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March 13, 2010

Protect Yourself from Texas Securities Fraud by Making Sure that the Company or Agent that Sells You Annuities Has a Valid Insurance License

If you are going to buy annuities in Texas, it is important that you make sure that your agent is licensed with the state and also has a Financial Industry Regulatory Authority license. You should also make sure that the annuity you purchased is legitimate and in compliance with Texas standards and laws.

If you buy an unauthorized annuity, you may pay an inadequate return or put your money at risk. You can also become the victim of Texas securities fraud.

What is an Annuity?
This financial insurance contract can grow in value and provide constant income over an extended time period. They are good for growing your retirement, saving for your children’s schooling, setting up a trust fund, or bequeathing money to loved ones. Texas Department of Insurance regulates annuities and keeps an update list of companies and agents that are allowed to sell them in the state.

Three Kinds of Annuities:
Variable Annuities: Higher risk than fixed annuities, variable annuities rely on the stock market’s performance. They usually invest in different financial instruments, including money market funds, equity indexes, mutual funds, and government securities. These annuities let buyers decide how to distribute their accumulated value within the contract’s selected investments.

This kind of annuity doesn’t come with any guarantee of earnings and you can lose your original investment. Because variable annuities rely so much on the stock market, the Securities and Exchange Commission considers them securities.

Fixed Annuities: The most conservative type of annuity. They make earnings at an annually set current interest rate. Although the rate can change, a guaranteed minimum rate must be established. These annuity contracts usually invest in non-stock market, conservative investments. Buyers usually don’t have any say in how the funds are managed.

Equity-Indexed Annuities: EIA’s have traits that can be found in both variable annuities and fixed annuities. They pose a greater risk than fixed annuities and are less risky than variable annuities. Their returns are affected by changes in money, bond, and stock markets, and they come with a guaranteed minimum interest rate.

It is important to remember that annuities are not the best investment for everyone—especially if your financial goals are in the short-term. Your agent should apprise you of any risks and make sure that if you do choose to buy annuities, that they are the right choice for you.

Related Web Resources:
Understanding Annuities, Texas Department of Insurance

SEC Tips for Preventing Annuities Fraud, SEC.gov

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Posted In: Annuities , Texas Securities Fraud , Variable Annuities

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February 26, 2010

Court Reinstates Texas Securities Arbitration Award

Claimant Leonard Claus was awarded $25,000 by a National Association of Securities Dealers' arbitration panel for his Texas securities arbitration claim. Claus had made a verbal agreement with Jerry Short, who worked for Institutional Capital Management Inc. over the sale and purchase of bonds.

Clause, who bought the bonds, was planning to sell them to Sterling Financial Investment Group Inc. The resale plan didn’t work out, and he sold them to another buyer at cost.

Clause then sued ICM and Sterling for breach of contract, violations of federal and state securities laws, and negligence.

In addition to the $25,000 compensatory damages award, NASD charged Clause $22,000 in arbitration fees. They awarded his lawyer $70,000 in legal fees.

ICM and Sterling asked that the Texas securities fraud award be vacated by the district court. A magistrate judge vacated, claiming that the NASD panel went beyond its authority when it violated Texas law and directly issued an award to Clause’s lawyer.

Clause and IMS appealed, claiming that the judge made a mistake when vacating the entire award on the basis of the awarded attorney’s fee. Meantime, Sterling and ICM contended that the attorney’s fee violated Texas law and that it conflicted with the contingency fee arrangement between clause and his attorney, which the NASD panel is not allowed to override. ICM and Sterling said the legal fee award was unreasonable.

Court of Appeals ruled that even though Texas statute must directly authorize any fee awards, the party that is told to pay the fee cannot challenge the payment’s propriety. The court called the award error harmless and “immaterial to the party” that is ordered to pay it. The court also noted that ICM/Sterling did not challenge the evidence that supported the fee award.

