SEC Enforcement :: Stock Broker Fraud Blog

Home > SEC Enforcement

August 3, 2010

Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million

For $75 million, Citigroup will settle federal allegations that it failed to disclose that its subprime mortgage investments were failing while the market was collapsing. This is the first securities fraud case centered on whether investment banks fairly disclosed their own financial woes to shareholders.

Unlike the Goldman Sachs case, which resulted in a $550 settlement and involved allegations that the investment bank misled investors, Citigroup is accused of misleading its shareholders. This also marks the first time the SEC has filed securities fraud charges against very senior bank executives for their alleged roles in subprime mortgage bonds.

The SEC contends that Citigroup failed to reveal the true nature of its financial state until November 2007. Just that summer the investment bank told investors that it had about $13 billion of exposure to subprime mortgage related-assets that were declining in worth. However, Citigroup left out about $43 billion of exposure to similar assets that bank officials thought were very safe.

Key evidence against Citigroup centers on an announcement that it prepared for investors that cautioned that the quarter was likely going to be one of lower earnings in the fall of 2007. However, the investment bank did not reveal its full subprime exposure. Former Citigroup investor relations head Arthur Arthur Tildesley Jr., who has agreed to pay an $80,000 fine over allegations he omitted key information in the shareholder disclosures, is accused of preparing the statement. Former chief financial officer Gary L. Crittenden, who has settled the SEC case against him for $100,000, recorded the audio message to investors.

The government was eventually forced to bail out the investment bank. Citigroup is not admitting to or denying the charges by consenting to settle. Now, however, the investment bank has to defend itself from private shareholder complaints.

Related Web Resources:
SEC Charges Citigroup and Two Executives for Misleading Investors About Exposure to Subprime Mortgage Assets, SEC, July 29, 2010

Citigroup Pays $75 Million to Settle Subprime Claims, NY Times, July 29, 2010

Citigroup agrees $75m fraud fine, BBC News, July 29, 2010

Continue reading "Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million" »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Citigroup , Financial Firms , SEC Enforcement , Securities Fraud , Subprime Mortgage

Bookmark:

July 31, 2010

Dallas Billionaire Brothers Charged with Texas Securities Fraud

Following a six-month probe, US Securities and Exchange Commission has charged two Dallas billionaires with Texas securities fraud. Brothers Charles and Samuel Wyly are accused of taking part in a financial fraud scheme that garnered them over $550 million in illicit gains.

The two men are accused of trading stock in four companies that they were the directors of and devising a securities scheme involving bogus subsidiaries and trusts in the Cayman Islands and the Isle of Man to cover up over $750 million of stock sales in Sterling Commerce Inc., Michaels Stores Inc, Scottish Annuity & Life Holdings Ltd., and Sterling Software Inc.

The SEC is also accusing the Wylys of making an insider trading gain of $31.7 million when they made a bet in Sterling Software, which they own, that was “massive and bullish” in 1999 after deciding to sell the company. Computer Associates bought the firm for $4 billion in stock in March 2000.

Also charged with Dallas securities fraud is the Wylys' attorney Michael French and broker Louis Schaufele.The SEC claims that the Wylys and French either should have known or knew that they had disclosure obligations because of their roles as owners and directors of over 5% of company stock. The defendants are accused of issuing hundreds of misleading statements that allowed the brothers to conduct trades without detection, including large block trades involving of over 14 million shares.

The SEC contends the two brothers used the proceeds from the alleged Texas securities fraud to acquire real estate, art, and jewelry. They also are accused of using the money to donate to charitable causes.

The SEC wants to get back ill-gotten gains, impose civil fines, prevent the two men from serving as director or officer of a public company, and other remedies. An attorney for the brothers says that the securities charges are without merit.

"This is a situation in which wealthy investors may find that they can seek tax refunds by characterizing the loss on their investment as a “theft lost” rather than as a capital loss carry-forward. In total, our clients have received millions of dollars in refunds using this technique," says Dallas Securities Lawyer William Shepherd.

Related Web Resources:
SEC Charges Corporate Insider Brothers With Fraud, SEC, July 29, 2010

SEC Charges Wyly Brothers With $550 Million Fraud, ABC News, July 29, 2010

Continue reading "Dallas Billionaire Brothers Charged with Texas Securities Fraud " »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Insider Trading , SEC Enforcement , Securities Fraud , Texas Securities Fraud

Bookmark:

June 4, 2010

Alleged $800 Affinity Fraud Scheme Prompts SEC to Sue GTF Enterprises and Its Money Manager

U.S. Securities and Exchange Commission has filed a securities fraud lawsuit against investment firm GTF Enterprises Inc., money manager Gedrey Thompson, and associates Sezzie Goodluck and Dean Lewis. The SEC claims that GTF and Thompson targeted investors from the African-American and Caribbean communities in Brooklyn, NY. The affinity fraud scam bilked at least 20 investors of over $800,000 between 2004 and 2009.

The SEC claims that Thompson convinced clients to invest the money in GTF in exchange for lucrative investment returns with guaranteed safety of principals and other promises. He then went on to invest a “fraction” of the clients’ funds (losing thousands of dollars in the process), while using hundreds of thousands of their dollars to pay for his own expenses. The affinity fraud scheme cost some investors their life savings.

Among the multiple misrepresentations that the SEC says Thompson made to investors was the claim to one client that her investment was “150% guaranteed.” He allegedly told another investor that he could make him a millionaire. Thompson and GTF allegedly covered up the securities fraud by generating bogus quarterly account statements for clients. Goodluck and Lewis are accused of helping Thompson with his investment scheme.

