January 6, 2012

Securities and Exchange Commission Charges Investment Adviser with Committing Securities Fraud on Linked In

The SEC has charged investment adviser Anthony Fields with selling bogus securities on LinkedIn and other social networking sites. The alleged financial fraud has prompted the agency to put out two alerts warning of the risks that advisory firms and investors must contend with in the social media era.

According to the SEC, Fields used social media sites to offer over $500 billion in fake securities. He used Platinum Securities Brokers and Anthony Fields & Associates, which are his two proprietorships, to make numerous fraudulent offerings. He also allegedly provided misleading and untruthful information about Anthony Fields & Associates’ clients, assets under management, and operational history on the company’s Web site and in filings submitted to the Commission. The SEC claims that Fields did not maintain the necessary records and books, gave the impression that he was a broker-dealer even though he is not SEC-registered, and failed to implement appropriate compliance procedures and policies.

With retail investors turning to LinkedIn, Facebook, Twitter, YouTube, and other online networks to get information about investing, the risks of becoming exposed to fraud are growing. The SEC’s Office of Investor Education and Advocacy is offering investors a number of tips to avoid financial scams online, including:

• Be careful of unsolicited investment opportunities—especially from someone you don’t know.
• Be wary of any investment opportunity that sounds too good to be true.
• Watch out for “guaranteed returns” – there is no such thing.
• Consider it a “red flag” if you experience any pressure to invest or buy immediately.
• Watch out for affinity scams, which usually target group members.
• Make sure that your privacy is always protected online.
• Ask lots of questions about any investment opportunity.
• Do your due diligence.
• Don’t provide your Social Security number, any account information, or other sensitive data to or on social media Web site.
• Watch out for “friend” requests from financial service providers that you don’t know—remember, once you let them “in,” you are giving them access.
• Pick a solid password and don’t use the same one for multiple accounts.
• Deactivate file sharing.
• Be careful when using public computers or Wi-Fi that is accessible to others.
• Arm your computer with a firewall and antivirus software.
• Log out of your social networking accounts when you are not using them.
• Watch out for unfamiliar links sent to you—especially if you don’t know the sender.
• Make sure your mobile device is secure.

Examples of investment scams that have been known to use the Internet and social media:
• Market manipulation schemes
• Pump-and-dump scams
• Fraud marketed through spam e-mail or online investment newsletters
• High yield investment program scams
• Fraud offerings made online

SEC Charges Illinois-Based Adviser in Social Media Scam Agency Issues Alerts on Social Media Risks for Investors and Firms, SEC, January 4, 2012

Read the SEC's Investor Alert (PDF)

Read the SEC's investor bulletin on understanding your accounts (PDF)


More Blog Posts:
FBI Arrests Texas Leader of Pump-and-Dump Scheme, Stockbroker Fraud, March 23, 2011

Lancer Management Group LLC Hedge Fund Manager Acquitted of Charges He Ran Market Manipulation Scam, Institutional Investor Securities Blog, May 5, 2011

Barclays Capital Ordered by FINRA to Pay $3M Fine For Alleged Subprime Mortgage Securitization-Related Misrepresentations, Institutional Investor Securities Blog, December 23, 2011

Continue reading "Securities and Exchange Commission Charges Investment Adviser with Committing Securities Fraud on Linked In " »

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

Posted In: SEC Enforcement , Securities Fraud

Tags: Social Media Fraud

January 4, 2012

Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam

The Securities and Exchange Commission has filed Texas securities fraud charges against Life Partners Holdings Inc. and three of the company’s senior executives over their alleged involvement in a life settlement scam. Life Partners, which is a Nasdaq-traded company, makes nearly all of its revenue from the life settlements it brokers.

According to the SEC, CEO and Chairman Brian Pardo, CFO David Martin, and general counsel and president Scott Peden misled shareholders when they failed to reveal a significant risk, which was that Life Partners was materially underestimating the estimates for life expectancy that it was using to determine how to price transactions. The estimates have a critical effect on company profit margins, revenues, and shareholder profits.

The Commission contends that Life Partners, Pardo, Peden, and Martin took part in improper accounting and disclosure violations, which allowed the company’s books to become overvalued while making it appear as if there was a steady stream of earnings coming from the life settlement transactions that were being brokered.

Peden and Pardo are also charged with insider trading. The SEC claims that the two men sold about $300,000 and $11.5M, respectively, of Life Partners stock at prices that were inflated even though they had material, non-public information disclosing that the company had relied on short life expectancy estimates to make revenue.

In a statement issue by the SEC's Division of Enforcement Director Robert Khuzami, the agency is claiming that Life Partners also deceived shareholders by retaining a medical doctor to designate baseless life expectancy estimates to underlying insurance policies. Dr. Donald T. Cassidy, who lacks actuarial training and had no previous experience in assigning life expectancy estimates, began working with Life Partners in 1999. (The Commission claims that Pardo and Peden neglected to perform substantial due diligence on the doctor’s qualifications to do this job. They also are accused of telling him to use a methodology created by a former underwriter, who is one of the company’s owners.)

Beginning fiscal year 2007 through fiscal year 2011’s third quarter, Life Partners allegedly understated impairment costs related to life settlement investments and prematurely recognized revenue. The company is also accused of improperly accelerating revenue recognition starting from the closing date until when it got a non-binding agreement with the policy owner to sell the life settlement. Because Life Partners used these Dr. Cassidy’s life expectancy estimates in its impairment calculations, millions of dollars in impairment costs were understated.

The SEC wants the repayment of bonuses and profits from stock sales.

Life Settlements
These usually involve the selling and buying of fractional interests of life insurance policies in the secondary market. For a lump sum amount, life insurance policy owners sell investors their policies. The amount that is offered is supposed to factor in the life expectancy of the insured and the policy’s terms and conditions. The longer the insured is expected to life, the more the investor has to pay in premiums. Policies owned by persons expected to not life as long cost more.

SEC fraud case could give new life to life settlements controversy, Bloomberg/Investment News, January 4, 2012

SEC Charges Life Settlements Firm and Three Executives with Disclosure and Accounting Fraud, SEC, January 3, 2012

SEC Complaint


Texas Securities Fraud: Unregistered Adviser Confesses to Selling Almost $400K in Promissory Notes and Investments Despite Cease and Desist Order, Stockbroker Fraud Blog, December 5, 2011

Texas Securities Fraud: Raymond James Financial Services Pays Elderly Senior Investor About $1.8M Following Loss of Appeal, Stockbroker Fraud Blog, December 2, 2011

Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011

Continue reading "Texas Securities Fraud: SEC Charges Life Partners Holdings Inc. in Life Settlement Scam" »

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

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

November 21, 2011

SEC Files Charges in $27M Washington DC Ponzi Scam

The Securities and Exchange Commission has charged Garfield M. Taylor and a number of his relatives and friends with running a DC-area Ponzi scam. The more than $27 million financial fraud targeted investors in the area.

