The Securities and Exchange Commission today charged a Houston-based broker with engaging in unauthorized and unsuitable trading on behalf of two Florida municipalities, putting them at risk of losing millions of dollars while he reaped commissions of more than $14 million for himself.
The SEC's complaint alleges that Harold H. Jaschke, while associated with the brokerage firm First Allied Securities, Inc., churned the accounts of the City of Kissimmee, Fla., and the Tohopekaliga Water Authority and lied to both customers about his trading practices on their behalf. Churning is a fraudulent practice that occurs when a broker engages in excessive trading in order to generate commissions and other revenue without regard for the customer's investment objectives.
"Jaschke was unscrupulous with the municipalities' funds and ignored their interests for his own personal gain," said Rosalind Tyson, Director of the SEC's Los Angeles Regional Office. "He lied to his customers, took advantage of their trust, and risked their financial well-being."
The SEC's complaint, filed in federal court in Orlando, Fla., alleges that Jaschke engaged in a high-risk, short-term trading strategy involving zero-coupon U.S. Treasury bonds that were very sensitive to interest rate changes. For example, if interest rates were to increase by only 1 percent, the value of a 30-year bond could drop by 25 percent.
According to the SEC's complaint, Jaschke's risky trading strategy involved buying and selling the same bond within a matter of days, and sometimes within the same day. Jaschke exposed the municipalities to greater risks when he leveraged their accounts using repurchase agreements to finance the bond purchases that they otherwise would not have been able to afford. This strategy dramatically increased the risks as Jaschke caused the municipalities to borrow large sums of money to hold larger bond positions.
The SEC alleges that Jaschke knew the municipalities' ordinances prohibited his trading strategy and required that their funds be invested with the paramount consideration to be safety of capital. Jaschke also knew that the municipalities' ordinances prohibited the use of repurchase agreements for investment. According to the SEC's complaint, had the bond market not swung sharply in Jaschke's favor allowing the municipalities to close their accounts with a modest profit, they could have lost approximately $60 million over a two-year period as a result of his misconduct.
Tuesday, December 29, 2009
Monday, December 21, 2009
FINRA Fines Pacific Cornerstone Capital
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Pacific Cornerstone Capital, Inc. of Irvine, CA, and its former chief executive officer, Terry Roussel, a total of $750,000 for failing to include full and complete information in private placement offering documents and marketing material. FINRA also charged Pacific Cornerstone and Roussel with advertising violations and supervisory failures.
Pacific Cornerstone was fined $700,000 and agreed to make corrective disclosures to investors and to submit advertising and sales literature to FINRA for pre-use review for one year. Roussel was fined $50,000 and suspended in all capacities for 20 business days and in a principal capacity for an additional three months.
"Investors rely on offering documents to provide information necessary for them to make informed investment decisions," said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. "In this case, Pacific Cornerstone targeted returns and the timing of return of principal invested without a reasonable basis."
From January 2004 to May 2009, Pacific Cornerstone sold private placements in two affiliated companies using offering documents and accompanying sales literature that contained targets as to when investors would receive the return of their principal investment and the yield on their investment. The offering documents included statements that the affiliated entities targeted returns of principal in two to four years and targeted a yield on a $100,000 investment in excess of 18 percent. FINRA found no reasonable basis for those statements.
Further, Pacific Cornerstone and Roussel continued to use a similar targeted time period for return of capital and rate of return in successive offering documents, although those targets were not supported by prior performance. FINRA also found that the offering documents failed to disclose the complete financial condition of one or both of the companies.
Pacific Cornerstone also offered private placement units of the two affiliated entities, Cornerstone Industrial Properties, LLC and CIP Leveraged Fund Advisors, LLC, to other broker-dealers and investment advisors, which in turn sold the units to the investing public. A total of approximately $50 million worth of units were sold to approximately 950 accredited investors over a period of almost six years. Pacific Cornerstone continued to use the same targeted two-to-four year return of principal and 18 percent rate of return in successive offering documents, despite not having met those targets.
During the same period, Roussel periodically sent letters to the private placement investors to update them on the progress of their investment that painted a positive — but unrealistic — future, without providing required risk disclosures. Roussel's letters also failed to disclose the complete financial picture of the two companies.
Pacific Cornerstone was fined $700,000 and agreed to make corrective disclosures to investors and to submit advertising and sales literature to FINRA for pre-use review for one year. Roussel was fined $50,000 and suspended in all capacities for 20 business days and in a principal capacity for an additional three months.
"Investors rely on offering documents to provide information necessary for them to make informed investment decisions," said Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement. "In this case, Pacific Cornerstone targeted returns and the timing of return of principal invested without a reasonable basis."
From January 2004 to May 2009, Pacific Cornerstone sold private placements in two affiliated companies using offering documents and accompanying sales literature that contained targets as to when investors would receive the return of their principal investment and the yield on their investment. The offering documents included statements that the affiliated entities targeted returns of principal in two to four years and targeted a yield on a $100,000 investment in excess of 18 percent. FINRA found no reasonable basis for those statements.