“Our firm has handled many affinity fraud cases and has recently seen a substantial increase in such claims, remarked Stockbroker Fraud Attorney William Shepherd. “Affinity fraud occurs when dishonest people target victims who trust them because of a common language, race, religion, background or even occupation. It is reprehensible when stockbrokers, financial advisors and others take advantage of this common bond. Fortunately, most judges, juries and arbitrators who decide these cases agree. However, some affinity fraud victims are hesitant to take legal action to recover their losses. Others properly feel it is their duty to ‘clean up' their own neighborhood.”

Related Web Resources:
SEC Says New York Investment Firm GTF Defrauded Investors, Wall Street Journal, May 28, 2010

Read the SEC Complaint (PDF)

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Affinity Fraud , SEC Enforcement

Bookmark:

May 19, 2010

JP Morgan Chase & Co. Accused of Securities Violations Involving Guaranteed Investment Contracts and Derivatives

In a May 10 Securities and Exchange Commission filing, JP Morgan Chase & Co. says that an SEC regional office intends to recommend that the agency file charges against the investment bank for securities violations involving the selling or bidding of derivatives and guaranteed investment contracts (GICs). JP Morgan says the Office of the Comptroller of the Currency and a group of state attorneys general are looking into the allegations. The investment bank is cooperating with investigators.

JP Morgan’s Form 10-Q details the bank’s activities during the first quarter of 2010. The investment bank says that Bear Stearns is also under investigation for possible securities and antirust violations involving the sale or bidding of GICs and derivatives. JP Morgan acquired Bear Stearns in 2008.

Guaranteed Investment Contract
GICs are sold by insurance companies. Other names for GIC include stable value fund, capital-preservation fund, fixed-income fund, and guaranteed fund. GICs are considered safe investments with a value that remains stable. They usually pay interest from one to five years and when a GIC term ends, it can be renewed at current interest rates.

Related Web Resources:
US Securities and Exchange Commission

Guaranteed Investment Contracts, Financial Web

Continue reading "JP Morgan Chase & Co. Accused of Securities Violations Involving Guaranteed Investment Contracts and Derivatives" »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Financial Firms , J P Morgan - Chase , SEC Enforcement , Securities Fraud

Bookmark:

May 18, 2010

State of Connecticut Retirement and Trust Funds to Get Back $795,000 Lost in Securities Fraud Carried by Former Connecticut State Senate Fresident

The Securities and Exchange Commission says that the U.S. District Court for the District of Connecticut has approved a Fair Fund distribution that will give back $795,000 to the State of Connecticut Retirement and Trust Funds, which suffered financial losses because of an investment scam involving William A. DiBella, the former president of the Connecticut State Senate. The SEC’s 2004 complaint had accused DiBella and his consulting firm North Cove of taking part in an investment scheme with former Treasurer of the State of Connecticut Paul Silvester, who had invested $75 million in state pension funds with private equity firm Thayer Capital Partners.

The SEC claims that Silvester arranged for DiBella to receive a percentage of the investment from Thayer. Silvester is also accused of increasing the pension fund’s investment with Thayer by at least $25 million so that DiBella could receive a larger fee. In total, Thayer paid $374,500 to DiBella through North Cove.

A jury found DiBella liable for abetting and aiding in the securities fraud, and the trial court ordered him to pay $374,500 in disgorgement, $307,127 in prejudgment interest, and $110,000 in penalties. The SEC had to instigate contempt proceedings with the federal court because of DiBella’s continued nonpayment. He finally completed payment of over $795,000 in March 2010, and the SEC fair fund was then set up.

“When securities prices fall, fraud and other misdeeds are often exposed,” said Securities Fraud Lawyer William Shepherd. “Tens of thousands of public and private pension and other funds have recently experienced large losses. As in this case, the SEC and other securities regulators will frequently take on one or a few cases and force recovery, while clearing the way for others to go forward using private attorneys. Our stockbroker fraud law firm continues to represent both public and private fund managers seeking recovery of losses caused by the inappropriate acts and omissions of financial firms and their agents.”

Related Web Resources:
SEC Announces Distribution of DiBella Fair Fund to Connecticut Retirement and Trust Funds, CityBizListNY

Court Orders William DiBella, Former Majority Leader of the Connecticut State Senate, to Pay Over $791,000 in Connection with Fraud Relating to State Pension Fund, SEC, March 14, 2008

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: SEC Enforcement , Securities Fraud

Bookmark:

May 13, 2010

Private Equity Firm Onyx Capital Advisors LLC Charged with Securities Fraud by SEC

The SEC has filed securities fraud charges against the private equity firm, Onyx Capital Advisors LLC, its founder Roy Dixon Jr., and his friend Michael Farr. The agency is accusing the defendants of stealing over $3 million from three area public pension funds.

According to the SEC, Onyx Capital Advisors and Dixon raised $23.8 million from the pension funds for a start-up private equity fund that was to invest in private companies. Dixon and Farr, who controlled three of the companies that the Onyx fund had invested in, then illegally took out money that the pension funds had invested and used the cash to cover their own expenses.

While Onyx Capital and Dixon allegedly took more than $2.06 million under the guise of management fees, Farr allegedly helped divert approximately $1.05 million through the companies under his control. He is also accused of diverting part of the over $15 million that Onyx capital invested in SCM Credit LLC, Second Chance Motors, and SCM Finance LLC to 1097 Sea Jay LLC, which is another company that he controls. Farr then allegedly took money from Sea Jay, gave most of it to Dixon, and kept some for himself.

