The Securities and Exchange Commission today charged Jonathan Star Bristol, attorney for former financial advisor Kenneth Ira Starr, with aiding and abetting Starr's multi-million dollar fraud by allowing Starr to use Bristol's attorney trust accounts to mask the misappropriation scheme. Beginning in November 2008 through Starr's arrest in May 2010, more than $25 million of Starr's clients' funds flowed through Bristol's attorney trust accounts. Throughout that time, Bristol was a partner with a prominent international law firm.
The SEC's amended complaint, filed in federal court in Manhattan, alleges that Bristol repeatedly allowed Starr to use Bristol's attorney trust accounts as conduits when Starr stole money from his advisory clients. Starr would transfer, without authorization, clients' funds into the attorney trust accounts, and then Bristol, who was the sole owner of the trust accounts, would transfer the stolen funds to, among others, Starr and two Starr-controlled entities — Starr Investment Advisors LLC and Starr & Company LLC. The account documentation for the attorney trust accounts was sent directly to Bristol's home address. Bristol received monthly statements for the attorney trust accounts, which clearly listed the names of Starr's clients as the source of the incoming transfers. Bristol never disclosed the existence of the accounts to his law firm. Bristol did, however, tout his relationship with Starr to his colleagues and others, even claiming that Starr managed $70 billion in assets, when in fact Starr managed a fraction of that amount.
Wednesday, December 22, 2010
Wednesday, November 24, 2010
Messing With J.R., Take Four
Not so fast, J.R.
Larry Hagman, who played the rapacious oil tycoon J.R. Ewing in the 1980s hit TV series “Dallas,” recently won $11.6 million in a securities arbitration case against Citigroup. As DealBook reported last month, it was the largest arbitration award an individual investor received this year and the ninth largest award ever, according to the Financial Industry Regulatory Authority, or Finra, which oversaw the arbitration.
But Citi Global Markets is now crying foul.
The California-based law firm of Munger, Tolles & Olson has filed a motion to dismiss the award in Los Angeles Superior Court, alleging that the chairman of the arbitration panel failed to disclose a potential conflict of interest. Such motions are rarely successful.
A Citi spokesman, Alex Samuelson, said, “We are pursuing our legal options.”
Citi's petition cited a Finra rule requiring arbitrators to disclose “any circumstances which might preclude the arbitrator from rendering an objective and impartial determination.”
According to Citi’s petition, the lead arbitrator had a potential conflict because he was once a plaintiff in a lawsuit “involving the same claims and the same subject matter involved in this arbitration proceeding.”
Same claims? You be the judge.
Mr. Hagman, 79, and his wife Maj, 82, accused Citi of, among other things, fraud and breach of fiduciary duty. The couple contended that they sustained losses on stocks and bonds and a life insurance policy they held with Citi.
Two years earlier, the lead Finra arbitrator sued his real estate investment partner for fraud and breach of fiduciary duty, according to Citi’s petition. The arbitrator “alleged that he and his wife had ‘trusted and relied upon’ the investment advice of their former real estate partner with respect to ‘almost all their life savings,’” Citi’s petition said.
O.K., but were the subject matters the same?
According to a recent memo that Mr. Hagman’s lawyers filed with the court, the arbitrator’s suit against his real estate partner was “unrelated” to Mr. Hagman’s case.
The memo noted that the arbitrator’s case “did not involve a securities investment” nor did the two cases involve the same facts or parties.
The memo called Citi’s petition a “last-ditch effort.”
In its petition, Citi also said “the arbitrators refused to postpone the hearing to allow Citigroup’s key witness — the Hagmans’ financial adviser — to testify.” The panel ultimately allowed the broker, who was having surgery during the hearing, to testify about a month after the arbitration ended.
“It is noteworthy that she testified after having the opportunity to review the entire record, which was a strategic advantage,” the memo said.
Philip M. Aidikoff, a lawyer for Mr. Hagman, declined comment. So did a spokeswoman for Finra.
A hearing in Los Angeles Superior Court is scheduled for Dec. 17.
Meanwhile, Citigroup is on the hook for paying 10 percent interest on Mr. Hagman’s award. That is good news for charity: The Finra arbitration panel demanded that Citi pay $1.1 million in compensatory damages for Mr. Hagman and $10 million in punitive damages to be donated to the charities of his choice.