Related Web Resources:
Institutional Capital Management Inc. v. Claus

National Association Of Securities Dealers - NASD

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Posted In: Arbitration , NASD Enforcement , Texas Securities Fraud

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February 20, 2010

Frontline Advisors LLC and Frontline Financial, Inc. Propose Texas Securities Fraud Settlement that Includes Permanent NFA Bar

The National Futures Association has accepted Frontline Advisors LLC and Frontline Financial, Inc.'s proposal to permanently remove themselves as a member of the group. The Texas-based Commodity Trading Advisors and Commodity Pool Operators offered the settlement after the NFA filed a complaint against them in 2009 accusing FFI and principal Charles G. Rice of failing to disclose key information to participants in a pool they were running. Among the material information withheld:

• In exchange for promissory notes, the pool would lend money to third parties
• When issuers of the promissory notes defaulted, the pool sustained losses
• Even after one note went into default, FFI charged a monthly management fee to participants
• FFI redeemed its interest in the pool
• FFI wrote off notes but did not give participants specifics about the write-offs

The NFA also accused FFI of not filing an annual financial statement, disclosure document, or exemption notice for the fund. Meantime, Rice has also agreed to a withdraw himself as an NFA member for five years. If he decides to reapply for membership, he has to pay a $10,000 fine.

Our Texas securities fraud lawyers represent clients with claims against investment advisors and stockbrokers. The most common reasons why an investor would file a securities claim or lawsuit are:

• Misrepresentations
• Omissions
• Unauthorized trading
• Overconcentration
• Registration violations
• Churning
• Margin account abuse
• Failure to execute trades
• Negligence
• Breach of fiduciary duty
• Failure to supervise
• Breach of contract
• Breach of promise

Your first consultation with our Dallas securities fraud law firm is free.

Related Web Resources:
Read the Complaint (PDF)

Read the Decision (PDF)

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Posted In: Financial Firms , Frontline Advisers LLC , Frontline Financial Inc. , Texas Securities Fraud

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February 11, 2010

Dallas Securities Attorney and Former SEC Litigator Convicted of Fraud in Pump and Dump Stock Scam

A jury has convicted Phillip Windom Offill Jr. of Texas securities fraud. The Dallas lawyer and former SEC trial attorney was found guilty of nine counts of wire fraud and one count of conspiracy for his involvement in a “pump and dump” scam that sold nine companies’ unregistered securities to investors in order to make a profit.

Court filings had accused the Texas securities attorney of using bogus press releases and “blast” emails to get investors to buy certain companies’ shares. When stock prices would go up, those involved in the scam would dump stock to make money. 10 other defendants have pleaded guilty for their part in the securities fraud scheme.

The SEC’s civil complaint against Offill accused him of conspiring with others to create bogus investment firms that obtained an offering of millions of unregistered AVL shares. Offill was one of the people who allegedly would transfer the shares to the company’s founder and associates, who would then promote the company’s potential as stock was being dumped.

According to U.S. Attorney Neil H. MacBride, Offill purposely broke the law, so that he and others could make millions off of innocent investors who ended up with worthless stock.

Prosecutors want $15 million in forfeiture. Offill's sentencing is scheduled for April. He faces up to 20 years in prison for each wire fraud conviction and a maximum of five years in prison for conspiracy.

Related Web Resources:
Jury Convicts Former SEC Lawyer, The Wall Street Journal, January 28, 2010

Lawyer indicted in alleged pump-and-dump stock scheme, ITWorld, March 13, 2009

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February 2, 2010

Texas Class Action Securities Fraud Claim Against Cushing MLP Total Return Fund CEO and CFO Can Go Forward, Says District Court Judge

In Texas, a US district court judge has refused to dismiss a class action securities fraud claim against Cushing MLP Total Return Fund CEO Jerry V. Swank and CFO Mark Fordyce. The Texas securities fraud claim accuses the defendants of misrepresentations and omissions related to the fund’s deferred tax asset. Other claims, including a 1940 Investment Company Act Section 36(b) claim over tax advisory fees, were dismissed.

