July 1, 2014

Broker Fraud: Ex-Investors Capital Rep. is Indicted in Ponzi Scheme, Credit Suisse Sues Two Ex-Brokers Over Client Data Theft, and SEC Files More Insider Trading in IBM-SPSS Acquisition

Ex-Investors Capital Rep. Charged in $2.5M Ponzi Scam
Patricia S. Miller, a former Investors Capital Corp. representative, has been indicted on charges that she ran a $2.5 million investment fraud. She is accused of promising clients high yields for placing funds in “investment clubs.” Miller allegedly took this money and either gambled it away or used it to pay for her own spending.

According to prosecutors in Massachusetts, alleged fraud took place from 2002 through May 2014. Investors Capital fired Miller last month. Her BrokerCheck Report notes that the independent broker-dealer let her go because she allegedly misappropriated funds, borrowed client money, generated false documents, and engaged in “fraudulent investment activity.” Miller is charged with five counts of wire fraud.

Credit Suisse Sues Former Advisers For Allegedly Stealing Client Data
Credit Suisse Securities (CS) is suing John Delehanty and David Starker for violating their non-solicitation agreements when leaving the firm. The firm is accusing the men of taking client lists and sending confidential information to their personal accounts before going to work with J.P. Morgan Securities (JPM). The firm has also filed a claim with FINRA seeking damages.

In dispute was a contact list consisting of about 3,00 names that Starker sent from his Credit Suisse work e-mail account to his personal one. The list included notes about prospective clients. Delehanty is also accused of sending confidential client information to his personal e-mail account.

Under the Protocol for Broker Recruiting, which has been signed by about 1,100 brokerage firms, a broker is not subject to litigation when recruited to another firm as long as they bring just a spreadsheet that contains only certain client data, such as phone numbers and names. Anything more is considered a violation. However, this can be undone if the broker gives back the information when resigning. Credit Suisse said that Delehanty and Starker did not answer request by the firm to follow this protocol.

SEC Files More Insider Trading Charges in IBM-SPSS Acquisition
The Securities and Exchange Commission is charging two more brokers with insider trading prior to IBM’s acquisition of SPSS Inc. in 2009. Ex-representatives Daryl M. Payton and Benjamin Durant III allegedly traded illegally on the information that the deal was going to happen. They got the tip from another broker, Thomas C. Conrad.

Now, the regulator wants ill-gotten gains of about $300,000 returned, along with financial penalties, interest, and permanent injunctions. The U.S. Attorney’s Office for the Southern District of New York has filed a parallel action against the two men.

The SEC had previously filed insider trading charges against Conradt and David J. Weishaus, also a broker and tippee. They got the information from Conradt’s roommate, research analyst Trent Martin, who received the data from an attorney who worked on the deal. The three men have settled with the SEC. They entered guilty pleas in their criminal cases.

SEC Charges Former Brokers with Trading Ahead of IBM-SPSS Acquisition, SEC, June 25, 2014

Ex-Credit Suisse brokers sued over alleged theft of client data, InvestmentNews, June 30, 2014

Advisor Indicted In Long-Running Ponzi Scheme, FA-Mag, June 30, 2014

More Blog Posts:
Ponzi Scams: FINRA Bars Ex-Raymond James Broker Over $3M Ponzi Scam, Expels Success Trade Securities, Inc. for Bilking NFL and NBA Players, Stockbroker Fraud Blog, June 27, 2014

BNP Pleads Guilty to Criminal Charges Over Sanctions Violations, Pays $8.8B Fine, Institutional Investor Securities Blog, June 30, 2014

Credit Suisse Admits Wrongdoing and Will Pay $196M to Settle SEC Charges That It Provided Unregistered Services to US Customers, Stockbroker Fraud, February 22, 2014

May 6, 2014

Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales

Morgan Stanley Smith Barney LLC (MS) will pay a $5 million fine for supervisory failures involving its advisors soliciting shares in 83 IPOs to retail investors. The Financial Industry Regulatory Authority says that the firm lacked the proper training and procedures to make sure that salespersons knew the difference between “conditional offers” and “indications of interest."

By settling, Morgan Stanley is not denying or admitting to the securities charges. It is, however, consenting to the entry of findings by FINRA.

FINRA believes these issues are related to Morgan Stanley’s acquisition of Smith Barney from Citigroup (C) a couple of years ago. In addition to inheriting more high net worth clients, the SRO contends that Morgan Stanley ended up with financial advisers who might not have gotten the needed training.

Firms are allowed to solicit for “indications of interest” in an initial public offering before the registration statement becomes effective. These are not binding and may only lead to the purchase of shares if the investor reconfirms the intent to buy after the date that the statement went into effect. As for “conditional offers to buy,” these can result in a binding deal after the date that the statement becomes effective as long as the investor doesn’t do anything to rescind it before the firm accepts.

FINRA says that beginning in February 2012, Morgan Stanley put into place a policy in which these two terms were used interchangeably and without appropriate consideration for whether the customer needed to confirm its interest prior to the execution of a sale. The SRO claims that the financial advisers did not get the training or materials they needed to make sure the policy was clear to them. Because of these violations, customers and staff may not have properly comprehended which commitment was solicited.

The SRO is accusing Morgan Stanley of failing to properly monitor compliance and not installing procedures to ensure that conditional offers were solicited in a way that met FINRA rules and federal securities law requirements. The supervisory failures purportedly continued through May 1, 2013. Some of the shares were even sold via social media, including Yelp and Facebook.

Read FINRA's Action to Morgan Stanley (PDF)

Finra Fines Morgan Stanley $5 Million Over IPO Rules, The Wall Street Journal, May 6, 2014

More Blog Posts:
Former Morgan Stanley Broker and Two Others Allegedly Ran $5.6M Insider Trading Scam, Swallowed The Information, Stockbroker Fraud Blog, March 19, 2014

Merrill Lynch, Morgan Stanley Call A Broker Recruiting Truce
, Stockbroker Fraud Blog, October 26, 2013

PNC Bank Sues Morgan Stanley & Ex-Trust Adviser For “Surreptitious Conspiracy”, Institutional Investor Securities Blog, April 3, 2014

April 30, 2014

SEC Files Fraud Charges Against American Pension Services and Its Founder Over $22M Investor Losses

The Securities and Exchange Commission has filed charges against American Pension Services Inc., a third-party administrator of retirement plans based in Utah and its founder Curtis L. DeYoung. The regulator says that they caused clients to lose about $22 million in risky investments involving certain business ventures. American Pension Services is now under receivership.