Larry Hagman, who played the rapacious oil tycoon J.R. Ewing in the 1980s hit TV series “Dallas,” recently won $11.6 million in a securities arbitration case against Citigroup. As DealBook reported last month, it was the largest arbitration award an individual investor received this year and the ninth largest award ever, according to the Financial Industry Regulatory Authority, or Finra, which oversaw the arbitration.
But Citi Global Markets is now crying foul.
The California-based law firm of Munger, Tolles & Olson has filed a motion to dismiss the award in Los Angeles Superior Court, alleging that the chairman of the arbitration panel failed to disclose a potential conflict of interest. Such motions are rarely successful.
A Citi spokesman, Alex Samuelson, said, “We are pursuing our legal options.”
Citi's petition cited a Finra rule requiring arbitrators to disclose “any circumstances which might preclude the arbitrator from rendering an objective and impartial determination.”
According to Citi’s petition, the lead arbitrator had a potential conflict because he was once a plaintiff in a lawsuit “involving the same claims and the same subject matter involved in this arbitration proceeding.”
Same claims? You be the judge.
Mr. Hagman, 79, and his wife Maj, 82, accused Citi of, among other things, fraud and breach of fiduciary duty. The couple contended that they sustained losses on stocks and bonds and a life insurance policy they held with Citi.
Two years earlier, the lead Finra arbitrator sued his real estate investment partner for fraud and breach of fiduciary duty, according to Citi’s petition. The arbitrator “alleged that he and his wife had ‘trusted and relied upon’ the investment advice of their former real estate partner with respect to ‘almost all their life savings,’” Citi’s petition said.
O.K., but were the subject matters the same?
According to a recent memo that Mr. Hagman’s lawyers filed with the court, the arbitrator’s suit against his real estate partner was “unrelated” to Mr. Hagman’s case.
The memo noted that the arbitrator’s case “did not involve a securities investment” nor did the two cases involve the same facts or parties.
The memo called Citi’s petition a “last-ditch effort.”
In its petition, Citi also said “the arbitrators refused to postpone the hearing to allow Citigroup’s key witness — the Hagmans’ financial adviser — to testify.” The panel ultimately allowed the broker, who was having surgery during the hearing, to testify about a month after the arbitration ended.
“It is noteworthy that she testified after having the opportunity to review the entire record, which was a strategic advantage,” the memo said.
Philip M. Aidikoff, a lawyer for Mr. Hagman, declined comment. So did a spokeswoman for Finra.
A hearing in Los Angeles Superior Court is scheduled for Dec. 17.
Meanwhile, Citigroup is on the hook for paying 10 percent interest on Mr. Hagman’s award. That is good news for charity: The Finra arbitration panel demanded that Citi pay $1.1 million in compensatory damages for Mr. Hagman and $10 million in punitive damages to be donated to the charities of his choice.
First Arrest Made In Insider Trading Probe
An East Coast employee of a California research consulting firm is accused of hooking up hedge fund operators with corporate executives who provided inside information. One of the executives who allegedly provided information works for Broadcom Corp. in Taiwan.
Federal prosecutors in New York disclosed charges Wednesday against Don Ching Trang Chu, who works at one of the research firms believed to be part of the government's investigation.
Prosecutors accused Chu of conspiracy for allegedly hooking up hedge fund operators with corporate executives who provided inside information about their companies.
Federal prosecutors in New York disclosed charges Wednesday against Don Ching Trang Chu, who works at one of the research firms believed to be part of the government's investigation.
Prosecutors accused Chu of conspiracy for allegedly hooking up hedge fund operators with corporate executives who provided inside information about their companies.
Saturday, October 30, 2010
Investigation of McLoed Ponzi Scheme Launched
Potential arbitration claims against certain of the securities brokerage firms with which Kenneth McLeod was associated during the time he engaged in the Ponzi scheme as alleged and described in the SEC's Complaint filed against his estate in June 2010.
The SEC's Complaint alleges that McLeod, through his benefits consulting firm, Federal Employee Benefits Group, Inc., and his registered investment adviser, F&S Asset Management Group, Inc., solicited government employees to invest in a government bond fund that did not exist. McLeod lured many of his investors through retirement benefits seminars he gave at government agencies nationwide, raising at least $34 million since 1988 from an estimated 260 investors around the country, according to the SEC.
While engaged in the alleged Ponzi scheme, McLeod was associated with several FINRA registered securities brokerage firms which, under the securities laws, had an obligation to reasonably supervise his activities.