The defendants named in the Texas securities fraud claim are investment adviser Swank Energy Income Advisers LP, Swank Capital LLC, fund board chairman, trustee, president and CEO Jerry V. Swank, fund CFO and trustee Mark Fordyce, fund audit committee member and lead independent trustee Edward N. McMillan, fund trustee and audit committee chair Brian R Bruce, and fund trustee and committee head Ronald P. Trout.

Lead plaintiff Terri Morse Bachow says that between September 1 and December 19, 2008, individual investors bought Cushing MLP Total Return Fund stock. She says that most of the reported net assets in the fund (which were invested in the energy infrastructure sector) was an accounting accrual owing to time differences in tax payments.

Throughout the class period, the deferred tax asset increased and the possibility that the fund would make money that the deferred tax asset could be used against became practically nonexistent. When the class period was over, the accounting accrual was made up of over 50% of the fund’s stated net assets and the chance the accrual would lead to any benefit was all but nonexistent.

The plaintiff claims that fund shareholders lost tens of millions of dollars when this data was disclosed on December 19, 2008 and the fund’s shares market price went down from $7.40 to $3.81. Bachow then filed a Texas securities class action claim.

In the claim, Swank and Fordyce are accused of making statements that were materially misleading, making it sound as if the fund was likely going to use deferred tax in “fact sheets” distributed to shareholders and in two SEC filings. The fund CFO and CEO are accused of failing to correct these statements even after discovering that they were misleading or untrue.

The court refused to drop the 1934 Securities Exchange Act Section 10(b) claim against the two men, noting that the plaintiff demonstrated that this information was important to any reasonable investor who was deciding on what to invest in. The court, however, did drop the Section 20(a) control person claims since the securities fraud claim name the two men (and not Swank Advisers and the fund), which makes it impossible for the two defendants to be their own “control persons.” The claim as to Trout, Swank Capital, Bruce, and McMillan failed because there was no allegation that the “controlled person” committed securities fraud.

Related Web Resources:

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January 26, 2010

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

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

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

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

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

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

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

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

1934 Securities Exchange Act, Cornell University Law School

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

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January 17, 2010

Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court

The U.S. Court of Appeals for the Fifth Circuit has affirmed the dismissal of LSF5 Bond Holdings LLC and Lone Star Fund V (U.S.) L.P.’s $60 million securities fraud claims against Barclays Capital Inc. and Barclays Bank PLC. The court noted that Barclays never represented that the mortgage pass-through certificates purchased by the private equity firms did not have delinquent mortgages. Also, the court said that seeing as the language used in the parties’ agreement obligated Barclays to substitute or repurchase delinquent representation, Lone Star failed to allege misrepresentation.

In 2006, Barclays bought mortgage loans from then-subprime lender New Century Capital Corp. Barclays then pooled about 10,000 mortgage loans into the BR3 and BR2 Trusts. The trusts then gave out pass-through certificates or mortgage-backed securities. $60 million of the securities were bought by LSF5.

Although trust offerings supplements and prospectuses included representations and warranties that as of “transfer service dating” the mortgage pools did not have any 30-day delinquencies, Lone Star found that nearly 300 of the BR2 mortgages were at least 30 days delinquent beginning the date of purchase. 850 mortgages in the BR3 Trust were also over 30 days overdue.

Lone Star filed a Texas securities fraud lawsuit against Barclays claiming that the delinquent loans were misrepresentations on the investment bank’s part. Barclays sought to have the lawsuit dismissed, arguing that if there were delinquent loans then Barclays must either substitute or repurchase them.

The district court turned down Lone Star’s remand request and agreed with Barclay’s interpretation of the language in the agreement. The court dismissed the case. The appeals court upheld the dismissal.

