March 6, 2015

Texas-Based Broker-Dealer Faces SEC Charges Over Supervisory and Customer Protection Violations

The Securities and Exchange Commission is charging H.D. Vest Investment Securities with violating customer protection rules. The regulator contends that the Texas-based broker-dealer did not adequately supervise registered representatives that are accused of misappropriating customer monies.

H.D. Vest will pay a penalty to settle the charges. It has consented to get an independent compliance consultant that will help the firm enhance its supervisory controls.

The SEC’s order, which institutes a settled administrative proceeding, said that the firm did not have proper procedures and policies to oversee the external business activities of representatives. This allowed some of them to use outside businesses to bilk the brokerage firm’s customers. Some even deposited or moved customer brokerage funds into these external business accounts.

The Commission contends that the Texas-based brokerage firm did not abide by customer protection rules. The rules required H.D. Vest to conduct certain calculations and, if needed, place monies in a reserve account in case customers are hurt by misconduct. The firm did not make these calculations nor did it keep a reserve account. The SEC also said that the broker-dealer did not have the adequate supervisory controls that would have allowed it to track the movement of customer funds to the outside businesses run by registered representatives.

Last month, an ex-H.D. Vest broker was arrested and charged with wire fraud. Lewis Joseph Hunter allegedly contacted five elderly persons—they were his clients while he was at the firm— after he had already left the broker-dealer. He allegedly persuaded them to put their money in what ended up proving to be worthless stocks. They gave him some $661,500 to invest. He is accused of persuading one investor to let him transfer $150,000 from his account at HD Vest to an account that he controlled.

Hunter purportedly gave them investment advise, notified the individuals that he was using their money to buy securities, and gave them stock certificates to back up his statements. According to a federal prosecutor, Hunter was, in fact, using the money for personal enrichment, to cover his personal expenses, and pay back other investors who had become suspicious and demanded their funds back.

The SEC has already ordered Hunter to cease and desist from activities related to investments. The agency told him to pay a $150,000 civil penalty and $296,000 in restitution.

Our Houston securities fraud lawyers are here to help investors get their money back. We have helped thousands of individual and institutional investors recoup their funds, representing clients in arbitration and the courts. Contact our Texas securities law firm today. Your initial consultation with Shepherd Smith Edwards and Kantas, LTD LLP is a free, no obligation case assessment.

Read the SEC Order (PDF)


More Blog Posts:
Texas Wyly Brothers Must Pay SEC $299.4M for Securities Fraud, Stockbroker Fraud Blog, February 28, 2015

Jury Says Ex-Envoy Involved in Stanford Ponzi Scam Must Pay $750K, Stockbroker Fraud Blog, February 16, 2015

DOJ Gets Ready to Wrap Mortgage Bond Case Against Standard & Poor’s, Probes Moody’s, Institutional Investor Securities Blog, January 31, 2015

February 28, 2015

Texas Wyly Brothers Must Pay SEC $299.4M for Securities Fraud

Sam Wyly and his late brother Charles Wyly’s estate must pay $299.4 million for committing securities fraud. The final judgment comes months after a jury found them civilly liable.

The SEC sued the Texas billionaire brothers in 2010. The regulator accused them of making $553 million in undisclosed profits when they traded in four companies that used trusts in the Isle of Man. The companies included Scottish Annuity & Life Holdings Ltd., Sterling Commerce Inc., Michaels Stores Inc., and Sterling Software Inc.

The SEC contends that the Wylys established the complex trust system so they could make untaxed profits from concealed trades in companies that they controlled. The scam purportedly occurred over a period lasting a decade.

Charles Wyly died in 2011. The SEC is now going after his estate.

In the final judgment, U.S. District Judge Shira Scheindlin ordered Sam to pay $198.1 million in disgorged gains, in addition to interest. Charles’ estate must pay $101.2 million. The ruling could lead to an appeal in the wake of Sam Wyly’s bankruptcy case. He filed for Chapter 11 protection last year.

In a related ruling, Scheindlin found that the Wylys were entitled to receive an offset for amounts due to the IRS based on sums paid to the Commission.

Our Texas securities fraud lawyers represent investors with claims against brokers, investment advisers, and financial firms. Contact Shepherd Smith Edwards and Kantas, LTD LLP today. Your initial case consultation with our stockbroker fraud law firm is free.

Texas Wyly brothers must pay $299 million in SEC fraud case: judge
, Reuters, February 26, 2015

Wyly Brothers Ordered to Give up $299 Million in Fraud Suit
, AP/ABC News, February 27, 2015


More Blog Posts:

Jury Says Wyly Brothers From Texas Committed Fraud, Stockbroker Fraud Blog, May 14, 2014

Texas’ Wyly Brothers Ordered to pay More than $300M In Fraud Sanctions
, Stockbroker Fraud Blog, September 28, 2014

John Carris Investments Expelled by FINRA, Institutional Investor Securities Blog, January 27, 2015

February 16, 2015

Jury Says Ex-Envoy Involved in Stanford Ponzi Scam Must Pay $750K

A federal jury has decided that ex-U.S. Ambassador to Ecuador Peter Romero would not be allowed to keep over $758K in expenses, fees, and interest he earned while lending his legal counsel and credibility to Allen Stanford. Instead, he will pay that sum to the court appointed receiver.

Stanford was convicted in 2012 of fraud and money laundering, perpetuating a global multibillion-dollar scam in the process. His Houston-based empire was shut down in 2009 when the U.S. Securities and Exchange Commission accused him of running his $7 billion Stanford Ponzi scam that bilked thousands of investors. The scheme involved the sale of CDs from his bank in Antigua.

Receiver Paul Janvey contends that Romero and certain other consultants did not ask the most basic questions about Stanford’s bogus banking empire. Romero was invited to serve on Stanford’s International Advisory Board after sitting next to him at an inaugural ball for President George W. Bush in 2001.