The securities scam allegedly goes back at least to 2005. Customers with retirement accounts containing non-traditional assets usually not found via IRA custodians, such as traditional (401)K retirement plans, were targeted. The Commission says that APS and DeYoung solicited customers to set up self-directed IRA accounts with third party administrator. DeYoung purportedly said this was “genuine self-direction” for investors seeking other options besides stocks, mutual funds, and bonds.

These clients had to fill out IRS Form 5305-A, which say that a third-party administrator doesn’t have discretionary authority over assets and it is up to the depositor to direct the assets’ investments. Although clients’ funds were kept at a bank in two master trust accounts, the complaint claims that APS controlled the money and mixed clients’ money together.

Even though APS was not allowed to direct client trades, DeYoung is said to have used letters with forged signatures that gave him permission to invest for clients. The SEC believes that clients were sent inaccurate account statements in 2012 and 2013, and some were told that at the end of 2012 master trust accounts contained $45.9 million when really that balance was at around $23.8 million. (In 2013, account statements noted that these accounts held $57.3 million when really they contained $22.7 million.) Client fees were calculated according to the inflated figures in customer account statements.

Meantime, customer funds were placed in risky business ventures involving friends of DeYoung. Even after a friend defaulted on promissory notes that DeYoung is said to have recommended to investors, he allegedly kept referring APS clients and their money to that person until a year ago. He also caused customers to think that their investments were profitable. DeYoung is accused of giving his friend the cash, which was issued to clients as bogus principal payments and interest.

Some of these business ventures failed or went bankrupt, allegedly causing APS clients to suffer losses. Among the investments are entities that are currently subject of SEC enforcement cases. SEC Salt Lake Regional Office director Karen Martinez, because of the alleged misconduct, the retirement security for thousands of investors was “jeopardized.”

If you are a senior investor, a retiree, or another customer who sustained losses because of the negligence of your investment representative, contact our securities lawyers today. Your initial case assessment is free.

Read the SEC Complaint (PDF)

SEC hits American Pension Services and its founder with fraud charges, Investment News, April 30, 2014

More Blog Posts:
Charles Schwab’s Barring of Customers from Joining Class Actions Violated FINRA Rules, Says Board of Governors, Stockbroker Fraud Blog, April 25, 2014

Ex-Sentinel CEO is Convicted of $500M Fraud, Stockbroker Fraud Blog, April 25, 2014

Institutional Investors Sue BP for Securities Fraud
, Stockbroker Fraud Blog, April 21, 2014

April 24, 2014

Ex-Sentinel CEO is Convicted of $500M Fraud

Eric Bloom, the CEO of Sentinel Management Group, Inc., the now bankrupt hedge fund, has been convicted of bilking over 70 customers of more than $500 million prior to the firm’s collapse. According to the U.S. Department of Justice, Bloom misappropriated securities that belonged to customers when he used the financial instruments as collateral to get a loan for Sentinel from Bank of New York Mellon Corp. (BK). The loan was partially used to buy risky illiquid securities for a trading portfolio to benefit Bloom, other Sentinel officers, corporations controlled by his family, and his relatives.

Also, says the DOJ, even though Bloom knew that Sentinel was at risk of defaulting on the loan from the bank, he caused the hedge fund to take over $100 million from customers while hiding its true financial state. A federal jury returned guilty verdicts against him on one count of investment adviser fraud and 18 counts of wire fraud.

The guilty verdict comes six months after Charles K. Mosley, Sentinel’s former head trader, pleaded guilty to two counts of investment adviser fraud related to the charges filed against Bloom. Mosely admitted to covering up their actions. In his plea agreement, he said that customers were sent statements according to interest income rates that he and Bloom had calculated rather than the performance of investment portfolios.

The SEC sued Sentinel in 2007, accusing the firm of transferring at least $460 million in securities from client funds and using the holdings of customers to get a $321 million credit line. Rather than disclosing that Sentinel was moving, comingling, and misappropriating assets, says the SEC, the firm issued regular account statements that showed no indication of the improper activities. As a result customers of Sentinel suffered undisclosed losses for months until they got a letter from the firm saying that the assets would have to be sold at discount and at a loss, supposedly because of the liquidity crisis.

In August, an appeals court judge Chicago said that BNY Mellon would have to face a lawsuit challenging its $312 million lien on assets of Sentinel. This reversed a district judge’s decision to uphold the lien. (The liquidation trustee had sued BNY Mellon to subordinate or disallow its lien claiming bank employees were aware that Sentinel was wrongly using the assets of investors as collateral as part of the hedge fund’s credit line.) In January, U.S. Bankruptcy Judge Jacqueline P. Cox said that BNY Mellon would have to give back the $337 million it received from Frederick Grede, the trustee liquidating Sentinel.

If you suspect your investment losses are a result of negligence or misconduct at the financial firm representing you, please contact our securities fraud lawyers today.

US Justice Department Convicts Hedge Fund CEO Of $500 Million Fraud, HedgeCo.Net, March 26, 2014

BNY Mellon Must Face Challenge to $312 Mln Sentinel Lien, Bloomberg, August 26, 2013

Sentinel trustee wants Bank of NY Mellon to return $337 million, Reuters, December 18, 2013

More Blog Posts:
Securities Law Roundup: Ex-Sentinel Management Group Execs Indicted Over Alleged $500M Fraud, Egan-Jones Rating Wants Court to Hear Bias Claim Against SEC, and Oppenheimer Funds Pays $35M Over Alleged Mutual Fund Misstatements, Stockbroker Fraud Blog, June 13, 2012

Barclays Settles Two Libor-Related Securities Cases, Institutional Investor Securities Blog, April 16, 2014

Bank of America, JPMorgan Chase Among Banks Sued by Danish Pension Funds in Credit Default Swaps Lawsuit, Institutional Investor Securities Blog, August 15, 2013

April 18, 2014

SEC Charges Total Wealth Management With Securities Fraud, Receiving Undisclosed Kickbacks

The Securities and Exchange Commission has filed a financial fraud case against Total Wealth Management Inc., an investment advisory firm based in Southern California. The regulator is accusing the firm of getting undisclosed kickbacks over investments recommended to clients. It is also alleging breach of fiduciary duty.