Further, Pacific Cornerstone and Roussel continued to use a similar targeted time period for return of capital and rate of return in successive offering documents, although those targets were not supported by prior performance. FINRA also found that the offering documents failed to disclose the complete financial condition of one or both of the companies.
Pacific Cornerstone also offered private placement units of the two affiliated entities, Cornerstone Industrial Properties, LLC and CIP Leveraged Fund Advisors, LLC, to other broker-dealers and investment advisors, which in turn sold the units to the investing public. A total of approximately $50 million worth of units were sold to approximately 950 accredited investors over a period of almost six years. Pacific Cornerstone continued to use the same targeted two-to-four year return of principal and 18 percent rate of return in successive offering documents, despite not having met those targets.
During the same period, Roussel periodically sent letters to the private placement investors to update them on the progress of their investment that painted a positive — but unrealistic — future, without providing required risk disclosures. Roussel's letters also failed to disclose the complete financial picture of the two companies.
Friday, December 18, 2009
Settlement and Judgment Reached in SEC Investigation into Striker Petroleum, LLC.
Last week a judgment was entered against Striker Petroleum, LLC in US District Court. Striker is a limited liability company based out of Frisco, Texas involved in acquiring oil and gas properties with the intent to increase production. The company, however, was charged in an Securities and Exchange Commission (SEC) investigation with perpetrating multiple wrongdoings.
The judgment against Striker and its two main officers, Mark Roberts and Christopher Pippin, calls for Striker to be disgorged of its ill-gotten gains. Further, the judgment seeks to impose prejudgment interest as well as civil penalties. The actual amount Striker will be charged, and consequently, how much investors will get back, however, remains unclear. An asset freeze has been imposed and a court appointed receiver is currently reviewing the resources held by Striker with the hope that investors will eventually recoup at least some of their initial investment.
The settlement does not require Striker to admit or deny any wrongdoing. For more information on this situation, please see our current investigation.
The judgment against Striker and its two main officers, Mark Roberts and Christopher Pippin, calls for Striker to be disgorged of its ill-gotten gains. Further, the judgment seeks to impose prejudgment interest as well as civil penalties. The actual amount Striker will be charged, and consequently, how much investors will get back, however, remains unclear. An asset freeze has been imposed and a court appointed receiver is currently reviewing the resources held by Striker with the hope that investors will eventually recoup at least some of their initial investment.
The settlement does not require Striker to admit or deny any wrongdoing. For more information on this situation, please see our current investigation.
Wednesday, December 16, 2009
SEC Charges Four in Insider Trading Case in Northern California
The SEC has charged former TPG Capital L.P. associate Vinayak Gowrish and former Lazard Freres & Co. LLC vice president and investment banker Adnan Zaman with orchestrating an insider trading scheme. The scheme involved the two aforementioned individuals stealing confidential merger and acquisition information from their former employers and passing it along to two friends who then executed favorable trades.
The friends, Sameer N. Khoury and Pascal S. Vaghar, traded stocks and options based on this nonpublic information and in the process generated almost $500,000. Gowrish and Zaman benefitted from this relationship in the form of kickbacks including free rent and cash.
The activities were shielded from the SEC and other regulatory bodies through a system concocted by the four to evade regulatory measures. The four developed a system of coded text messages and also passed along sensitive information through the use of sticky notes. Despite their measures to the contrary, all four now face charges of violating Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3.
Three of the four, Zaman, Vaghar, and Khoury, have offered to settle with full injunctive relief and disgorgement. Also, Zaman will be permanently barred from associating with any broker or dealer. Gowrish, however, has yet to settle, and the SEC is seeking the imposition of fines and penalties against him.
The friends, Sameer N. Khoury and Pascal S. Vaghar, traded stocks and options based on this nonpublic information and in the process generated almost $500,000. Gowrish and Zaman benefitted from this relationship in the form of kickbacks including free rent and cash.
The activities were shielded from the SEC and other regulatory bodies through a system concocted by the four to evade regulatory measures. The four developed a system of coded text messages and also passed along sensitive information through the use of sticky notes. Despite their measures to the contrary, all four now face charges of violating Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3.
Three of the four, Zaman, Vaghar, and Khoury, have offered to settle with full injunctive relief and disgorgement. Also, Zaman will be permanently barred from associating with any broker or dealer. Gowrish, however, has yet to settle, and the SEC is seeking the imposition of fines and penalties against him.
Tuesday, December 15, 2009
Proposed Financial Reform Endangered by "Hat Switching" Provision
The investment adviser world is frenzied over a provision included in the financial services reform legislation recently approved by the House of Representatives. The so-called, “hat switching,” provision is one sentence long and buried within the expansive legislation. The provision, part of H.R. 4173, reads as follows:
“Nothing in this section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing personalized investment advice about securities.”