The SEC's Complaint alleges that McLeod, through his benefits consulting firm, Federal Employee Benefits Group, Inc., and his registered investment adviser, F&S Asset Management Group, Inc., solicited government employees to invest in a government bond fund that did not exist. McLeod lured many of his investors through retirement benefits seminars he gave at government agencies nationwide, raising at least $34 million since 1988 from an estimated 260 investors around the country, according to the SEC.
While engaged in the alleged Ponzi scheme, McLeod was associated with several FINRA registered securities brokerage firms which, under the securities laws, had an obligation to reasonably supervise his activities.
Friday, October 29, 2010
Aidikoff, Uhl & Bakhtiari Investigates Bank of America Structured Products
Aidikoff, Uhl & Bakhtiari launches investigation on behalf of investors that purchased Bank of America structured investments which were represented as protecting principal. The investments the firm is investigating includes:
Bank of America (Basket EAGLES) Equity Appreciation Growth Linked Securities
Bank of America Return Linked Notes
Bank of America CYCLES (Capital Protected Equity Performance Linked Securities)
Bank of America EAGLES (Equity Appreciation Growth Linked Securities)
Bank of America Strategic Equity Exposure Performance Linked Securities
Bank of America Columbia Strategic Cash Portfolio
Bank of America (Basket EAGLES) Equity Appreciation Growth Linked Securities
Bank of America Return Linked Notes
Bank of America CYCLES (Capital Protected Equity Performance Linked Securities)
Bank of America EAGLES (Equity Appreciation Growth Linked Securities)
Bank of America Strategic Equity Exposure Performance Linked Securities
Bank of America Columbia Strategic Cash Portfolio
Wednesday, October 20, 2010
Messing With J.R., the Postscript
Many people on Wall Street were surprised when an arbitration panel awarded Larry Hagman, who played the rapacious oil baron J.R. Ewing in the 1980s hit series “Dallas,” won $11.6 million in a securities arbitration case against Citigroup.
His broker, Lisa Detanna, was also surprised. She recently sent a letter about the case to hundreds of clients at Morgan Stanley Smith Barney, where she now works. Citigroup sold a controlling stake in its brokerage arm to Morgan Stanley in 2009.
“Nothing to me is more important to me than the trust and confidence of my clients,” she wrote last week. “Even if there is no appeal, I want you to know that I, too, am deeply disappointed and astonished by the ruling.”
The ruling against Citigroup Global Markets, released earlier this month, includes $1.1 million in compensatory damages for Mr. Hagman and his wife and $10 million in punitive damages to be donated to the charities of Mr. Hagman’s choice. Citigroup must also pay about $460,000 in legal fees and other costs. It is the largest award given to an individual this year, according to the Financial Industry Regulatory Authority, or Finra, which oversaw the arbitration.
According to a recent column by Gretchen Morgenson, a DealBook colleague, Mr. Hagman and his wife moved their account to Ms. Detanna in 2005.
Ms. Morgenson wrote that documents produced in the Hagmans’ case show Ms. Detanna began upending the couple’s portfolio, taking it from a conservative blend of 25 percent stocks and 75 percent fixed income and cash to the opposite: 75 percent stocks and the rest cash and bonds.
This happened even though the Hagmans told her that they needed income-producing investments that would preserve their principal, according to the documents. Ms. Detanna also sold Mr. Hagman a $4 million life insurance policy that required onerous annual premium payments of $168,000.
When the market fell, Mr. Hagman’s lawyer Philip M. Aidikoff argued that the account’s losses were far larger than they would have been had Ms. Detanna maintained the conservative portfolio. And the life insurance policy, which Mr. Hagman did not need and was therefore unsuitable according to his lawyer, generated losses of almost $437,000 when sold, Ms. Morgenson reported. The losses included an exit fee of $168,610, which Citigroup extracted when Mr. Hagman sold the policy.
A Morgan Stanley spokeswoman declined to comment on the letter and said Ms. Detanna was not available to comment.
A Citigroup spokesman said: “We are disappointed and disagree with the panel’s finding, and we are reviewing our options.”
His broker, Lisa Detanna, was also surprised. She recently sent a letter about the case to hundreds of clients at Morgan Stanley Smith Barney, where she now works. Citigroup sold a controlling stake in its brokerage arm to Morgan Stanley in 2009.