Romero received $1 million in fees for his role as consultant-fixer over issues involving business and politics in Central America. During testimony, he claimed that he had no idea Stanford was committing fraud and said that he too was deceived.

He is not the only one that Janvey is going after. Ex-Texas Lt. Governor Ben Barnes was purportedly paid $5 million, while ex-Houston Mayor Lee Brown was paid under $300K. Both will be allowed to keep all of the money if they can persuade a jury that their work with Stanford was conducted in good faith and that the services provided were the reasonable equivalent in value to how much they were paid.

Unfortunately it is investors who lose out when they become the victims of a Ponzi scam. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today. Our Texas securities fraud lawyers are here to help investors recoup their losses.

Ex-envoy who aided Ponzi schemer Stanford must pay $758,000, Dallas jury decides, The Dallas Morning News, February 13, 2015

Former U.S. diplomat implicated in Stanford Ponzi scheme, CNBC, January 22, 2015

Texas jury rules U.S. ex-diplomat must repay over $700,000 in Ponzi scheme, Reuters,


More Blog Posts:
Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

SEC to Dismiss Lawsuit Against SIPC Over Payments to Stanford Ponzi Scam Victims, Stockbroker Fraud Blog, September 11, 2014

Madoff Ponzi Scam Victims Recover Over $10 Billion, Institutional Investor Securities Blog, December 5, 2014

January 31, 2015

Sun Antonio Spurs Star Tim Duncan Files Texas Investment Adviser Fraud Case

NBA All-Star Tim Duncan is suing his investment adviser for securities fraud. The San Antonio Spurs basketball player says that his financial representative, Charles Banks, made investment recommendations based on conflicts of interest. Duncan claims that because of this he sustained substantial financial losses.

In his Texas securities case, Duncan says that Banks, who gave him investment advice for seventeen years, took advantage of their relationship for personal gain. Duncan claims that Banks suggested he invest several million dollars in beauty products, hotels, sporting goods, and wineries that the latter either had a financial stake in or owned. The NBA basketball player also says that Banks was able to garner a $6.5 million bank loan using Duncan’s forged signature.

Unfortunately, professional athletes are targeted by financial fraudsters. With their large incomes and, in some cases, inexperience with managing their money and investments, there are scammers who will take advantage of their investment adviser relationship with them to try to make money. Because pro athletes can only play at the NBA, NFL, MLB, and NHL levels for a certain amount of years, unexpected and substantial financial losses caused by securities fraud may prove devastating for athletes and their families.

Contact our Texas securities fraud law firm today. Shepherd Smith Edwards and Kantas, LTD LLP represent professional athletes and other individual investors in recouping their investment fraud losses. Retaining legal representation increases your chances of recovering most if not all of your bilked funds.

Tim Duncan sues former business adviser for over $20 million in losses, SBNaton, January 31, 2015

How to scam an athlete, ESPN, April 22, 2011


More Blog Posts:
St. Louis Rams Quarterback AJ Feeley and US Soccer Player Heather Mitts Are Among Professional Athletes Allegedly Targeted in Ponzi Scam, Stockbroker Fraud Blog, September 7, 2012

Professional Athletes, Celebrities Often Targeted for Securities Fraud, Stockbroker Fraud Blog, August 14, 2013

Hanson McClain Sues Investment Adviser, Ameriprise Financial Services Over Client Information, Institutional Investor Securities Blog, January 12, 2015

January 22, 2015

Texas State Securities Board Was Special Prosecutor in $1M Securities Fraud Case

Alberto Alba Villareal was sentenced to five years behind bars for defrauding investors in a $1 million Texas securities fraud. Villareal was convicted of theft of property for stealing money. The funds he procured were supposed to go toward funding a new insurance company. The Texas State Securities Board was a special prosecutor in the case. Villareal is from South Texas.

As part of his sentence, Villarreal must pay complete restitution to the investor who purchased a $1 million investment contract in Nafta Holdings LLC, which was the new insurer’s controlling company. Villareal must also serve ten years probation.

According to court testimony and his indictment, Villareal took part in a number of financial deceptions to raise funds for the controlling company, even telling the investor that the Texas Insurance Code mandated that there be $4 million in capital and additional cash to open a new insurance company—even though the amount he quoted was about twice what the law actually stipulated.

Villareal allegedly made it seem as if he had raised half of the money and that investors' funds would go into escrow until the threshold was established. Instead, he used some of their money for his personal expenses, including yacht payments and mortgage payments, which were past due. Investor funds also went toward insurance claims to policyholders with other insurers that he controlled.

The state’s Department of Insurance also gave evidence in the Texas securities case.

Shepherd Smith Edwards Kantas, LTD LLP is a Texas securities fraud law firm.

South Texas man sentenced to five years for $1 million securities fraud, theft, inForney, January 20, 2015


More Blog Posts:
Orders Dallas Man to Pay Over $1.4M in Restitution, Penalty Over Texas Securities Scam Involving Forex Commodity Pool, Stockbroker Fraud Blog, January 12, 2015

NASAA Wants Life Partners Held Accountable for Texas Securities Act Violations, Stockbroker Fraud Blog, December 28, 2014

Standard & Poor’s to Pay Almost $80 Million to Resolve SEC Charges Over Ratings Fraud Involving CMBSs, Institutional Investor Securities Blog, January 21, 2015

January 12, 2015

Orders Dallas Man to Pay Over $1.4M in Restitution, Penalty Over Texas Securities Scam Involving Forex Commodity Pool

The U.S. Commodity Futures Trading Commission says that a federal court has issued a supplemental Consent Order of Permanent Injunction mandating that Steven Lyn Scott pay over $760,000 in restitution, a $700K penalty, as well as post-judgment interest for his involvement in a Forex commodity pool scam. It was the U.S. District Court for the Northern District of Texas that put out the order, which comes after a CFTC enforcement action charged the Dallas resident with customer fund misappropriation, solicitation fraud, and registration violations related to running a commodity pool scam.