This can be read as meaning that the fiduciary standard owed to a client disappears once investment advice is given.
The move towards creating a single fiduciary standard would be greatly hindered if such a provision makes it into the final language of the bill. The provision would protect discount brokerage firms from a continued fiduciary relationship with a client after initial advice and/or sale of a product.
It can be expected that this is not the last time we will hear of this provision.
“Nothing in this section shall require a broker or dealer or registered representative to have a continuing duty of care or loyalty to the customer after providing personalized investment advice about securities.”
This can be read as meaning that the fiduciary standard owed to a client disappears once investment advice is given.
The move towards creating a single fiduciary standard would be greatly hindered if such a provision makes it into the final language of the bill. The provision would protect discount brokerage firms from a continued fiduciary relationship with a client after initial advice and/or sale of a product.
It can be expected that this is not the last time we will hear of this provision.
Monday, December 14, 2009
FINRA - Private Placement Enforcement Cases to Come
James Shorris, executive director of enforcement at the Financial Industry Regulatory Authority (FINRA) has been quoted by Investment News as saying that enforcement cases on multiple private placement deals can be expected to begin by next year.
Private placement memorandum (PPM) deals, also known as Reg D offerings, have come under increased scrutiny after enjoying a period of great popularity. Issues that have been brought to the attention of FINRA include:
- Potential misrepresentations made by brokers regarding the sale of PPMs
- Due Diligence issues, including conflicts of interest over the authorship of due diligence reports
- Whether or not the PPM was suitable for many of the clients holding them
These and other issues are currently being examined by FINRA in connection with multiple PPM offerings.
Private placement memorandum (PPM) deals, also known as Reg D offerings, have come under increased scrutiny after enjoying a period of great popularity. Issues that have been brought to the attention of FINRA include:
- Potential misrepresentations made by brokers regarding the sale of PPMs
- Due Diligence issues, including conflicts of interest over the authorship of due diligence reports
- Whether or not the PPM was suitable for many of the clients holding them
These and other issues are currently being examined by FINRA in connection with multiple PPM offerings.
Friday, December 11, 2009
House Kills Amendement Aimed at Expanding FINRA's Power
The House passed an amendment killing a proposal that would have given the Securities and Exchange Commission (SEC) the power to allow the Financial Industry Regulatory Authority (FINRA) to carry out oversight on investment advisers working at broker-dealer firms.
The amendment, submitted by Republican Representative Spencer Bachus, R-Alabama, was part of the Investor Protection Act of 2009. The bill, which also includes a single fiduciary standard for registered investment advisers and independent broker-dealers, is one part of a move by Congress to reform the financial industry.
Bauchus agreed with the decision to scrap the amendment, but indicated that he would investigate alternatives to regulate advisers.
The amendment, submitted by Republican Representative Spencer Bachus, R-Alabama, was part of the Investor Protection Act of 2009. The bill, which also includes a single fiduciary standard for registered investment advisers and independent broker-dealers, is one part of a move by Congress to reform the financial industry.
Bauchus agreed with the decision to scrap the amendment, but indicated that he would investigate alternatives to regulate advisers.
Thursday, December 10, 2009
Notice to Striker Petroleum Investors - Aidikoff, Uhl & Bakhtiari Files FINRA Arbitration Claims on Behalf of Defrauded Investors
Aidikoff, Uhl & Bakhtiari (www.securitiesarbitration.com) announces the filing of FINRA arbitration claims against brokerage firms that sold Striker Petroleum and other private placements to investors.
Striker Petroleum raised approximately $57 million from September 2006 through September 2008 from the sale of debentures collateralized through oil and gas properties to approximately hundreds of investors nationwide.
“Investors should be aware that a federal court issued permanent injunctions at the request of the SEC against Striker Petroleum and its principals due to allegations of fraudulent debenture offerings,” said attorney David Harrison. “The SEC alleged that Striker Petroleum made material misrepresentations to its investors regarding the firm’s earnings and assets, in addition to the use of investor proceeds.”
Striker Petroleum and its principals consented to a permanent injunction, the appointment of a receiver and asset freeze.
The receiver was appointed by the court to collect, marshal, manage and distribute Striker Petroleum’s assets for the benefit of investors. “Often times, a receiver is appointed when it’s too late for an investor to recapture from the issuer a significant amount of their investment,” said attorney Ryan K. Bakhtiari.
“Unfortunately investors including retirees who sought fixed income and preservation of capital purchased Striker Petroleum,” said Mr. Bakhtiari.
The individual brokers and individual advisors who sold Striker are not targets of investor claims.
Striker Petroleum raised approximately $57 million from September 2006 through September 2008 from the sale of debentures collateralized through oil and gas properties to approximately hundreds of investors nationwide.