“Nothing to me is more important to me than the trust and confidence of my clients,” she wrote last week. “Even if there is no appeal, I want you to know that I, too, am deeply disappointed and astonished by the ruling.”
The ruling against Citigroup Global Markets, released earlier this month, includes $1.1 million in compensatory damages for Mr. Hagman and his wife and $10 million in punitive damages to be donated to the charities of Mr. Hagman’s choice. Citigroup must also pay about $460,000 in legal fees and other costs. It is the largest award given to an individual this year, according to the Financial Industry Regulatory Authority, or Finra, which oversaw the arbitration.
According to a recent column by Gretchen Morgenson, a DealBook colleague, Mr. Hagman and his wife moved their account to Ms. Detanna in 2005.
Ms. Morgenson wrote that documents produced in the Hagmans’ case show Ms. Detanna began upending the couple’s portfolio, taking it from a conservative blend of 25 percent stocks and 75 percent fixed income and cash to the opposite: 75 percent stocks and the rest cash and bonds.
This happened even though the Hagmans told her that they needed income-producing investments that would preserve their principal, according to the documents. Ms. Detanna also sold Mr. Hagman a $4 million life insurance policy that required onerous annual premium payments of $168,000.
When the market fell, Mr. Hagman’s lawyer Philip M. Aidikoff argued that the account’s losses were far larger than they would have been had Ms. Detanna maintained the conservative portfolio. And the life insurance policy, which Mr. Hagman did not need and was therefore unsuitable according to his lawyer, generated losses of almost $437,000 when sold, Ms. Morgenson reported. The losses included an exit fee of $168,610, which Citigroup extracted when Mr. Hagman sold the policy.
A Morgan Stanley spokeswoman declined to comment on the letter and said Ms. Detanna was not available to comment.
A Citigroup spokesman said: “We are disappointed and disagree with the panel’s finding, and we are reviewing our options.”
Monday, October 18, 2010
Colorado Based Ponzi Scheme Snares Quarterback
Hall of Fame quarterback John Elway was among 65 investors named in an alleged Ponzi scheme case against a former hedge fund manager in Colorado, according to the Denver Post.
The Denver district attorney charged 42-year-old Sean Mueller with violating the state's Organized Crime Control Act, securities fraud and two counts of theft.
Authorities told the paper that Mueller allegedly ran a Ponzi scheme where he lured new investors to pay off old ones. Officials believe that the losses total in the tens of millions.
According to an affidavit filed by the district attorney's office, 65 people -- including former Denver Broncos quarterback Elway -- invested nearly $71 million with Mueller since 2000.
It is not known how much Elway potentially lost in the alleged scheme. His agent and spokesman declined to comment to the Denver Post.
The Denver district attorney charged 42-year-old Sean Mueller with violating the state's Organized Crime Control Act, securities fraud and two counts of theft.
Authorities told the paper that Mueller allegedly ran a Ponzi scheme where he lured new investors to pay off old ones. Officials believe that the losses total in the tens of millions.
According to an affidavit filed by the district attorney's office, 65 people -- including former Denver Broncos quarterback Elway -- invested nearly $71 million with Mueller since 2000.
It is not known how much Elway potentially lost in the alleged scheme. His agent and spokesman declined to comment to the Denver Post.
Wednesday, October 6, 2010
Morgan Keegan Loses $9.2 Million FINRA Case
Morgan Keegan, a unit of Regions Financial Corp (RF.N), was accused of inducing investors to invest in funds that were unsuitable given their high levels of exposure to risky "subprime" mortgage assets. Customers also alleged they were encouraged to reinvest dividends in the funds.
The $9.2 million award by the Financial Industry Regulatory Authority panel was the largest yet handed down against Morgan Keegan. The investors had asked for $10.5 million in damages.
All 18 investors were customers of Houston broker Russell Stein, a veteran who started his career at Merrill Lynch in 1969 and worked at Morgan Keegan from May 2001 until March 2008, according to FINRA records.
The $9.2 million award by the Financial Industry Regulatory Authority panel was the largest yet handed down against Morgan Keegan. The investors had asked for $10.5 million in damages.
All 18 investors were customers of Houston broker Russell Stein, a veteran who started his career at Merrill Lynch in 1969 and worked at Morgan Keegan from May 2001 until March 2008, according to FINRA records.
Monday, October 4, 2010
Micro Cap Stock Manipulation - Exit Only and CX2 Technologies
The Securities and Exchange Commission announced today that it charged four individuals and one entity involved in a scheme to manipulate the market in two separate microcap stocks - Exit Only, Inc. and CX2 Technologies, Inc.