According to The Court, from early January 2009 through at least the end of March 2011, Scott fraudulently solicited a minimum of $1,146,000 from over 40 pool participants for their involvement in pool investment vehicles that were to trade in contracts, off-exchange agreements, or transactions in foreign currency on a margined or leveraged basis. Many of the participants lived in Texas and included his friends, relatives, and others.

A May 5, 2014 Consent Order, issued earlier by this same court, noted that Scott invoked the name of his entity Stewardship Financial Exchange when pursuing pool participants. He is accused of guaranteeing returns of 2-5% a month for participants that signed up for six months.

The Order found that instead of trading the funds of pool participants, Scott misappropriated a chunk of the money into his corporate and personal accounts and then used the cash to cover his own spending. He also took participants’ money to pay supposed interest and principal to participants, much like in a Ponzi scam.

Our Texas securities fraud lawyers represent individual investors and institutional investors in recouping their losses.

Federal Court in Texas Orders Dallas-based Steven Lyn Scott to Pay $766,625.30 in Restitution and a $700,000 Penalty to Settle Charges of Solicitation Fraud, Misappropriation, and Registration Violations in Connection with a Forex Commodity Pool Scheme, CFTC, December 22, 2014


More Blog Posts:

NASAA Wants Life Partners Held Accountable for Texas Securities Act Violations, Stockbroker Fraud Blog, December 28, 2014

Judge Orders Texas-Based Life Partners Holdings Inc., Two Executives to Pay $46.9M Over Securities Filings, Stockbroker Fraud Blog, December 3, 2014

Money Manager Paul Greenwood Gets 10 Years in Prison for $1.3B Investment Fraud, Institutional Investor Securities Blog, December 4, 2014

December 28, 2014

NASAA Wants Life Partners Held Accountable for Texas Securities Act Violations

The North American Securities Administrators Association wants the Texas Supreme Court to rule that Life Partners Holdings Inc. has to face a class action securities lawsuit for selling unregistered securities. The state’s high court is set to determine whether to reverse a lower appeal court’s ruling to reinstate a case that accuses the company of selling the securities.

According to the group of securities regulators, violations of the Texas Securities Act were committed when Life Partners sold fractional interests in life insurance polices to investors and that this grounds for a case. The company wants the previous ruling, which found that life settlement contracts are not insurance contracts but are, in fact, investment contracts that are regulated under securities laws, overturned. Life Partners maintains that state securities law does not govern its product.

The putative class action securities case contends that three years ago, Life Partners was involved in a scam that involved offering and selling securities that were unregistered. A trial judge rejected the plaintiffs’ claims, accusing them of submitting a frivolous pleading.

Now, Life Partners wants the high court to rule that its products are different from the traditional securities that fall under Texas securities law. The company contends that profits from life settlements are connected only to the discounted buy price negotiated when Life Partners acquires the underlying policies that investors buy into.

Life Settlements
Investors purchase the right to death benefits, with the original owner of a policy getting paid a specific amount upfront. Meantime, investors keep paying premiums, hoping to ultimately get back more than they invested. The shorter a policyholder’s life expectancy, the more likely an investor is to make a profit.

In 2012, Texas regulators accused Life Partners of committing fraud when it gave investors “significantly shorter” life expectancies for the insured parties than what they should have given in order inflate revenue. In their complaint, the state said that as of 12/31/10,and of the 3,879 policies it held, Life Partners, 81% of the policies exceeded the life-expectancy estimates given to investors. The SEC filed its own civil case over this matter.

Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm.

Regulators Say Texas Treats Life Settlements As Securities, Law360, December 16, 2014

Waco based company ordered to pay $46.8 million in SEC fraud suit, KXXV, December 3, 2014

Texas Securities Act

NASAA


More Blog Posts:
Atlas Energy’s Oil and Gas Private Placement May Not Be Such a Good Investment for Outside Investors, Stockbroker Fraud Blog, December 13, 2014

Judge Orders Texas-Based Life Partners Holdings Inc., Two Executives to Pay $46.9M Over Securities Filings, Stockbroker Fraud Blog, December 3, 2014

Money Manager Paul Greenwood Gets 10 Years in Prison for $1.3B Investment Fraud, Institutional Investor Securities Blog, December 4, 2014

December 13, 2014

Atlas Energy’s Oil and Gas Private Placement May Not Be Such a Good Investment for Outside Investors

Atlas Energy LP Is inviting investors to put in at least $25,000 in an oil and gas drilling partnership in Texas and other states in exchange for shared revenue from the output from the wells. Its subsidiary, Atlas Resources LLC, is seeking to raise up to $300 million by the end of the year, with the company saying it will put in up to $145 million of its own money. However, according to Reuters, a closer look at the company’s confidential offering memorandum reveals that outside investors may not end up reaping as much as they think.

The private placement venture is called Atlas Resources Series 34-2014 LP. Private placements are unregistered securities sold to a limited number of investors via brokerage firms. Brokers can only market them to accredited investors (investors that have $1 million in assets—primary residence not included—or $250,000/year income) or institutions. Because of inflation, the number of those that qualify to be able to invest in private placements has gone up and not every investor is a high-income one. There are even retirees who now qualify.

According to the Atlas memorandum, $45 million of the money raised will go to Anthem Securities, an affiliate, to pay commissions to brokerage firms. Up to $39 million will go toward purchasing drilling leases from a different affiliate. Some of the $53 million for transport and drilling equipment may also go to affiliated suppliers. $8 million is a markup for estimated equipment costs. Atlas will get $53 million for markups and fees once drilling starts. All this lowers Atlas’s exposure by at least 40%. Once revenue starts coming in, the company is entitled to 33% of this.

