Stock Broker Fraud Blog

The Massachusetts Secretary of the Commonwealth has filed securities fraud-related charges against Merrill Lynch for allegedly promoting the sale of auction rate securities while providing misleading information about market stability.

According to Secretary William Galvin, Merrill Lynch aggressively sold ARS to investors while telling research analysts to downplay market risks in its reports until the moment the company had to pull” the plug on its auctions.” The majority of auctions failed a day later. Galvin says that Merrill Lynch’s investors had no idea that potential trouble was brewing with their investments until it was too late for them to take action.

Galvin is also accusing Merrill Lynch of pressuring its research analysts, who are supposed to be neutral, into redacting or rewriting any reports that did not profile ARS positively. His complaint alleges that Merrill Lynch made approximately $90 million from the auction-rate securities market between 2006 and 2007. He wants Merrill Lynch to “make good” on the sales of the securities by making restitution to investors that sold their securities at below par.

Merrill Lynch issued a statement expressing disappointment that Massachusetts had filed its complaint. The company maintains that its advisers sold ARS because they thought that the securities would provide a higher return to investors.

Last week, Merrill Lynch said it would sell over $30 billion in toxic mortgage-related assets at a huge loss to help alleviate its own debt issues. A question to consider is whether Merrill Lynch, a large investment firm known for its powerhouse brand, can recoup its once solid reputation.

If you suffered investment losses because you believe that you were given misleading information when you purchased auction-rate securities, contact Shepherd Smith Edwards and Kantas, LLP today.

Related Web Resources:

Secretary Galvin Charges Merrill Lynch with Fraud in Auction Rate Securities Dealings (The Complaint)

Massachusetts sues Merrill Lynch over auction securities, USA Today, August 1, 2008

Merrill Lynch

Scottrade Inc. agreed to pay a $950,000 civil penalty to settle Securities and Exchange Commission charges that it made fraudulent misrepresentations to clients related to the execution of Nasdaq pre-open orders. The brokerage firm is not admitting to or denying wrongdoing by settling the charges. Scottrade is, however, agreeing to cease and desist from committing future violations.

Pre-open orders are normally placed after the market closes for execution when the market opens next. The SEC alleges that Scottrade made fraudulent misrepresentations when Scottrade told customers it would direct their orders based on a number of factors, including liquidity at market opening.

The SEC says that when a broker-dealer accepts customer orders, the firm is impliedly representing that it will make sure to review the quality of execution on orders. SEC Enforcement Director Linda Thomsen says that Scottrade not only failed to regularly and properly review the execution process but it neglected to consider the way technological advances were impacting the orders.

In 2000, The SEC reported that certain market makers that were trading Nasdaq market securities were offering investors the chance to not have to pay a liquidity premium at the market opening. The SEC told broker-dealers to consider specific pricing options when looking for the best execution for their customers’ orders: 1) Midpoint pricing—a midpoint price between the national best bid and offer (NBBO) used to buy and sell orders and 2) Single Price—one price for buying or selling.

The SEC however, alleges that rather than adhere to this advice, Scottrade misrepresented in customer account opening documents and statements that it would direct customers’ orders based on liquidity at market opening to allow its customers to get executions that were “superior to any one market center.”

The SEC says that Scottrade did not have the policies and procedures to evaluate liquidity at market openings that market centers provided between 2001 and 2004, which is the time period under scrutiny. The broker-dealer consequently failed to consider executions that may have been superior to NBBO, including midpoint and single pricing, when executing Nasdaq pre-open orders.

If you are an investor that has lost money because of the fraudulent actions of a broker-dealer, Shepherd Smith Edwards and Kantas, LLP would like to talk to you. Contact our stockbroker fraud law firm and ask for your free consultation.

Related Web Resources:

Scottrade to Pay $950,000 to Settle SEC Charges, BusinessFirst.com, June 24, 2008

SEC Charges Scottrade for Misrepresentations to Customers, SEC.gov, June 24, 2008

Scottrade

The U.S. District Court for the Southern District of New York has ordered a Connecticut man to pay $58,825 in civil penalties, prejudgment interest, and disgorgement to settle charges he engaged in a scheme to take part in unauthorized securities trades, which caused prices to rise dramatically.