The Commission's complaint, filed in federal district court in Philadelphia, alleges that, from at least January 2008 through March 2008, Mark Johnson of Baltimore, Maryland, Mark Manoff of Wayne, Pennsylvania, Leonard Gotshalk of Ashland, Oregon, and Kyle Gotshalk of Canyon Country, California, the President and Chief Executive Officer of Exit Only, Inc., engaged in a scheme to manipulate the market for the purpose of artificially inflating each company's stock price and to create the false appearance of an active and liquid market. The defendants entered into agreements with individuals they believed would generate purchases of each company's stock in exchange for the payment of cash kickbacks. Unbeknownst to the defendants, they had actually entered into agreements with a witness secretly cooperating with the government and an undercover Special Agent of the Federal Bureau of Investigation (FBI). The complaint alleges that, to effectuate this scheme, defendants provided information regarding press releases before being issued to the public, nonpublic shareholders lists, and paid cash kickbacks to generate purchases of 539,000 shares of stock in Exit Only, Inc. and CX2 Technologies, Inc.
The Commission's complaint, filed in federal district court in Philadelphia, alleges that, from at least January 2008 through March 2008, Mark Johnson of Baltimore, Maryland, Mark Manoff of Wayne, Pennsylvania, Leonard Gotshalk of Ashland, Oregon, and Kyle Gotshalk of Canyon Country, California, the President and Chief Executive Officer of Exit Only, Inc., engaged in a scheme to manipulate the market for the purpose of artificially inflating each company's stock price and to create the false appearance of an active and liquid market. The defendants entered into agreements with individuals they believed would generate purchases of each company's stock in exchange for the payment of cash kickbacks. Unbeknownst to the defendants, they had actually entered into agreements with a witness secretly cooperating with the government and an undercover Special Agent of the Federal Bureau of Investigation (FBI). The complaint alleges that, to effectuate this scheme, defendants provided information regarding press releases before being issued to the public, nonpublic shareholders lists, and paid cash kickbacks to generate purchases of 539,000 shares of stock in Exit Only, Inc. and CX2 Technologies, Inc.
Sunday, October 3, 2010
Raymond Thomas Sentenced
The Securities and Exchange Commission ("SEC") announced that on September 23, 2010, the Honorable John R. Adams of the United States District Court for the Northern District of Ohio sentenced Raymond Thomas to 6 years in prison and ordered Thomas to pay almost $1 million in restitution in connection with his conviction for one count of mail fraud and one count of filing a false tax return. Thomas's conviction stemmed from his role in a fraudulent offering scheme that defrauded at least 26 investors. Thomas was charged on June 3, 2010 and pleaded guilty on July 6, 2010.
Previously, on October 22, 2008, the SEC filed a civil injunctive complaint alleging that Thomas and his company, Strictly Stocks Investment Company, Inc. ("Strictly Stocks") operated a fraudulent offering scheme that raised at least $620,000 from at least 26 investors, many of whom were retired police officers and firefighters, while acting as unregistered investment advisers. The complaint alleged that Thomas and Strictly Stocks told investors that their funds would be invested in stocks and options. The complaint also alleged that Thomas instead misappropriated the funds and, among other things, used the funds to support his own private business ventures, including a limousine company and a title company, and for his own personal use. The complaint alleged violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act").
On February 23, 2009, the Court entered a judgment against Thomas and Strictly Stocks. The Order permanently enjoined Thomas and Strictly Stocks from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act. The Order further required Thomas and Strictly Stocks to pay disgorgement in the amount of $621,000, plus prejudgment interest of $95,406.67. Thomas and Strictly Stocks were also each ordered to pay a civil penalty in the amount of $130,000 and $650,000, respectively. Subsequently, on June 10, 2009, the SEC issued an administrative order barring Thomas from association with any investment adviser.
Previously, on October 22, 2008, the SEC filed a civil injunctive complaint alleging that Thomas and his company, Strictly Stocks Investment Company, Inc. ("Strictly Stocks") operated a fraudulent offering scheme that raised at least $620,000 from at least 26 investors, many of whom were retired police officers and firefighters, while acting as unregistered investment advisers. The complaint alleged that Thomas and Strictly Stocks told investors that their funds would be invested in stocks and options. The complaint also alleged that Thomas instead misappropriated the funds and, among other things, used the funds to support his own private business ventures, including a limousine company and a title company, and for his own personal use. The complaint alleged violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act").