The SEC is accusing Onyx Capital and Dixon of making misleading and false statements to pension fund clients about the private equity fund and the investments they were making. The agency claims that the private equity firm and its founder violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act, and Rule 206(4)-8 thereunder. The SEC claims that Farr aided and abetted in the other two defendants’ violations of Sections 206(1) and 206(2) of the Investment Advisers Act.

Related Web Resources:
SEC charges private equity firm and money manager for defrauding Detroit-area public pension funds, SEC, April 23, 2010

Read the SEC Complaint, SEC (PDF)

Continue reading "Private Equity Firm Onyx Capital Advisors LLC Charged with Securities Fraud by SEC" »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Private Equity FIrms , SEC Enforcement , Securities Fraud

Bookmark:

April 30, 2010

$1 Billion Goldman Sachs Synthetic CDO Debacle a Reminder that Even Highly Sophisticated Investors Can Be Defrauded

Although the Senate hearing over Goldman, Sachs, & Co.’s role in structuring a collateralized loan obligation that caused investors to lose about $1 billion in losses has ended, the case against the investment bank is far from over. The SEC’s securities fraud lawsuit filed earlier this month makes numerous disturbing allegations against Goldman Sachs, and now lawmakers are calling on the Justice Department to begin a criminal probe into the CDO transaction that is a focus of the SEC case.

The SEC says Goldman Sachs and one of its vice presidents defrauded investors by structuring and marketing a synthetic collateralized debt obligation that was dependent on the performance of subprime residential mortgage-backed securities (RMBS), while at the same time failing to tell investors about certain key information, such as the role that a major hedge fund played in portfolio selection or that the hedge fund had taken a short position against the CDO.

The hedge fund, Paulson & Co, is one of the largest in the world. The SEC says that Paulson & Co. paid Goldman to allow it to set up a transaction that let it take these short positions. The SEC contends that Goldman acted wrongfully when it let a client that was betting against the mortgage market heavily influence which securities should be part of an investment portfolio, while at the same time telling other investors that ACA Management LLCS (ACA), an objective, independent third party was choosing the securities. Investors therefore did not know about Paulson & Co’s role in choosing the RMBS or that the hedge fund would benefit if the RMBS defaulted.

SEC alleges that Paulson & Co. shorted the RMBS portfolio it helped choose by taking part in credit default swaps (CDS) with Goldman Sachs to purchase protection on specific layers of the ABACUS capital structure. Because of its financial short interest, Paulson & Co had reason to choose RMBS that it thought would undergo credit events in the near future. In the term sheet offering memorandum, flip book, or marketing materials that it gave investors, Goldman did not reveal Paulson & Co’s short position or the part it played the hedge fund played in the collateral selection process.

The SEC is also accusing Goldman Sachs Vice President Fabrice Tourre of being principally responsible for ABACUS. He structured the transaction, prepared the marketing materials, and dealt directly with investors. The SEC claims that Tourre knew about Paulson & Co’s role and misled ACA into thinking that the hedge fund invested about $200 million in the equity of ABACUS, while indicating that Paulson & Co’s interests in the collateralized selection process were closely in line with ACA’s interests.

Six months after the deal closed on April 26, 2007 and Paulson & Co had paid Goldman Sachs about $15 million for structuring and marketing Abacus, 83% of the RMBS in the ABACUS portfolio was downgraded and 17% was on negative watch. By Jan 29, 2008, 99% of the portfolio had been downgraded.

“Synthetic derivative investments are so highly complex that even highly sophisticated investors can be defrauded,” says Shepherd Smith Edwards and Kantas, LLP Founder and Stockbroker Fraud Attorney William Shepherd. “ Any other investor being sold these is simply "fair game" for Wall Street. Our securities fraud law firm represents five school districts that lost over $200 million in what they were told were very low risk investments into bonds. Not only were these not "bonds" but the risk to them was enormous.”

Goldman CEO says has board's support: report, Reuters, April 27, 2010

Blankfein Says He Was 'Humbled' By Senate Hearing, NPR, April 29, 2010

What’s Next for Goldman Sachs?, New York Times, April 29, 2010

SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages, SEC.gov, April 16, 2010

Read the SEC Complaint (PDF)

Continue reading "$1 Billion Goldman Sachs Synthetic CDO Debacle a Reminder that Even Highly Sophisticated Investors Can Be Defrauded " »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Financial Firms , Goldman Sachs , SEC Enforcement , Securities Fraud

Bookmark:

April 24, 2010

Extend Fiduciary Duty to All Financial Intermediaries, Securities and Exchange Commissioner Luis Aguilar Tells Congress

At an investment adviser compliance seminar last month, Securities and Exchange Commissioner Luis Aguilar called on Congress to impose the same standard of care that applies to investment advisers to all financial intermediaries. He also wants improvements made to the SEC’s examinations program.

Aguilar objects to an internal policy that does not let examiners question registered firms about unregistered affiliates even if the businesses are related. While the Office of Compliance, Inspections and Examinations had been able to ask these kinds of questions in the past, there was a change of policy in 2007. Now, examiners must get past a number of “hurdles” to ask questions. Aguilar is also recommending that Congress take steps to clarify that examiners can ask for unregistered affiliates’ records.

Aguilar disagrees with the approaches taken with the House and Senate financial regulatory reform bills that harmonize the discrepant standards that govern broker-dealers and investment advisers. While the 1940 Investment Advisers Act places a fiduciary duty on advisers, it exempts brokers from having to comply. He says that this allows for “divided loyalties” that aren’t in the clients’ best interests.

Aguilar is against the harmonization approach found in the Wall Street Reform and Consumer Protection Act. The bill evens out the standard for brokers and advisers that give clients “personalized” investment advice. By limiting the applicability of the standard in this way, Aguilar says that many investors would be left without protections. He also noted that institutional investors need protection too.