According to the SEC’s complaint, Total Wealth placed about 75% of 481 client accounts into Altus Funds, which is a family of proprietary funds. The investment advisory firm has a revenue-sharing deal that allows them to get kickbacks. The regulator says this was a conflict of interest because customers did not know about the agreement.

The Wall Street Journal reports that according to the SEC, Altus invested 92% of all its investments—$32 million—in funds that had revenue sharing deals with Total Wealth. The agency says that clients likely wouldn’t have put their money with Total Wealth if they had known that the majority of the Altus funds were paying the firm.

The Commission is accusing Total Wealth Management CEO Jacob Cooper, co-founder David Shoemaker, and chief compliance officer Nathan McNamee with setting up business entities to hide the undisclosed payments. While revenue sharing isn’t necessary illegal, they become a problem if they are concealed on purpose. Cooper is also accused of misleading investors about just how much due diligence it conducted on Altus Funds’ investments.

The SEC contends that Cooper and Total Wealth violated federal securities laws’ antifraud provisions, while Shoemaker and McNamee purportedly aided and abetted or violated the provisions. Other charges include custody rule and Form ADV disclosure rule violations. The Commission wants the allegedly ill-gotten gains given back, the imposition of a financial penalty, interest, and remedial relief.

Investment advisers have a duty to act in the best interests of a client. Failure to do that may result in losses for an investor and in some cases intentional gains for the adviser or his firm. If you think your investment losses are a result of your financial adviser breaching its duty to you, please contact our investment fraud law firm today.

Read the SEC Order (PDF)

More Blog Posts:
SEC Says Investment Advisors Can Publish Third-Party Endorsements Online, Stockbroker Fraud Blog, April 1, 2014

SEC Reveals Plans to Examine Never-Before-Inspected RIAs, Stockbroker Fraud Blog, February 24, 2014

SEC Sanctions Three Investment Advisory Firms for Custody Rule Violations, Institutional Investor Securities Blog, October 30, 2013

April 17, 2014

SEC Files Securities Charges Against Massachusetts Company Over Pyramid Scam that Primarily Targeted Immigrants

The US Securities and Exchange Commission has filed fraud charges against TelexFree Inc. and TelexFree LLC over an alleged Pyramid scam that targeted immigrants—those from Brazil and the Dominican Republic, in particular. The agency sought and was able to obtain an asset freeze, securing millions of dollars.

Also facing charges are a number of TelexFree officers and promoters and several other entities as relief defendants. The Investors involved are located in Massachusetts and 20 other US states.

According to the SEC, the two entities made it appear as if they were operating a multilevel marketing company that sold phone service using VoIP technology when in fact this was a Pyramid scheme. The defendants sold securities as “memberships” along with the promise of 200% or greater yearly returns to people who promoted TelexFree via ad placements and participated in new member recruitment. $300 million was raised.

The Commission notes that the actual Internet phone services revenue for TelexFree was $1.3 million. Meantime, investors were promised $1.1 billion.

Earlier investors were paid “revenue” that was actually the money from newer investors. Meantime, at least $30 million in investor funds was moved from TelexFree operating accounts to accounts under the control of affiliates of Telexfree or individuals who are now defendants.

Pyramid Scam
In this type of fraud, participants make their money from getting new joiners to sign up. The premise is easy money for doing nothing besides getting others to also put in money.

Fraudsters will work to make their scam appear legitimate, pretending they have real products that they are selling and that this they are running a real multi-level marketing program. These schemes ultimately collapse when the promoter can’t bring in any more money or new investors.

Signs that the MLM program you are thinking of joining is a pyramid scam (From the SEC website):

• There is no actual product or service.
• The promise of high returns within a short time frame.
• Compensation or passive income is offered for doing hardly anything.
• There is no proven revenue from retail sales.
There is a buy-in fee
• The commission structure is a complex one
• Member recruitment is a primary focus of the business.

Contact our securities lawyers if you suspect that you were the victim of a Pyramid scam, a Ponzi scheme, Affinity fraud, or some other type of securities fraud.

Read the SEC Complaint (PDF)

Pyramid Schemes, SEC

More Blog Posts:
Ex-Merrill Lynch Adviser, Already Jailed for Massachusetts Securities Fraud, Now Indicted Over Ponzi Scam, Stockbroker Fraud Blog, March 4, 2014

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

SEC Stops Former Marine’s Hedge Fund Fraud That Targeted Military Folk, Stockbroker Fraud Blog, August 12, 2013

April 9, 2014

SEC Files Charges Over Securities Fraud Scams that Used YouTube, Facebook, Twitter, & Other Social Media

The US Securities and Exchange Commission has filed securities fraud charges against Joseph Signore, Paul L. Schumack II, and their respective companies for their Florida-based Ponzi scam that purportedly used YouTube videos to target hundreds of US investors to get them to invest in virtual concierge machines that were supposed to garner 300-500% returns in four years. The two companies are T.B.T.I. Inc. and JCS Enterprises Inc.

According to the SEC, the two men and their companies falsely promised investors that their money would go toward the purchase of these ATM-like machines, which businesses would then use to promote services and products via touch screen, coupons, or printable tickets. The machines were to be placed at airports, hotels, and stadiums.

Instead, contends the regulator, Schumack, Signore, and their companies used investors' funds in Ponzi scam-fashion, taking new investors money to pay the “returns” of earlier investors and paying for their personal expenses (including credit card bills, restaurants, unrelated business ventures, and family spending).

The men and their companies raised about $40 million in their scam, which they also marketed via e-mail and during investor seminars. The Ponzi scheme failed when investor money ran out.