On February 23, 2009, the Court entered a judgment against Thomas and Strictly Stocks. The Order permanently enjoined Thomas and Strictly Stocks from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act. The Order further required Thomas and Strictly Stocks to pay disgorgement in the amount of $621,000, plus prejudgment interest of $95,406.67. Thomas and Strictly Stocks were also each ordered to pay a civil penalty in the amount of $130,000 and $650,000, respectively. Subsequently, on June 10, 2009, the SEC issued an administrative order barring Thomas from association with any investment adviser.
Saturday, October 2, 2010
Downey man charged with running alleged Ponzi scheme
A Downey man has been charged with running a Ponzi scheme and related mortgage scam that took in more than $20 million.
Juan Rangel, who used Spanish-language TV, radio and newspaper ads to advertise his businesses, was already in custody — he was convicted last year of bribing a Bank of America bank manager. In addition to Rangel, two other men were arrested in connection with the alleged mortgage scam.
Rangel, 46, faces a maximum of 95 years in federal prison from last year's conviction and up to 232 years in prison if convicted of running the alleged Ponzi and mortgage scams. He did not have a lawyer as of Thursday evening to represent him on the new charges.
A federal grand jury indictment alleges that Rangel and his company, Financial Plus Investments, promised investors annual returns of 60%, and in some cases 100%, from the profits from real estate and lending deals.
Juan Rangel, who used Spanish-language TV, radio and newspaper ads to advertise his businesses, was already in custody — he was convicted last year of bribing a Bank of America bank manager. In addition to Rangel, two other men were arrested in connection with the alleged mortgage scam.
Rangel, 46, faces a maximum of 95 years in federal prison from last year's conviction and up to 232 years in prison if convicted of running the alleged Ponzi and mortgage scams. He did not have a lawyer as of Thursday evening to represent him on the new charges.
A federal grand jury indictment alleges that Rangel and his company, Financial Plus Investments, promised investors annual returns of 60%, and in some cases 100%, from the profits from real estate and lending deals.
Friday, October 1, 2010
FINRA Proposes to Permanently Give Investors the Option of All-Public Arbitration Panels
The Financial Industry Regulatory Authority (FINRA) will file a rule proposal next month that would allow all investors filing arbitration claims the option of having an all-public panel, greatly increasing investor choice in the FINRA arbitration program. The rule proposal, which will be filed for approval with the Securities and Exchange Commission (SEC), would expand to all investor claims a two-year-old FINRA pilot program that gives investors filing an arbitration claim against certain firms the option of choosing an all-public panel.
"Giving each individual investor the option of an all-public panel will enhance confidence in and increase the perception of fairness in the FINRA arbitration process," said Richard Ketchum, FINRA Chairman and Chief Executive Officer. "All investors will have greater freedom in choosing arbitration panels, and any investor will have the power to have his or her case heard by a panel with no industry participants."
If approved by the SEC, the rule would give investors the option of choosing an arbitration panel that has two public arbitrators and one non-public arbitrator, as is now the case, or choosing to have their case heard by an all-public panel. The current pilot program involves 14 firms that agreed voluntarily to a set number of investor cases that did not involve individual brokers. The proposed rule would apply to all investor disputes against any firm and any individual broker. It would not apply to arbitration disputes involving only industry parties.
Since the Public Arbitrator Pilot Program began in October 2008, slightly more than 60 percent of investors eligible to participate have opted in, resulting in almost 560 cases to date. Investors opting into the pilot, given the power to eliminate all non-public arbitrators, still chose to have one non-public arbitrator on their panel about 50 percent of the time. The pilot program was originally set to conclude after two years. However, the participating firms agreed recently to extend the pilot program for an additional year while the rule making process goes forward.
FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. Currently, there are roughly 6,200 FINRA arbitrators – 2,700 are non-public and 3,500 public. For more information, please visit www.finra.org.
"Giving each individual investor the option of an all-public panel will enhance confidence in and increase the perception of fairness in the FINRA arbitration process," said Richard Ketchum, FINRA Chairman and Chief Executive Officer. "All investors will have greater freedom in choosing arbitration panels, and any investor will have the power to have his or her case heard by a panel with no industry participants."