The Securities and Exchange Commission says that Joshua Eudowe, who worked at a brokerage firm owned by his stepfather, Lawrence Goldstein, was not a registered representative but was brought in to help with marketing and research efforts.

In 2006, the SEC says that he made several unauthorized purchases of CreditRiskMonitor.com Inc. and FRMO Corp. stocks in client accounts of investment partnerships managed by his stepfather. Eudowe also is accused of hacking into the company Web site and using Goldstein’s password to engage in unauthorized securities trades without permission.

His unauthorized trading activities reportedly caused both FRMO and CRMZ stock prices to rise, exceeding 52-week highs. The SEC says that Eudowe sold several thousand shares at inflated prices using his own brokerage account.

As part of his settlement, Eudowe is barred from violations in the future. The Securities and Exchange Commission says that by agreeing to settle, Eudowe is not admitting to or deny wrongdoing.

Engaging in securities fraud is against the law, and if you are an investor that has lost money because of the fraudulent actions of a broker, a broker aide, or anyone else involved in the securities industry, contact Shepherd Smith Edwards and Kantas, LLP today.

Related Web Resource:

Read the Complaint (PDF)

The U.S. District Court for the Southern District has dismissed a securities fraud lawsuit filed by investor Nicholas Vale against ex-Merrill Lynch Internet Group head Henry Blodget on the grounds that Vale failed to factually show how the defendant’s fraud caused his investment losses.

In his lawsuit, Vale accused Blodget of issuing bogus positive reports about Internet Capital Group Inc. and B2B Internet HOLDRs, an exchange traded fund. He says that he depended on reports by Blodget and Merrill Lynch when he bought almost 3,000 ICGE stock shares for about $300,000 in 1999 and he would not have bought the shares if not for Blodget’s reputation as a research analyst.

In 2002, the New York State Attorney General’s Office accused Merrill Lynch, Pierce, Fenner & Smith Inc., Merrill Lynch & Co. Inc., and Blodget of regularly issuing false or misleading recommendations about Internet-based stocks to try and increase the firm’s underwriting business. Merrill Lynch settled the allegations with a $100 million fine. Vale, who says that he suffered major losses after selling the shares in 2000, is one of a large number of investors that have filed lawsuits accusing Merrill Lynch and Blodget of securities fraud.

The defendants of Vale’s lawsuit, however, argued that the case should be dismissed because Vale neglected to plead fraud with requisite particularity or to plead loss causation. The District Court granted their motion, citing that Vale neglected to plead that the alleged false statements that the defendants made caused the his financial losses.

The court’s findings are similar to its “loss causation” ruling in another lawsuit against Blodget and Merrill Lynch, this one filed by investor Ronald Ventura regarding investments he made in Internet holding company CMGI.

Please call the stockbroker fraud law firm of Shepherd Smith Edwards & Kantas, LLP to discuss your investment fraud case.

Related Web Resources:

SEC Sues Merrill Lynch & Henry M. Blodget for Research Analyst Conflicts of Interest Firm and and Blodget to Settle with SEC, NASD, and NYSE, SEC.gov, April 28, 2003

The Trial Of Henry Blodget, Forbes.com, January 6, 2003

In New York, a judge has dismissed the securities fraud case against former Merrill Lynch research analyst Henry Blodget. The former lead Internet analyst of the company’s Internet Group is accused of allegedly issuing false reports regarding CMGI Inc. stock.

In 2007, investor Ronald Ventura had filed a securities fraud lawsuit against Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Inc., and Blodget. Ventura is one of a number of plaintiffs that have sued the defendants after the New York State Attorney General’s Office made allegations that they had published misleading or false recommendations about Internet-based stocks. Merrill Lynch agreed to a $100 million fine in 2002 as part of a settlement deal with the NYAG.

In The U.S. District Court for the Southern District of New York earlier this month, Judge John Keenan said that Ronald Ventura’s complaint "fails to plead that the alleged false statements made by the defendants were the cause of Ventura's financial losses.”

Instead the judge says that the plaintiff said that Blodget issued falsely optimistic target projections and made false recommendations to investors about CMGI stock even though the ex-Merrill Lynch analyst believed that the Internet holding company was facing a liquidity crisis and issuing misleading information about its revenues.

