backed-Securities Settlement with Bank of America Corp. “Hostage”, Institutional Investor Securities Blog, February 21, 2014

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

February 13, 2014

SEC Restructures Trial Unit in an Effort to Decrease Courtroom Losses

In the wake of recent losses in the courtroom, the Securities and Exchange Commission is changing up the way it gets ready for trial. The Wall Street Journal says that SEC Chairwoman Mary Jo White has retooled the agency’s trial unit. One of the reasons for the restructuring is so litigators and investigators can work more closely together.

The SEC’s victory rate has been dropping. The agency won just 55% of trials in the last four months, which a definite decline compared to the last three years when it had been winning over 75% of the time. Since October, however, juries and judges have ruled in favor of 10 out of 25 persons and firms in securities litigation against the SEC, and the government lost 5 of 11 trials. This is a definite downswing from the 12 months prior when just 5 of 34 defendants beat the regulator. Although the cases that the regulator lost were filed before White took over the helm, defense lawyers believe that the Commission’s current losing trend will compel more people to go up against it instead of settling.

The Commission’s trial unit has now been split into four groups so that this more closely mirrors the work of enforcement officials when they probe cases. Senior officials are also conducting practice openings for trials.

Some attorneys also believe that in the wake of the bigger sanctions the SEC may want for certain deals, the regulator may find it harder to convince certain individuals and firms to settle. Now that some defendants will only be able to settle if they admit to certain violations, a move that could result in even more lawsuits, this will likely compel some to go to court instead.

One high profile securities case that the SEC recently lost, and which certainly garnered a lot of attention, was the insider trading case against Mark Cuban, who owns the Dallas Mavericks. A federal jury turned down the agency’s claims that the billionaire took part in this illegal activity when he sold a stake in an Internet company to avoid losing $750,000. Jury members found that the information Cuban used wasn’t confidential and that he never promised not to trade on the data. That said, high-profile cases have not been the SEC’s only losses. In January, a jury rejected insider trading charges involving a railroad worker and his children.

After the worker deduced that a merger involving his employer was likely to happen, members of his family purchased call options and they profited approximately $1 billion. The Commission had tried to show that the employee engaged in insider trading even though he was never told about the deal. (He had guessed that one was pending because of the number of tours taking place at work.)

The regulator also has had challenges in court over accounting fraud cases, including one accusing two ex-water treatment company executives of inflating revenue and misleading an external auditor. A federal judge rejected the financial fraud charges against them.

Please contact our securities fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP today. We represent investors in court and in arbitration and have helped thousands recover lost investments via settlements and litigation.

SEC Takes Steps to Stem Courtroom Defeats, The Wall Street Journal, February 13, 2014

S.E.C.’s Losing Streak in Court Puts Agency in Spotlight, NY Times, February 10, 2014

SEC Loses as Mark Cuban Triumphs in Insider-Trading Trial, Bloomberg, October 17, 2013


More Blog Posts:
SEC Stops Texas Securities Scam Involving Oil and Gas Investments, Stockbroker Fraud Blog, January 6, 2014

SEC Goes After Alleged Ponzi Scammers, Stockbroker Fraud Blog, November 15, 2013

SEC Accuses Private Equity Manager of $9M Securities Fraud, Institutional Investor Securities Blog, January 30, 2014

January 6, 2014

SEC Stops Texas Securities Scam Involving Oil and Gas Investments

The Securities and Exchange Commission has filed securities charges and ordered an asset freeze against Janniece S. Kaelin and Robert A. Helms, who are both accused of running a Texas-based Ponzi scam involving purported investments in oil and gas projects. The regulator contends that Kaelin and Helms misled investors about their industry experience, even as they raised close to $18 million for what was supposed to be royalty interests in oil and gas. The SEC says that the two of them used most of the money to run a Ponzi scam and pay for business costs and personal spending.

Per the Commission’s complaint, Helms and Kaelin started offering investments through Vendetta Royalty Partners in 2011. They brought in at least 80 investors from numerous states.

In offering documents, they promised that over 99% of investment proceeds would be used to obtain a solid portfolio filled with oil and gas royalty interests. Instead, claims the regulator, the Kaelin and Helms put in only 10% of this money in the projects. The result was very small returns.

The Commission is taking issue with the offering documents, saying they were fraudulent and misleading and misrepresented Helms and Kaelin’s experience in the oil and gas industry. The agency also says that the two of them did not disclose that there was litigation against them and their companies or that Vendetta Royalty Partners was running behind on its credit line. (The company later defaulted.)

The regulators says that Kaelin and Helms ordered Vendetta Royalty Partners to make about $5.9 million in partnership income distributions to investors. New investors’ funds were used to make distributions to investors who had put their money in earlier.

The SEC complaint is also charging individuals Deven Sellers and Roland Barrera with illegally selling these investments (hey weren’t registered with the SEC) and misleading investors about the referral fees and sales commissions they would receive. Although they claimed that the fees would be small, each of them was paid over $200,000 for just one of the investments.