If approved by the SEC, the rule would give investors the option of choosing an arbitration panel that has two public arbitrators and one non-public arbitrator, as is now the case, or choosing to have their case heard by an all-public panel. The current pilot program involves 14 firms that agreed voluntarily to a set number of investor cases that did not involve individual brokers. The proposed rule would apply to all investor disputes against any firm and any individual broker. It would not apply to arbitration disputes involving only industry parties.
Since the Public Arbitrator Pilot Program began in October 2008, slightly more than 60 percent of investors eligible to participate have opted in, resulting in almost 560 cases to date. Investors opting into the pilot, given the power to eliminate all non-public arbitrators, still chose to have one non-public arbitrator on their panel about 50 percent of the time. The pilot program was originally set to conclude after two years. However, the participating firms agreed recently to extend the pilot program for an additional year while the rule making process goes forward.
FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. Currently, there are roughly 6,200 FINRA arbitrators – 2,700 are non-public and 3,500 public. For more information, please visit www.finra.org.
Thursday, September 30, 2010
FINRA Arbitration Online Claim Filing
FINRA Dispute Resolution has recently improved its Online Arbitration Claim Filing system. Any party may submit an arbitration claim using the online system. The online arbitration claim filing system is a fast, convenient, and efficient way to file an arbitration claim.
Note: As of September 25, 2010, claimants using the new Arbitration Online Claim Filing System form can pay the filing fees online by credit card. If you have a claim form already in progress prior to this date, you will NOT be able to use the new credit card payment feature. To be able to pay the filing fees by credit card, you would need to begin a new claim form that includes the new credit card feature.
With this enhancement, all parts of the initial claim (Statement of Claim, signed Submission Agreement, exhibits, and filing fees) can now be filed electronically. This will expedite the claim submission process and will set the date of filing to the date that the claim was submitted online.
Note: As of September 25, 2010, claimants using the new Arbitration Online Claim Filing System form can pay the filing fees online by credit card. If you have a claim form already in progress prior to this date, you will NOT be able to use the new credit card payment feature. To be able to pay the filing fees by credit card, you would need to begin a new claim form that includes the new credit card feature.
With this enhancement, all parts of the initial claim (Statement of Claim, signed Submission Agreement, exhibits, and filing fees) can now be filed electronically. This will expedite the claim submission process and will set the date of filing to the date that the claim was submitted online.
Sunday, September 26, 2010
SEC Commissioner Questions New Trading Rules
A commissioner at the U.S. Securities and Exchange Commission questioned on Friday the value of saddling high-frequency trading firms with tighter market-making rules, which has emerged as a key possible response to the May "flash crash."
Expanding the existing market-maker obligations to include the most active traders is seen as a way to ensure that these firms provide liquidity -- or the availability of buy and sell orders -- when markets plunge, helping to avoid a repetition of the May 6 breakdown.
Commissioner Troy Paredes, however, told a Security Traders Association conference that "the value of subjecting high-frequency traders to market-maker obligations is not self-evident" during times of stability.
"It would be unfortunate for investors if, as a result of burdening a wide swath of liquidity providers with new obligations, the quality of our markets actually deteriorated during the overwhelming majority of trading days when liquidity would be plentiful," Paredes said.
The commissioner, one of five at the SEC, also questioned whether high-frequency algorithmic trading firms would continue to trade in the rare times of market stress -- even if they were saddled with market-maker obligations that would in fact require them to participate.
Exchanges, under regulatory and public pressure, last week submitted proposals to the SEC that would force market makers to quote closer to the price of the stocks in which they are registered to supply buy and sell orders.
These rules could expand to include high-frequency firms, whose rapid-fire trading now accounts for about half of all U.S. equity volumes.
Expanding the existing market-maker obligations to include the most active traders is seen as a way to ensure that these firms provide liquidity -- or the availability of buy and sell orders -- when markets plunge, helping to avoid a repetition of the May 6 breakdown.
Commissioner Troy Paredes, however, told a Security Traders Association conference that "the value of subjecting high-frequency traders to market-maker obligations is not self-evident" during times of stability.
"It would be unfortunate for investors if, as a result of burdening a wide swath of liquidity providers with new obligations, the quality of our markets actually deteriorated during the overwhelming majority of trading days when liquidity would be plentiful," Paredes said.
The commissioner, one of five at the SEC, also questioned whether high-frequency algorithmic trading firms would continue to trade in the rare times of market stress -- even if they were saddled with market-maker obligations that would in fact require them to participate.