Aguilar believes that enforcement is key to protecting investors. He notes that while the number of advisers has grown in the past years, the SEC’s capacity to inspect them has been reduced. He said that allowing self-funding, which the Senate bill proposes, would be the “most transformational act” that Congress could elect to make.

Related Web Resources:
Office of Compliance, Inspections and Examinations

Securities and Exchange Commissioner Luis Aguilar

Wall Street Reform and Consumer Protection Act of 2009

Aguilar Urges Congress to Extend Fiduciary Duty, Clarify OCIE's Power, BNA - Broker/Dealer Compliance Report/Alacra Store, March 31, 2009

Continue reading "Extend Fiduciary Duty to All Financial Intermediaries, Securities and Exchange Commissioner Luis Aguilar Tells Congress " »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: SEC Enforcement

Bookmark:

April 8, 2010

Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC

The Securities and Exchange Commission has filed claims against Morgan Keegan & Co, Morgan Asset Management and employees James C. Kelsoe, Jr. and Joseph Thomas Weller for securities fraud that allegedly involved inflating the value of subprime mortgage-backed securities.

According to investors and a number of state regulators, RMK Funds (RMK Advantage Income Fund, RMK High Income Fund, RMK Multi-Sector High Income Fund, RMK Select High Income Fund, RMK Strategic Income Fund, and the RMK Select Intermediate Fund) were marketed and recommended as funds that would provide a consistent income level while the actual risks involved were misrepresented and the funds’ net asset value pricing was manipulated.

The SEC’s enforcement division is accusing Morgan Keegan of failing to put into place reasonable procedures to internally price the portfolio securities in five funds, and as a result, being unable to accurately calculate the funds’ “net asset values.” These inaccurate daily NAVs were published while investors bought shares at inflated prices.

The enforcement division is also accusing fund portfolio manager Kelsoe of acting arbitrarily when he told Morgan Keegan’s Fund Accounting department to adjust prices in a manner that would make certain portfolio securities’ fair value go up. He had his assistant send about 262 “price adjustments” to Fund Accounting between at least January and July 2007.

On numerous occasions, adjustments were arbitrary, disregarded lower values that other dealers had quoted for the same securities, and neglected to reflect fair value. They were entered into a spreadsheet to determine the funds’ NAVs—even though there were no supporting documents. Kelsoe also is accused of regularly telling Fund Accounting to disregard broker-dealers’ month-end quotes that should have been used to validate the prices Morgan Keegan had assigned to the securities in the funds, as well as manipulated pricing quotes he received from at least one broker-dealer.

The Division of Enforcement is accusing Weller, a CPA who belonged to the Valuation Committee and served as the Fund Accounting Department head, of failing to fix the deficiencies in the valuation procedures, as well as not ensuring that fair-valued securities were accurately priced or that NAVs were correctly calculated.

Related Web Resources:
SEC Charges Morgan Keegan and Two Employees With Fraud Related to Subprime Mortgages, SEC.gov, April 7, 2010

SEC Order (PDF)

Morgan Keegan, 2 Employees Face SEC Fraud Charges, The Wall Street Journal, April 7, 2010

Continue reading "Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC " »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Financial Advisers , Morgan Keegan , SEC Enforcement , Securities Fraud

Bookmark:

April 6, 2010

US Supreme Court Won’t Review Texas Securities Fraud Case of Investment Adviser Barred from Industry by SEC

The US Supreme Court says it will not review the decision by a federal appeals court affirming the US Securities and Exchange Commission’s decision to bar investment adviser David Disraeli from the securities industry. The SEC accused the Texan of a number of violations, including broker misconduct (such as the making of material misrepresentations when selling and offering securities).

The SEC had concluded that David Henry Disraeli and his company Lifeplan Associates Inc. violated federal securities law antifraud proscriptions when they omitted and misrepresented material facts related to a private offering by Lifeplan, which the investment adviser then presented and sold to numerous clients.

The agency also found that Disraeli did not maintain appropriate and accurate records and books. The SEC says that when he registered as an investment advisor he was not qualified for the position and he included material misrepresentations in his applications.

In light of the Texas securities fraud case, the SEC has taken away Disraeli’s investment adviser registration, barred him from the securities industry, and told him to pay a civil money penalty of $85,000, plus a disgorgement of $84,300 and prejudgment interest.

The Texas investment adviser filed a certiorari petition last year. Disraeli claimed that the agency did not come up with “compelling reasons for the issuance of the death penalty," as well as for why other sanctions weren’t sufficient. He also said that if the case was allowed to stand, the circuit court would have lowered the bar for what is required to prevent him from belonging in the securities industry and deprive him of his livelihood.

Disraeli says that the appeals court should have taken into consideration his lengthy relationships with his shareholders and the fact that he had accomplished his business plan’s “main objectives.”

Related Web Resources:
Adviser Fails to Gain High Court Review Of Ruling Affirming SEC Industry Bar Order, BNA Securities Law, March 23, 2010

Read the Appeals Court Decision (PDF)

Continue reading "US Supreme Court Won’t Review Texas Securities Fraud Case of Investment Adviser Barred from Industry by SEC" »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: SEC Enforcement , Texas Securities Fraud

Bookmark:

March 24, 2010

More on YieldPlus Mutual Fund: Charles Schwab Corp. Tries to Dissuade SEC From Filing Securities Claims

Charles Schwab Corp. doesn’t want the Securities and Exchange Commission to file securities claims over the YieldPlus mutual fund. Schwab contends that it never misrepresented the fund when it compared it to money market funds. The brokerage firm also says that it did not mislead investors, give certain ones more information than others, or let other Schwab funds cause financial harm to Charles Schwab YieldPlus Funds investors.