It wasn’t until a 2000 research report finally revealed the risks associated with CMGI’s dangerous financial state that the company’s stock price dropped. Ventura claims that Blodget's reports helped boost CMGI’s stock value and gave Merrill Lynch a profitable underwriting business. The plaintiff also alleges that Blodget was rewarded for bringing new business to Merrill Lynch.

Judge Keenan says that he dismissed the case because Ventura failed to adequately plead loss causation. The judge says that just like other investors, Ventura lost money by speculating in CMGI stock (which rose during the Internet boom and then dropped significantly when the bubble burst in 2000). The judge says that Ventura is trying to blame Blodget for the gambling losses.

If you are a victim of stockbroker fraud, the best way to make sure that you obtain financial recovery is to contact Shepherd Smith and Edwards today. Our stockbroker fraud lawyers have helped thousands of investors recover their losses.

Related Web Resources:

SEC Sues Merrill Lynch and Henry Blodget for Research Analyst Conflicts of Interest, SEC.gov, April 28, 2003

Investor's Suit Against Merrill Over Internet Stock Dismissed, New York Law Journal, May 13, 2008

REIT Manager W.P. Carey & Co has reached a $30M settlement agreement with the SEC over antifraud charges.

According to the SEC, W.P. Carey, its ex-CFO John J. Park, and its former chief accounting officer Claude Fernandez paid $10 million in undisclosed compensation to a brokerage firm that sold real estate investment trusts (REITs). The three parties then misrepresented these moneys in periodic filings to keep the compensations secret.

These activities allegedly benefited the broker-dealer and W.P. Carey, which received larger fees as a result, including $6.4 million in reimbursements and illegal fees. Park and Fernandez are accused of using fake invoices to hide the payments and get around the regulatory limitations about compensation.

The SEC says W.P. Carey is supposed to disclose such payments and that investors are entitled to know whether a brokerage firm is being compensated when making a sale.

The commission is also accusing W.P. Carey of taking part in a $235 million illegal and uregistered offering of REIT shares and being responsible for a broker-dealer receiving $100,000 from two REIT’s for proxy solicitation services. The SEC Is also accusing W.P. Carey of failure to comply with other disclosure requirements.

W.P. Carey has agreed to pay $20 million in interest and disgorgement and $10 million in penalties, which will be given to REITs that were adversely affected by the scheme.

Park, who is now in charge of W.P. Carey’s strategic planning, will pay a $240,000 penalty and serve a five-year ban from that prevents him from working as a director or officer of a public company. Claude Fernandez, now W.P. Carey’s managing director, is suspended for two years and will pay a $75,000 fine. All three defendants are permanently enjoyed from violating federal securities laws.

Shepherd Smith and Edwards represents victims of investor fraud in arbitration and in court. Our stockbroker fraud lawyers have helped thousands of people across the United States get their money back.

Related Web Resources:

SEC Closes $30M Case against REIT Manager, CCHWallstreet.com, March 24, 2008

Read the Complaint (PDF)

What Are REITs?, Investopedia.com

Wood Rivers Partners LP Founder John Whittier has been ordered to serve 36 months in federal prison. The former hedge fund manager pled guilty to charges that he defrauded investors of about $88 million over a two-year-period.

Whittier admitted to deceiving investor clients and making them think that he would keep risks low while he employed diverse investment strategies. Prosecutors also say that Whittier lied when he told investors that the hedge fund they had invested in was being audited.

Instead, Whittier placed about 80% of the assets in his Wood River US hedge fund portfolio, worth $127 million, into one stock, called Endwave. In doing so, he was in breach of his investors’ trust.

Whittier had promised investors that no more than 10% of the fund’s assets would be placed in one holding. He also neglected to file mandatory beneficial ownership filings with the Securities and Exchange Commission that would have revealed his concentrated holdings.

Endwave’s stock price eventually dropped and Wittier could not meet shareholders’ redemption requests or fulfill certain margin calls. The hedge fund shut down in October 2005.

Whittier was also told to forfeit $5.5 million. He is scheduled to begin serving his sentence on January 15, 2008.