“Investors should be aware that a federal court issued permanent injunctions at the request of the SEC against Striker Petroleum and its principals due to allegations of fraudulent debenture offerings,” said attorney David Harrison. “The SEC alleged that Striker Petroleum made material misrepresentations to its investors regarding the firm’s earnings and assets, in addition to the use of investor proceeds.”
Striker Petroleum and its principals consented to a permanent injunction, the appointment of a receiver and asset freeze.
The receiver was appointed by the court to collect, marshal, manage and distribute Striker Petroleum’s assets for the benefit of investors. “Often times, a receiver is appointed when it’s too late for an investor to recapture from the issuer a significant amount of their investment,” said attorney Ryan K. Bakhtiari.
“Unfortunately investors including retirees who sought fixed income and preservation of capital purchased Striker Petroleum,” said Mr. Bakhtiari.
The individual brokers and individual advisors who sold Striker are not targets of investor claims.
Guilty Plea in Westgate Capital Ponzi Likely
James Nicholson, a Saddle River hedge fund manager accused of bilking investors of as much as $160 million, has tentatively agreed to plead guilty to charges his Westgate Capital Management LLC was a Ponzi scheme.
A plea hearing is set for noon Friday in federal court in Manhattan, according to a court order signed by U.S. District Judge Richard Sullivan.
Erika Edwards, one of Nicholson's attorneys, said Monday she and federal prosecutors have verbally reached an agreement, but she declined to provide details as they continue to work out a formal settlement that would be signed by Nicholson.
Nicholson, 43, ran Westgate, based in Rockland County, for a decade, until he was arrested in late February. His alleged scheme collapsed in December 2008, when $5 million in investor redemption checks bounced, and other investors were unable to claim millions of dollars, prosecutors in New York said. Nicholson is charged with securities, investment adviser and mail fraud as well as structuring [for allegedly trying to avoid reporting currency transactions], and faces a maximum of 65 years in prison.
A conclusion of the criminal case against Nicholson would set the stage for prosecutors to begin helping Westgate's more than 370 investors — some of whom have apparently lost much of their savings, retirement and children's college funds — recoup some
A plea hearing is set for noon Friday in federal court in Manhattan, according to a court order signed by U.S. District Judge Richard Sullivan.
Erika Edwards, one of Nicholson's attorneys, said Monday she and federal prosecutors have verbally reached an agreement, but she declined to provide details as they continue to work out a formal settlement that would be signed by Nicholson.
Nicholson, 43, ran Westgate, based in Rockland County, for a decade, until he was arrested in late February. His alleged scheme collapsed in December 2008, when $5 million in investor redemption checks bounced, and other investors were unable to claim millions of dollars, prosecutors in New York said. Nicholson is charged with securities, investment adviser and mail fraud as well as structuring [for allegedly trying to avoid reporting currency transactions], and faces a maximum of 65 years in prison.
A conclusion of the criminal case against Nicholson would set the stage for prosecutors to begin helping Westgate's more than 370 investors — some of whom have apparently lost much of their savings, retirement and children's college funds — recoup some
SEC Alleges that Sunwest Mangement Commited Fraud
U.S. regulators charged Sunwest Management and its former chief executive with securities fraud on Monday, alleging that the retirement home operator lied to investors and eventually operated the business as a kind of Ponzi scheme.
The Securities and Exchange Commission accused Oregon-based Sunwest, which operates more than 200 retirement homes in the United States, and former chief executive Jon Harder of concealing the risks of investments and exposing investors to “massive losses,” Reuters said.
Between 2006 and 2008, Sunwest raised at least $300 million from investors and used the funds for down payments on approximately 100 retirement homes with the balance financed by institutional lenders and banks, according to the S.E.C.’s lawsuit.
Investors were told they were buying an ownership interest in a specific retirement home that would generate enough profit to pay a 10 percent annual return, and that Sunwest had a history of never missing a payment, the suit said.
The Securities and Exchange Commission accused Oregon-based Sunwest, which operates more than 200 retirement homes in the United States, and former chief executive Jon Harder of concealing the risks of investments and exposing investors to “massive losses,” Reuters said.
Between 2006 and 2008, Sunwest raised at least $300 million from investors and used the funds for down payments on approximately 100 retirement homes with the balance financed by institutional lenders and banks, according to the S.E.C.’s lawsuit.
Investors were told they were buying an ownership interest in a specific retirement home that would generate enough profit to pay a 10 percent annual return, and that Sunwest had a history of never missing a payment, the suit said.
Wednesday, December 9, 2009
FINRA Arbitrations Filed Seeking Damages of More Than $10 Million -- Medical Capital
Aidikoff, Uhl & Bakhtiari (www.securitiesarbitration.com) announces the filing of additional FINRA arbitration claims against brokerage firms that sold Medical Capital and other securities to investors.