While the SEC has yet to file YieldPlus-related claims against Schwab, it did send the brokerage firm a Wells notice last year notifying that it may sue. Schwab had switched about half of its assets in the YieldPlus fund into mortgage-backed securities without shareholder approval. Following the housing market collapse, what was once the largest short-term bond fund in the world fund, with $13.5 million in assets in 2007, lost 35% before dividends. As of February 28, Bloomberg data shows that the mutual fund had $184 million in assets.

Even though the Investment Company Act of 1940, Section 13(a) states that a shareholder vote must take place before a company can do other than what its policies allow when it comes to which industries investments can be concentrated in, Schwab says it didn’t need approval because although the fund changed how mortgage-backed securities were categorized, it did not change its fundamental concentration policy.

However, in a March 19 court filing, the SEC said Schwab’s decision in 2006 that mortgage-backed securities without federal insurance aren’t subject to the fund’s 25% cap on “industry” investments and that these securities are not an industry was not just an act of “rejiggering.” Schwab invested almost 50% of the YieldPlus funds assets in these securities—despite the fact that its 1999 registration statement says that the fund will not concentrate investments in one industry. The SEC says that shareholder approval should have taken place not because the fund revised its classification about mortgage-backed securities as an industry but because 25% of the fund’s assets were invested in mortgage-backed securities.

In their securities fraud lawsuits, shareholders have accused Schwab of misleading them when describing the fund as “marginally riskier” than cash.

Related Web Resources:
Schwab Seeks to Fend Off SEC Lawsuit Over YieldPlus, Bloomberg/Business Week, March 23, 2010

The Charles Schwab Corporation : Schwab YieldPlus Funds Investor Shares or Schwab YieldPlus Funds Select Shares, Securities.Stanford.Edu

Securities and Exchange Commission

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Charles Schwab , Financial Firms , Mortgage Backed Securities , Mutual Funds , SEC Enforcement

Bookmark:

March 10, 2010

"America's Prophet" Psychic Accused of Multimillion-Dollar Investment Fraud

According to the US Securities and Exchange Commission, Sean David Morton has bilked more than 100 investors of over six million dollars as the mastermind of an alleged offering fraud scheme. The man who calls himself “America’s Prophet” never professed to have a financial background. However, he is accused of promising prospective investors that he would use his psychic gifts to predict the movements of the stock market and advise his investing team.

The SEC claims Morton told investors he would use their funds to trade in foreign currencies and that profits would be distributed pro rata among them. The federal agency says that Morton, who describes himself as an intuitive consultant and trained Remote Viewer, lied to these investors about having a successful track record for being able to predict when the market will rise and crash. He also allegedly lied about how their money would be used, fund liquidity, and that profits were audited and certified.

Morton allegedly invested only half of the investors’ money in foreign currency trading firms. He is accused of diverting the rest, including at least $240,000 into his Prophecy Research Institute, a nonprofit religious group. Morton also allegedly commingled investors’ funds among the different entity accounts. The SEC contends that the defendant did not seek accreditation status from Delphi Investment Group investors.

Morton, Vajra Productions LLC, Magic Eight Ball Distributing, Inc., 27 Investments LLC, and Delphi Investment Group are the defendants in the SEC’s investment fraud lawsuit. Morton’s wife, Melissa, and Prophecy Research Institute are named relief defendants. The Mortons controls the entity defendants.

Federal regulators continue to warn investors that they must make sure that anyone they entrust with investing their funds is properly licensed. Unfortunately, many people are misled into investing in securities scams that end up costing them their hard-earned money and financial security.

Related Web Resources:
Investment 'Psychic' Accused of Financial Fraud, ABC News, March 8, 2010

Read the SEC Complaint, SEC.gov

Continue reading ""America's Prophet" Psychic Accused of Multimillion-Dollar Investment Fraud " »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Investor Fraud , SEC Enforcement

Bookmark:

January 26, 2010

Former Southwest Securities Broker’s Lifetime Industry Bar for Texas Securities Fraud is Affirmed, Says Appeals Court

The U.S. Court of Appeals for the Fifth Circuit has affirmed the Securities and Exchange Commission’s lifetime bar against a former Southwest Securities Inc. stockbroker. Scott Gann, who allegedly committed Texas securities fraud, is no longer allowed to associate with dealers, investment advisers, and brokers.

The SEC imposed the permanent bar against Gann because of his alleged involvement in a mutual fund market timing scheme. The appeals court says that the SEC’s ruling is not an abuse of discretion and is supported by the record.

Gann and George Fasciano, also a former Southwest Securities broker, are accused of engaging in market timing trades for Haidar Capital Management and Capital Advisor. They allegedly got around the rules of some of the mutual funds that prohibit market timing by using multiple representative and account numbers. Despite receiving 69 block notices from 34 mutual funds, their strategy allowed them to continue executing market timing trades.

The SEC filed an enforcement action in federal district court accusing the two men of violating the 1934 Securities Exchange Act Section 10(b). Fasciano settled before the case went to trial.

The district court held that Gann was in violation of Section 10(b). An SEC administrative law judge then entered a permanent associational bar against the ex-Southwest Securities broker. The SEC affirmed the bar, as did the appeals court.

The appeals court also noted that as Gann is convinced he did not engage in any wrongdoing—even though the SEC and two courts found that Gann acted wrongfully—there is no guarantee he won't commit future violations.