After looking at the marketing materials and offering memoranda of half a dozen oil and gas private placements in the last 15 years, Reuters discovered that Atlas’s deal, placing the issuer at greater advantage than outside investors, is not uncommon. And out of over half of the 43 private placements it has put out in the last thirty years, outside investors either broke even or sustained financial losses. In 29 private placement deals, Atlas faired better than investors.

Energy ventures are typically high risk. Wells can end up producing nothing and returns may be impacted by gas and oil costs. Granted, there are tax benefits, with investors able to write off over 90% of initial outlay the first year. However, the risks can outweigh the benefits.

It doesn’t help that brokers, who are supposed to conduct due diligence on every issue they sell to make sure it is suitable for each investor, sometimes depend on due diligence companies that are paid by the issuers. Regulators still don’t have much oversight over private placements, which are not subject to a lot of reporting requirements. Also, oil and gas private placements often come with hidden fees.

If you suspect you were the victim of fraud, contact one of our private placement fraud law firm today. Shepherd Smith Edwards and Kantas LTD LLP is a Texas securities law firm.

Special Report: For these oil and gas bets, the odds favor the house, Reuters, November 11, 2014


More Blog Posts:
SEC Commissioner Wants Elder Fraud at Top of 2015 Agenda, Stockbroker Fraud Blog, November 29, 2014

Madoff Ponzi Scam Victims Recover Over $10 Billion, Institutional Investor Securities Blog, December 5, 2014

Goldman Sachs Must Pay $7.6M to Two Brokers for Wrongful Termination, Institutional Investor Securities Blog, December 8, 2014

December 3, 2014

Judge Orders Texas-Based Life Partners Holdings Inc., Two Executives to Pay $46.9M Over Securities Filings

Life Partners Holdings Inc., its CEO Brian D. Pardo, and general counsel R. Scott Peden must pay $46.9M in penalties and disgorgement. This is the final judgment in the wake of a verdict in the U.S. Securities and Exchange Commission’s civil case. The jury found them liable for submitting securities filings that were misleading and untrue. Life Partners sells life insurance investments.

U.S. District Judge James Nowlin, in his judgment, said that oversight and compliance at the Texas-based company “were non-existent.” He accused the defendants of serious violations of securities laws.

The judgment is a partial vindication for the SEC. After the verdict was issued earlier this year, both sides declared the outcome a victory for each.

The Commission accused the company of accounting and disclosure fraud that went on for years involving allegedly misleading marketing practices when selling life insurance investments to investors. While jurors found Life Partners liable for securities fraud involving revenue-recognition practices, they rejected the regulator’s main fraud and insider trading claims. The main allegations was over the claim that Life Partners gave inaccurately short estimates for the duration that insured individuals were expected to live, which is a key factor of the investment equation.

With life insurance investments, an investor buys the right to get an individual's life insurance benefits, while the person who owns the policy receives a lump sum. The investor then keeps paying premiums, with the hope of ending up receiving more than what is spent. Investors, however, won’t get as high of a return or can sustain financial losses if the insured lives longer than estimated.

The jury found that Peden and Pardo were also liable for helping in and abetting Life Partner’s submission of false reports. They ruled that Pardo was responsible for the false certification of Life Partner’s filings.

Under Nowlin’s judgment, Life Partners must pay $23.7 million in civil penalties and $15 million in disgorgement. Pardo must pay $6.2 million in civil penalties, while Peden has to pay $32 million.

Life Partners is still contending with civil court actions by individual investors. There is also a class action securities case that was filed four years ago. Earlier this year, a district judge in Texas refused to throw out the claims made by those plaintiffs.

Also, Life Partners is dealing with a separate case brought state securities regulators. That lawsuit is now at the Supreme Court of Texas. The state has accused Life Partners and a number of affiliates of fraud related to the sale of securities.

Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm. Please contact our securities attorneys for your free case consultation.

SEC's $47M Life Partners Win Could Derail Investor Class Action, Litigation Daily, December 3, 2014

Mixed Verdict in SEC Suit Against Life Partners
, The Wall Street Journal, February 4, 2014


More Blog Posts:
SEC Files Charges Against Former Broker-Dealer Owner Over Fraudulent Stock Sales, Stockbroker Fraud Blog, December 2, 2014

FINRA Orders Houston-Based USCA Capital Advisors LLC to Pay $3.8M to 19 ExxonMobil Retirees, Stockbroker Fraud Blog, November 24, 2014

SEC Claims Fraud Involving a REIT and Bogus Senior Resident Occupants, Institutional Investor Securities Blog, December 3, 2014

November 24, 2014

FINRA Orders Houston-Based USCA Capital Advisors LLC to Pay $3.8M to 19 ExxonMobil Retirees

A Financial Industry Regulatory Authority arbitration panel said that USCA Capital Advisors LLC must pay over $3.8 million to 19 ExxonMobil retirees whose investments were mismanaged the Houston-based wealth management firm. The self-regulatory organization also says that the Texas investment advisory firm misled the investors about its trading strategy.

It is not uncommon for Houston financial advisers to target ExxonMobil retirees as clients. The oil company has a huge outfit and other operations in the area. According to the investors, USCA was tasked with handling their retirement savings because of promises the investment advisors made to protect, oversee, and grow their accounts.

At a presentation by USCA RIA LLC, which is USCA’s investment advisory arm, advisers told investors about their Total Return model program, which they claimed would up S & P 500 gains while lowering the risks involved in trading equities. Investors said they were told the strategy would hold primarily exchange-traded funds and U.S. stocks in a rising market and turn the money into cash when the markets dropped. Trades were to be stimulated by “objective technical factors.”