Related Web Resources:
Lone Star Fund V (U.S), LP et al v. Barclays Bank PLC et al, Justia Federal District Court Filings and Dockets

Read the 5th Circuit Opinion (PDF)

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Posted In: Barclay's Bank , Financial Firms , Securities Fraud , Texas Securities Fraud

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December 28, 2009

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

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

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

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

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

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

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

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

Related Web Resources:
Read the SEC Complaint (PDF)

Texas State Securities Board

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

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December 23, 2009

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

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

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

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

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

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

Securities Act of 1933 (PDF)

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

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December 5, 2009

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

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

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

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

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

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

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

Texas State Securities Board

North American Securities Administrators Association

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

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October 16, 2009

Ex-Enron Broadband CEO Goes to Prison for Texas Securities Fraud

Joseph Hirko, the ex-Enron Broadband Chief Executive Officer, has been sentenced to a prison term of 16 months for Texas securities fraud. Hirko pleaded guilty to wire fraud a year ago for giving out false information to improve Enron’s financial figures.

The former Enron Broadband CEO and others knew that the broadband operating system was still in development yet Hirko promoted it in press releases and during analyst conferences in order to to elevate Enron’s stock price.

The US Justice Department says Hirko consented to give up approximately $7 million, which will be given through the SEC’s Enron Fair Fund to Enron victims. As part of Hirko's plea agreement, Enron Creditor's Recovery Corp. will get $1.7 million from him.

The sentence issued by US District Court Judge Vanessa Gilmore is the maximum possible under federal guidelines for the wire fraud charge. If Hirko had been found guilty during trial, he could have been sentenced to years in prison.

The former Enron Broadband CEO and several others were accused of numerous activities connected to the artificial inflation of the company’s stock. Chief Operating Officer Kevin Hannon and Hirko’s co-CEO, Ken Rice, also pleaded guilty.

Hirko and four other defendants, Rex Shelby, Kevin Ward, Scott Yeager, and Michael Krautz, went to trial in 2005. They were acquitted on certain charges but the jury deadlocked on the rest of the charges. Retrials were scheduled.

A jury acquitted Krautz and convicted Howard, but Judge Gilmore threw out the latter's conviction on the grounds that the government applied a flawed legal theory. Howard then pleaded guilty. The Supreme Court ruled that because the jury acquitted Yeager of other charges connected to the same alleged scam, he could not be retried.

Related Web Resources:
Former Broadband CEO given 16-month sentence, Chron.com, September 28, 2009

Ex-Enron Broadband Co-CEO Sentenced for Wire Fraud, Bloomberg, September 28, 2009

Read May 15, 2000 Enron Broadband press release, HighBeam.com

The Fall of Enron, Houston Chronicle

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Posted In: Enron , Texas Securities Fraud

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October 5, 2009

Former Merrill Lynch Employee, Guilty of $1.4 Million Texas Securities Fraud Scheme, Receives Prison Term

A judge has ordered a former Merrill Lynch employee, San Antonio stockbroker Bruce E. Hammonds, to serve almost five years in prison and three years supervised release for Texas securities fraud. Bruce E. Hammonds also must pay $1.1 million in restitution to the Merrill Lynch investors he defrauded and almost $60,000 to two clients that he continued to defraud after the broker-dealer fired him in June 2008.

Hammonds reportedly did not deny the alleged fraud when Merrill Lynch confronted him about his activities. The broker-dealer has paid the investment fraud victims back in full.

According to the criminal complaint affidavit, Hammonds opened a working capital account under the name B & J Partnership.He was supposed to register the account in an internal monitoring system, which he never did. Instead of placing investors’ funds in a Merrill Lynch fund, he deposited $1.4 million of their money in his working capital account. He provided clients with charts demonstrating the performance of the B&J Partnership investment fund even though no such fund existed.

Hammonds pleaded guilty to federal securities fraud charges earlier this year after an investigation found that between August 2006 and October 2008, Hammonds didn’t invest clients’ funds in stocks and hedge funds. Instead, he used the money for personal purposes, including an alleged house-flipping business. He gave back $486,000 to clients so it would appear as if they had made money off their investments.