Related Web Resources:
Gann v. SEC, SEC.gov (PDF)

1934 Securities Exchange Act, Cornell University Law School

Continue reading "Former Southwest Securities Broker’s Lifetime Industry Bar for Texas Securities Fraud is Affirmed, Says Appeals Court" »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Financial Firms , Market Timing , SEC Enforcement , Southwest Securities , Texas Securities Fraud

Bookmark:

December 28, 2009

SEC Accuses Austin Advisor, Triton Financial, and Triton Insurance of Texas Securities Fraud Scam Involving Former NFL Football Players

The Securities and Exchange Commission has filed charges accusing Austin investment adviser Kurt B. Barton and his two firms, Triton Insurance and Triton Financial, of committing Texas securities fraud and raising over $8.4 million from about 90 investors. Former football stars were used as bait to target former NFL players as potential investment fraud victim.

The SEC claims the defendants used salespersons, stockbrokers, and former football players, including previous Heisman trophy winners and ex-NFL players, to sell Triton securities to potential clients. The agency says that the use of ex-football stars allowed Barton and Triton to appear legitimate and gain investors' trust.

Potential investors were allegedly told that their money would be used to buy an insurance firm. The SEC claims such representation were bogus. Instead, the agency claims that investors' funds were used to pay for daily expenses at the two companies.

The Texas State Securities Board began investigating Triton’s business following an article that was published earlier this year in Sports Illustrated describing the defendants’ alleged actions, which included having an ex-NFL quarterback send a mass-email to a number of former NFL players. The SEC contends that during the probe, the defendants gave the TSSB bogus and altered documents.

The defendants have agreed to an asset freeze. The SEC wants to obtain financial penalties and disgorgement of ill-gotten gains from them.

Barton and Triton are not admitting to or denying the SEC allegations. However, in addition to agreeing to permanent injunctions from future securities fraud violations, they will not destroy documents and will provide an accounting.

Texas securities fraud law firm Shepherd Smith Edwards and Kantas is working with investors that were victimized by this scam. “We are exploring additional avenues of recovery of funds for our clients, in addition to those that are made available through the efforts of regulators,” says Texas securities fraud attorney William Shepherd. “Victims should contact me personally regarding this situation.”

Related Web Resources:
Read the SEC Complaint (PDF)

Texas State Securities Board

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: SEC Enforcement , Securities Fraud , Texas Securities Fraud

Bookmark:

December 23, 2009

Texas Securities Fraud: SEC Freezes Assets of Fourth Person Involved in Alleged $485 Million Ponzi Scheme

Earlier this month, the US Securities and Exchange Commission was able to get a temporary restraining order to the freeze the assets of Joseph Blimline, the fourth person accused of masterminding a $485 million Ponzi scheme involving Provident Royalties LLC. The SEC charged three other individuals, Brendan Coughlin, Paul Melbye, and Henry Harrison, in July. Their assets were also frozen.

In its amended complaint, the SEC alleged that Provident, owned by the four defendants, advanced approximately $93 million of investor funds to Blimline and entities that he controlled for the purchase of gas and oil interests. The fund repayments and the title, however, frequently did not go to Provident. The SEC also accuses Blimline of failing to disclose that he received the funds, was involved with Provident management, and had been sanctioned in the past by Michigan securities authorities.

The SEC’s amendment complaint charges the four men with violating the Securities Act of 1933 (Section 17a) and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC is seeking preliminary and permanent injunctions, financial penalties, disgorgement of ill-gotten gains, and prejudgment interest.

Director and officer bars are also being sought against the four defendants for allegedly committing Texas securities fraud. 36 affiliated entities are named as relief defendants for disgorgement purposes.

SEC Accuses Provident Royalties in $485 Million Ponzi Scheme, Bloomberg, July 7, 2009

Securities Act of 1933 (PDF)

Continue reading "Texas Securities Fraud: SEC Freezes Assets of Fourth Person Involved in Alleged $485 Million Ponzi Scheme" »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Broker Fraud , Ponzi Scams , SEC Enforcement , Texas Securities Fraud

Bookmark:

December 5, 2009

Texas Securities Commissioner Not Convinced SEC Has Reformed Itself Since Madoff Ponzi Scam

Denise Voigt Crawford, the Texas securities commissioner and current North American Securities Administrators Association president, says it isn’t evident that the US Securities and Exchange Commission has implemented key reforms to the issues that allowed the agency to fail to detect Bernard Madoff’s $50 billion ponzi scheme for almost 20 years. Speaking at the National Press Club on Friday, she accused the SEC of not doing enough to support legislation intended to increase investor protection.

Crawford claims staffers that work for the SEC hardly interact with investment fraud victims. Because many SEC employees would like to work on Wall Street, she contends that this makes it difficult for agency members to properly oversee a securities firm that could potentially become a future employer.

Seeking to make a number of changes to the financial-overhaul bill currently moving through Congress, NASAA wants states securities regulators to have jurisdiction over securities firms that manage up to $100 million in assets. It also wants broker/dealers, and not just investment advisers, to be subject to a fiduciary standard when giving investment advice. NASAA wants to terminate mandatory pre-dispute arbitration clauses that make investors to pursue their securities fraud claims in arbitration proceedings run by Financial Industry Regulatory Authority.

Responding to Crawford’s comments, SEC spokesperson John Nestor called her statements “uninformed” and cited the agency's proposal of the Investor Protection Act, its hiring of senior management, reforms made to internal operations, new rulemaking that is focused on investors, and an increase in investigations and penalties as among the numerous “dramatic” changes that the SEC has implemented since Madoff’s massive ponzi scam was discovered.