While some investors thought the program would handle trading, others thought that the firm would monitor computerized results, using the information to trade. They invested close to $40 million. They believe that they could have made $3 million from the strategy they thought the firms’ advisers were going to employ. Instead, they sustained $1.25 million in losses.

Of the $3.8 million FINRA arbitration award, $853,000 is punitive damages. $1.9 million are damages and interest. Nearly $1 million will go to legal bills and other expenses.

Shepherd Smith and Kantas, LTD LLP is a Texas stockbroker fraud law firm.

Texas Advisory Firm Ordered to Pay Exxon Retirees $3.8 Million, NASDAQ.com, November 20, 2014

Houston wealth management firm must pay $3.8 million to retirees: panel, Reuters, November 19, 2014


More Blog Posts:
Texas Pension Fund Sues Tesco For Securities Fraud, Stockbroker Fraud Blog, November 5, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

November 5, 2014

Texas Pension Fund Sues Tesco For Securities Fraud

According to the Irving Firemen’s Relief and Retirement Fund, Tesco PLC and its directors misled investors, purportedly causing the Texas pension fund to buy the company’s stock at prices that were artificially inflated. Because of this, says the fund, it sustained substantial losses when Tesco announced in September that it had overstated profits because of accounting irregularities.

The supermarket chain’s shares plunged after it disclosed that certain income was booked prior to being earned and costs were identified after they were incurred. Last month, Tesco said that it had overstated profits by $422 million.

The Irving pension fund wants to get class action status. It wants to represent Tescho shareholders who bought the company’s American depository receipts, representing one ordinary share each, between February 2 and September 22, 2014. In its securities fraud case, the Texas fund contended that Tesco purposely deceived the public.

IFRRF is for retired firefighters. The pension fund is funded through the Texas city of Irving, its participants’ contributions, and investment earnings.

Meantime, a report from an independent probe by Deloitte into the accounting overstatement will be sent to regulators. Even U.K.’s Financial Conduct Authority has said it would look into the matter.

Shepherd Smith Edwards and Kantas LTD LLP represents investors who are the victim of securities fraud to get their money back. Our Texas securities lawyers represent individual investors and institutional investors.

Irving pension fund sues Tesco for fraud
, Pensions and Investments, October 24, 2014

Irving (Texas) Firemen’s Relief and Retirement Fund

Tesco Gets More Bad News as Pension Fund Sues in U.S., Bloomberg, October 4, 2014


More Blog Posts:

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm, Stockbroker Fraud Blog, October 30, 2014

SEC Adds Children and Spouses of Texas Wyly Brothers to Securities Fraud Case Following $187M Verdict, Stockbroker Fraud Blog, October 28, 2014

National Planning Holding Temporarily Stops Selling American Reality Capital Properties’ Nontraded REIT sales After Disclosure of $23M Accounting Error, Institutional Investor Securities Blog, October 31, 2014

October 30, 2014

Ex-LPL Financial Adviser, James Bashaw from Texas, Lands at New Brokerage Firm

James “Jeb” Bashaw, the former star financial adviser at LPL Financial (LPLA) from Texas is now registered with International Assets Advisory, a small brokerage firm. LPL Financial fired Bashaw last month over allegations involving selling away. Then, for a while this month, he was with Wunderlich Securities Inc.

Selling away typically involves engaging in private securities transactions sans the required written disclosure or brokerage firm approval. It can also include borrowing from a client, as well as engaging in a transaction that is a potential conflict interest, again without the required disclosure in writing or firm approval.

Responding to the selling away allegations, Bashaw noted that he was “home supervised” and underwent more than a dozen perfect audits while affiliated with LPL. After his firing, Wunderlich took steps to hire Bashaw but there was a delay in transferring his license to the firm. In the end, the broker-dealer and Bashaw reportedly decided not to pursue a working relationship.

In 2011, Bashaw was ranked the number one financial adviser in Texas. He founded a dually registered firm in Houston, which was one of the biggest affiliated LPL practices. He reportedly managed assets of $3.8 billion.

In other LPL Financial news, this week Mark Casady, its chief executive, apologized to shareholders for the time it has taken to resolve the company’s compliance issues. The problems have cost the brokerage firm millions of dollars in settlements, restitution payments, and fines.

Casady’s statement comes a week after parent company LPL Financial Holdings Inc. announced that the broker-dealer expected to incur some $23 million in charges to settle undisclosed regulatory issues. That’s $18 million more than what had been anticipated. Following the announcement, LPL shares dropped 7%.

LPL said the regulatory matters primarily involve LPL Financial’s policies, systems, and procedures. Without going into detail, Casady said that the nature of the issues made it hard to identify or evaluate the “timing or magnitude of their resolution.”

For the last two years, LPL Financial has been contending with regulators over different issues. Earlier this month, regulators in Massachusetts announced that LPL had consented to pay back senior investors $541K for surrender charges from switching variable annuities. In June, LPL Financial was told to pay $820K in restitution and a $2 million fine to Illinois regulators for not properly mantaining books and records that documented 1035 exchanges.

Last year, FINRA fined LPL $7.5 million for close to three dozen system failures involving emails. The firm paid investors in Massachusetts $4.8 million in restitution related to their purchase of nontraded real estate investment trusts.

Our Texas broker fraud lawyers represent investors who wish to recoup their losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Ex-LPL Adviser’s Talks With Wunderlich Scuttled, The Wall Street Journal, October 14, 2014

CEO Mark Casady apologizes to LPL Financial shareholders for compliance missteps, Investment News, October 30, 2014


More Blog Posts:
LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches, Stockbroker Fraud Blog, October 15, 2014

Former LPL Financial Broker Must Pay Almost $2 Million For Bilking Clients, Including Elderly Investors, Stockbroker Fraud Blog, August 29, 2014

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

October 28, 2014

SEC Adds Children and Spouses of Texas Wyly Brothers to Securities Fraud Case Following $187M Verdict

The U.S. Securities and Exchange Commission has added the children and wives of Texans Charles and Samuel Wily to the fraud case that has already rendered a $187.7M award, plus interest, in its favor. The move would come following Sam Wiley’s decision to file for bankruptcy earlier this month.