Related Web Resources:
Judge sends ex-stockbroker to jail for bilking investors, Business Journal, October 2, 2009

Stockbroker sent to prison for $1.4 million scheme, My San Antonio, October 3, 2009

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Posted In: Financial Firms , Merrill Lynch , Texas Securities Fraud

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September 29, 2009

Texas Securities Fraud: Investment Firm Employee Accused of Making $8.6 Million from Dell Insider Trading

The Securities and Exchange Commission is charging trader Reza Saleh with Texas securities fraud. The agency is accusing the Perot Systems employee of buying call options contracts just two weeks before Dell announced it was acquiring the services company. The SEC says that as a result of insider trading, Saleh made $8.6 million in illegal profits.

Call options allow a buyer to purchase stock at a certain price on a specific day in the future. Right after Dell announced the tender offer on September 21, Reza sold his call options. By this time, Perot Systems’s stock price had gone up by about 65%.

Soon after, the Options Regulatory Surveillance Authority identified Saleh as a suspicious trader. He also allegedly told a Perot Systems director that he bought the options because he knew Dell was going to make the announcement.

Filed in federal court in Dallas, the SEC complaint alleges that Saleh bought 9,332 Perot Systems call options contracts between September 4 and 18, 2009. The call options contracts would expire in October 2009 and January 2010.

The SEC is accusing Saleh of violating the Securities Exchange Act of 1934’s anti-fraud provisions. The SEC wants to place an emergency freeze on Saleh’s assets. It also is seeking a preliminary injunction and a final judgment enjoining the trader from violating relevant provisions of federal securities laws in the future. The agency wants Saleh to pay financial penalties in addition to disgorgement of ill-gotten gains.

Dell announced it was purchasing Perot Systems for $3.9 billion or $30/share in cash. Dell’s tender offer is asking for outstanding Perot Class A common shares. The deal will likely close by the end of January 2010.

Related Web Resources:
SEC: Insider trading charges in Dell deal, CNN, September 24, 2009

SEC Charges Perot Company Employee in $8.6 Million Insider Trading Scheme, SEC.gov, September 23, 2009

Securities Exchange Act of 1934

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September 12, 2009

Texas Securities Commissioner, Appointed New President of Nationwide Association of Regulators, Seeks Additional Investigations into Wall Street Fraud

The incoming head of the North American Securities Administrators Association, Denise Voigt Crawford, is warning brokerage firms that more enforcement actions over Wall Street fraud are likely to follow. Crawford is also the Texas Securities Commissioner. She will formally assume her role as NASAA president on September 15.

In her new role, Crawford plans on playing a key role in the government’s plans for regulatory reform. She wants the states to have a more prominent position when it comes to regulatory oversight.

At this time, state regulators only supervise investment advisors that are managing assets of $25 million or below. She wants states to regulate investment advisors with assets as high as $100 million. Since most of these firms are located in regional areas, Crawford says it is easier for state regulators to oversee them.

NASAA represents all states securities regulators and has been pushing forward actions against broker-dealers ever since the auction-rate securities collapse in 2008. According to Crawford, NASAA can be credited with $60 billion in ARS that brokerages are repurchasing. The states have fined large broker-dealers about $597 million.

Crawford says that NASAA is continuing to examine the role that “downstream” firms played in the ARS market collapse. She says NASAA will try to figure out how to unfreeze investor assets that were purchased from firms such as Charles Schwab Corp.

NASAA does not want FINRA to expand the role it plays in investment advisor oversight. The self-regulatory organization now regulates Series 7 licensed registered reps, but not Series 65 licensed advisors.

Our Texas securities fraud law firm is working hard to help our clients recover their ARS that froze when the market collapsed. We continue to offer free case evaluations to potential clients whose ARS became frozen even after brokers told them that their securities were liquid like cash. Broker misconduct should not be tolerated. There are ways to recover your losses if you were the victim of investment fraud.

Related Web Resources:
New NASAA President: More Enforcement Actions to Come, Financial Planning

NASAA

Texas State Securities Board

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Posted In: Broker Fraud , NASAA , Texas Securities Fraud

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August 17, 2009

After District Court Dismisses Texas Securities Fraud Against Billionaire Mark Cuban, SEC Appeal Can Now Move Forward

Last week, the U.S. District Court for the Northern District of Texas dismissed the Texas securities fraud charges that the Securities and Exchange Commission had filed against billionaire Mark Cuban. The SEC had asked the judge to close the case after deciding not to file an amended complaint against the Dallas Mavericks’ owner. The court’s ruling now makes way for the SEC to consider whether to appeal the decision.