Now, the court has issued a temporary restraining order to prevent the defendants from committing more violations, as well as frozen their assets, forbidden any document destruction, and mandated for proper accounting. The SEC wants disgorgement of ill-gotten gains in addition to penalties and prejudgment interests and permanent injunctions.

Please contact our Texas securities fraud law firm if you suspect that your investment losses are do to misconduct, negligence, or fraud.

Oil and Gas Fraud
The SEC recently noted while oil and gas fraud has been a problem for a long time, with reports of new finds in Texas and North Dakota, the number of related securities fraud cases are going up. The government agency is now filing about 20 oil and gas fraud cases annually.

SEC Stops Texas Securities Scam Involving Oil and Gas Investments, SEC, December 6, 2013

Read the SEC Complaint (PDF)

SEC's Investor Alert (PDF)

Investment fraud is booming along with oil and gas drilling, SEC says, Dallas News, January 4, 2014


More Blog Posts:
Ex-NFL Running Back Ricky Williams Files $6M Texas Securities Fraud Case Against His Financial Adviser, Stockbroker Fraud Blog, December 18, 2013

Texas Securities Fraud: SEC Accuses Two Houston-Based Advisory Firms of Making Thousands of Transactions That Clients Didn’t Know About, Stockbroker Fraud Blog, November 27, 2013

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

November 15, 2013

SEC Goes After Alleged Ponzi Scammers

The Securities and Exchange Commission is pursuing securities fraud charges against Wendy Ko and Yin Nan Wang and certain entities over their alleged involvement in a Ponzi-like scam. The regulator is asking for an asset freeze against Velocity Investment Group, its managed funds, and Rockwell Realty Management, Inc. These entities are controlled by Wang and Ko.

The SEC claims that the two of them offered and sold over $150 million securities as unsecured promissory notes through Velocity and its unregistered investment funds. The offerings promised a substantial investment return rate. That said, to fulfill these interest obligations the funds needed to make returns higher than the market average.
Wang purportedly ordered that an accountant be given financial information that included material overstatements of fund receivables. He also is accused of publishing false financial data on a website.

The Commission says that Ko and Wang took newer investors’ money to pay back older investors and made transactions between Rockwell and the funds to hide the securities fraud. The two of them are accused of violating the Securities Act Section 17(a), Exchange Act Section 10(b), and Rule 10b-5.

In another unrelated Ponzi scam, the SEC got an asset freeze against companies in the US and New Zealand accused of soliciting bogus investment opportunities. The emergency action was to stop Christopher A. T. Pedras, his companies, and associates from raising more funds from US investors.

The agency says that Pedras and his partners raised at least $5.6 million from over 50 US investors through a fraudulent offering involving the Maxum Gold Trade Program and the FMP Renal Program. Pedras purportedly told investors that Maxum Gold was an intermediary between global banks so they could trade unspecified financial instruments. Pedras said that Maxum Gold would move part of the profits earned from this to investors.

The SEC says that when payments to investors by Maxum Gold were delayed in 2012, Pedras told them it was because New Zealand regulators were conducting an audit and also that there had been technical difficulties. He then started pushing the FMP Renal Program, in which investors could buy supposedly premium/preferred shares by moving in their Maxum Gold Trade Program investments.

The Commission says that half of the money Pedras and the other parties raised was used in a Ponzi-like manner to pay off older investors. Some of the funds went towards commissions, while Pedras misappropriate about $1.2 million for his own spending and certain business matters.

Pedras and his associates are charged with violating sections of the Securities Act and the Exchange Act.

Ponzi Scams
This type of fraud usually involves the fraudsters using new investor money to pay existing investors their supposed “returns.” New investors are usually solicited, promise that they are getting involved in a venture with low risk and high returns. Ponzi scams eventually fail when it becomes too hard to bring in new investors or when too many investors seek to cash out because the “earnings” run out.

SEC Obtains Asset Freeze in California-Based Real Estate Investment Scheme, SEC, November 1, 2013

SEC Halts Ponzi Scheme Involving New Zealand Companies, SEC


More Blog Posts:
Two Investors’ Securities Fraud Lawsuit Against SEC Over Stanford Ponzi Scam is Dismissed, Stockbroker Fraud Blog, August 16, 2013

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

SEC and SIPC Go to Court Over Whether SIPA Protects Stanford Ponzi Fraud Investors
, Stockbroker Fraud BLog, February 6, 2013

November 11, 2013

Advice to Advisors: Financial Advisors Taught Ways to Avoid SEC Scrutiny

According to the Securities and Exchange Commission Office of Compliance Inspections and Examinations Director Andrew J. Bowden, next year the regulator intends to examine about 4,000 registered investment advisors who have never been visited by its inspectors before. Bowden said that the agency will target about 50% of firms that have yet to be examined. Some of these investment advisers have been registered for over three years.