To date the firm has filed claims on behalf of more than 25 families seeking more than $10 million in damages against several brokerage firms. The individual brokers and individual advisors who sold Medical Capital are not targets of investor claims.
“Investors should be aware of a pending class action, said attorney David S. Harrison. “The class case may have certain pitfalls that investors should be aware of in selecting an attorney. Most individual investors will fare better by pursuing an individual FINRA arbitration.”
Medical Capital Corporation and Medical Provider Funding Corporation VI raised more than $2.2 billion through the offering of notes in Medical Provider Funding Corp VI and earlier special purpose entity offerings.
“Often the most important choice an investor makes following a disaster like Medical Capital is the remedy they will pursue to vindicate their rights,” said attorney Ryan K. Bakhtiari. “Investors should carefully consider their options.”
Important Facts to Consider Prior to Joining a Medical Capital Class Action
- Many investors may have viable claims based on the investments’ unsuitability. Because a suitability claim is dependent on an individual’s circumstances, this claim cannot be prosecuted on a class wide basis.
- Investors with significant losses are likely to recover only pennies on the dollar through a class action.
- Class actions sometimes create hurdles to recovery for individual investors including depositions and motion practice which are generally not permitted in securities arbitrations decided before FINRA. The FINRA arbitration process can usually be completed in a much shorter period of time, often 15 months. Recovery through a class action may take several years.
To date the firm has filed claims on behalf of more than 25 families seeking more than $10 million in damages against several brokerage firms. The individual brokers and individual advisors who sold Medical Capital are not targets of investor claims.
“Investors should be aware of a pending class action, said attorney David S. Harrison. “The class case may have certain pitfalls that investors should be aware of in selecting an attorney. Most individual investors will fare better by pursuing an individual FINRA arbitration.”
Medical Capital Corporation and Medical Provider Funding Corporation VI raised more than $2.2 billion through the offering of notes in Medical Provider Funding Corp VI and earlier special purpose entity offerings.
“Often the most important choice an investor makes following a disaster like Medical Capital is the remedy they will pursue to vindicate their rights,” said attorney Ryan K. Bakhtiari. “Investors should carefully consider their options.”
Important Facts to Consider Prior to Joining a Medical Capital Class Action
- Many investors may have viable claims based on the investments’ unsuitability. Because a suitability claim is dependent on an individual’s circumstances, this claim cannot be prosecuted on a class wide basis.
- Investors with significant losses are likely to recover only pennies on the dollar through a class action.
- Class actions sometimes create hurdles to recovery for individual investors including depositions and motion practice which are generally not permitted in securities arbitrations decided before FINRA. The FINRA arbitration process can usually be completed in a much shorter period of time, often 15 months. Recovery through a class action may take several years.
Tuesday, December 8, 2009
Brookstreet and CEO Charged with Fraud
The Securities and Exchange Commission (SEC) has charged California-based Brookstreet Securities Corporation and its President/CEO, Stanley Brooks, with fraud. The charges stem from Brookstreet’s habitual selling of risky mortgage-backed securities to clients with conservative investment objectives.
This risky and unsuccessful strategy was part of an internal Brookstreet program aimed at selling collateralized mortgage obligations (CMO) to clients, many of whom were categorically ill-suited to hold such investments. Through the internal CMO program, approximately $300 million of client funds were invested, a great deal of which were ultimately lost.
As markets deteriorated, CMOs being hit particularly hard, Brookstreet customers found themselves taking massive losses. Many clients lost their savings, homes, and retirements because of the program, and eventually, Brooks lost his company. Brooks, for his part, was warned multiple times about the errant logic in his program.
Brooks was personally warned on multiple occasions regarding the risk inherent in the CMO program with whistleblowers including his own Compliance Department, registered representatives, and institutional bond traders…among others.
Brookstreet and its CEO have been charged under the antifraud provisions of the Exchange Act.
This risky and unsuccessful strategy was part of an internal Brookstreet program aimed at selling collateralized mortgage obligations (CMO) to clients, many of whom were categorically ill-suited to hold such investments. Through the internal CMO program, approximately $300 million of client funds were invested, a great deal of which were ultimately lost.
As markets deteriorated, CMOs being hit particularly hard, Brookstreet customers found themselves taking massive losses. Many clients lost their savings, homes, and retirements because of the program, and eventually, Brooks lost his company. Brooks, for his part, was warned multiple times about the errant logic in his program.
Brooks was personally warned on multiple occasions regarding the risk inherent in the CMO program with whistleblowers including his own Compliance Department, registered representatives, and institutional bond traders…among others.
Brookstreet and its CEO have been charged under the antifraud provisions of the Exchange Act.