Taylor and his partners allegedly defrauded about 130 investors between 2005 and 2010. The scam fell apart when the money dried up as a result of trading losses and the interest payments that were made to investors.

According to the Commission, Taylor convinced mainly middle-class clients to refinance their houses and use their money, including their retirement and savings, to invest in promissory notes that were put out by his two companies, which were supposedly taking part in low-risk trading options. He touted returns of up to 20% and provided investors with false assurances that their investments were protected by either a “covered call” trading strategy or a “reserve account.”

To keep new investor money coming, Taylor is said to have persuaded current investors and others to refer prospective clients to him in exchange for commission fees that were calculated according to how much the new investors put in. Although he is not a licensed securities broker, Taylor convinced a number of investors to give him access to their brokerage accounts and he used this privilege to make trades. He promised them a portion of the profits.

The SEC contends that contrary to his promises, Taylor actually was taking part in risky options trading, which then resulted in the financial losses. He also allegedly took $5 million to pay relatives and friends and cover his kids’ education.

Also charged with securities fraud bu the SEC (allegations against the parties vary, but include: violation of federal securities’ laws anti-fraud provisions, offering registration requirements, and broker-dealer registration requirements):

• Gibraltar Asset Management Group LLC
• Garfield Taylor Inc.
• Maurice G. Taylor. He is Taylor’s sibling and is Gibraltar’s chief investment officer
• Randolph M. Taylor. Taylor’s sibling who was Gibraltar’s VP of organizational development.
• Benjamin C. Dalley. He formerly served as VP of operations at Gibraltar.
• Jeffrey A. King. Taylor’s brother-in-law and Gibraltar’s former COO and President.
• William B. Mitchell. He was a senior executive at both companies

These individuals and entities, along with Taylor, are accused of jointly putting together a Gibraltar PowerPoint presentation that contained false and misleading statements and giving these to prospective clients. The SEC says the documents misrepresented the financial firm’s options trading strategy, the protections offered, the expected return rate, and degree of risk involved. Institutional investors and charities, including a Baptist church, were even pursued as prospective clients.

The SEC is seeking enjoinment from future violations, the payment of penalties, and disgorgement.

SEC Charges Perpetrator of Washington-Area Ponzi Scheme, SEC, November 18, 2011

Read the SEC's Complaint


More Blog Posts:
Former Texan and First Capital Savings and Loan To Pay $4.5M for Alleged Foreign Currency Ponzi Scheme, Stockbroker Fraud Blog, November 11, 2011

SEC Charges Filed in $22M Ponzi Scam that Targeted Florida Teachers and Retirees, Stockbroker Fraud Blog, August 29, 2011

SEC Issues Emergency Order to Stop $26M “Green” Ponzi Scam, Institutional Investor Securities Blog, October 13, 2011

Continue reading "SEC Files Charges in $27M Washington DC Ponzi Scam" »

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

Posted In: Ponzi Scams , SEC Enforcement

Tags: Washington DC

November 10, 2011

SEC and DOJ Charge Two Florida Men With Free Riding Securities Scam

Two Florida men are accused of defrauding investors and broker-dealers by allegedly not telling them that they didn’t have enough money or securities to pay for their stock trades. The US Justice Department is charging Scott Kupersmith with securities fraud and wire fraud, while the Securities and Exchange Commission is charging him and Frederick Chelly with involvement in a front-running scam to trade free of risk at the expense of broker-dealers.

The U.S. Attorney for the District of New Jersey claims that Kupersmith engaged in free riding, which happens if a client sells or purchases securities in a brokerage account while lacking the money or securities to cover the trades. Kupersmith and his associates are believed to have facilitated the securities scam by setting up several brokerage accounts at financial firms in New Jersey and outside the state.

In addition to falsely representing himself as having a personal net worth of approximately $5 million, Kupersmith is also accused of made it appear as if he ran a Manhattan hedge fund with assets of up to $20 million. These misrepresentations allowed him to raise about $500,000 of investor monies, which he then used to cover personal expenses or pay principal and interest payments to earlier investors in this Ponzi-like scam.

The SEC says that Kupersmith and Chelly’s scam caused financial fraud allowed them to make $600K in illegal trading profit while broker-dealers lost more than $2 million as a result. The Commission says that the two men presented themselves as private investors or money managers.

They allegedly set up a number of accounts for corporate entities under their control in brokerage firms while buying/selling the same amount of the same stock in various accounts. Often, this would happen during the course of one day and with the intention of making money from the changes in stock price. The SEC says that Kupermith and Chelly would take the profits from the trades but that when substantial losses were likely, they wouldn’t pay able to cover sales they had asked for, which caused broker-dealers to take the losses.

The two men also falsely made it appear as if they had assets with a third-party custody bank even though they didn’t own the stock that they were selling and often didn’t have enough money to pay for the stock that they did buy. Share sale proceeds were then used to buy the same shares.

The two men used Delivery Versus Payment/Receipt Versus Payment accounts at the broker-dealers to trade. Te financial firms offered these accounts to the two men because they were under the impression that Kupersmith and Chelly had the money to cover their trades.

Read the SEC's Complaint (PDF)


More Blog Posts:
Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M, Stockbroker Fraud Blog, November 8, 2011

Houston Judge Overturns $9.2M Securities Fraud Ruling Against Morgan Keegan, Stockbroker Fraud Blog, October 11, 2011

Banco Espirito Santo S.A. Settles for $7M SEC Charges Alleging Violations of Investment Adviser, Broker-Dealer, and Securities Transaction Registration Requirements, Institutional Investors Securities Blog, November 5, 2011

Continue reading "SEC and DOJ Charge Two Florida Men With Free Riding Securities Scam" »

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

Posted In: SEC Enforcement , Securities Fraud

November 8, 2011

Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M

The Securities and Exchange Commission says that Annabel McClellan has settled for $1M insider trading allegations that she and her husband gave relatives confidential information about merger deals. Annabel is the wife of Arnold McClellan, who used to be a partner at Deloitte Tax LP where he was head of the mergers and acquisitions teams.

If a federal judge approves the securities fraud settlement, the SEC will dismiss the claims against Arnold. By agreeing to settle, Annabel is not denying or admitting to the securities charges.

Per the SEC, Annabel used confidential information that she got from her husband to tip her brother-in-law James Sander and her sister Miranda. These family members then allegedly used this knowledge to make trades before the transactions (usually involved pending acquisitions and mergers) were announced to the public. This allowed them to make millions in illicit profits.

In addition to the civil penalty, Annabel has agreed to permanent enjoinment from violating Securities Exchange Act of 1934’s Section 10(b) and Rule 10b-5 thereunder. She also earlier pleaded guilty to obstructing the SEC’s probe into the insider trading scam after admitted to making false statements related to the investigation. Annabel maintains that her husband knew nothing about her activities.