Meantime, the U.S. Attorney’s Office for the Southern District of Florida has filed a parallel action announcing criminal charges.

Prosecutors are calling the scam an alleged $70 million investment fraud. Investors who put in $3,500 were supposedly guaranteed $300/month over three years from advertising revenue sold on the machines.

Also this month, the SEC is suing a Honolulu woman for pretending to be an expert in hedge funds investments and pursuing investors via Facebook, Twitter, and other forms of social media. Keiko Kawamura allegedly ran two separate scams. She purportedly was able to collect about $700,000 money from subscribers and investors of her self-described hedge fund.

In one investment scheme, Kawamura allegedly published screenshots on Twitter of brokerage account statements showing amazing returns—only the account statements did not belong to her. In a second alleged securities scam, Kawamura bragged about her “professional experience,” and made claims that she made 800% returns in her personal account.

Kawamura is accused of using the money she collected to pay for expensive trips and support herself. She did invest some of the funds, which the SEC says she lost by investing the money in risky options trades.

Social Media and Securities Scam
Unfortunately, with investors turning more and more to the Internet and social media for information about investing and investments, this can make them easy and accessible targets for fraudsters. Online, scammers are able to reach lots of people at low cost while using simple technology to make themselves appear legitimate.

If you think you were the victim of an investment scam, contact our securities fraud lawyers today.

The SEC Order Against Kawamura (PDF)

Investor Alert: Social Media and Investing - Avoiding Fraud, Investor.gov

Read the SEC Order in the Ponzi Scam (PDF)

More Blog Posts:
$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial, Stockbroker Fraud Blog, April 2, 2014

PNC Bank Sues Morgan Stanley & Ex-Trust Adviser For “Surreptitious Conspiracy”, Institutional Investor Securities Blog, April 3, 2014

SEC Says Investment Advisors Can Publish Third-Party Endorsements Online, Stockbroker Fraud Blog, April 1, 2014

March 31, 2014

Bank of America, Its Ex-CEO To Pay $25M to Settle Securities Case with NY Over Merrill Lynch Deal

Bank of America Corp. (BAC) and its ex-CEO Kenneth Lewis have consented to pay $25 million to settle the remaining big securities fraud case accusing them of misleading investors about the financial state of Merrill Lynch & Co. during the 2008 financial crisis. The New York securities case accuses the bank of deceiving shareholders by not disclosing Merrill’s increasing losses before the acquisition deal was closed or letting them know that the deal let Merrill give its officials billions of dollars in awards.

As part of the settlement, the bank will pay the state of New York $15 million and it will enhance its oversight. Lewis, meantime, has consented to pay $10 million and he cannot work at or serve as a director of any public company for three years.

Also named as a defendant in the securities lawsuit but who refused to settle is ex-Bank of America CFO Joe Price. NY Attorney General Eric Schneiderman intends to pursue a summary judgment against him, as well as ask a judge to reach a decision without a trial. Schneiderman reportedly wants Price permanently banned from serving as a director or working at a public company.

Previously, Lewis and other Bank of America directors agreed to pay $20 million to settle a securities fraud lawsuit by investors accusing them of not disclosing needed data about Merrill before the takeover was approved. In 2012, the bank consented to pay $2.43 billion to resolve a class-action securities case with investors accusing the institution and its officers of making misleading and false statements about Merrill’s financial health. Just two year before that Bank of America agreed to pay $150 million to settle with the SEC over charges that it did not disclose material data about Merrill.

Bank of America acquired Merrill in a $50 billion deal in September 2008, which is when Lehman Brothers Holdings went into bankruptcy. While the deal was at first considered good news, especially as the rest of Wall Street appeared to be in so much trouble, analysts started to wonder if Lewis paid too much. There was also Merrill’s losses right before the acquisition was finalized.

Because of investors’ fears about the financial crisis, share prices of Bank of America dropped significantly, causing the value of the deal to drop to about $19 billion by the time it actually was finalized in January 2009. Securities fraud lawsuits then followed.

Bank of America’s decisions to purchase Merrill and Countrywide Financial Corp. have since compelled it to put aside over $42 billion to cover lawsuit costs, reserves, and payouts. Many of the securities cases contend that Countrywide, once one of the biggest subprime mortgage lenders, sold faulty mortgage securities to investors leading up to the 2008 economic crisis.

In October, a jury found Bank of America liable for securities fraud over the mortgages that Countrywide originated as home loans that in then sold to Freddie Mac and Fannie Mae.

Please contact our stockbroker fraud lawyers if you suspect your investment losses are because of financial fraud.

Lewis, BofA Reach $25 Million Pact With N.Y. Over Merrill, Bloomberg, March 26, 2014

Bank of America to pay $2.43B in settlement, Yahoo, September 28, 2012

Bank of America liable for Countrywide mortgage fraud, Reuters, October 23, 2008

More Blog Posts:
$500M MBS Settlement Reached Between Countrywide and Investors, Stockbroker Fraud Blog, May 10, 2013

Dismissal of Double Derivative Delaware Securities Lawsuits Over The Bank of America-Merrill Lynch Merger is Affirmed by the Second Circuit, Stockbroker Fraud Blog, December 22, 2012

Bank of America Settles Mortgage Bond Claims with FHFA for $9.3B, Institutional Investor Securities Blog, March 29, 2014

March 22, 2014

SEC To Examine Exchange Traded-Fund Regulation Again

The Securities and Exchange Commission is getting ready to revisit a 2008 rule proposal about exchange-traded funds. In the wake of new issues that have cropped up since then, changes to the original proposal are likely.

Speaking at the Investment Company Institute’s Mutual Fund and Investment Management Conference this week, SEC’s Division of Investment Management associate director Diane Blizzard said that a revised rule would likely address the differences between index and active funds, transparency of underlying and direct instruments, inverse leverage, and creative flexibility within the funds.

Currently, there is no specific timeline for a revised proposal roll out. Since no rule is in place at the moment, the Division of Investment Management is in charge of making individual choices about whether to approve new exchange-traded funds. This SEC division is also looking at enhancing disclosure requirements related to variable annuities, including whether senior investors and those seeking to build their retirement funds are being properly and thoroughly notified of the benefits, complexities and costs.