Of the close to 11,000 advisers that the SEC oversees, nearly 40% have never undergone inspection by the regulator. Still, some are questioning whether Bowden’s office even has the resources to perform all these inspection.

In InvestmentNews, Ascendant Compliance Management partner Keith Marks lists the compliance issues that these yet to be inspected RIAs should deal with now so that they are ready should the agency come knocking:

Form ADV disclosures, other documents: The SEC will want detailed outlines and information regarding firm procedures and policies and facts. Examiners will ask for Form ADV disclosures and other documents.

Technology controls: Expect examiners to check for adequate risk controls and technology testing. SEC director Bowden has said that compliance issues involving technology is expected to be a big issue in 2014.

Marketing: Examiners may consider marketing materials and investment performance disclosures that contain superlatives that are “seemingly innocuous” to be deficiencies.

Personal securities trading: The SEC will want to know about the holdings and personal securities transactions of certain employees. Examiners want to make sure that advisers are abiding by federal rules and have a written code of ethics.

Custody rules: Advisers that hold client funds have to meet certain requirements for choosing a proper custodian and recordkeeping. SEC examiners will likely consider any custody violation as an indicator of possible fraud.

The interview: Marks said that a common question that examiners will ask is “what are your biggest concerns?” He noted that while it is important to respond honestly, during an interview with examiners the interviewee should try to keep the conversation focused on issues that are already being proactively handled.

Our investment adviser fraud law firm represents individual and institutional investors throughout the country.

6 ways to bullet proof your practice from the SEC, Investment News, November 1, 2013

Office of Compliance Inspections and Examinations, SEC

Office of Compliance Inspections and Examinations Investment Adviser Examinations: Core Initial Request for Information, SEC


More Blog Posts:
ICE CEO Says US Equity Markets Lets Traders Advantage of Small Investors, Stockbroker Fraud Blog, November 7, 2013

Why did UBS Financial Advisors Recommend Puerto Rico Muni Bonds to Elderly and Retired Investors?, Stockbroker Fraud Blog, November 6, 2013

Puerto Rican Labor Groups Want the US Territory to Sue UBS over the Bond Debacle, Institutional Investor Securities Blog, October 28, 2013

September 18, 2013

Imperial Petroleum Charged by SEC with Defrauding Investors

The Securities and Exchange Commission is charging Imperial Petroleum and a number of its executives and suppliers with involvement in an alleged renewable fuel production scheme. The complaint names the Indiana-based company, its CEO Jeffrey Wilson, three ex-owners of E-Biofuels, and New Jersey-located companies Cima Green LLC, Caravan Trading LLC, and CIMA Energy Group, as well as their operators.

The SEC is accusing them of presenting themselves to investors as a legitimate biodiesel production business while concealing the illegal activity that was going on, which was the source of 99% of the revenue. Imperial Petroleum bought E-Biofuels as a subsidiary in 2010, and the Commission said that the latter’s owners falsely presented that they were making renewable fuel from raw agricultural products. This let E-Biofuels receive government incentives based on such representations when, actually, contends the regulator, E-Biofuels had middlemen purchase finished biodiesel while making these buys appear on bogus invoices as raw feedstock for producing biodiesel. Imperial Petroleum’s subsidiary later would sell the biodiesel that was bought for up to double what it paid.

The regulator believes that Wilson discovered that E-Biofuels wasn’t making biodiesel from raw matter, he let the fraud continue and Imperial’s yearly revenue rose from $1 million to over $100 million. Meantime, its stock price flew upward as investors were falsely told that E-Biofuels was engaged in environmentally friendly biodiesel production.

In its securities complaint, the SEC alleges that:

• Imperial made false statements in its yearly reports for fiscal years 2011 and 2010 the E-Biofuels made and sold over 28 million biodiesel gallons between 5/24/2010 – 7/31/2011. This was the same period that over 99% of Imperial’s revenues was from E-Biofuels.

• The scam resulted in over $50 million gross illicit profits.

• Between 11/09 and 1/12 E-Biofuels set up over 52 million bogus renewable energy credits and fraudulent tax credits worth $35 million.

• Investors and auditors were never notified about Imperial’s illegal business model.

• Despite discovering that E-Biofuels wasn’t operating as described in its 2010 yearly report, Wilson allegedly certified and signed the 10k filling’s accuracy.

• He also is accused of falsely portraying the company when communicating directly with prospective investors.

• E-Biofuels’ business was almost totally unsustainable and not legal.


After the scam was uncovered, Imperial’s stock price dropped to under 10 cents a share. The market loss was about $60 million.

The SEC wants financial penalties, ill-gotten gains’ disgorgement, and permanent injunctions against future violations of securities laws.