If you are an investor who is a victim of securities fraud, do not hesitate to contact Shepherd Smith and Edwards today. We are committed to helping investors recover their losses. We represent investors across the United States.

To schedule your free consultation, contact Shepherd Smith and Edwards today.

Related Web Resources:
Ex-hedge fund manager sentenced in NYC, CNN.com, October 15, 2007

Hedge Fund Manager Sentenced to 3 Years in Prison for $88 Million Securities Fraud Scheme, Media Newswire.com

Meet John Whittier, Wood River Founder, BusinessWeek, October 21, 2005

The U.S. District Court for the Southern District of New York has sentenced former Morgan Stanley Associate Randi Collotta and her husband, an attorney, to home confinement and ordered them to pay more than $10,000 in fines, plus a forfeiture, for their alleged roles in a large insider trading scheme which apparently resulted in at least $15 million of illicit profits.

At all relevant times, Randi Collotta was an associate in Morgan Stanley & Co. Inc.'s global compliance division, the indictment said. Her husband practiced law at a firm in Long Island at the time of his arrest, a source knowledgeable with the case said. The SEC charged the Collottas and 12 others with insider trading violations for using information stolen from UBS Securities LLC and Morgan Stanley.

The indictment detailed trades the Collottas allegedly made with insider information gained by Collotta at Morgan Stanley. She passed the information to her husband, who passed it to a co-conspirator, who then made trades based on the information and passed the information to a second co-conspirator, who traded on the information as well.

Mrs. Collotta was sentenced to four years' probation and her husband was sentenced to three years’ probation. Each was required to spend the first six months in home confinement. (One might wonder whether six months confinement at home with a spouse is to easy or too harsh.) Ms. Colotta must also spend 60 days in prison during the course of her probationary period.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Related Web Resources:

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

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

In the U.S. District Court for the Eastern District of New York, a jury issued its verdict in the “squawk box” front running case. Seven people were acquitted of securities fraud, while Timothy O’Connell, a former Merrill Lynch & Co. stockbroker was found guilty of making false statements and of witness tampering. The judge, however, declared a mistrial for the one remaining conspiracy count to commit securities fraud against O’Connell. He faces up to 15 years in prison for the convictions, and prosecutors have announced that they will retry the conspiracy charge.

According to prosecutors, O’Connell, and the two other broker defendants, David Ghysels—a former Lehman Brothers broker—and Kenneth Mahaffy—a former Merrill Lynch & Co. brokers, purposely placed off-the-hook phones that were active next to internal speaker systems at their firms.

The purpose of doing this was to let a number of former A.B. Watley employees, including ex-president Robert Malin, former proprietary trading supervisor Keevan Leonard, former compliance director Linus Nwaigwe, and former CEO Michael Picone, listen in while large orders about to be made by institutional clients were broadcast over the boxes.

Anyone who hears these kinds of orders can trade in the same issue before the client’s order is completed and benefit from the changes in price that will be caused by the large order. This can, however, can lead to the customer not getting as good a price as he or she would have if the misconduct had not taken place.

According to the government, the three brokers were among those who regularly gave day traders at A.B. Watley information like this through the “squawk boxes.” In return, the traders allegedly paid the brokers large amounts of money via “wash trade” commissions. Some brokers also allegedly received bribes in cash.

The U.S. Securities and Exchange Commission says it will go forward with its civil lawsuits against the defendants for similar misconduct allegations.

If you are an investor who has lost money because of the misconduct of members of the securities industry, contact Shepherd Smith and Edwards right away. We are a law firm dedicated to helping investors like you, and we have a very good success record for helping our clients get their losses back. Shepherd Smith and Edwards offers a free consultation to all prospective clients.

Prosecutors to retry "squawk box" conspiracy case, Reuters, May 24, 2007

Two Ex-Brokers Acquitted in `Squawk' Case; One Guilty, Bloomberg.com, May 10, 2007

Related Resource:

A.B. Watley Group

The U.S. Treasury Secretary announced the second stage of its “capital markets competitiveness plan” devoted to efforts to “modernize the structure” of the regulatory system for all U.S. financial services providers. The announcement was made before the New York Stock Exchange’s conference on deals and deal-making, hosted by the Wall Street Journal.