In other ETF news, Financial Advisor is reporting that the number of hedge fund managers getting involved in this investment space is growing. Although ETF investments can grow the managers’ investor roster, they also may compel the firms to cut their investment management fees. Created as a “passive index-tracking investment,” ETFs are more actively handled and employ short selling, arbitrage, and other alternative strategies. They can be traded like common stuck, which makes exchange-traded fund more accessible and easier to market than actively managed mutual funds. Currently, the SEC is looking at a rule that would let ETF managers reveal their holdings less often than they have to now, which is daily.

Also, US asset managers are using ETFs to make their way into China’s stock market. These funds invest in equities that are listed in that country. The ETFs offer investors in the US the opportunity to get into China’s A–shares, which are the renminbi-denominated shares of companies that were incorporated in China. The shares are traded on the Shenzen and Shanghai exchanges. Before, ETFs involved in the A-shares market could only do so via futures contracts, swaps, and other derivatives.

If you are going to invest in an ETF it is important that you know the risks, benefits, and fees involved. You should also have an understanding of its prospectus, which offers information about the instrument’s goal, main investing strategies, costs, risks, and past performance history.

Investing in Exchange-Traded Funds
Consider whether the ETFs goals are in line with your own objectives and long-term plans. You also want to think about if you can handle the risks should the become reality. How much you have to pay in commissions to a brokerage firm is also important because this will cost you when selling and buying ETF shares. It is also essential that you find out what the other costs are in owning an ETF and explore whether other investments are better suited for you.

If you have sustained ETF fraud losses because of the negligence, wrongdoing, or inexperience of a broker or another financial adviser, please contact our ETF investment fraud law firm today.

Exchange-Traded Funds, Investor Bulletin (PDF)

U.S. exchange-traded funds open up China's market, Reuters, March 19, 2014

Hedge Funds Entering ETF Space To Lure More Investors, Financial Advisor, March 20, 2014

More Blog Posts:
Stifel, Nicolaus & Century Securities Must Pay More than $1M Over Inverse and Leveraged ETF Sales, Stockbroker Fraud Blog, January 14, 2014

New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M, Stockbroker Fraud Blog, March 14, 2013

SEC Charges Filed Against Stifel, Nicolaus & Co. and Former Sr. VP David Noack Over CDO Sales to Wisconsin School Districts, Institutional Investor Securities Blog, August 11, 2013

March 14, 2014

1 in 5 Seniors Fall Prey to Financial Fraud

According to the Investor Protection Trust, out of every five senior citizens over age 65, one of them will fall victim to a financial scheme in 2012. The Federal Trade Commission says that citizens over age 60 made up the largest group of people to report elder financial fraud to the Federal Trade Commission in 2013—that’s 27% of those who made such reports. That figure was just 22% in 2011.

At Shepherd Smith Edwards and Kantas, LTD LLP, please contact our senior investor fraud lawyers today if you feel that your losses may be a result of financial fraud or some other elder exploitation case. We work with elderly investors to get their money back.

The reason for the increase in elderly victims can in part be attributed to people living longer lives and the baby boom generation getting older. The Street reports that according to a survey conducted by the Metropolitan Life Foundation in 2010, elder financial abuse victims lost a minimum of $2.9 billion in 2010, which was a 12% increase from the number of senior financial fraud victims in 2008. Aside from negligent financial representatives, other fraudsters can include caregivers, relatives, immediate family, and strangers.

Senior citizens make easy investment fraud targets for numerous reasons. Many of them have money to invest after spending their lives working and saving. Some may suffer from mental impairments that can make it hard for them to understand they are being defrauded. There are also those senior investors, once defrauded, that may be too embarrassed or too afraid to speak out. This can makes it easier for financial scammers to get away with their crimes and the money.

Unfortunately, it is the investors who suffers when securities fraud happens. For some seniors this can mean the loss of the retirement nest egg that they had depended on to get them through the end of their life and cover their medical bills. Please contact our securities lawyers today.

1 in 5 Senior Citizens Fall for Financial Scams, The Street, March 17, 2014

Read the FTC Report (PDF)

Elder Fraud and Financial Exploitation, StopFraud.gov

Investor Protection Trust

More Blog Posts:
Two Ex-JPMorgan Brokers Alleged Bilked Mentally Impaired Elderly Widow of $300,000, Stockbroker Fraud Blog, December 4, 2013

Texas Man gets 40-Year Prison Sentence for Phony Annuity Scam That Targeted Elderly Women, Stockbroker Fraud Blog, September 23, 2013

GAO Wants SEC to Look At Other Criteria for Who Qualifies As An Accredited Investor, Institutional Investor Securities Blog, July 31, 2013

March 12, 2014

Jefferies LLC Settles SEC Charges for $25 Million

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

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

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

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

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

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

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

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

The SEC Order (PDF)

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

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

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

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

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

March 11, 2014

SEC Stops Pyramid Scam That Targeted Investors Via Twitter, Facebook, Skype, and YouTube

The Securities and Exchange Commission has put out an emergency enforcement action to stop a pyramid scam that has already taken $300,000 from about 150 investors in the US. The scheme involves bogus companies pretending to be an international investment firm. Customers were solicited via Twitter, Skype, Facebook, and YouTube.

Now, the SEC has gotten a federal court order freezing the holding the funds that purportedly were stolen from investors by MWF Financial and Fleet Mutual Wealth Limited, known together as Mutual Wealth. The regulator claims that the company used social networking and its website to target investors, making false promises of returns of 2 to 3% a week if they opened accounts with the firm.

According to the Commission, Mutual Wealth made its fraudulent pitches via social media. Misrepresentations were published on the company’s Facebook page, including data about income yields of up to 8% weekly and HFT portfolios with ROI of a maximum of 25%/annum. Mutual Wealth purportedly touted its use of a high-frequency trading strategy that lets capital be put into securities for just minutes at a time. The company offered a commission or referral fee if investors became “accredited” and brought in new investors.