Also taking action is the U.S. Attorney’s Office for the Southern District of Indiana. Today, a federal magistrate judge unsealed the indictment against Wilson, who is charged with two counts of securities fraud, wrongful certifications as a corporate officer, and making false statements (including statements submitted in a filing to the SEC).

SEC Charges Indiana-Based Company and Executives for Defrauding Investors in Renewable Fuel Production Scheme, SEC, September 18, 2013

Read the SEC Complaint (PDF)


More Blog Posts:

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice, Stockbroker Fraud Blog, September 17, 2013

Many Financial Fraud Victims Don’t See It Coming, Says Survey, Stockbroker Fraud Blog, September 7, 2013

Former Broker Claims He is the Reason FINRA’s Regional Director Resigned, While Ex-JP Morgan Broker Files Arbitration Claim Against His Former Employer, Institutional Investor Securities Blog, June 18, 2013

September 2, 2013

SEC Votes to Amend Broker-Dealer Financial Responsibility Rules

By unanimous decision, the Securities and Exchange Commission has agreed to amendments to the Securities Exchange Act or 1934’s rules regarding customer protection, net capital, notification, and record books for broker-dealers. The regulator is seeking to enhance protections for investors and prevent business practices that are not sound.

Under The Act, broker-dealers have to satisfy certain financial requirements so that customers are protected in the event of the firm’s financial failure. The Act offers safeguards so that customer funds and securities being held by a broker are protected.

The Customer Protections Rule
Also referred to as Rule 15c3-3, the Customer Protections Rule doesn’t let broker-dealers use customer cash and securities to fund their own business. The rule mandates that customers’ cash and securities be kept separate. Significant revisions include: mandating that broker-dealers keep up customer securities and funds so there is a new segregated reserve fund designated for broker-dealer account holders, putting restrictions on cash bank accounts to keep up a reserve for protecting customer cash under the rule (not including cash deposits at bank affiliates; also placing limits on cash at non-affiliated banks to a figure no larger than 15% of the equity capital of the bank), and establishing customer notice, disclosure, and affirmative consent requirements for new accounts for programs where client cash in a securities account gets “swept” to a bank deposit product or a money market.

Books and Records Rules
Rules 17a-3 and 17a-4 obligate broker-dealers to keep up and specific business records to help the firm account for activities, which also helps securities regulators when they are checking for compliance. The main change to the rule: Large broker-dealers will have to document credit, market, and liquidity risk management controls.

The Net Capital Rule
Also know as Rule 15c3-1, this rule ensures that a brokerage firm always has for every dollar of liability over a dollar of assets that are highly liquid. Key changes include making a broker-dealer adjust its net worth when determining net capital by having them include liabilities that are third party assumed if the firm cannot show that the party can pay the liabilities, requiring that they subtract the excess of any deductible amount above the amount allowed by SRO rules allow from net capital, and clarifying that any brokerage firm that becomes “insolvent” has to stop conducting securities business.

The Notification Rule
Rule 17a-11 mandates that a broker-dealer notify securities regulators when certain events happen, such as its net capital fall under the required minimum. The major amendment to this rule is new notice requirements for when a broker-dealer’s securities lending and repurchase activities go behind a certain threshold. A brokerage firm also will have the option of reporting repurchase and stock loan activities to its DEA monthly.

Shepherd Smith Edwards and Kantas, LTD LLP is a securities law firm that represents broker fraud investors throughout the US.

SEC Adopts Amendments to Financial Responsibility Rules for Broker-Dealers, SEC, July 31, 2013

Securities and Exchange Act of 1934


More Blog Posts:

FINRA Enhances Its Arbitrator Vetting Policy, Stockbroker Fraud Blog, August 26, 2013

Citigroup Must Pay $11M Claimant for Royal Bank of Scotland Investment Losses, Says FINRA Arbitration Panel, Institutional Investor Securities Blog, August 7, 2013

Sonoma County Files Securities Lawsuit Over Libor Banking Debacle, Institutional Investor Securities Blog, July 2, 2013

August 30, 2013

Securities Headlines: UBS to Pay $4.5M Over Unregistered Assistants, $6M Ponzi Scam Allegedly Funded Reality Show, & Cherry Picking Allegations Lead to SEC Charges

UBS Settles Unregistered Assistant Allegations for $4.5M
UBS AG (UBS) has agreed to pay $4.5 million to settle state regulator allegations that its assistants may not have been licensed in the states where they conducted business. The New Jersey Bureau of Securities, which led the securities case, contends that for about six years, the financial had “client service associations” that lacked the necessary state registrations take orders.

An unknown amount of unsolicited trades were reportedly involved in these transactions between 2004 through 2010 when UBS had about 2,277 sales assistants on staff. The fine will be divided between the 50 States, DC, Virgin Islands, and Puerto Rico. By settling, the Zurich-based bank is not denying or admitting to the allegations. However, in late 2010 it modified its order-entry system so that employee state-registration statuses could be validated.