The SEC is accusing Cuban of engaging in insider trading. Cuban found out from the chief executive officer of Mamma.com that the company was going to raise money via a PIPE deal or public entity or a private investment. Cuban, who owned a 6.3% stake (600,000 shares) in the company, verbally said he wouldn’t tell anyone about the PIPE offering and then sold his whole stake in the company right before the PIPE deal became public knowledge. As a result, the SEC says that Cuban prevented himself from losing $750,000 when company’s stock dropped.

The SEC had filed its Texas insider fraud trading lawsuit against Cuban based on the “misappropriation theory.” In United States v. O'Hagan in 1997, the US Supreme Court ruled that a defendant is in violation of the antifraud provisions of the 1934 Securities Exchange Act if he or she “misappropriates” confidential information for trading purposes and breaches the duties of confidentiality and loyalty.

The SEC’s Rule 10b5-2 was put in place in 2000 to clarify what that duty entailed. In Cuban's case, the duty of confidence or trust exists when a person agrees to keep information confidential.

The district court presiding over the SEC securities fraud lawsuit against Cuban, however, said that the defendant would have misappropriated the information if, in addition to promising to keep what he knew confidential, he had agreed that he wouldn't trade based on the information that was given to him. However, the judge agreed with the defense that Cuban never promised that he wouldn’t trade. His legal representatives say there was no reason for him to abstain from trading.

Related Web Resources:
SEC Won't File Amended Complaint Against Mark Cuban, The Wall Street Journal, August 12, 2009

SEC Files Insider Trading Charges Against Mark Cuban, SEC, November 17, 2008

Related Web Resources:
Mamma.com

The SEC Complaint (PDF)

The Mark Cuban Weblog

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Posted In: Insider Trading , Texas Securities Fraud

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August 4, 2009

Next Financial Ordered to Pay One Million Dollars for Supervisory Deficiencies that Led to Texas Securities Fraud

FINRA says NEXT Financial Group Inc. has agreed to a one million dollar fine for its alleged failure to properly supervise a number of client accounts and over 100 office of supervisory jurisdiction (OSJ) branch managers. The managers are in charge of overseeing sales and trading activities for branches and brokers. As a result of the alleged inadequate supervision, FINRA says that broker misconduct was able to take place, resulting in Texas securities fraud.

FINRA charges that between 1/05 and 11/06, the broker-dealer allowed its OSJ branch managers supervise to themselves. Even when NEXT Financial Group implemented a new Regional Manager supervisory system, FINRA says that this too continued to prove unreasonable for at least another year. Each month, three regional managers who were unable to adequately access client suitability data were in charge of reviewing thousands of transactions.

FINRA mandates that firms appoint at least one principal to set up, maintain, supervise, and enforce “a system of supervisory control policies and procedures.” FINRA says that because of Next Financial’s inadequate procedures and policies, the broker-dealer failed to notice that excessive markdowns and markups on corporate bond trades and the churning of customer accounts were taking place. Investors ended up losing some $768,000, FINRA contends. The funds have been reimbursed.

NEXT Financial Group’s former chief operating officer and chief compliance officer Karen Eyster has agreed to sanctions for failing to fulfill her obligations as a supervisor. FINRA fined her $35,000. She also has to undergo 15 hours of supervisory training and serve a 2-month suspension as a principal.

Also, FINRA says that the broker-dealer’s systems and procedures regarding variable annuity exchanges were unreasonable and did not give enough guidance about what needed to be looked at when making variable annuity exchange recommendations to clients.

By agreeing to settle, the broker-dealer and Eyster are not admitting to or denying the charges that FINRA has made against them.