Now, however, the SEC is saying that everything Mutual Wealth told investors was false. The company doesn’t sell or buy securities for investors. Instead, the money was allegedly diverted into shell company-held offshore accounts. Also, Mutual Wealth’s headquarters, supposedly in Hong Kong, its data center in New York, and the executives listed on its website all do not exist. The SEC says that Mutual Wealth is not registered with the regulator. The SEC is charging Mutual Wealth with violating sections of the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5.

If you believe you were scammed via social media or some other social network and have lost money on your investment as a result, please contact our securities fraud law firm so that we can help you explore your legal options.

SEC Halts International Pyramid Scheme Being Promoted Through Facebook and Twitter, SEC.gov, March 5, 2014

Read the SEC Complaint (PDF)

More Blog Posts:
Ex-Merrill Lynch Adviser, Already Jailed for Massachusetts Securities Fraud, Now Indicted Over Ponzi Scam, Stockbroker Fraud Blog, March 4, 2014

North American Securities Administrators Association Releases 2013 List of Top Threats to Investors, Stockbroker Fraud Blog, October 22, 2013

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

March 8, 2014

Ex-Jefferies Trader Found Guilty in Securities Fraud Case Over Bond Prices

A jury has convicted Ex-Jefferies Group LLC (JEF) trader Jesse Litvak of securities fraud. Litvak was found guilty of 15 criminal counts, including 10 securities fraud counts related to his misrepresenting bond prices to customers so he could make more money for him and his firm. He pleaded not guilty to all the charges. Jefferies Group is a Leucadia National Corp. (LUK) unit.

According to the government, the 39-year-old trader gave clients inaccurate information about the price of residential mortgage-backed bonds and kept the monetary difference. Litvak, who worked at Jefferies from April 2008 through December 2011, is accused of bilking customers of about $2 million, benefiting himself and his employer.

While Litvak's legal team tried to persuade a jury that statements Litvak made no difference to customers or their decision of whether to buy the bonds, and that the tactics his client employed are “expected,” the government argued that Litvak’s statements did affect his clients. Litvak was also found guilty of a criminal charge accusing him of fraud related to the Troubled Asset Relief Program.

The former Jefferies broker has yet to receive his prison sentence for the conviction. Meantime, he also is facing a parallel securities fraud case brought by the Securities and Exchange Commission. The regulator is accusing him of bilking investors of mortgage-backed securities to make more revenue for his firm.

The SEC says Litvak would buy an MBS from one client and sell it to a different client and lie about the price. He would then take the difference in price and give it to Jefferies. He also, on occasion, purportedly created a bogus seller to make it seem as if he was working out an MBS trade between clients when he was just selling the securities out of his firm, but at a higher cost. The SEC says that Litvak was able to make another $2.7 million for Jefferies because of the fraud.

Although Jefferies is not accused of wrongdoing related to the charges against Litvak, the brokerage firm has reached a preliminary deal to pay $25 million to settle US probes related to this former employee. In addition to reaching a nonprosecution deal with the US Attorney’s Office in Connecticut and settling with the SEC, Jefferies will also pay trading clients affected by Litvak’s actions.

The criminal conviction against Litvak could help a government investigation launched after Litvak was arrested as year. The Wall Street Journal reported that investigators are trying to find out if other traders engaged in fraud similar to what Litvak did. That probe is being conducted by the SEC, the US Department of Justice, and the special inspector general for the Troubled Asset Relief Program, and looks at markups and markdowns, such as the markups made by Litvak.

Traders are supposed to prioritize a customer’s best interests and make sure the investment and its price is suitable for the client and his/her objectives and portfolio. Unfortunately, there are financial representatives who commit securities fraud for profit at cost to investors. That’s where Shepherd Smith Edwards and Kantas, LTD LLP steps in. Our securities lawyers have helped thousands of investors get their money back.

Former NY RMBS Trader Convicted by Federal Jury of Defrauding TARP, Loansafe.org, March 11, 2014

Jury Finds Former Jefferies Trader Litvak Guilty of Fraud, The Wall Street Journal, March 7, 2014

TARP Programs, Department of Treasury

More Blog Posts:
Fines for FINRA Sanctions Went Down 27%, Reports New Analysis, Stockbroker Fraud Blog, March 5, 2014

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

SEC Director Warns About Recommending Alternative Mutual Funds To Certain Investors, Institutional Investor Securities Blog, March 7, 2014

February 15, 2014

SEC Charges Two Wall Street Traders With Securities Fraud in “Parking” Scam

The Securities and Exchange Commission is charging Ryan King and Thomas Gonnella with securities fraud over a bogus “parking” scam. According to its Enforcement Division, the two Wall Street traders tried to get a round a firm policy that places a penalty for holding securities too long, and one of them purportedly placed securities in the trading books of the other so such fees wouldn’t be imposed and end up affecting his annual bonus.

The two men worked at different firms. According to the SEC, Gonnella asked King to help him get around his firm’s policy by arranging for the latter to buy securities that he would then later buy from King’s firm at a profit. By parking the securities in King's trading book to reset the holding period, Gonnella was seeking to avoid charges to his trading profits and bonus as a result of inventory.

Per the administrative orders, Gonnella parked about 10 securities with King. The alleged round-up trades purportedly caused Gonnella’s firm to lose about $174,000.

The Commission’s Enforcement Division claims that after Gonnella’s supervisor started asking about the trades, King and Gonnella tried to avoid detection by adding an interdealer broker to subsequent trades and using cell phones so their discussions couldn’t be recorded by their employers. The two men were eventually fired.

While the case against Gonnella is going to an administrative law judge, King is cooperating with the regulator. He is settling by disgorging profits and agreeing to a securities industry bar. Financial penalties will be determined later.

If you suspect you were the victim of securities fraud, contact Shepherd Smith Edwards and Kantas, LTD LLP today.