SEC Sues Over Alleged $6M Ponzi Scam that Invested in Bounty Hunter Enterprises
The Securities and Exchange Commission says that it now as an emergency court order freezing the assets of Guaranty Reserves Trust LLC and its owner John Marcum. The Indiana man is accused of defrauding over three dozen individuals by purportedly getting them to invest in promissory notes. He also is accused of promising them double-digit yearly returns with no risk to principal and told them that he would be day trading.

The regulator says that Marcum got investors to give them their retirement by presenting himself as a trader who was able to garner high returns without loss and he even provided them with account statements exhibiting yearly returns of over 20%. In truth, contends the SEC. Marcum lost over $900K on any trading he did do, while the rest of the funds paid for his lavish lifestyle or was used to invest in ventures, including a bridal shop, a bounty hunter-owned restaurant, and a reality TV show about bounty hunters.


California Investment Adviser Sued by SEC for Alleged Cherry Picking
Ian O. Mausner and his firm J.S. Oliver Capital Management are now facing SEC charges accusing them of taking part in a cherry picking scam that directed winning trades toward certain clients, such as hedge funds in which the investment adviser and his family had investments. According to the Commission, Mausner and his company also misappropriated over $1.1M in soft dollars, which are rebates or credits that clients pay for trades in their accounts.

As a result, says the regulator, investors lost about $10.7 million from the financial scam, which would have occurred from 6/08 through 11/09, with the misappropriation of soft dollars taking place after this period through 11/11. The SEC says the soft dollars were used to pay money that was owed to Masuner’s wife, business “rent” for space used in his home, “outside research” services that were actually payments made to a JS Oliver employee, and maintenance on a personal timeshare in NY. The SEC investigation into the allegations is ongoing.

Our securities lawyers represent investors that have been bilked by brokers, investment advisers, broker-dealers, hedge fund managers, and other industry professionals.

SEC says Indiana man used Ponzi scheme to fund a reality TV show, Chicago Tribune, August 26, 2013

SEC Charges San Diego-Based Investment Adviser in Cherry-Picking and Soft Dollar Schemes, SEC, August 30, 2013

UBS to pay hefty settlement over unregistered assistants, Investment News, August 26, 2013


More Blog Posts:
Lloyds, Barclays, to Set Aside Hundreds of Millions of Dollars for Allegedly Mis-Selling to Victims, Stockbroker Fraud Blog, August 27, 2013

Texas Money Manager Sued by SEC and CFTC Over Alleged Forex Trading Scam, Stockbroker Fraud Blog, August 6, 2013

JPMorgan Found Liable in Billionaire’s Subprime Mortgage Lawsuit for Over $50M in Damages, Institutional Investor Securities Blog, August 28, 2013

August 16, 2013

Two Investors’ Securities Fraud Lawsuit Against SEC Over Stanford Ponzi Scam is Dismissed

A federal judge has dismissed the securities fraud lawsuit filed by two investors against the Securities and Exchange Commission for failing to report that Allen Stanford was running a $7.2 billion Ponzi scam. According to U.S. District Judge Robert Scola, a Federal Tort Claims Act exemption that does not allow claims from deceit or misrepresentation shields the SEC from such a claim.

The plaintiffs are George Glantz and Carlos Zelaya. They contend that they collectively lost $1.6 million because of Stanford and they wanted class action securities status for investors that the latter bilked.

They argued that following four exams between 1997 and 2004 the regulator considered Stanford’s business a fraud yet did not notify the Securities Investor Protection Corp., which provides compensation to those victimized by brokerages that fail. The SEC did not sue Stanford until 2009. While Scola previously had allowed this securities fraud case against the Commission to move forward, finding that the regulator breached its duty to report Stanford’s wrongdoing, now, he says that the FTCA exemption does not give him jurisdiction over this.

Glantz and Zelaya are not the only two investors to sue the regulator over the Stanford Ponzi scam. A Louisiana securities fraud case also was filed against the SEC in 2007 by eight investors who said the fraudster's scheme cost them $18.7 billion. They accused the Commission of “negligence and misconduct” for allegedly allowing Stanford’s activities to go on for years after agency investigators detected warning signs.

Meantime, Stanford is serving 110 years behind bars. His Ponzi scam revolved around CDs sold by his Stanford International Bank that is based in Antigua.

Unfortunately, Ponzi scams continue to bilk investors each year. At our securities law firm, it is our job to help such investors recoup their losses. Contact our Ponzi scam lawyers today.