Over a dozen relatives are now on the lawsuit, including Caroline Wyly, who is the widow of Charles Wyly. He died in a car crash in 2011. Carolyn also has filed for bankruptcy. Also now included are the children of both Charles and Sam.

Regulators say the family members needed to be added to stop the dissipation of the two men's assets. However, they noted that the relatives possess no legal rights or are traceable to the defendants ill-gotten gains.

The SEC accused the billionaire brothers of setting up a complex system of trusts in the Isle of Man that allowed them to generate $553 million in untaxed profits because of concealed trades in companies under their control. The fraud took place for over ten years.

Sam said the bankruptcy claim was necessary to preserve assets following the ordering of the award. He noted that he had between $100M and $500 in liabilities and assets. He also pointed out that it cost him $100 million in legal fees to deal with both the SEC investigation and an Internal Revenue Service probe. Meantime, the SEC says that the billionaire is just trying to get around the enforcement action.

The Wylys’ attorneys say that Sam and Charles's estate don’t have enough funds to pay the $187.7 million award, especially as with interest the total amount could run from $300 million to $400 million.

In her bankruptcy filing, his widow, Caroline said she has been insolvent since her husband’s passing. Her lawyer noted that Caroline’s income is not enough to maintain the assets of her deceased husband that are now her responsibility.

Ordering an asset freeze on the Wylys’ funds is the expected next step. U.S. District Judge Shira Scheindlin in Manhattan, who presided over the award the brothers have been ordered to pay, is also the judge scheduled to deal with this matter.

Our Texas stockbroker fraud lawyers work with clients throughout the state. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

SEC Adds Wyly Kin to Suit in Bid to Secure $187 Million, Bloomberg, October 28, 2014

Texas investor Sam Wyly files for bankruptcy after losing SEC fraud case, Reuters, October 20, 2014


More Blog Posts:
Texas’ Wyly Brothers Ordered to pay More than $300M In Fraud Sanctions, Stockbroker Fraud Blog, September 28, 2014

LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches, Stockbroker Fraud Blog, October 15, 2014

SEC, Federal Reserve, HUD Approve Laxer Mortgage-Lending Rule, Institutional Investor Securities Blog, October 22, 2014

October 15, 2014

LPL Financial Fires Texas Branch Manager Over Selling Away Claims, Settles with Senior Investors in Massachusetts for $541,000 Over Faulty Variable Annuity Switches

According to his report on the central registration depository, LPL Financial (LPLA) branch manager James Bashaw was fired last month for allegedly engaging in selling away, which involves taking part in private securities transactions without written disclosure or approval from a brokerage firm, as well as borrowing from a client and taking part in a business transaction that created a possible conflict, again without obtaining the necessary firm approval or written disclosure.

Bashaw, also known as “Jeb” Bashaw, is considered one of the leading financial advisers in Texas. Barron's magazine ranks him as number one in the state with assets totaling $3.8 billion.

According to Investment News, while the CRD, which is the central licensing and registration system for the securities industries and regulators, provided these details regarding Bashaw’s termination, LPL has not elaborated, except to report on his BrokerCheck profile that the broker did not follow industry regulations and firm policies. Bashaw is now registered with Wunderlich Securities Inc.

In other LPL Financial news, the firm has reached a deal with Massachusetts regulators in which it will pay back elderly investors over $500,000 to resolve complaints related to switching variable annuities. The broker-dealer has admitted that certain annuity-switch transactions were performed without disclosing that there were fees for surrendering or cashing in the annuity.

Annuity switching occurs when a broker recommends that a client trade in an older annuity to purchase another one. Frequently, this can cost a customer while benefiting the financial representative.

The agreement with Massachusetts Secretary of State William Galvin’s office covers 157 transactions involving senior investors in the state. LPL reportedly now has new policies in place to make sure that customers get the mandated disclosures when there are transaction fees.

LPL Financial to reimburse annuity-switching fees to investors, Reuters, October 14, 2014

Selling away claims behind LPL's termination of James "Jeb" Bashaw
, Investment News, October 13, 2014

LPL Financial to pay back $541,000, Boston Globe, October 14, 2014


More Blog Posts:

Texas’ Wyly Brothers Ordered to pay More than $300M In Fraud Sanctions, Stockbroker Fraud Blog, September 28, 2014

FINRA Bars Former Raymond James Adviser for Elder Financial Fraud, Charges SWS Over Variable Annuity Supervision, Stockbroker Fraud Blog, October 6, 2014

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013

September 28, 2014

Texas’ Wyly Brothers Ordered to pay More than $300M In Fraud Sanctions

A federal judge has ordered Texas businessman Sam Wiley and the estate of his deceased brother Charles Wiley to pay $187.7 million in disgorgement plus prejudgment interest—bringing the total sanctions to over $300 million for their involvement in an offshore scam. The brothers were found liable on civil securities fraud charges accusing them of using offshore trusts to conceal stock sales, resulting in $553 million in profits.

The U.S. Securities and Exchange Commission had wanted the Wylys to pay $729 million in sanctions, including for all unpaid taxes on the profits made from the scheme plus interest. The government said that the Wylys used their improper gains to buy $100 million in real estate and spent tens of million dollars on luxury spending and charitable donations.

Meantime, lawyers for the Wyly brothers argued that the trusts were established for estate planning and tax purposes but that the two men did not control them. Over 700 transactions were sold in four companies, none of which the two men disclosed in regulatory findings. The Wyly brothers were insiders in the companies involved.