Monday, December 7, 2009
SEC OBTAINS ASSET FREEZE OF JOSEPH S. BLIMLINE FOR HIS INVOLVEMENT IN THE PROVIDENT ROYALTIES $485 MILLION NATIONWIDE OFFERING FRAUD
On December 3, 2009, the Securities and Exchange Commission obtained a temporary restraining order and emergency asset freeze against Joseph S. Blimline relating to his involvement in a $485 million offering fraud and Ponzi scheme. The scheme was orchestrated by Joseph S. Blimline, Paul R. Melbye, Brendan W. Coughlin and Henry D. Harrison through a company they owned and controlled, Provident Royalties LLC. The Commission had previously filed a complaint against Melbye, Coughlin and Harrison and on July 7, 2009, obtained a temporary restraining order, asset freeze and appointment of a receiver with respect to those defendants. In addition to the asset freeze against Blimline, the court has extended the authority of the receiver over the newly-frozen assets.
The Commission alleges in its amended complaint that Provident advanced approximately $93 million of investor funds to Blimline and entities he controlled. The funds were for the purported purchase of oil and gas interests, or loans, to which Provident often never received title or repayment. The amended complaint also alleges that in presentations to investors and representatives of broker-dealers marketing Provident securities, Blimline failed to disclose his receipt of such funds, his involvement in the management of Provident and a prior sanction imposed against him by the Michigan securities authorities for prior conduct.
The Commission's amended complaint charges the defendants with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The amended complaint seeks a temporary restraining order and preliminary and permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and financial penalties. Officer and director bars are sought against Blimline, Melbye, Harrison and Coughlin. An additional 36 affiliated entities that did not sell securities are named as relief defendants in the amended complaint for purposes of disgorgement.
The Commission alleges in its amended complaint that Provident advanced approximately $93 million of investor funds to Blimline and entities he controlled. The funds were for the purported purchase of oil and gas interests, or loans, to which Provident often never received title or repayment. The amended complaint also alleges that in presentations to investors and representatives of broker-dealers marketing Provident securities, Blimline failed to disclose his receipt of such funds, his involvement in the management of Provident and a prior sanction imposed against him by the Michigan securities authorities for prior conduct.
The Commission's amended complaint charges the defendants with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The amended complaint seeks a temporary restraining order and preliminary and permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and financial penalties. Officer and director bars are sought against Blimline, Melbye, Harrison and Coughlin. An additional 36 affiliated entities that did not sell securities are named as relief defendants in the amended complaint for purposes of disgorgement.
Friday, December 4, 2009
UBS Held Liable In Lehman PPN FINRA Arbitration
According to the WSJ today:
In what will likely be a closely studied ruling, a retail investor was awarded $200,000 after a Financial Industry Regulation Authority arbitration panel decided the investor's UBS AG (UBS) broker inappropriately sold her risky Lehman Brothers principal protected notes.
The case is one of the first involving the Lehman notes to be heard by a Finra arbitration panel. While the arbitration ruling won't set a precedent, it could be an indicator of how future rulings on similar cases will play out.
There are "many pending similar cases," said Jacob Zamansky, of Zamansky & Associates, who represented the investor in the arbitration case. Zamansky stated he is representing a dozen clients in a similar situations around the country.
As in most arbitration awards, the three-person arbitration panel didn't give reasons for its findings. Other panels that hear similar cases don't have to follow precedent so they could rule in different ways on nearly identical cases. Still, the case will likely be cited by other plaintiff lawyers.
The case, submitted for arbitration a year ago, was brought against UBS Financial Services, a unit of UBS, which is also being investigated by numerous regulators for alleged issues around its selling of these notes. Zamansky's client was seeking $300,000 in compensatory damages because the broker recommended structured products. Zamansky argued that the notes were "speculative derivative securities" and were "unsuitable" for unsophisticated investors, according to the Finra claim statement.
The broker purchased two notes for his client: a $225,000 guaranteed principal protection note and a $75,000 return optimization note. The panel ruled that the client should be compensated $150,000 plus interest and attorney fees on the principal protected note; there was no compensation for the $75,000 note.
UBS said in a statement it "is disappointed the arbitration panel in this case awarded the claimant any damages, even if it was the only half the compensatory losses she was seeking. UBS maintains that any client losses were the direct result of the unexpected and unprecedented failure of Lehman Brothers, which affected all Lehman bondholders."
Steven Caruso, attorney with Maddox, Hargett & Caruso, said that there are hundreds or thousands more arbitration cases that are expected to be filed in connection with Lehman principal protected notes. Caruso said his firm alone will represent roughly 100.
In what will likely be a closely studied ruling, a retail investor was awarded $200,000 after a Financial Industry Regulation Authority arbitration panel decided the investor's UBS AG (UBS) broker inappropriately sold her risky Lehman Brothers principal protected notes.
The case is one of the first involving the Lehman notes to be heard by a Finra arbitration panel. While the arbitration ruling won't set a precedent, it could be an indicator of how future rulings on similar cases will play out.
There are "many pending similar cases," said Jacob Zamansky, of Zamansky & Associates, who represented the investor in the arbitration case. Zamansky stated he is representing a dozen clients in a similar situations around the country.