Stanford victims’ suit against SEC rejected, The Washington Post, August 13, 2013

Allen Stanford Investor Suit Should Be Dismissed, SEC Says, Bloomberg, April 8, 2011

Federal Tort Claims Act, NOLO


More Blog Posts:
US Supreme Court Considers Hearing Stanford Ponzi Lawsuits, Stockbroker Fraud Blog, October 3, 2013

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

Professional Athletes, Celebrities Often Targeted for Securities Fraud, Stockbroker Fraud Blog, August 14, 2013

August 12, 2013

SEC Stops Former Marine’s Hedge Fund Fraud That Targeted Military Folk

The Securities and Exchange Commission has secured an emergency order to stop a hedge fund scam run by ex-marine Clayton A. Cohn and his Market Action Advisors, a hedge fund management firm that is registered in Illinois. The regulator contends that Cohn pretended to be a be a successful trader and purposely targeted current military, other veterans, friends, relatives, and other unsophisticated investors, defrauding them of nearly $1.8 million.

Per the SEC, Cohn lied about his trader track record, the hedge fund’s performance, his intended use of investors’ proceeds, and his own stake in the fund. He invested less than 50% of investors’ funds, while using over $400,000 for personal spending, including a luxury vehicle, a mansion in Hollywood, and expensive visits to fancy nightclubs. To conceal his fraud and keep collecting investor money, Cohn allegedly created bogus hedge fund accounts statements reporting yearly returns greater than 200%.

The Commission filed its Illinois hedge fund fraud lawsuit in federal court in Chicago. The regulator says that Cohn ran Market Action Capital Management, which is a hedge fund, via Market Action Advisors. The regulator is charging him and his firm with federal securities law antifraud provision violations. The SEC wants permanent injunctions, financial penalties, and disgorgement of ill-gotten gains.

Affinity Fraud
Cohn runs the Veterans Financial Education Network (VFEN), which is supposedly a charity that teaches veterans about managing their funds. In VFEN press releases, Cohn made sure to say he is a former Marine and recommended that veterans select a money manager they can trust. On the VFEN website, Cohn is described as a fund manager who has overseen millions of dollars.

The term “affinity fraud” is used to describe investment schemes targeting members of a certain identifiable group, such as a religious community, ethnic circles, senior investors, alumni members, or professional groups. This type of fraud takes advantage of the friendship/trust/connection in groups of people with common ties.

To speak with an affinity fraud lawyer, contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

SEC Halts Ex-Marine’s Hedge Fund Fraud Targeting Fellow Military, SEC, August 6, 2013

Read the Complaint (PDF)


More Blog Posts:
SEC Charges Father and Son with Utah Securities Fraud In Alleged $220M Ponzi Scam Over Purported Real Estate Investments, Stockbroker Fraud Blog, December 15, 2011

SIFMA Wants FINRA to Take Tougher Actions Against Brokers that Don’t Repay Promissory Notes, Institutional Investor Securities Blog, January 17, 2012

Texas Money Manager Sued by SEC and CFTC Over Alleged Forex Trading Scam, Stockbroker Fraud Blog, August 6, 2013

August 7, 2013

SEC Adopts Rules to Protect Investors that Have Brokerage Firm-Held Assets

In a 3-2 vote, the SEC adopted rules to provide substantially more protections to investors who have assets held by registered broker-dealers. SEC Chairman Mary Jo White issued a statement saying she was confident the rules would give customers’ assets key “additional safeguards,” including the strengthening of audit requirements and enhanced oversight.

Under the new rules, broker-dealers would have to file reports with the Commission that are supposed to lead to greater compliance with financial responsibility rules. Brokerages have to start filing new quarterly reports with the regulator and yearly reports with the Securities Investor Protection Corporation by year’s end. Effective June 1, 2014, they will have to file yearly reports with the SEC.

These latest rules amend the Securities and Exchange Act of 1934’s Rule 17a-11 and Rule 17a-5. Per the rule amendments, a broker-dealer with custody of customers’ assets will have to file a compliance report with the Commission and work with an independent public accountant that is PCAOB-registered to put together a report based on a study of statements in the compliance report. Brokerage firms without custody of these assets need to submit an exemption report with the regulator noting its exemption from the requirements. Also, whether/not a broker-dealer has custody of clients’ assets, a firm has to let SRO or SEC staff look at the independent public accountant’s work papers if this information is needed to examine the brokerage firm and the accountant is allowed to talk about its findings with examiners.

Our securities lawyers work with investors that have sustained losses from stockbroker fraud. We have helped thousands of clients recoup their losses sustained due to the negligence or errors of their financial representatives.

SEC Adopts Rules to Increase Protections for Investors With Assets Being Held By Broker-Dealers, SEC, July 31, 2013

Securities and Exchange Act of 1934, Cornell.law.edu


More Blog Posts:
Texas Money Manager Sued by SEC and CFTC Over Alleged Forex Trading Scam, Stockbroker Fraud Blog, August 6, 2013

Citigroup Must Pay $11M Claimant for Royal Bank of Scotland Investment Losses, Says FINRA Arbitration Panel, Institutional Investor Securities, August 7, 2013

Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification, Says FINRA Arbitration Panel
, Institutional Investor Securities, March 19, 2013

June 26, 2013

SEC Focuses More Attention On Accounting Fraud, Variable Annuities, & Market-Maker Risk

Securities and Exchange Commission Chairman Mary Jo White says that the agency will direct more resources toward going after financial fraud and accounting fraud. She was, however, clear to point out that this did not mean that a new accounting and financial fraud unit would be created, despite calls for one by some industry members. White spoke at the CFO Network 2013, where she also announced that the Commission was modifying its “neither admit, nor deny” settlement practice. This is an announcement that our stockbroker fraud law firm addresses in a different blog post.