The McClellans were charged with insider trading by the SEC last year following a parallel probe by the Commission, the Financial Services Authority (FSA), the Department of Justice (DOJ, and the Federal Bureau of Investigation (FBI). According to the SEC’s complaint, at least seven times between 2006 and 2008, Arnold McClellan revealed confidential information to his wife, who then passed on what she knew to Miranda and James in London.

James, who owns a trading company, would then buy derivative financial instruments. He also took financial positions in US companies that were acquisition targets. When Arnold would find out that some of the deals were not certain, James would liquidate his positions. The Commission says that the trades were closely timed with phone calls made between the two sisters, as well as in-person visits between the couples. By 2008, James allegedly made over £1.5 million from the tips and his financial firm’s clients and colleagues made over £10 million.

Insider Trading
Insider trading hurts the stock market, affects investor confidence, and causes financial harm to the companies whose confidential information was used to benefit a few. Insider trading is a breach of fiduciary duty or another kind of relationship of confidence and trust. The person tipping, the one being tipped, and anyone who has access to the insider information that makes the trade can be charged with insider trading.

Read the SEC Complaint Against the McClellans, SEC

Wife of former Deloitte partner to pay $1 million, SFGate, October 18, 2011

FSA, SEC and DoJ investigation leads to two people being charged by the SEC with insider dealing in the U.S., Financial Services Authority, December 1, 2010


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

Dallas Mavericks Owner Mark Cuban's Allegations of Misconduct Against the SEC Enforcement Staff are Without Merit, Says Inspector General’s Report, Stockbroker Fraud Blog, October 28, 2011

Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011

Continue reading "Former Deloitte Tax LP Partner’s Wife Settles Insider Trading Charges for $1M" »

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

Posted In: Insider Trading , SEC Enforcement , Securities Fraud

September 28, 2011

EagleEye Asset Management LLC Sued by SEC and CFTC for Alleged Forex Trading Scam

In separate securities lawsuits, the Securities and Exchange Commission and the Commodity Futures Trading Commission are both suing EagleEye Asset Management LLC, which a Massachusetts asset management firm, and Jeffrey A. Liskov, its principal.

The CFTC is accusing the two defendants of defrauding at least one US-based client while trading forex on a margined or leveraged basis for her. Per the CFTC’s lawsuit, the client decided to grant permission to EagleEye and Liskov to trade part of her retirement money because Liskov allegedly advised her that this type of trading was appropriate for her conservative investment objects.

However, Liskov allegedly did not warn her of the risks involved or tell her that he did not have a successful track record with forex trading. While the trading did generate short-term profits for the woman, she lost most of the money that she invested. The CFTC contends that instead of revealing the trading losses, Liskov allegedly forged the client’s name and set up a new account opening documents and on more than $3 million in secret wire transfers from her mutual fund account to her forex account so that trading wouldn’t have to stop. The woman client lost more than $3.24 million, while Liskov and EagleEye made about $235,000 in performance incentive fees.

Per the SEC, between 4/08 and 8/10, Liskov made misrepresentations to clients to persuade them to move funds they’d placed in securities investments into forex trading. The SEC contends that these investments were not appropriate for elderly clients that had conservative investment objectives and that this caused them to sustain significant financial losses totaling almost $4 million. EagleEye and Liskov allegedly earned performed fees of over $300K, plus management fees. The Commission believes that having clients make short-term investment gains and then earning performance fees before these gains were lost was the defendants’ plan.

Liskov allegedly did not even help some investors understand the nature of forex trading. With other clients, he deemphasized the degree of investment risk involved. The SEC also says that Liskov made false statements with claims that he had achieved success with forex trades when, in fact, the opposite was the case.

Meantime, Massachusetts Secretary of the Commonwealth William Francis Galvin (D) has also filed administrative charges against the investment advisor firm and Liskov. Galvin is accusing them of violating Massachusetts’s Uniform Securities Act.

Our securities fraud law firm has helped thousand of investors recoup their losses caused by broker misconduct and investment adviser fraud. Working with a stockbroker fraud law firm is the best way to help you get back your lost investment.

Read the SEC's Complaint (PDF)

CFTC Charges Massachusetts Man Jeffrey Liskov and His Company, EagleEye Asset Management, LLC, with Committing a $3 Million Forex Fraud, CFTC, September 8, 2011

State files complaint against local investment advisor, WickedLocal, September 13, 2011

Mass. Adviser Sued by Regulators Over Alleged Forex Trading Scheme, BNA Securities Law Daily, September 9, 2011


More Blog Posts:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011

Commodity Options Fraud Charges by CFTC Prompts District Court to Freeze Assets and Records of 20/20 Trading Co. Inc. & 20/20 Precious Metals Inc., Stockbroker Fraud Blog, May 6, 2011

$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investor Securities Blog, August 29, 2011

Continue reading "EagleEye Asset Management LLC Sued by SEC and CFTC for Alleged Forex Trading Scam" »

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

Posted In: CFTC , Fraudulent Trading , SEC Enforcement , Securities Fraud

August 23, 2011

California Insider Trading Charges Filed by SEC Against Ex-Investment Fund Associate Accused of Making 3000% Profit on Marvel Call Options in Disney Acquisition

The Securities and Exchange Commission has filed insider trading charges against Toby G. Scammell, who is accused of making more than $192,000 from insider trading information he received from his girlfriend about Walt Disney Company’s impending acquisition of Marvel Entertainment. Scammell, a 26-year-old ex-investment fund associate, made a more than 3000% profit in less than a month after he bought highly speculative Marvel call options for under $5500 and then sold them after the announcement of the acquisition was made on August 31, 2009 and Marvel’s stock price went up by more than 25%.

According to the SEC, Scammell’s girlfriend, who worked on the Marvel deal as an extern with Disney, found out confidential information about the deal, including when it would be announced and that Disney would pay $50/Marvel share. The Commission, however, doesn’t believe that Scammell’s girlfriend ever intended to give him insider tips or that she knew what he was doing with the information. Although the couple would talk about the acquisition as a subject of her business school application, she did not give him specific details. He also allegedly obtained information from confidential documents that he read off her Blackberry and from conversations he overheard regarding Marvel.

Scammell bought Marvel call options at $45 and $50 strike prices even though the highest that Marvel had ever traded at was $41.74. The SEC says that the Marvel options that Scammell bought were scheduled to expire soon after the Disney deal was announced and that in many cases the purchase of options represented 100% of the market. Scammell used his brother’s money to buy most of the Marvel call options. He did not, however, tell him about the alleged insider trading activities. Scammell’s brother had given him authority over his finances before going with the US army to Iraq.