As in most arbitration awards, the three-person arbitration panel didn't give reasons for its findings. Other panels that hear similar cases don't have to follow precedent so they could rule in different ways on nearly identical cases. Still, the case will likely be cited by other plaintiff lawyers.
The case, submitted for arbitration a year ago, was brought against UBS Financial Services, a unit of UBS, which is also being investigated by numerous regulators for alleged issues around its selling of these notes. Zamansky's client was seeking $300,000 in compensatory damages because the broker recommended structured products. Zamansky argued that the notes were "speculative derivative securities" and were "unsuitable" for unsophisticated investors, according to the Finra claim statement.
The broker purchased two notes for his client: a $225,000 guaranteed principal protection note and a $75,000 return optimization note. The panel ruled that the client should be compensated $150,000 plus interest and attorney fees on the principal protected note; there was no compensation for the $75,000 note.
UBS said in a statement it "is disappointed the arbitration panel in this case awarded the claimant any damages, even if it was the only half the compensatory losses she was seeking. UBS maintains that any client losses were the direct result of the unexpected and unprecedented failure of Lehman Brothers, which affected all Lehman bondholders."
Steven Caruso, attorney with Maddox, Hargett & Caruso, said that there are hundreds or thousands more arbitration cases that are expected to be filed in connection with Lehman principal protected notes. Caruso said his firm alone will represent roughly 100.
Wednesday, December 2, 2009
Inland Western Retail Real Estate
A week after the first sale of commercial-mortgage-backed securities in more than a year, another deal is about to hit the market in the latest sign that capital markets are easing for corporate borrowers like real-estate investment trusts.
Inland Western Retail Real Estate Trust Inc., which owns some 300 retail properties nationwide, closed on Tuesday on $625 million in new financing from J. P. Morgan Chase & Co. to pay down its existing debt. The bank is expected to convert the $500 million first-mortgage part of the financing into a CMBS offering and sell through private placements the remaining $125 million in "mezzanine," or junior, debt to investors hunting for higher returns, according to people familiar with the matter. A spokesman at J.P. Morgan declined to comment.
Inland is a "nontraded" REIT whose shares are registered with the Securities and Exchange Commission but don't trade on a stock exchange.
The move comes as investors at mutual funds, pension funds, insurance companies and other institutions have regained their appetite for CMBS debt that features conservative underwriting, simple structures and greater safeguards for investors than CMBS sold during the boom years.
This growing demand reflects a trend in the broader equity and debt markets, which have started to open up for REITs and other corporations. So far this year, REITs have raised more than $20 billion by selling shares and bonds.
To be sure, the turn of the capital markets is still tentative. But it has led scores of small and private real-estate owners - the type that is still finding it hard to access capital - to think about going public to raise capital.
Inland Western Retail Real Estate Trust Inc., which owns some 300 retail properties nationwide, closed on Tuesday on $625 million in new financing from J. P. Morgan Chase & Co. to pay down its existing debt. The bank is expected to convert the $500 million first-mortgage part of the financing into a CMBS offering and sell through private placements the remaining $125 million in "mezzanine," or junior, debt to investors hunting for higher returns, according to people familiar with the matter. A spokesman at J.P. Morgan declined to comment.
Inland is a "nontraded" REIT whose shares are registered with the Securities and Exchange Commission but don't trade on a stock exchange.
The move comes as investors at mutual funds, pension funds, insurance companies and other institutions have regained their appetite for CMBS debt that features conservative underwriting, simple structures and greater safeguards for investors than CMBS sold during the boom years.
This growing demand reflects a trend in the broader equity and debt markets, which have started to open up for REITs and other corporations. So far this year, REITs have raised more than $20 billion by selling shares and bonds.
To be sure, the turn of the capital markets is still tentative. But it has led scores of small and private real-estate owners - the type that is still finding it hard to access capital - to think about going public to raise capital.
FINRA Fines Terra Nova Financial $400,000; Firm Made Over $1 Million in Improper Soft Dollar Payments
The Financial Industry Regulatory Authority (FINRA) today announced that it has fined Terra Nova Financial, LLC, of Chicago, $400,000 for making more than $1 million in improper soft dollar payments to or on behalf of five hedge fund managers, without following its own policies to ensure the payments were proper.
Terra Nova was also charged with failing to properly supervise its soft dollar program, failing to implement adequate supervisory procedures and failing to retain its business-related electronic instant messages. Terra Nova also failed to timely respond to FINRA's requests for productions of various documents, including emails and instant messages, thus delaying FINRA's investigation.