NEXT fined $1 million for churning accounts, Chron.com, July 22, 2009

Continue reading "Next Financial Ordered to Pay One Million Dollars for Supervisory Deficiencies that Led to Texas Securities Fraud " »

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July 26, 2009

Provident Royalties Faces $485 Million Texas Securities Fraud, Says SEC

The US Securities and Exchange Commission has charged Provident Royalties, LLC, Provident Asset Management LLC, and founders Brendan Coughlin, Paul Melbye, and Henry Harrison with Texas securities fraud over their alleged involvement in a $485 million investment scam. The SEC claims the defendants used the ponzi scheme to defraud thousands of natural gas and oil investors.

According to the SEC civil complaint, Provident allegedly made a series of fraudulent offerings of limited partnership interests and preferred stock from at least June 2006 through January 2009 and persuaded about 7,700 US investors to invest half a billion dollars. The Texas-based firm allegedly promised yearly returns of more than 18% and misrepresented the way the funds were going to be used. The SEC is also accusing broker-dealer Provident Asset Management, LLC of making direct retail securities sales, as well as soliciting unaffiliated retail broker-dealers to submit placement agreements for each offering.

The SEC contends that investors thought that 86% of the funds would be used in gas and oil investments, mineral rights, leases, exploration, and development. While less than 50% of the investors’ funds were actually used to acquire and develop gas and oil exploration, the SEC claims the other funds were used to pay previous investors of Provident Royalties.

Coughlin, Harrison, and Melbye have been charged with orchestrating the ponzi scam. Also named in the SEC complaint are the 21 entities that sold securities to investors.

The SEC is charging the defendants with violating the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and the Securities Act of 1933. The SEC is seeking preliminary and permanent injunctions, a temporary restraining order, financial penalties, and disgorgement of ill-gotten gains in addition to prejudgment interest. An emergency freeze on the assets has been issued and a receiver has been appointed.

Related Web Resources:
SEC Obtains Asset Freeze in $485 Million Nationwide Offering Fraud, SEC, July 7, 2009

Read the SEC Complaint (PDF)

Continue reading "Provident Royalties Faces $485 Million Texas Securities Fraud, Says SEC" »

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Posted In: Broker-Dealers , Financial Firms , Ponzi Scams , Provident Asset Management , Texas Securities Fraud

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July 22, 2009

Texas Securities Fraud Lawsuit Against Former EnergyTec CEO Can Move Forward, Says District Court

The U.S. District Court for the Northern District of Texas says it won’t dismiss the securities fraud lawsuit against Frank Cole, the former head of Energytec Inc. The plaintiffs are accusing Cole, Energytec, and others of taking part in a fraudulent oil investment scam that cost investors millions of dollars.

In their securities fraud complaint, the plaintiffs say that Energytec developed 250 “Income Programs” with oil well working interests, in addition “Purchase Agreements” and “Evaluation Reports” for each program. Frank W. Cole Engineering prepared the evaluation reports, which were offered to investors, along with the purchase agreements, in connection with the sale of income program securities.

According to the plaintiffs, the evaluation reports and the purchase agreements contained material misrepresentations. They also claim that there were material omissions in the documents. For example, Energytec failed to disclose that a corporate officer had a prior criminal conviction and did not reveal that monthly payments were in fact advance payments that Energytec would later recoup.

Jomar Oil, the lead plaintiff in the investment fraud case, says Energytec’s Income Program 225 had unregistered brokers who sold securities and that this violated the Connecticut Uniform Securities Act and the Securities Exchange Act. The plaintiffs are accusing Energytech and Cole of lying to investors and filing SEC reports that were misleading.

The Texas court declined Cole’s motion to dismiss the securities fraud lawsuit accusing him of playing a key role in the Ponzi scheme. The judge noted that the plaintiffs had met applicable pleading requirements and had gone beyond pleading ‘positional scienter’ in regards to Cole.