The Commission is currently assessing its Enforcement Division’s specialized units, and this review is expected to result in certain size refinements and mandates, as well as the establishment of maybe one or more new units. Enforcement Division co-director George Canellos, however, said that the same reason why such a unit wasn’t set up three years ago when five specialized units (focusing on market abuse, asset management, the Foreign Corrupt Practices Act, public pensions, and municipal securities) were established still holds.

The SEC said then that nearly every regional office has attorneys and experienced accountants they believed are able to handle such cases. That said, the Commission will give over more resources to surveillance and become even more proactive about identifying where there are risks in accounting issues. This will include the Division of Economic and Risk Analysis’s development of an “Accounting Quality Model” that would let the SEC identify financial statement outliers. There also will be more partnering between the Enforcement Division’s Office of the Chief Accountant and the Division of Corporation Finance to come up with more accounting leads.

In other SEC news, regulator recently put out for comment a proposed rule change by the International Securities Exchange LLC. The modification seeks to limit market-maker risk as this relates to complex orders. Market-makers would have to put in values in risk providers that are exchange provided while the kinds of complex orders allowed to “leg-into the regular market” would become limited. The ISE wants market-makers to be required to put in values in all four quotation risk-management parameters for option classes that they enter quotes in. Market-makers hopefully then would be prevented from inadvertently putting in quotes that don’t have risk-management parameters.

Meantime, the Securities and Exchange Commission's Investment Management Division is hard at work to come up for a rule for a summary prospectus for variable annuities. According to division director Norm Champ, the rule would seek to establish transparency for investors and make it easier to digest complex disclosures with more user friendly information. The IM division also is taking a closer look at “layered disclosure” for variable annuities, which would give investors specific information about products while giving them the means to ask for more data if they want it.

Our securities fraud lawyers would like to offer you a free case assessment. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Accounting Fraud Targeted, Wall Street Journal, May 27, 2013


SEC's IM Division ‘Working Hard' on Rule For Variable Annuities Summary Prospectus, Bloomberg/BNA, June 19, 2013

Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Market Maker Plus Rebate Program, SEC, April 18, 2013 (PDF)


SEC officials warn insurers on annuity disclosures, VA changes, Investment News, June 18, 2013


More Blog Posts:
“Ask and It Shall Be Received": Securities Brokers Can Wipe Complaints and Even Legal Claims Off Their Public RecordsCybersecurity Breaches, Stockbroker Fraud Blog, June 20, 2013

SEC Tells Financial Firms That Settling Without Denying or Admitting to Wrongdoing is No Longer Allowed in Certain Securities Cases, Institutional Investor Securities Blog, June 26, 2013

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

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

March 19, 2013

Securities Law and Congress Roundup: SEC Plans to Look at Corporate Political Spending Has Some Republicans Asking Why, Regulator Wants Lawmakers To Set Up Independent Auditor for Advisory Firms, & DOJ Stands by Its Record on Prosecuting Financial Firms

SEC Plans to Look at Corporate Political Spending Has Some Republicans Asking Why
In a letter to Securities and Exchange Commission Chairman Elisse Walter, a number of House Republicans, including Oversight Committee Chairman Darrell Issa (R-Calif.) and House Financial Services Committee Chairman Jeb Hensarling (R-Texas), asked why the agency plans to consider making corporate political spending disclosures a requirement when this matter seems “unrelated to its mandate” that it protect investors, maintain the markets, and “facilitate capital formation.” The lawmakers expressed concern that such a move by the SEC would be “especially problematic” seeing as it has no experience in this matter and the writing of such a rule would likely require much in terms of resources and staff.

The Congressional lawmakers said that the Commission should concentrate not on a “discretionary rule” but on a rulemaking that is mandatory. They pointed to the agency’s delays in getting the Jumpstart Our Business Startups Act efected in time for the mandated statutory deadline. They are asking why resources should be allocated to non-essential rulemaking that brings up serious concerns.

Regulator Wants Lawmakers To Set Up Independent Auditor for Advisory Firms
Recently, Ex- Securities and Exchange Commission Chairman Harvey Pitt recently said that setting up an independent entity to perform regulatory audits and compliance of investment advisors is the best way to make sure that these firms are properly examined. Pitt suggested that this entity would report to the SEC’s Office of Compliance Inspections and Examinations and help to detect certain types of fraud that might otherwise be missed.