According to court documented submitted by the SEC, after he was warned that the brothers’ stance regarding the trusts’ tax actions was high risk and aggressive for tax purposes, Sam Wiley says that if the internal revenue ever challenged him he was willing to go to court for years. A jury found the brothers liable for keeping the trusts and subsidiaries going on the Isle of Man, in addition to an entity on the Cayman Islands.

In a recent statement, SEC Enforcement Division Director Andrew Ceresney said that the regulator was committed to sussing out wrongdoing and holding persons accountable for securities law violations regardless of how well concealed or complex the financial scam.

Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm.

'Staggering' Sanctions Slapped On Wyly Brothers In Offshore Case
, Forbes, September 25, 2014

U.S. SEC wins hundreds of millions in Wyly fraud case, Reuters, September 25, 2014


More Blog Posts:
Man to Pay $40.4M for Texas Securities Fraud Involving Bitcoin Ponzi Scam, Stockbroker Fraud Blog, September 20, 2014

Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

September 20, 2014

Man to Pay $40.4M for Texas Securities Fraud Involving Bitcoin Ponzi Scam

Trendon T. Shavers, who is accused of operating a Texas Ponzi scam involving a Bitcoin scheme he operated from his residence must pay more than $40.4 million. The SEC filed a securities fraud case against him and his company Bitcoin Savings & Trust last year and sought disgorgement.

According to the regulator, Shavers, a Texas resident, raised more than 700,000 bitcoins while promising investors interest as high as 7% weekly. The allegedly fraudulent activities lasted from November 2011 through August 2012 when the Ponzi scam collapsed.

In a promo that he posted on online, Shavers solicited lenders, offering 1% interest daily for loans involving at least 50 bitcoins. He also published posts touting nearly zero risk, claiming that the business was doing exceptionally well. When his Texas securities scam failed, Shavers showed preference to longtime investors and friends when giving out redemptions.

Shavers admitted to using a “reserve fund” as part of his Ponzi operation to honor investor withdrawals when he couldn’t make enough returns from the supposed investments. He also allegedly pocketed some of the bitcoins and spent part of investors’ money on his own expenses, including casino visits.

The judge overruled his argument that the court lacked subject matter jurisdiction because bitcoins are not actual cash but virtual currency. He said that because Bitcoin can be used as money and exchanged for conventional currencies, it is a type of money.

The judge found that investors lost more than 365,000 bitcoins, valued at around $149 million. He granted the Commission’s motion for summary judgment was granted.

Please contact our Texas securities law firm if you believe that you were the victim of a Ponzi scam or any other kind of financial fraud.

Texas Man Must Pony Up $40.7M for Bitcoin Scam, Courthouse News, September 19, 2014

Read the SEC Complaint (PDF)


More Blog Posts:
Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest, Stockbroker Fraud Law Firm, September 2, 2014

Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

September 2, 2014

Investment Advisory Firm Based in Houston, Texas Charged with Securities Fraud Involving Conflicts of Interest

The SEC is charging Robare Group Ltd., an investment advisory firm headquartered in Houston, Texas, with securities fraud. The regulator’s enforcement division says that the firm and co-owners Jack L. Jones Jr. and Mark L. Robare made mutual fund recommendations to clients even though they had a conflict.

According to the SEC, Robare and a broker-dealer purportedly had an undisclosed compensation agreement. The brokerage firm paid Robare Group compensation—a portion of each dollar that every client invested in certain mutual funds—for recommending the investments

The deal gave Robare, Jones, and the firm incentive for favoring these funds over other investments. The firm is accused of making about $440K in compensation over eight years from the agreement.

Although in 2011 Robare did modify its Form ADV to disclose the compensation agreement, the SEC claims that the form and later disclosures stated falsely that the investment advisory firm did not benefit financially for giving investment advice about the mutual funds. It wasn’t until last year that Robare disclosed there was a conflict of interest. However, the firm did not reveal that there was incentive to recommend certain mutual funds.

The SEC has been taking a closer look at compensation deals between brokers and asset managers. There is concern that payments to investment advisers for recommending certain investments is impairing their ability to give impartial advice that is in the best interests of clients. Also, investment advisers are required to disclose any conflicts of interest to customers.

Our Texas investment adviser fraud lawyers represent investors in recouping their losses. You shouldn’t have to sustain losses while an adviser, a broker, or anyone else profits at your expenses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Houston-Based Investment Advisory Firm and Co-Owners Charged With Failing to Disclose Conflict of Interest to Clients, SEC, September 2, 2014

Read the SEC Order (PDF)


More Blog Posts:
Texas-Based Halliburton Settles Oil Spill Lawsuit for $1.1B, Institutional Investor Securities Blog, September 2, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam, Stockbroker Fraud Blog, August 18, 2014

SEC Wants Texas’ Wyly Brothers to Pay $750M For Securities Fraud, Stockbroker Fraud Blog, August 7, 2014


More Blog Posts:

August 18, 2014

SEC Files Charges in $4.5M Houston-Based Pump-and-Dump Scam

The SEC has filed charges against Chimera Energy, a Houston-based penny stock scam, and four individuals for their purported involvement in a pump-and-dump scam that made over $4.5 million in illicit proceeds. Investors were led to believe that the company was creating technology that would allow for oil-and-gas production that was environmentally friendly.

The regulator claims that Andrew I. Farmer set up Chimera Energy and secretly got control of all the shares issued in an IPO. He then set up a promotional campaign to hype the stock, touting technology that would extract shale oil without fracking.

In the alleged Texas securities fraud, Chimera Energy claimed that an entity named China Inland gave it an exclusive license to develop and commercialize the non-hydraulic extraction technologies. The SEC says that China Inland is not a real company and that Chimera Energy had no such technology or even a license.