The SEC order against Gonnella (PDF)

The SEC order against King (PDF)

More Blog Posts:
OppenheimerFunds Increases Its Exposure to Puerto Rico Debt Despite Downgrade by Moody’s, S & P, and Fitch to Junk Status, Stockbroker Fraud Blog, February 14, 2014

How Can you Recover Your Loss on UBS Puerto Rico Municipal Bonds?, Stockbroker Fraud Blog, February 7, 2014

FINRA Awards Nearly $1M in Florida Non-traded-REIT Cases, Institutional Investor Securities Blog, February 14, 2014

February 13, 2014

SEC Restructures Trial Unit in an Effort to Decrease Courtroom Losses

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

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

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

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

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

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

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

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

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

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

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

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

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

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

January 18, 2014

Advisors in the Spotlight: Ex-SAC Capital’s Martoma on Trial for $276M Insider Trading Scam, Financial Industry Recruiters Say LinkedIn Hurts Their Business, & A Fugitive Bank Director Wanted for Securities Fraud is Arrested

Former SAC Capital Portfolio Manager Mathew Martoma On Trial for Securities Fraud
Mathew Martoma, the ex-SAC Capital Advisors portfolio manager accused in the insider trading scam that involved $276 million in Wyeth and Elan stocks, is now on trial. Martoma allegedly used tips from a doctor involved in Alzheimer drug trials. The government says that due to the information SAC liquidated a $700 million position and sold its stocks in the firms, which allowed it to make money while avoiding losses.

In court this week, one doctor testified that he was surprised that Martoma knew so much about the results of a clinic trial before they were publicly disclosed. Already, prosecutors have filed charges against 83 people and four SAC entities over what the US is calling the largest illegal trade in our nation’s history. There have been several convictions.

Last year, SAC pleaded guilty to securities fraud over the insider trading charges and agreed to shut down its investment advisory as part of its $1.8 billion settlement.

Financial Industry Recruiters Blame LinkedIn For Their Lost Business
According to industry recruiters, their own jobs are suffering because of LinkedIn. Whereas companies typically had to use recruiters to fill their job openings, they now can post them on LinkedIn and look for candidates.

One reason for this is that many financial firms have gotten more involved in social media ever since 2011 when the Financial Industry Regulatory Authority provided them with guidance. Now, the majority of independent brokerage firms let their advisers used LinkedIn.

Fugitive Ex-Bank Director and Investment Fund Manager is Arrested and Charged with Securities Fraud, Wire Fraud
Aubrey Lee Price, a former bank director and investment fund manager who became a fugitive after he was indicted on securities fraud and wire fraud charges, was arrested in Georgia. Price is accused of managing funds and raising about $40 million from over 100 investors and then covering up his losses when the investments failed.

In a suicide note that he supposedly sent out before he disappeared, Price confessed to misappropriating the money and publishing bogus account documents. He was recently arrested during a routine traffic stop.

Price is accused of losing the capital of Montgomery Bank & Trust when he worked for that institution as a director by allegedly investing in riskier options and securities than what he represented he would get involved in and then covering up the losses.

Investment Adviser Fraud
Our securities fraud lawyers represent investors with claims involving broker fraud, investment advisor fraud, municipal advisor fraud, CDO fraud, ARS fraud, REIT fraud, MBS fraud, RMBS fraud, Ponzi scams, muni bond fraud, and other securities schemes. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Latest SAC trial begins with Martoma facing long odds, CNNMoney, January 10, 2013

LinkedIn disrupts the recruitment game, search consultants say, Investment News/Crain's Detroit, December 19, 2013

Aubrey Lee Price, fugitive banker, homeless before arrest, CSMonitor, January 3, 2014

More Blog Posts:
Advice to Advisors: Financial Advisors Taught Ways to Avoid SEC Scrutiny, Stockbroker Fraud Blog, November 11, 2013

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

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

January 3, 2014

FINRA to Go After Rogue Brokers, & Includes REITs, Municipal Bonds, & Frontier Markets Among Its Enforcement Priorities for 2014

The Financial Industry Regulatory Authority is setting up a team made up of six members to look at stockbrokers with long records of investor complaints and violations, as well as those that engage in “cockroaching”—which involves brokers moving among beleaguered firms. The crack down comes amidst pressure from lawmakers on Capitol Hill.

According to an analysis of state securities records by The Wall Street Journal last year, between 2005 and 2012 there were over 5,000 licensed securities brokers who had worked with at least or more firms that had been expelled by FINRA. The analysis also revealed that there were brokers who, even in the wake of being targeted by numerous arbitration claims or having declared bankruptcy more than once, have managed to keep working in the industry.

FINRA announced this new initiative this week in a letter to approximately 4,180 broker-dealers that are registered with the SRO. It said it would use the Broker Migration model, a computerized analytic system, to look at brokers who have gone from an expelled brokerage firm to other firms.

These latest actions are a widening of FINRA’s efforts to better police brokerage firm that retain rogue brokers. Already, it has barred 22 brokers for rule violations in these attempts. About 50% of these individuals were identified via investor complaints and tips, arbitration claims, and regulatory-disclosure forms.

Other enforcement priorities for FINRA in 2014 include mutual funds that invest in frontier markets, like Vietnam and Nigeria, that can be risky, have less liquidity, as well as lower investor protection standards than what is required in the US. The SRO also plans to crack down on trading strategies that are computer driven and take a closer look at market structure issues.

FINRA market regulation officer Tim Gira said that the regulator will also publish best practices for alternative trading systems, such as dark pools. He said that after examining off-exchange trading venues for a year, the SRO discovered that the operation of certain ATSs didn’t always align with the way they were described and sometimes “trading from a proprietary basis” differed from what was disclosed.

Meantime, FINRA remains worried about structured products that are interest-rate sensitive, including municipal securities, as well as anti-money laundering, microcap securities fraud, and cyber security. Also still on its radar over marketing and sale to (as well as suitability for investors): complex structured products, private real estate investment trusts, bond funds, mortgage-backed securities, bond ETFs, emerging market debt, municipal bonds, baby bonds, and private placement securities. FINRA says it will continue to watch out for senior financial fraud, microcap fraud, insider trading, and algorithmic trading abuses.