Giving the keynote speech at the Investment Adviser Association's compliance conference on March 7, Pitt said that the Dodd-Frank Wall Street Reform and Consumer Protection Act is among recent developments that have changed the landscape for investment advisers. He suggested that the latter will have to flexible in dealing with the added regulatory requirements and challenges.

US Justice Department Stands by Its Record on Prosecuting Financial Firms
Responding to US Senators Sherrod Brown (D-Ohio) and Charles Grassley (R-Iowa) in a letter, the US Department of Justice said that while it is ready to file criminal cases against financial corporations when there is sufficient evidence, it considers deferred prosecutions and non-prosecution agreements as the essential “middle ground” between not acting at all and filing criminal cases where innocent parties would likely get hurt. Earlier this year, Grassley and Brown had asked the DOJ whether it thought some financial institutions were too important “to jail.” Noting that the department uses the U.S. Attorney's Manual to determine whether to prosecute entities, Principal Deputy Assistant Attorney General Judith Applebaum noted that, per the manual, no corporate entity that has prosecutorial immunity.

Securities Fraud
At Shepherd Smith Edwards and Kantas, LTD, LLP, our securities attorneys help investors with civil claims and lawsuits try to recoup their investment losses.

Read the letter to SEC Chairman Walter (PDF)

Congress Should Create Independent Entity To Audit Advisory Firms, Ex-SEC Chair Says
, Bloomberg/BNA, March 8, 2013

Grassley Statement at Oversight Hearing of the Department of Justice, Grassley.Senate.gov, March 6, 2013


More Blog Posts:

US Sentencing Commission is Open to Public Comment on Proposed Amendments that Could Impact Insider Trading Convictions, Institutional Investor Securities Blog, February 29, 2012

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

February 12, 2013

Securities Fraud Litigation Roundup: Former Hedge Fund Exec Admits to $1M Investment Fraud, SEC Files Penny Stock Scam Case& Class Action Claims Against Contact Lens Maker are Dismissed

Ex-Hedge Fund Exec Pleads Guilty to $1M Investment Fraud
In the U.S. District Court for the Southern District of New York, ex-hedge fund principal Berton Hochfeld pleaded guilty to wire fraud and securities charges over his alleged role in an investment scam that bilked investors of over $1M. He had been the organizer of limited liability Hochfield Capital, the general partner of Heppelwhite Fund LLP, which was set up to invest in publicly traded securities.

According to prosecutors, Hochfeld issued false representations to investors about the investments they made while misappropriating their money. He also is accused of taking money from Heppelwhite. Hochfeld will pay restitution and forfeit illegal profits. He will be sentenced this summer.

Securities and Exchange Commission Files Penny Stock Scam Case
The SEC is suing 12 entities and four individuals for allegedly running a penny stock scam that involved the acquisition of unregistered microcap company shares at discounted rates and then selling them while making false claims of registration exemptions per federal securities laws. Per the Commission, from 2007 to 2010 the defendants obtained unregistered shares in microcap companies at a discount of 30-60% by telling the companies that they wouldn’t resell the shares right away and instead keep them for investments when, actually, they did sell them immediately while making fraudulent claims that the shares were exempt from registration under the 1933 Securities Act’s Regulation D.

Actions allegedly taken included setting up virtual corporate presences in Texas and other states to make it appear as if compliance with claimed exemption was taking place and getting lawyer opinion letters that talked about the defendants’ intention to keep the shares for investment purposes. They also are also accused of using these letters to get stock certificates sans restrictive legends so they could resell the shares right away.

Class Action Securities Claims Against Contact Lens Maker are Dismissed
The U.S. District Court for the Northern District of California has dismissed a securities fraud class action lawsuit against Cooper Cos. Inc. (COO) and some of its former and current executives. The complaint had accused them of making false and misleading statements about “Avaira” contact lenses, which were defective, to raise the company’s share price. The executives also allegedly sold their company shares, making more than $14.2 million in illicit benefits. The plaintiffs are claiming 1934 Securities Exchange Act violations.

Noting that the lawsuit did not satisfy the Private Securities Litigation Reform Act’s pleading requirements and did not allege facts supporting that there was a “strong inference of scienter” or that the share price had become inflated due to omission or representation, the district court granted the defendants’ motion to dismiss.

Greenberg v. Cooper Cos. Inc. (PDF)

Securities and Exchange Commission v. Garber et al, Justia

United States v. Hochfeld (pdf)


More Blog Posts:
Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Reviving Antifraud Lawsuit Over Alleged Market-Timing Practices From Over Five Years Ago is Not the Answer, Say Ex-SEC Officials, Institutional Investor Securities Fraud, December 22, 2012

Reviving Antifraud Lawsuit Over Alleged Market-Timing Practices From Over Five Years Ago is Not the Answer, Say Ex-SEC Officials, Institutional Investor Securities Fraud, December 22, 2012

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