Related Web Resources:
State regulator: Jury still out on SEC post-Madoff, AP/Yahoo! News, December 4, 2009

2nd UPDATE:Texas Securities Regulator:'Jury Is Still Out' On SEC Reform, Wall Street Journal, December 4, 2009

Texas State Securities Board

North American Securities Administrators Association

Continue reading "Texas Securities Commissioner Not Convinced SEC Has Reformed Itself Since Madoff Ponzi Scam" »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Madoff Ponzi Scheme , SEC Enforcement , Securities Fraud , Texas Securities Fraud

Bookmark:

December 3, 2009

SEC Submits Amended Complaint Against Bank of America Over Merrill Lynch Merger and Executive Bonuses

The US Securities and Exchange Commission’s amended complaint regarding the acquisition of Merrill Lynch by Bank of America Corp. last January includes one new assertion. In addition to the SEC’s original allegations against Bank of America, the agency now says that the investment bank was in violation of proxy regulations when it did not provide a merger agreement schedule, as well as a list identifying what would have been included in the schedule.

At the center of the SEC lawsuit is Bank of America’s proxy disclosure to shareholders that it wouldn’t pay year-end bonuses to Merrill executives. Yet, even as Merrill posted a record $27.8 billion loss last year, its executives were paid $3.6 billion.

BofA and the SEC initially attempted to settle the allegations for $33 million. Federal Judge Rakoff, however, wouldn’t sign off on what he considered both a swift resolution to an embarrassing situation for the bank and an attempt to make it appear as if the SEC was engaged in enforcement.

Rakoff accused SEC of not being hard enough on Bank of America, which it is supposed to regulate, even as shareholders suffered. He also accused the defendant of neglecting to take responsibility for its actions, which forced taxpayers to bail out the investment bank. A trial is scheduled to begin on March 1.

The US Congress and New York Attorney General Andrew Cuomo are also investigating the merger between Bank of America and Merrill Lynch.

Throughout the US, our securities fraud law firm represents investors who have suffered financial losses because of broker-dealer misconduct.

Related Web Resources:
SEC's Amended BofA Complaint: New Claims, but No New Defendants, Law.com, October 23, 2009

Judge Rejects Settlement Over Merrill Bonuses, NY Times, September 15, 2009

SEC Fines Bank Of America $33 Million Over Bonuses, Consumer Affairs, August 3, 2009

Continue reading "SEC Submits Amended Complaint Against Bank of America Over Merrill Lynch Merger and Executive Bonuses" »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Bank of America , Financial Firms , Merrill Lynch , SEC Enforcement

Bookmark:

November 16, 2009

JP Morgan Chase to Pay $75 Million in Penalties and Forfeit $647 Million to Settle SEC Charges Over Alleged Municipal Bond Payment Scam

JP Morgan Chase has settled Securities and Exchange Commission charges that the securities firm was allegedly involved in an illegal payment scam to get municipal securities business from Jefferson County, Alabama. As part of its settlement with the SEC, JP Morgan Chase agreed to pay penalties of $75 million and forfeit $647 million in termination fees that it says the county owes. JP Morgan Securities will also pay Jefferson County $50 million, as well as a $25 million penalty. By agreeing to settle, the securities firm is not admitting to or denying the commission’s charges.

The SEC had accused JP Morgan Securities and former managing directors Douglas MacFaddin and Charles LeCroy of making over $8 million in undisclosed payments to friends of certain Jefferson County commissioners. These friends either worked for or owned broker-dealers in the area. The SEC says that these payments led to the commissioners voting for JP Morgan Securities as its managing underwriter of bond offerings. They also voted for JP Morgan Securities’s affiliated bank as the transactions’ swap provider.

The SEC claims JP Morgan Securities charged Jefferson County higher interest rates on swap transactions. This allowed it to pass on the unlawful payments’ costs. According to Robert Khuzami, SEC Enforcement Director, senior bankers with JP Morgan made illegal payments to earn fees and garner business.

The SEC has filed a civil lawsuit against LeCroy and Macfaddin. The SEC is accusing the two men of committing securities fraud for allegedly directing the illegal payments to the Jefferson County commissioners’ associates.

The commission claims the two men knew that the transactions, which occurred between October 2002 and November 2003, were “sham transactions.” The SEC says the men’s failure to disclose these payments or related “conflicts of interest” to either Jefferson County or bond offering investors or the county in the challenged swap agreements deprived those involved of swap agreement negotiations and bond underwriting processes that were impartial and objective. The SEC is seeking disgorgement plus prejudgment interest and permanent injunctions against the two men.

Related Web Resources:
JPMorgan to Pay $75 Million in Alabama Case, NY Times, November 4, 2009

Read the civil complaint (PDF)

Read the administrative complaint (PDF)

Continue reading "JP Morgan Chase to Pay $75 Million in Penalties and Forfeit $647 Million to Settle SEC Charges Over Alleged Municipal Bond Payment Scam " »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Financial Firms , J P Morgan - Chase , SEC Enforcement , Securities Fraud

Bookmark:

November 9, 2009

SEC to Continue Fight Against Senior Investment Fraud in 2010

The Securities and Exchange Commission is stepping up its efforts to combat senior investment fraud. In 2010, the SEC plans to focus on issues related to retirement investments, including product development, disclosures, and marketing issues.

The need to better regulate the retirement products arena and actively take action against securities fraud that targets elderly people has increased now that some 55 million senior investors are involved in defined contribution plans. The SEC is currently taking a closer look at life settlements (also called viatical settlements) and target date funds.

Viatical settlements involve transactions made by chronically ill or older people who sell their life insurance policy benefits to investors. In turn, these investors pay the premiums and collect the payout upon the seller’s death. According to the Senate Special Committee on Aging, the life settlement industry has doubled in value in the last 3 years and will likely exceed $150 billion in a few decades.