When the stock became inflated due to the false claims made by Chimera Energy, entities under Farmer’s control dumped over 6 million shares on the public markets to generate the illegal gains. In 2012, the SEC suspended Chimera Energy stock and blocked Farmer and others from dumping additional shares or misleading more investors.

Also facing SEC charges are Chimera figurehead CEOs Charles E. Grob Jr. and Baldermar Rios, who are accused of running Chimera Energy at the minimum level and approving press releases that were misleading. Carolyn Austin is charged with helping Farmer make money off his scam when she dumped Chimera Energy stock. The regulator wants permanent injunctions, financial penalties, disgorgement, prejudgment interest, penny stock bars, and officer-and-director bars.

SEC Announces Charges in Houston-Based Scheme Touting Technology to End Fracking, SEC.gov, August 15, 2014

Read the SEC Complaint (PDF)


More Blog Posts:

SEC Wants Texas’ Wyly Brothers to Pay $750M For Securities Fraud, Stockbroker Fraud Blog, August 7, 2014

Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case
, Stockbroker Fraud Blog, July 11, 2014

Christ Church Cathedral Sues JPMorgan Chase Over Proprietary Product Sales, Institutional Investor Securities Blog, August 13, 2014

August 7, 2014

SEC Wants Texas’ Wyly Brothers to Pay $750M For Securities Fraud

The U.S. Securities and Exchange Commission wants Sam Wyly and the estate of his brother Charles to pay $750M for securities fraud involving an offshore tax scam. The Texas billionaire siblings were found liable in civil court earlier this year. Now, the case has gone to trial to determine how much the Wylys must pay in damages.

According to the federal jury that issued the verdict, the Wylys are liable for the offshore trusts and other entities on the Cayman Islands and the Isle of Man that garnered them $553 million in profits between 1992 and 2004 via concealed trades. The fraud involved offshore transactions with four of their companies in which they sold shares. The sales should have been noted in regulatory filings but were not listed.

Now, the SEC is saying that it should be entitled to all unpaid taxes on the profits from the scam in addition to interest. Lawyers for the brothers, however, are contending that the proper penalty is $1.38 million and that the law does not support the regulator’s disgorgement theory. They are also arguing that the SEC cannot step into the Internal Revenue Service’s shoes. (During the fraud, the U.S. government was not aware that the Wylys owed taxes because they did not disclose their control of the trusts. )

SEC Attorney Bridget Fitzpatrick acknowledged that the agency’s tax-based disgorgement theory is unique but appropriate, She pointed out that the trusts were set up specifically for the purpose of tax benefits. The SEC had originally wanted the Wylys to pay $1.4 billion according to every profit dollar made through the trusts. U.S. District Judge Shira Scheindlin, who is presiding over the nonjury trial, barred that effort. Scheindlin also cleared the brothers of insider trading charges in another nonjury trial last month.

Our Texas securities fraud law firm represents institutional investors and individual investors. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Texas tycoons Wylys should pay $750 mln for fraud, SEC tells judge, Reuters, August 4, 2014

SEC Seeks up to $750 Million in Sanctions From Wyly Brothers, The Wall Street Journal, August 4, 2014


More Blog Posts:
Jury Says Wyly Brothers From Texas Committed Fraud, Stockbroker Fraud Blog, May 14, 2014

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

FBI Probes Possible High-Speed Trading, Insider Trading Link, Institutional Investor Securities Blog, April 1, 2014

June 11, 2014

Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case

A Texas jury has convicted to two ex-ArthroCare executives with operating a $400 million scam to bilk investors. Michael Baker, the former CEO, was found guilty of wire fraud, securities fraud, conspiracy to commit both, and making false statements. Michael Gluck, the ex-CFO, was found guilty of securities fraud, wire fraud, and conspiracy to commit both also. ArthroCare manufactures medical devices.

According to prosecutors, from 2005 until 2009 the two men and others inflated sales and revenue by tens of millions of dollars through transactions with several ArthroCare distributors. Some of the transactions occurred because the medical device maker had to satisfy sales forecasts and not to fulfill distributors’ product needs. As a result, ArthroCare sent million of dollars worth of devices to these distributors, reporting the deliveries as sales in yearly and quarterly filings. This let ArthroCare meet and sometimes even exceed predicted sales.

Meantime, the distributors consented to the extra inventory in return for cash commission, extended terms of payment, and a refund option. Gluk and Baker even compelled the company to acquire DiscoCare, a distributor, to hide the nature of these sales.

Investors lost the $400 million after ArthroCare’s share price plunged in 2008 when it announced that it would be restating the financial results from 2006’s third quarter through 2008’s first quarter. Also implicated are ex-ArthroCare senior VPs David Applegate and John Raffle, who have already pleaded guilty to a number of felonies.

Earlier this year, ArthroCare announced it would pay $30 million to resolve a U.S. Department of Justice probe into the alleged securities fraud. The DOJ charged the company with conspiracy to commit securities fraud as well as wire fraud. The settlement reached involves a two year deferred prosecution agreement between the company and the federal government.

Our Texas securities fraud law firm represents investors in getting their money back. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Ex-ArthroCare execs guilty in fraud case, Statesman.com, June 2, 2014

ArthroCare Pays Justice Department $30M for Securities Fraud, Compliance Week, January 14, 2014

Former Senior Executive of ArthroCare Corp. Pleads Guilty in $400 Million Securities Fraud Scheme, DOJ, July 23, 2013


More Blog Posts:
In Alleged $400M Texas Securities Fraud, Medical Device Maker Pays Over $30M Settlement, Stockbroker Fraud Blog, January 13, 2014

Jury Says Wyly Brothers From Texas Committed Fraud
, Stockbroker Fraud Blog, May 14, 2014

Bank of America Could Settle Mortgage Probes for $12B, Institutional Investor Securities Blog, June 7, 2014