The SEC says that before making the trades, Scammell used his computer to search for the terms “material non-public information,” “insider trading”, and “Rule 10b-5.” The Commission claims that Scammell not only used the insider information to garner an “unfair and illegal” advantage over others in the markets but that he exploited his romantic relationship with his girlfriend. The SEC says that after dating her exclusively for two years, he owed her a fiduciary duty, which he breached. He also allegedly acted with Scienter when he made the trades while having knowledge of the material, nonpublic data. The SEC says that when questioned, Scammell was unable to provide a believable explanation for his Marvell call options purchases.

The SEC is accusing Scammell of violating the Securities Exchange Act of 1934 (Section 10(b)) and Rule 10b-5 thereunder. It is seeking disgorgement of ill-gotten gains, a permanent injunction, prejudgment interest, and civil penalties.

SEC CHARGES FORMER INVESTMENT FUND ASSOCIATE WITH INSIDER TRADING, SEC, August 11, 2011

Read the SEC Complaint (PDF)

SEC Sues 26-Year Old On Charges He Made $200,000 Insider Trading Off Ex-Girlfriend's Work Project, Business Insider, August 15, 2011



More Blog Posts:
Janney Montgomery Scott LLC to Pay $850K to Settle Securities Charges Over Alleged Failure to Prevent Inside Trading, Stockbroker Fraud Blog, July 21, 2011

“Poohster” Consultant Found Guilty of Insider Trading, Stockbroker Fraud Blog, June 23, 2011

Insider Trading: Former FrontPoint Partners Hedge Fund Manager Pleads Guilty to Criminal Charges, Institutional Investor Securities Blog, August 20, 2011

Continue reading "California Insider Trading Charges Filed by SEC Against Ex-Investment Fund Associate Accused of Making 3000% Profit on Marvel Call Options in Disney Acquisition" »

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

Posted In: Insider Trading , SEC Enforcement , Securities Fraud

August 10, 2011

Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts

The SEC is charging Stifel, Nicolaus & Co. and its former Senior Vice President David W. Noack with securities fraud over the sale of unsuitable, high-risk complex investments to 5 Wisconsin school districts. Stifel and Noack allegedly misrepresented the risks involved in investing $200 million in synthetic collateralized debt obligations (CDOs) and did not disclose certain material facts. The investments proved a “complete failure.”

The Five Wisconsin School Districts:
• Kimberly Area School District
• Kenosha Unified School District No. 1
• School District of Waukesha
• School District of Whitefish Bay
• West Allis-West Milwaukee School District

All five school districts are suing Stifel and Royal Bank of Canada in civil court. Robert Kantas, partner of Shepherd Smith Edwards & Kantas LTD LLP, is one of the attorneys representing the school districts in their civil case against Stifel and RBC. Attorneys for the school districts issued the following statement:

“We believe that Stifel, Royal Bank of Canada and the other defendants defrauded the five Wisconsin school districts, along with trusts set up to make these investments. In 2006, these defendants devised, solicited and sold $200 million 'synthetic collateralized debt obligations' (CDOs), which were both volatile and complex, to these districts and trusts. While represented as safe investments, these were in fact very high risk securities, which were wholly unsuitable for the districts and trusts. In an attempt to protect taxpayers and residents, the districts hired attorneys and other professionals to investigate the investments and the potential for fraud. Then, with a goal of seeking full recovery of the monies lost in this scheme, a lawsuit was filed in Milwaukee County Circuit Court in 2008 to seek fully recovery of the losses and maintain and protect valuable credit ratings of these districts. To date, more than 3 million pages of documents have been obtained and examined by the attorneys for the districts. The districts also properly reported to the SEC the nature and extent of the wrongdoing uncovered. Over the past year, they have provided the SEC with volumes of documents and information to facilitate its investigation.”

In its complaint filed in federal court today, the SEC says that Stifel and Noack set up a proprietary program to assist the school districts in funding retiree benefits through the investments of notes linked to the performance of CDOs. The school districts invested $200 million with trusts they set up in 2006. $162.7 million was paid for with borrowed funds.

The SEC contends that Stifel and Noack, who both earned substantial fees even though the investments failed completely, took advantage of their relationships with the school districts and acted fraudulently when they sold financial products that were inappropriate for the latter. The brokerage firm and its executive also likely were aware that the school districts weren’t experienced or sophisticated enough to be able to evaluate the risks associated with investing in the CDOs. Both also likely knew that the school districts could not afford to suffer such catastrophic losses if their investments were to fail. Despite this, says the SEC, Noack and Stifel assured the school districts that for the investments to collapse there would have to be “15 Enrons.” They also allegedly failed to reveal certain material facts to the school districts, including that:

• The first transaction in the portfolio did poorly from the beginning.
• Within 36 days of closing, credit rating agencies had placed 10% of the portfolio on negative watch.
• There were CDO providers who said they wouldn’t participate in Stifel’s proprietary program because they were worried about the risks involved.

The SEC claims that Stifel and Noack violated the:

• Securities Exchange Act of 1934 (Section (10b))
• The Securities Act of 1933 (Section 17(a))
• The Securities Act of 1934 (Section 15(c)(1)(A))

The Commission is seeking, permanent injunctions, disgorgement of ill-gotten gains, financial penalties, and prejudgment interest.

Related Web Resources:
SEC Charges Stifel, Nicolaus & Co. and Executive with Fraud in Sale of Investments to Wisconsin School District, SEC.gov, August 10, 2011

SEC Sues Stifel Over Wisconsin School Losses Tied to $200 Million of CDOs, Bloomberg, August 10, 2011

Read the SEC Complaint (PDF)

School Lawsuit Facts


More Blog Posts:
Wisconsin School Districts Sue Royal Bank of Canada and Stifel Nicolaus and Co. in Lawsuit Over Credit Default Swaps, Stockbroker Fraud Blog, October 7, 2008

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

Continue reading "Stifel, Nicolaus & Co. and Former Executive Faces SEC Charges Over Sale of CDOs to Five Wisconsin School Districts" »

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

Posted In: Collateral Debt Obligation , Financial Firms , SEC Enforcement , Securities Fraud , Stifel, Nicolaus, & Co. Inc.

August 4, 2011

SEC’s Retroactive Approach to Its Proposed Reg D ‘Bad Actor’ Rule Draws Criticism From Law Firms

In comment letters sent to the Securities and Exchange Commission, numerous law firms wrote that the retroactive approach taken in a proposed rule to bar “bad actors” from Regulation D private offerings under the 1933 Securities Act sets up a number of fairness issues. The law firms also cautioned that the Dodd-Frank Wall Street Reform and Consumer Protection Act, which calls for the rulemaking, doesn’t require retroactivity.

The proposed rule would keep recidivist violators and felons from taking part in private offerings under Rule 506 of Reg D. Determining who is barred would be based on disqualifying events, including ones that occurred before the Dodd-Frank statute was passed. Some law firms have even said that a retroactive application would disrupt already negotiated administrative and civil settlements while chancing the “unwarranted disruption to private capital formation.” However, not all lawyers disapprove of applying the proposed Reg D ‘Bad Actor’ Rule retroactively. Shepherd Smith Edwards & Kantas LTD LLP founder and securities fraud lawyer William Shepherd said, “What kind of attorney thinks it is inherently unfair to ‘bar felons and recidivist violators from participating in private offerings’ of securities sold to the public? Stand in front of a mirror and say that to yourself out loud.”