As the securities industry is rapidly being globalized, Wall Street insists it can not compete with loose regulations elsewhere in the world unless U.S. standards for reporting, fraud and other wrongdoing are relaxed. Frenzied cries to federal and state officials hype this theme as if the “sky is falling.” Meanwhile, Republicans and Democrats, including candidates for both state and federal office, are taking the bait. Or, perhaps, these candidates know that many of the largest campaign donors around are found on Wall Street.

The fear mongering about losing the battle for listing shares has even invaded the courts as observers, including the SEC, lobby even the U.S. Supreme Court, stating that our nation is on the brink of disaster since it can not compete with foreign markets with almost no oversight.

Thus, U.S. must join in a “race to the bottom” in order to provide aide and comfort to crooks and would be crooks in corporate and investment banking circles. Notwithstanding all the scandals on Wall Street in the past few years, and while record profits are being earned by the perpetrators, there is a fear that there is just too darn much regulation here for honest folks to survive!

The strictest securities regulation in history began in the U.S. about seventy-five years ago. This was just after the stock market crash of 1929, which sent this country into a tailspin followed by the depression years of the 1930’s. Since that time, and under those regulations, the U.S. economy and capital markets have boomed and become the envy of the world. Yet, to listen to Wall Street’s “Chicken Littles,” such regulation will soon be our downfall.

The conventional wisdom has been that investors prefer investing their money into companies and markets which are overseen by watchdogs. Make sense? The new un-conventional theory is that lawless oversees markets will rob the U.S. of its financial markets. While investors scratch their heads at this, perhaps we should explore another motive: If we remove more restrictions on Wall Street, it can get away with murder, instead of simply being exempt from highway robbery (except for token fines).

The Treasury Secretary states "To maintain our capital markets' leadership, we need a modern regulatory structure complemented by market leaders embracing best practices." (That’s code for "the heck with investors, we represent Wall Street's interests.") Meanwhile, Under Secretary Robert Steel admitted that the Treasury would capitalize on its "great relationships with industry people" and "invite input from others to ensure that there is consultation and discussion from outside Treasury on the initiative ... I'm optimistic that people will reach out to us so we'll have the right dialogue," he said.

We note how well utility deregulation fared after input from Enron and others became policy. So, as many Americans cry out to have laws enforced to throw the poor out of our country, perhaps the investing public should also demand that laws be maintained and enforced to prevent multi-billionaire firms from continuing to rob them blind.

By: William S Shepherd

William Shepherd is the founder of the law firm of Shepherd Smith and Edwards a securities law firm that represents investors seeking recovery of losses in their accounts at investment firms. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.

According to reports, the SEC asked the Justice Department's Office of the Solicitor General to file an amicus curiae (friend of the court) brief to U.S. Supreme Court in support of the Enron investors' position in a seminal case involving "scheme liability" under a key provision of the federal securities law.

However, lawyers for the Justice Department failed to honor the SEC's request. After the deadline for such briefs was missed, a spokesman for the U. S. Solicitor General's Office confirmed that the brief was not filed, while declining to say "whether or when we would file something in the future."

The case, which has wound its way to the U.S. Supreme Court, was filed against Wall Street banks and brokerage firms for their alleged roles in assisting Enron to defraud its shareholders. Trial was eminent in a Houston Federal Court when a Court of Appeals in New Orleans intervened and said the Securities Exchange Act does not allow such claims. (Congress has forbid all class action claims by investors except under the federal securities laws.)

A high-profile lawyer for the Enron Shareholders publically called-out the SEC Chairman, who is a former U.S. Congressman and political appointee, to intervene in the case to protect investors. The SEC then suprised some by indicated it would take the investor's side before the Supreme Court. However, Wall Street got its way in the end, as no action was taken to assist the victims.

Others have filed amicus briefs on behalf of the Enron Victims, including The North American Securities Administrators Association, an organization of state securities regulators, warning that letting Wall Street firms off-the-hook for their role in scandals such as the Enron debacle will endorse their assistance of other companies to defraud investors.

The SEC said it had no comment on OSG's decision not to file a brief supporting the plaintiff investors' position. It appears that the SEC and Justice Department may be operating as a "tag team" in protecting Wall Street from liability for securities fraud rather than protecting investors.

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