Our securities fraud lawyers work with investors throughout the United States, as well as investors abroad with claims against a firm based in this country. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Finra to Crack Down on Brokers With High Number of Complaints, The Wall Street Journal, January 2, 2014

From FINRA, January 2, 2014

Finra booted 16 rogue brokers this year, targeted 26 more for 'action', Investment News, November 22, 2013

More Blog Posts:

FINRA Arbitration Panel Says Wells Fargo Must Repurchase $94M of Auction-Rate Securities from Investors, Stockbroker Fraud Blog, December 29, 2013

Bank of America’s Countrywide to Pay $17.3M RMBS Settlement to Massachusetts, Institutional Investor Securities Blog, December 30, 2013

FINRA Considers System That Would ‘Red Flag’ Customer Accounts at Brokerage Firms, Institutional Investor Securities Blog, December 27, 2013

December 23, 2013

Ex-SAC Capital Manager Steinberg is Convicted of Securities Fraud & Insider Trading

A federal jury has convicted former SAC Capital portfolio manager Michael Steinberg for insider trading, conspiracy, and securities fraud. Prosecutors contend that he traded on confidential information that he received from another employee.

Steinberg is one of eight employees at the hedge fund’s Sigma Capital Management division charged with insider trading and the first to go to trial. Six of the others pleaded guilty, including SAC analyst Jon Horvath, who prosecutors said is the one that gave Steinberg the nonpublic information. Horvath, who turned witness for the prosecution, has admitted to exchanging illegal tips with people at different firms. He said that Steinberg pressured him to provide “proprietary” information about technology stocks.

Steinberg is accused of making a number of trades, including ones before Dell’s earnings report in August 2008 went out. He reportedly netted $1 million in trades from this after he started shorting the computer company’s stock following a tip that Dell’s gross margins would fall short of Wall Street’s expectations. Similar tips that Steinberg received about Nvidia reportedly netted the hedge fund over $400,000.

Steinberg’s conviction comes just one month after SAC Capital Advisors, which Steven A. Cohen owns, pleaded guilty to securities fraud and wire fraud related to insider trading in criminal court. The hedge fund will pay at least $1.2 billion in fines and is being converted into an office that will just manage about $9 billion of Cohen’s own fortune. Although Cohen has not been criminally charged, the Securities and Exchange Commission did file a securities case accusing him of failing to reasonably supervise employees.

Still waiting for his trial is Mathew Martoma, the seventh SAC employee accused of insider trading. Last week, a federal judge turned down the ex- SAC Capital Advisors LP portfolio manager’s request for the dismissal of some of the insider trading charges against him.

Some of his trades were allegedly made in American depository receipts of Elan Corp. ELN.I, which is an Irish drugmaker. While Martoma argued that US securities law did not cover these transactions, U.S. District Judge Paul Gardephe said that they did. Gardephe, therefore, did not toss out one of the two securities charges against him, as well as a conspiracy count.

Prosecutors claim that Martoma played a role in SAC affiliate CR Intrinsic Investors avoiding $276 million in losses five years ago by recommending that it sell Wyeth and Elan shares. The recommendation purportedly came from tips regarding the poor trial outcomes for a diabetes drug.

Securities Fraud
If you are an investor that suspects your losses are due to insider trading, please contact Shepherd Smith Edwards and Kantas, LTD LLP today. Our insider trading fraud lawyers represent investors throughout the US.

Ex-SAC trader is convicted of insider trading, NY Times, December 18, 2013

Ex-SAC manager Martoma fails to end part of insider case, Reuters, December 17, 2013

More Blog Posts:
SAC Capital Advisors to Pay $1.2B Penalty, Pleads Guilty to Insider Trading Violations, Stockbroker Fraud Blog, November 4, 2013

SAC Capital Advisors LP Expected to Plead Guilty to Insider Trading Criminal Charges, Institutional Investor Securities Blog, October 31, 2013

SEC Charges SAC Capital Hedge Fund Adviser Stephen Cohen With Failure to Stop Insider Trading, Institutional Investor Securities Blog, July 20, 2013

November 24, 2013

$3.8M Colorado Securities Scam Defrauded Over 40 Elderly Seniors

The Securities and Exchange Commission is charging Gary C. Snisky with defrauding over 40 senior investors in a $3.8 million Colorado securities scheme. The regulator contends that Snisky, who describes himself as an institutional trader, used insurance agents to sell interests in Arete LLC, which was supposedly more profitable and safer than annuities. He is accused of targeting mainly retired annuity holders, many of whom live in in the state.

According to the SEC, investors were told that their money would go toward buying government-backed agency bonds at discount rates and that the bonds would be used in overnight banking sweeps. Instead, Snisky misappropriated about $2.8 million of investor money to pay for his mortgage and pay sales folk their commissions.

Snisky is accused of bringing in experienced insurance salespersons who could source their existing client base of annuity holders and get them to invest in Arete. He described Arete as an “annuity plus” investment that investors could take principal from and earn interest without penalty (even after a decade) while still benefitting from guaranteed annual returns of up to 7%. The SEC says that the purported institutional trader stressed that the investments were safe and claimed he could get agency bonds backed by the government at a reduced rate and without paying fees for middlemen. He also allegedly drafted documents that salespeople used as offering materials to attract investors, showed the staff fake investor account statements to make it appear as if there were actual earnings, and organized seminars where he met with salespeople and investors.

Elder Financial Fraud
Elderly seniors are a favorite target of financial scammers who looking for investors with substantial nest eggs. Not only do many of them typically have retirement funds and other savings, but also health problems or mental issues can make it easy for fraudsters to bilk such older investors, who can be very trusting. Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are here to handle annuity fraud claims and other securities cases against unscrupulous brokers, insurers, broker-dealers, and others.

SEC Charges Colorado Man in Scheme Targeting Elderly Investors
, SEC, November 21, 2013

Fraud Target: Senior Citizens, FBI

More Blog Posts:

US Senator Elizabeth Wants Obama Administration to Break Up Our Biggest Banks, Stockbroker Fraud Blog, November 19, 2013

JPMorgan and the DOJ Finalize Their $13 Billion Settlement, Institutional Investor Securities Blog, November 19, 2013

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, Stockbroker Fraud Blog, October 28, 2013

November 15, 2013

SEC Goes After Alleged Ponzi Scammers

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

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

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

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

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

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

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

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

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

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

SEC Halts Ponzi Scheme Involving New Zealand Companies, SEC

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

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

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