SEC has been divided about the proposed application of the rule and
Commissioners Troy Paredes and Kathleen Casey, who are both Republicans, strongly oppose it. SEC Chairman Mary Schapiro, however, has said that the retroactive approach should help protect investors, which is part of Dodd-Frank’s intent.

Meantime, the New York City Bar Association's securities regulation committee has said that “inherent fairness” requires a “prospective application” of any rule that would penalize a party on the basis of a past settlement or adjudication. The committee also cautioned that should the SEC move forward with its proposal, so many “waiver requests” might come in that this could place a further strain on the Commission’s already taxed staff resources.

Rule 506 of Regulation D under the 1933 Securities Act
Per the proposed Rule 506 of Regulation D under the 1933 Securities Act, recidivist violators that are subject to specific sanctions and proceedings and parties with felonies or misdemeanors involving the buying or selling of a securities would be barred from the sales and offerings of securities. They also wouldn't be allowed to seek the benefits of the safe harbor act’s Rule 506. The rule, which allows issuers to get around the 1933 Act’s reporting requirements, also comprises some 93% of private securities offered under Reg. D.

The proposal also wouldn’t allow a private placement to avail of the rule if the person or issuer covered by the rule had a disqualifying event (restraining order, criminal conviction, court injunction, USPS false representation order, certain commission disciplinary orders, commission “stop orders” to suspend exemptions, expulsion or suspension from belonging to an SRO or associating with an SRO member, and/or final orders of insurance, credit union regulators, or state securities banking.)


Related Web Resources:
Attorneys Decry Retroactive Approach Of SEC's Reg D 'Bad Actor' Rule Proposal, BNA Securities Law Daily, July 21, 2011

Comments on Disqualification of Felons and Other "Bad Actors" From Rule 506 Offerings, SEC.gov


More Blog Posts:
SEC to Propose Rule Banning “Felons and Bad Actors” From Involvement in Private Offerings, Institutional Investor Securities Blog, May 29, 2011

SEC to Up Dollar Thresholds for When an Investment Adviser Can Charge Investors Performance Fees, Stockbroker Fraud Blog, May 24, 2011

FINRA Wants Brokers Selling Regulation D Private Placements to Take Part in Tougher Due Diligence Process, Stockbroker Fraud Blog, June 7, 2011

Continue reading "SEC’s Retroactive Approach to Its Proposed Reg D ‘Bad Actor’ Rule Draws Criticism From Law Firms " »

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

Posted In: SEC Enforcement

June 9, 2011

SEC Approves Proposed FINRA Rule Change Subjecting Back Office Personnel of Broker-Dealers to Registration and Qualification Examination Requirements

The Securities and Exchange Commission has approved the Financial Industry Regulatory Authority’s proposed rule change subjecting certain back office personnel of broker-dealers to registration and qualification examination requirements. The changes would be made to FINRA Rule 1230(b)(6).

The SEC says it is approving the proposed change on an expedited basis because it is in line with the 1934 Securities Exchange Act requirement that FINRA rules should protect investors while preventing securities fraud and manipulation. As part of the rule change, registration category and a qualification exam category would be set up for certain operations personnel, who would also be subject to continuing education requirements. The Commission believes that this rule change will take care of certain regulatory gaps that still exist in the industry.

Those subject to the rule change would be three categories of persons:
• Senior management in charge of covered functions (these include customer account data; document maintenance, collection, maintenance and reinvestment of funds; stock loan/securities lending; and delivery and receipt of fund and securities)
• Personnel accountable for authorizing work that advances the covered functions
• Persons authorized to commit a member’s capital to directly advance the covered functions

FINRA is recommending that the new requirements be phased in. The SEC is currently soliciting comments.

Related Web Resources:
US SEC Approves Registration of Brokerage Back-Office Employees, Wall Street Journal, June 17, 2011

FINRA to Share Details on New Back-Office Staff Rules, AdvisorOne, June 20, 2011

1934 Securities Exchange Act


More Blog Posts:
SEC Approves FINRA’s Proposal to Give Investors an All-Public Arbitration Panel Option, Stockbroker Fraud Blog, February 12, 2011

Dodd-Frank Reforms Will Lower Deficit by $3.2B Over the Next Decade, Estimates CBO, Institutional Investors Securities Blog, April 8, 2011

Fiduciary Standard in Securities Industry Doesn't Need New Definition, Stockbroker Fraud Blog, November 26, 2010

Continue reading "SEC Approves Proposed FINRA Rule Change Subjecting Back Office Personnel of Broker-Dealers to Registration and Qualification Examination Requirements" »

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

Posted In: FINRA , SEC Enforcement

May 9, 2011

SEC ALJ Finds Several Brokers Liable for Unlawful Penny Stock Sales

A Securities and Exchange Commission administrative law judge has found several brokers liable for their alleged involvement in the unlawful sale of penny stocks to investors. In re Bloomfield, the SEC had filed securities charges against Robert Gorgia, Ronald S. Bloomfield, Victor Labi, John Earl Martin Sr. and Eugene Miller. Labi, Martin, and Bloomfield were Leeb Brokerage Services registered representatives, while Miller and Gorgia were president and chief compliance officer. Leeb is no longer in operation.

The SEC contends that the defendants let customers regularly deliver blocks of privately obtained penny stocks shares into their Leeb accounts. The clients would then sell the securities to the public through unregistered securities transactions.

While Martin, Labi, and Bloomfield allegedly did not conduct reasonable inquiry prior to allowing the public sale of the stock and violated securities law registration requirements, the other two men are accused of failing to reasonably supervise the registered representatives. The SEC claims that the men let the unlawful penny stock sales occur without doing enough to investigate whether they were “facilitating illegal underwriting.” As a result, the defendants allegedly caused Leeb’s failure to submit Suspicious Activity Reports that are mandated under the Bank Secrecy Act.

ALJ Brenda P. Murray noted that the securities fraud resulted in significant financial losses for the investing public. She ordered the three stockbrokers to pay $1.39M in disgorgement. The three brokers were also ordered to pay a $100,000 civil penalty and cease and desist from future misconduct. Miller, who settled the securities charges against him last year, has agreed to supervisory suspension, a cease and desist order, and a $50,000 penalty.