Related Web Resources:
Ex-CEO Loses Bid to Exit Energytec Ponzi Suit, Securities Law 360, July 13, 2009

Judge Allows Suit Over Alleged Energytec Scam, Courthouse News Service, July 13, 2009

Continue reading "Texas Securities Fraud Lawsuit Against Former EnergyTec CEO Can Move Forward, Says District Court" »

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Posted In: Ponzi Scams , Texas Securities Fraud

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June 14, 2009

Texas Securities Fraud: A Houston Attorney and a Texas A & M Professor Charged with Investment Fraud

The US Securities and Exchange Commission and the Commodity Futures Trading Commission are accusing Houston attorney and accountant Daniel Petroski and Texas A & M Professor Robert Watson of using forged bank records to engage in investor fraud. On May 21, the US District Court for the Southern District of Texas froze the assets of the two men and of two firms associated with the alleged misconduct.

According to the two agencies, Petroski and Watson raised over $19 million from about 65 investors, while claiming they would use a foreign-currency trading software, “Alpha One,” that they said belonged to their company, Private FX Global One Ltd. Watson’s “deal clearing company, “36 Holdings,” was also to participate in the investing.

The SEC and the CFTC contend that the two men engaged in misrepresentation when they made it appear as if their foreign exchange trading business never had a losing month, achieved a yearly return of over 23%, and that their venture had millions of dollars in Swiss and US bank accounts. The two agencies are also accusing the two men of generating bogus records for investigators, including records indicating that 36 Holdings had an account with Deutsche Bank where Global One earned over $2 million this year by trading foreign currencies. In fact, 36 Holdings does not have a Deutsche Bank account.

In addition, the SEC’s complaint accuses the two men of putting, at maximum, 33% of their proceeds in a Swiss bank before transferring some $5 million to a Houston bank—even though they told investors that the amount of foreign currency and other assets was closer to 80%. The defendants are also accused of giving their own employees bogus Swiss bank statements and making false claims that 36 Holdings had nearly $70 million deposited there.

The SEC accuses the defendants of violating the Securities and Exchange Act of 1934’s Section 10(b), Rule 10b-5 thereunder, and the Securities and Exchange Commission Act of 1933’s Section 17(a). The CFTC and the SEC are seeking a preliminary injunction, final judgment from permanent enjoinment of future violations, disgorgement with interest, and fines.

Read the SEC Complaint (PDF)

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

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May 29, 2009

Texas Securities Fraud: Court Grants SEC's Request to Freeze Defendants’ Assets Following $40 Million Investment Scam

The U.S. District Court for the Northern District of Texas has issued an order granting the Securities and Exchange Commission’s request for an asset freeze against Excel Lease Fund, Inc. and its owner, Benny L. Judah. Both are accused of being involved in a $40 million Texas securities fraud scheme that affected hundreds of investors.

In the consent order, the defendants did not admit to or deny the SEC’s allegations. Judah, a Texas business person, also agreed to an injunction barring him and any of his entities from issuing securities. He has control over 78 Texas businesses and plays a leadership role in almost 50 of them.

The SEC says that beginning January 2006, the defendants made a high-yield debenture offering to investors, while telling them that their money would go toward a number of “legitimate business” uses, including helping to retire a series of earlier debentures. The agency contends that Judah actually used the funds for non-Excel business purposes, as well as for his personal use. Investigators say at least $5 million of the funds may have been lost through day trading.

In addition, the SEC is accusing the defendants of overstating by at least 30% the value of assets behind the debentures, neglecting to disclose about $20 million in related-party loans to other Judah-owned companies, and overstating Excel’s assets through the use of some $15 million in bogus lease contracts. The SEC wants to obtain permanent injunctions, fines, and disgorgement against the defendants.

Over the years, our Texas securities fraud lawyers have helped many investment fraud victims recoup their losses.

Related Web Resources:
Benny L. Judah and Excel Lease Fund, Inc., SEC.gov, April 21, 2009

Feds freeze assets of Lubbock businessman Benny Judah, NewsChannel11, April 22, 2009

Read the SEC Complaint (PDF)

Continue reading "Texas Securities Fraud: Court Grants SEC's Request to Freeze Defendants’ Assets Following $40 Million Investment Scam" »

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Posted In: Texas Securities Fraud

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