FINRA also sanctioned three individuals. Cleovan Jordan, the soft dollar administrator who managed Terra Nova's relationship with its hedge fund clients, was suspended from associating in any capacity with a securities firm for 30 days and fined $20,000. Joshua Teuber, who supervised the soft dollar operation, was charged with failure to properly supervise, suspended from acting in a supervisory or principal capacity for 20 days and fined $15,000. David Persenaire, the firm's Chief Compliance Officer until September 2009, was charged with failing to ensure the implementation of adequate written systems and procedures, suspended from acting in a supervisory or principal capacity for 10 days, fined $10,000 and required to take and pass a Compliance Official Qualification Exam.
As part of the settlement, Terra Nova is required to retain an independent consultant to review and enhance its policies, systems and procedures relating to its soft dollar operations.
Terra Nova was also charged with failing to properly supervise its soft dollar program, failing to implement adequate supervisory procedures and failing to retain its business-related electronic instant messages. Terra Nova also failed to timely respond to FINRA's requests for productions of various documents, including emails and instant messages, thus delaying FINRA's investigation.
FINRA also sanctioned three individuals. Cleovan Jordan, the soft dollar administrator who managed Terra Nova's relationship with its hedge fund clients, was suspended from associating in any capacity with a securities firm for 30 days and fined $20,000. Joshua Teuber, who supervised the soft dollar operation, was charged with failure to properly supervise, suspended from acting in a supervisory or principal capacity for 20 days and fined $15,000. David Persenaire, the firm's Chief Compliance Officer until September 2009, was charged with failing to ensure the implementation of adequate written systems and procedures, suspended from acting in a supervisory or principal capacity for 10 days, fined $10,000 and required to take and pass a Compliance Official Qualification Exam.
As part of the settlement, Terra Nova is required to retain an independent consultant to review and enhance its policies, systems and procedures relating to its soft dollar operations.
Tuesday, December 1, 2009
Lawyer Scott Rothstein Pleads Not Guilty To Ponzi Scheme Allegations
A once high-flying attorney who courted politicians and celebrities was arrested Tuesday on federal racketeering and fraud charges alleging he operated a $1 billion investment scheme involving phony legal settlements.
Lawyer Scott Rothstein was led into the Miami FBI office in handcuffs following his early morning arrest on five charges, including a violation of the Racketeer Influenced and Corrupt Organizations, or RICO law, often used against the Mafia and other criminal organizations.
Rothstein was also charged with wire fraud, money laundering, and mail and wire fraud conspiracy. The combined maximum prison term for convictions on all counts is 100 years, according to court documents.
A few hours after his arrest, Rothstein pleaded not guilty in federal court even though the information charging document — rather than an indictment — used by prosecutors typically means a defendant has agreed to eventually plead guilty.
Lawyer Scott Rothstein was led into the Miami FBI office in handcuffs following his early morning arrest on five charges, including a violation of the Racketeer Influenced and Corrupt Organizations, or RICO law, often used against the Mafia and other criminal organizations.
Rothstein was also charged with wire fraud, money laundering, and mail and wire fraud conspiracy. The combined maximum prison term for convictions on all counts is 100 years, according to court documents.
A few hours after his arrest, Rothstein pleaded not guilty in federal court even though the information charging document — rather than an indictment — used by prosecutors typically means a defendant has agreed to eventually plead guilty.
The Tim Durham Ponzi Scheme
The case against Indianapolis financier Tim Durham continues to unfold.
On Monday, the U.S. attorney filed a motion dismissing the effort to seize Durham's assets.
U.S. Attorney Tim Morrison said there was probable cause to believe the assets (which include his 30,000 square foot Geist home, along with other properties and bank accounts) were gained through unlawful acts.
Morrison said the government originally moved to seize Durham’s assets in order to ensure Durham didn’t sell off the properties or any of his other assets.
Morrison said once they realized there was no need to seize the assets at this point, they filed the notice of dismissal.
He wouldn't comment further on why they came to this realization.
He did make it clear the government could move forward on seizing assets if the case becomes a criminal matter.
Last week, federal authorities filed civil charges against Indianapolis businessman Tim Durham, alleging he was involved in wire fraud.
The civil suit filed accuses Durham of running a Ponzi scheme where he allegedly used money from new investors to pay off old investors.
On Monday, the U.S. attorney filed a motion dismissing the effort to seize Durham's assets.
U.S. Attorney Tim Morrison said there was probable cause to believe the assets (which include his 30,000 square foot Geist home, along with other properties and bank accounts) were gained through unlawful acts.
Morrison said the government originally moved to seize Durham’s assets in order to ensure Durham didn’t sell off the properties or any of his other assets.
Morrison said once they realized there was no need to seize the assets at this point, they filed the notice of dismissal.
He wouldn't comment further on why they came to this realization.
He did make it clear the government could move forward on seizing assets if the case becomes a criminal matter.
Last week, federal authorities filed civil charges against Indianapolis businessman Tim Durham, alleging he was involved in wire fraud.
The civil suit filed accuses Durham of running a Ponzi scheme where he allegedly used money from new investors to pay off old investors.
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