Related Web Resources:
SEC Litigation (PDF)

Brokers Found Liable on Charges They Aided Unlawful Penny Stock Sales, BNA - Securities Law Daily, Alacra Store, April 28, 2011


More Blog Posts:
FINRA Orders Charles Schwab to Pay $18M to Fair Fund for YieldPlus Investors, Stockbroker Fraud Blog, March 12, 2011

Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area, Texas Stockbroker Fraud Blog, March 2, 2011

SEC Securities Settlements Often Don’t Come with Admission, Institutional Investor Securities Blog, March 29, 2011

Continue reading "SEC ALJ Finds Several Brokers Liable for Unlawful Penny Stock Sales" »

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

Posted In: SEC Enforcement , Securities Fraud

March 15, 2011

SEC Needs to Keep a Closer Eye on FINRA, Says Report

According to the Boston Consulting Group, the US Securities and Exchange Commission should step up its oversight efforts over the Financial Industry Regulatory Authority. The BCG released its findings following a six-month review of the SEC’s internal operations, an examination that was ordered under the new Dodd-Frank law. The consulting group’s job was to examine the SEC’s structure, internal operations, personnel, resources, relationships with self-regulatory organizations, and technology.

BCG notes that with FINRA now providing the majority of market surveillance for most US equity trading, the SEC’s scrutiny of the SRO is now more important than ever. BCG also believes that the SEC should keep a closer watch on FINRA’s member regulation and enforcement units.

Currently, the SEC’s Office of Compliance Inspections and Examinations employs about 50 people tasked with inspecting 12 SROs. Still, BCG says that these SROs are under no obligation to regularly disclose information about their regulatory operations to the SEC. BCG believes that this disclosure of data should become a formal requirement. Also, even though there are over 100 staff attorneys at the SEC’s Division of Trading and Markets looking at SRO filings, the consulting group believes these employees could stand to deepen their understanding of the markets.

SEC Chairman Mary Schapiro says that BCG’s analysis confirms her worries that the SEC does not have all the resources required to do everything it is expected to accomplish. BCG found that the SEC would need about 400 more employees to successfully manage its workload.

The SEC will set up several working groups each focused tackling the report’s different recommendations.

Securities Fraud
Our stockbroker fraud law firm represents individuals and institutional investors that have lost money as a result of securities fraud. Contact Shepherd Smith Edwards & Kantas LTD LLP to ask for your free consultation.

Related Web Resources:
SEC should step up scrutiny of Finra: Report, Investment News, March 11, 2011

Audit: SEC staffing too small to fulfill law

FINRA

SEC

Boston Consulting Group

Office of Compliance Inspections and Examinations

Division of Trading and Markets

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

Posted In: FINRA , SEC Enforcement

March 12, 2011

FINRA Orders Charles Schwab to Pay $18M to Fair Fund for YieldPlus Investors

The Financial Industry Regulation Authority wants Charles Schwab & Company, Inc. to pay $18 million to a Fair Fund set up by the SEC to payback investors of the Schwab YieldPlus Funds. FINRA found that even after changes to the fund’s portfolio resulted in it being affected by the mortgage-backed securities market crisis, Schwab did not change its marketing of the fund and instead provided inaccurate material.

The FINRA order was announced just as the Securities and Exchange Commission revealed that $119 million settlement was reached with Charles Schwab & Co., Inc. and Charles Schwab Investment Management for their alleged misleading of Schwab YieldPlus Fund investors and failure prevent nonpublic information from being misused. According to the SEC, investors were not adequately told about the risks associated with the Schwab fund. Instead, they were provide with allegedly misleading statements, such as those claiming that investing in the ultra-short bond funds was only slightly riskier than investing in a money market fund. Read our earlier stockbroker fraud blog post for more information.

Schwab has said that it is still facing about 20 individual securities arbitration claims asking for $3 million in damages related to the YieldPlus Fund. Last year, it resolved federal and California state law claims—for $200 million and $35 million, respectively, over the fund.

In other recent Charles Schwab Corp. news, FINRA has announced that it isn’t going to recommend disciplinary action over the firm’s auction-rate securities sales to clients. Charles Schwab had received two Wells notices in 2009 indicating that regulators were recommending enforcement actions.



Related Web Resources:
UPDATE: Finra Won't Discipline Schwab For Auction-Rate Securities-Filing, The Wall Street Journal, February 25, 2011

SEC Reaches $119 Million Settlement with Charles Schwab, The Blog of Legal Times, January 11, 2011

FINRA Orders Schwab to Pay $18 Million to Investors for Improper Marketing of YieldPlus Bond Fund, FINRA, January 11, 2011


More Blog Posts:
Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors, Stockbroker Fraud Blog, January 17, 2011

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim, Stockbroker Fraud Blog, December 6, 2010

Charles Schwab & Co. Defendant in Class-Action Securities Fraud Lawsuit Filed on Behalf of Schwab Total Bond Market Fund Investors Over CMOs and Mortgage-Backed Securities, Stockbroker Fraud Blog, September 7, 2010


Continue reading "FINRA Orders Charles Schwab to Pay $18M to Fair Fund for YieldPlus Investors" »

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

Posted In: Charles Schwab , FINRA , Financial Firms , SEC Enforcement

March 8, 2011

Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle

Texas Congressman Jeb Hensarling is one of four Republican members of the House Financial Services Committee wanting to know more about Securities and Exchange Commission Chairwoman Mary Schapiro’s role in managing the conflict of interest presented by appointing David M. Becker as the SEC’s general counsel. Becker, who is no longer in this post, is with someone with a financial interest in a Bernard Madoff investment account. As a senior policy director for the SEC involved in dealing with Madoff Ponzi scam, he played a role determining how victims would be compensated.

Becker’s ties with Madoff didn’t come to light until trustee Irving H. Picard sued him and his two brothers to get back more than $1million of the $2 million they had inherited from their late mother’s Madoff investment. The former SEC general counsel claims that he told Schapiro and the chief ethics officer of his Madoff-related financial interest. Now, however, SEC inspector general H. David Kotz says he wants to probe possible conflicts of interest related to Becker’s role with the SEC as someone who stood to benefit from decisions involving Madoff Ponzi scam victims. According to the New York Times, two unnamed sources say while the SEC agreed to return to investors only the funds they had placed in their Madoff accounts, Becker had pushed for allowing the victims to keep some of their investment gains.

Lawmakers say they want details of Schapiro’s talks with Becker about his Madoff ties. They also want to know whether she followed all the steps delineated in government ethics rules. Also getting into the mix is Texas Representative and Republican Randy Neugebauer, who is quoted in the New York Times as stating that he believes the SEC should be held to the same high standard of “transparency and disclosure” as it holds other companies.

Shepherd Smith Edwards and Kantas founder and Texas securities fraud lawyer William Shepherd also wants to know, “Why was Ms. Schapiro not questioned about her own role as the former head regulator at the NASD – now known as the Financial Industry Regulatory Authority (FINRA)? She held that position for almost a decade just prior to her appointment as SEC Chairwoman. As Madoff defrauded thousands of investors, FINRA/NASD has the primary duty to regulate securities dealers, including the Madoff securities firm, which reportedly had a substantial role in activities related to Madoff’s advisory firm, as it perpetrated the massive Ponzi scheme.”