At this time, the SEC has limited authority over life settlement securities, which fall under its purview when they are solid in capital markets but also are sold in private offerings. On October 22, SEC Chairperson Mary Shapiro spoke at an American Association of Retired Persons forum. She called the life settlement market one of “emerging interest” and said its products could become Wall Street’s “next big securitized products.” The SEC has established a task force to determine whether this area of the market is regulated enough.

Shapiro expressed concern that many seniors may not comprehend the consequences of selling their life insurance policies to investors. She noted that tax benefits and the ability to get life insurance later on can be lost.

Shapiro says the commission is looking at target date funds and a target date’s use in the fund’s name. Target date funds are vehicles for college savings and retirement plans that move toward more conservative holdings as a specific date approaches. The SEC is taking a closer look at marketing and advertising collaterals to figure out if investors are getting accurate information about these products. Shapiro noted that some target-date funds lost up to 40% of their value when the economy collapsed last year.

Related Web Resources:
Schapiro: Settlements Need Watching

AARP

SEC

Continue reading "SEC to Continue Fight Against Senior Investment Fraud in 2010" »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: SEC Enforcement , Senior Investors , Viaticals

Bookmark:

November 2, 2009

SEC to Probe Whether Former Ferris, Baker Watts Inc. General Counsel Failed to Properly Supervise Broker Convicted of Securities Fraud

The US Securities and Exchange Commission says it will investigate allegations that former Ferris, Baker Watts Inc. general counsel Theodore W. Urban did not properly supervise Stephen Glantz. In 2007, Glantz, who was employed by Ferris for almost thee years, pleaded guilty to lying to law enforcement officials and securities fraud.

The SEC says Urban ignored a number of warnings he received connecting Glantz to questionable activities and unauthorized trades. Urban also allegedly knew that numerous complaints had already been made against Glantz even before he came to work at Ferris. Not only did Glantz’s Form U-4 registration application show 10 customer complaints, but others had warned about his questionable reputation. Yet Urban still gave the broker more freedom than he did other brokers at the firm.

Urban is a former SEC staffer who was an Assistant Director in the Division of Market Regulation. In 2004, he recommended that Ferris, Baker Watts fire Glantz over unsuitable trades involving customer accounts. Urban later backed down from his stance. Instead, he and vice chairman Louis Akers were in agreement that Glantz be put under "special supervision."

Glantz, another registered representative at another broker-dealer, and Glantz’ client David Dadante, were accused of manipulating the market for Innotrac Corp. Glantz also made unsuitable and unauthorized trades in a number of securities in his customers’ accounts.

Urban, according to his attorney, will contest the allegations.

Royal Bank of Canada subsidiary RBC Wealth Management acquired Ferris for $230 million in 2008.

While financial losses do occur when investing in the market, investor losses that are a result of broker fraud are unacceptable. You shouldn’t have to suffer because a broker or broker-dealer was negligent or engaged in misconduct.

Read the SEC's order to institute administrative proceedings, SEC (PDF)

Continue reading "SEC to Probe Whether Former Ferris, Baker Watts Inc. General Counsel Failed to Properly Supervise Broker Convicted of Securities Fraud" »

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: SEC Enforcement , Securities Fraud

Bookmark:

Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million

Dallas Billionaire Brothers Charged with Texas Securities Fraud

Alleged $800 Affinity Fraud Scheme Prompts SEC to Sue GTF Enterprises and Its Money Manager

JP Morgan Chase & Co. Accused of Securities Violations Involving Guaranteed Investment Contracts and Derivatives

State of Connecticut Retirement and Trust Funds to Get Back $795,000 Lost in Securities Fraud Carried by Former Connecticut State Senate Fresident

Private Equity Firm Onyx Capital Advisors LLC Charged with Securities Fraud by SEC

$1 Billion Goldman Sachs Synthetic CDO Debacle a Reminder that Even Highly Sophisticated Investors Can Be Defrauded

Extend Fiduciary Duty to All Financial Intermediaries, Securities and Exchange Commissioner Luis Aguilar Tells Congress

Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC

US Supreme Court Won’t Review Texas Securities Fraud Case of Investment Adviser Barred from Industry by SEC

More on YieldPlus Mutual Fund: Charles Schwab Corp. Tries to Dissuade SEC From Filing Securities Claims

"America's Prophet" Psychic Accused of Multimillion-Dollar Investment Fraud

Former Southwest Securities Broker’s Lifetime Industry Bar for Texas Securities Fraud is Affirmed, Says Appeals Court

SEC Accuses Austin Advisor, Triton Financial, and Triton Insurance of Texas Securities Fraud Scam Involving Former NFL Football Players

Texas Securities Fraud: SEC Freezes Assets of Fourth Person Involved in Alleged $485 Million Ponzi Scheme

Texas Securities Commissioner Not Convinced SEC Has Reformed Itself Since Madoff Ponzi Scam

SEC Submits Amended Complaint Against Bank of America Over Merrill Lynch Merger and Executive Bonuses

JP Morgan Chase to Pay $75 Million in Penalties and Forfeit $647 Million to Settle SEC Charges Over Alleged Municipal Bond Payment Scam

SEC to Continue Fight Against Senior Investment Fraud in 2010

SEC to Probe Whether Former Ferris, Baker Watts Inc. General Counsel Failed to Properly Supervise Broker Convicted of Securities Fraud

Contact Us

Browse

Topics

By Date

Search

Recent Entries

Legal Blogs

Browse

Topics

By Date

Search

Subscribe

By RSS

By Email

Recent Entries

Legal Blogs