Related Web Resources:
S.E.C. Chairwoman Under Fire Over Ethics Issues, The New York Times, March 8, 2011

SEC’s Top Lawyer Becker Sued for Inheriting Madoff Ponzi Profits, Bloomberg, February 23, 2011


More Blog Posts:
Texas Securities Commissioner Not Convinced SEC Has Reformed Itself Since Madoff Ponzi Scam, Stockbroker Fraud Blog, December 5, 2009

SEC, NASD, FINRA & SIPC: New SEC Report Card on Madoff Catastrophy Further Reveals How Investor Protection Is Severely Flawed!, Stockbroker Fraud Blog, September 3, 2009

Madoff Investors Who Were Victims of “Ponzi” Scam Contact Securities Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP to Explore Recovery Options, Stockbroker Fraud Blog, December 17, 2008

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

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

March 2, 2011

Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area

A judge has granted the US Securities and Exchange Commission’s request to stop an alleged Ponzi scam in the Dallas-Fort Worth area. Accused of masterminding this Texas securities fraud is 31-year-old Christopher Love Blackwell. The SEC claims that the hedge fund trader almost $3 million of investor funds on business and personal expenses.

Per the SEC, since 2007 Blackwell has offered and sold several fraudulent investments that have included hedge funds, fixed-income trading programs, movie distribution investment contracts, and related advisory services. However, instead of buying or trading actual securities, Blackwell used $720,000 to pay for travel, entertainment, child support, office equipment, utilities, food, supplies, office rent, and motor vehicles. He allegedly directed over $900,000 to himself, friends, family, and associates and used more than $1 million for questionable business activities. He spent another $500,000 on Ponzi payments.

The investigation into Blackwell’s activities began because of his large cash transactions and wire transfers. An undercover agent that he thought was a potential investor recorded Blackwell promising risk-free returns of 25-30% a month. He also made false claims that the profits were possible because of his extensive experience a trader, connections he made while working for The Bank of Madrid and Goldman Sachs, and the Master’s degree and Ph.D. he earned from prestigious universities. None of these “facts” are true.

A judge granted the SEC’s request to freeze Blackwell’s assets and temporarily restrain him from further violating antifraud provisions. A request for emergency relief was also granted.

Unfortunately, it is the investors who suffer financial losses as a result of investment fraud.

Related Web Resources:
Hedge Fund Fraud: Texas Traders Assets Frozen, February 25, 2011

SEC Looking for Alleged Ponzi Man, Courthouse News, February 25, 2011


More Blog Posts:
Ex-Wextrust Capital COO Pleads Guilty to Role in $255M Affinity Fraud Scam, Stockbroker Fraud Blog, February 27, 2011

Ex-Triton Financial CEO Accused of Using NFL Contacts to Commit $50M Texas Securities Fraud, Stockbroker Fraud Blog, February 17, 2011

Continue reading "Texas Securities Fraud: SEC Halts Alleged Ponzi Scheme in the Dallas-Fort Worth Area " »

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

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

February 14, 2011

TD Ameritrade Inc. Settles SEC Securities Fraud Charges Over Reserve Yield Plus Fund Shares for $10M

TD Ameritrade Inc. (AMTD) has settled Securities and Exchange Commission charges that it failed to reasonably supervise its representatives, some who sold shares of the Reserve Yield Plus Fund to clients. As part of the settlement, TD Ameritrade will pay $10 million to eligible customers who are still fund shareholders.

According to the SEC, TD Ameritrade representatives offered and sold Reserve Yield Plus Fund shares to customers before September 16, 2008. The SEC contends that the representatives “mischaracterized” the fund as a money market fund, making it seem as if the fund had guaranteed liquidity while allegedly failing to discloses the risks involved with this type of investment. In September 2008, the fund “broke the buck” when its assets’ value fell lower than the level required to cover each dollar that had been invested in the fund.

The SEC also claims that TD Ameritrade lacked an adequate supervisory system or policies to stop its representatives’ misconduct that led to investors’ losses. Clients eligible to receive money from the settlement should get receive 1.2 cents per share.

The SEC says that it is essential that customers are given adequate information about investment instruments and that broker-dealers must properly train and supervise their representatives to give clients this important information. The SEC said that thousands of TD Ameritrade customers still hold most of the Yield Plus Funds shares. They got approximately 95% of its original investments after the fund liquidated its assets.

By agreeing to settle, the TD Ameritrade Inc. is not denying or admitting to the misconduct.

Related Web Resources:
SEC announces $10M settlement with TD Ameritrade, AP/Yahoo, February 3, 2011

SEC Charges TD Ameritrade for Failing to Supervise Its Representatives Who Sold Shares of the Reserve Yield Plus Fund, SEC, February 3, 2011

Securities Fraud Attorneys


Related Blog Posts on SEC Settlements:
AXA Rosenberg Entities Settle Securities Fraud Charges Over Computer Error Concealment for Over $240M, Stockbroker Fraud Blog, February 10, 2011

Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah, Stockbroker Fraud Blog, January 22, 2011

Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors, Stockbroker Fraud Blog, January 17, 2011

Continue reading "TD Ameritrade Inc. Settles SEC Securities Fraud Charges Over Reserve Yield Plus Fund Shares for $10M " »

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

Posted In: Financial Firms , SEC Enforcement , Securities Fraud , TD Ameritrade Inc.

February 10, 2011

AXA Rosenberg Entities Settle Securities Fraud Charges Over Computer Error Concealment for Over $240M

AXA Rosenberg Investment Management LLC (ARIM), AXA Rosenberg Group LLC (ARG), and Barr Rosenberg Research Center LLC (BRRC) have agreed to pay over $240 million to settle administrative securities fraud charges that they hid an important error in the computer code of the quantitative investment model used for managing client assets. The Securities and Exchange Commission says the error resulted in investor losses worth $217 million. As part of the settlement, the three Axa Rosenberg entities will repay the investors who sustained financial losses, as well as a $25 million penalty.

The SEC says that the institutional money manager’s concealment of “material error in its computer code” from investors was a violation of federal securities laws. The commission also claims that the three entities made material misrepresentations, such as failing to disclose the error or its effect and did not properly represent "the model’s ability to control risks.”

Per the charges, the error, which was discovered by ARG and BRRC senior managers in June 2009, disabled a key risk-management component. Instead of fixing the problem right away, senior management told others not to reveal the error, which they did not remedy at the time.

The SEC says that quantitative investment managers have been known to “isolate their complex computer models from the firm's compliance and risk management function” in an attempt to protect trade secrets.” The SEC also claims that BRRC failed to implement and adopt compliance procedures and policies to make sure the model would work as intended. Although the error was eventually remedied, ARG's Global CEO was not notified of it until five months after its discovery.

As of last December, Axa Rosenberg Group LLC said that as “the specialist active global equity investment management firm” managed over $31 billion in assets. ARG is the holding company of investment advisers ARIM, which used the investment model to manage client portfolios, and BRRC, which developed the quantitative investment model’s code.


Related Web Resources:
SEC Charges AXA Rosenberg Entities for Concealing Error in Quantitative Investment Model, SEC, February 3, 2011

Read the corrected SEC order (PDF)


More Blogs on SEC Enforcement:
Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah, Stockbroker Fraud Blog, January 22, 2011

Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors, Stockbroker Fraud Blog, January 17, 2011

Broker Settles SEC Charges He Defrauded Elderly Nuns, Stockbroker Fraud Blog, January 13, 2011


Continue reading "AXA Rosenberg Entities Settle Securities Fraud Charges Over Computer Error Concealment for Over $240M" »

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

Posted In: Axa Rosenberg , Financial Firms , SEC Enforcement , Securities Fraud

January 22, 2011

Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah

According to the US Securities and Exchange Commission, while working at Aquila Investment Management LLC, ex-portfolio managers Thomas Albright and Kimball Young allegedly defrauded the Tax Free Fund for Utah (TFFU)—a mutual fund that was heavily invested in municipal bonds. Now, the two men have settled the securities fraud charges for over $700,000. However, by agreeing to settle, Young and Albright are not admitting to or denying the allegations.

The SEC claims that without notifying the TFFU’s board of trustees or Aquila management, the two men started making municipal bond issuers pay “credit monitoring fees” on specific private placement and non-rated bond offerings. The fees, which were as high as 1% of each bond's par value, were charged to supposedly compensate Albright and Young for additional, ongoing work that they say was required because the bonds were unrated. The SEC says that credit monitoring was actually part of the two men's built-in job responsibilities and that although deal documents made it appears as if the fees (totaling $520,626 from 2003 to April 2009) had to be paid and would go to TFFU, they actually end up in a company that Young controlled and that Albright owned equal shares in.

The SEC says that after management at Aquila found out in 2009 that Young and Albright were charging these unnecessary fees, the financial firm suspended the two men right away and reported them to the agency. The agency says the two men violated their basic responsibilities as investment advisers of mutual funds when they failed to act in the fund’s best interests.

Related Web Resources:
The SEC Order Against Young (PDF)

The SEC Order Against Albright (PDF)

Tax Free Fund for Utah

Municipal Bonds, Stockbroker Fraud Blog

Continue reading "Ex-Portfolio Managers to Pay $700K to Settle SEC Charges that They Defrauded the Tax Free Fund for Utah " »

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

Posted In: Municipal Bonds , Mutual Funds , SEC Enforcement , Securities Fraud

January 17, 2011

Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors

The Charles Schwab Corp. has agreed to settle for $119 million Securities and Exchange Commission securities fraud charges that it misled investors about the risks involved in its Schwab YieldPlus Fund. By agreeing to settle, Schwab is not denying or admitting wrongdoing.

In 2008, the YieldPlus Fund dropped to $1.8 billion in assets after a peak of $13.5 billion in 2007. The decline happened because, rather than sticking with its stated policy, the fund invested over 25% of assets in private-issuer mortgage-backed securities. According to SEC Division of Enforcement Associate Director Antonia Chion, Schwab promoted the fund as a cash alternative that was supposed to be just slightly riskier than a money market fund even though at one point half the assets were in securities with credit quality and maturity that were very different from the type of investments that money market funds make.

Per the fund’s 1999 registration statement, YieldPlus was to only invest no more than 25% of its assets in one industry. The SEC contends that without obtaining shareholder approval, in 2006 Schwab changed the statement to say that it no longer thought of mortgage-backed securities as an industry. Last year, Schwab agreed to pay $200 million to settle with plaintiffs over the Schwab YieldPlus Fund.

The SEC has also filed a securities fraud complaint against Schwab executives Randall Merk and Kimon Daifotis over the offering, managing, and selling of the Schwab fund. Both men say that they will contest the allegations.

Related Web Resources:
Schwab to Pay $119 Million to Settle SEC Probe Over Misleading Statements, Bloomberg, January 11, 2011

Schwab Settles SEC Charges Over Allegations it Misled YieldPlus Fund Investors for $119M, ThirdAge, January 12, 2011

Class Members of Charles Schwab Corporation Securities Litigation Can Still Opt Out to File Individual Securities Claim, Stockbroker Fraud Blog, December 6, 2010

Read the SEC Complaint against Merk and Daifotis (PDF)

Schwab Agrees to Pay $200 Million in Fund Settlement, Bloomberg BusinessWeek, April 20, 2010

Continue reading "Schwab Settles for $119M SEC Charges It Allegedly Misled YieldPlus Fund Investors " »

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

Posted In: Charles Schwab , Financial Firms , SEC Enforcement , Securities Fraud

January 13, 2011

Broker Settles SEC Charges He Defrauded Elderly Nuns

Broker Paul Chironis has agreed to settle charges that he defrauded the Sisters of Charity. The US Securities and Exchange Commission is accusing the broker of churning of millions of dollars in mortgage-backed securities in the congregation of elderly nuns’ two accounts. One account supports the nuns’ charitable efforts. The other helps take care of nuns living in nursing homes.

The SEC says that Chironis defrauded the nuns between January 2007 and January 2008. The accounts that he allegedly churned held mostly mortgage-backed securities that Freddie Mac, Fannie Mae, and Ginnie Mae had issued, as well as closed-end bonds. The SEC contends that the broker charged the nuns’ account undisclosed and excessive markups and markdowns in riskless principal transactions.

The federal agency says that Chironis’s actions violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. By agreeing to settle, Chironis is not admitting to or denying the charges. He has, however, consented to a permanent bar from the securities industry. He also has agreed to disgorge $250,000 in illegal gains and pay a $100,000 civil penalty. The money, which will be put in a Fair Fund, will be distributed to the congregation of nuns.

Churning
Churning is an act of securities fraud that involves a broker making excessive trades to make commissions and other revenue regardless of whether such transactions fulfills the clients' investment objectives. Our securities fraud lawyers can help you determine whether you were a victim of churning.

Related Web Resources:
SEC Settles With Broker for Allegedly Defrauding Bronx Nuns, Wall Street Journal, January 6, 2011

Broker Accused of Defrauding Elderly Nuns Settles Case With SEC, SEC, January 6, 2011

Read the SEC Litigation (PDF)


Continue reading "Broker Settles SEC Charges He Defrauded Elderly Nuns" »

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

Posted In: Broker Fraud , SEC Enforcement , Securities Fraud

Call for a Free Consultation
(800) 259-9010

Contact Us

The code above is for the protection of your information.

Browse

  • Topics
  • By Date
  • Search
Topics
By Date
Search

Recent Entries

Legal Blogs