Exchanges, under regulatory and public pressure, last week submitted proposals to the SEC that would force market makers to quote closer to the price of the stocks in which they are registered to supply buy and sell orders.
These rules could expand to include high-frequency firms, whose rapid-fire trading now accounts for about half of all U.S. equity volumes.
Saturday, September 25, 2010
Federal Judge Accepts SEC Settlment with Citigroup
A federal judge said Friday that she would accept the $75 million settlement between the Securities and Exchange Commission and Citigroup over the bank’s failure to adequately disclose its exposure to subprime mortgage debt in 2007, The New York Times’s Edward Wyatt reports from Washington.
But Judge Ellen Segal Huvelle of Federal District Court for the District of Columbia told lawyers for the government that she wanted the S.E.C. to certify that the remedies Citigroup claimed to have put in place to prevent a similar failure were adequate and would remain for a given period of time.
The judge also directed that the settlement agreement be reworded to make clear that the $75 million would be used to compensate shareholders who suffered losses because of Citigroup’s misstatements, and she told the S.E.C. and the bank to return in two weeks with new language that did that.
But Judge Ellen Segal Huvelle of Federal District Court for the District of Columbia told lawyers for the government that she wanted the S.E.C. to certify that the remedies Citigroup claimed to have put in place to prevent a similar failure were adequate and would remain for a given period of time.
The judge also directed that the settlement agreement be reworded to make clear that the $75 million would be used to compensate shareholders who suffered losses because of Citigroup’s misstatements, and she told the S.E.C. and the bank to return in two weeks with new language that did that.
Friday, September 24, 2010
Securities and Exchange Commission v. M. Mark McAdams and R. Dane Freeman
The Securities and Exchange Commission ("Commission") announced that the Honorable Terry L. Wooten, United States District Judge for the District of South Carolina, entered an order permanently enjoining M. Mark McAdams ("McAdams"). The order restrained and enjoined McAdams from future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. McAdams was also ordered to pay disgorgement, pre-judgment interest and a civil penalty in amounts to be resolved upon motion of the Commission at a later date, and directed that for purposes of that motion, the allegations of the Commission's Complaint shall be deemed true. McAdams consented to the entry of the order without admitting or denying the allegations of the Commission's Complaint.
The Complaint, filed on March 18, 2010, alleged fraud against McAdams and his co-defendant R. Dane Freeman ("Freeman") in connection with sales of securities interests in Global Holdings, a limited liability company organized by McAdams. Approximately $3.5 million was raised from investors during the first nine months of 2008. The Complaint alleged that McAdams and Freeman told investors orally and in writing that Global Holdings was "in the business of locating and securing high return investment opportunities for investors on international trading platforms." Most of the Global Holdings' investors executed a joint venture agreement that was prepared by McAdams and signed by either McAdams or Freeman. These joint venture agreements represented that Global Holdings would utilize those funds "for the purpose of buying and selling Standard and Poor's AAA or AA rated bonds and/or Medium Term Notes" on an "overseas trading platform." Some of the joint venture agreements stated that investors who invested $20,000 would receive $1,000,000 after 60 days, a return of 4,900%. At least one joint venture agreement stated that an investor's $500,000 would grow to $1,500,000 after 60 days, for a 200% rate of return. Most investors, if not all of them, never received either profits or a return of their principal. Instead, over $500,000 in investor funds were transferred to accounts controlled by Freeman and his family. McAdams received many questions about the high yield investment program from the outset, from investors and his own family members, to whom McAdams vouched for the existence and legality of the global trading platforms that supposedly would generate such outlandish returns. McAdams also misrepresented the success of the program. McAdams falsely misrepresented to a potential investor that Global Holdings had participated in hundreds of similar transactions that had already produced hundreds of millions of dollars for dozens of investors.
The Complaint, filed on March 18, 2010, alleged fraud against McAdams and his co-defendant R. Dane Freeman ("Freeman") in connection with sales of securities interests in Global Holdings, a limited liability company organized by McAdams. Approximately $3.5 million was raised from investors during the first nine months of 2008. The Complaint alleged that McAdams and Freeman told investors orally and in writing that Global Holdings was "in the business of locating and securing high return investment opportunities for investors on international trading platforms." Most of the Global Holdings' investors executed a joint venture agreement that was prepared by McAdams and signed by either McAdams or Freeman. These joint venture agreements represented that Global Holdings would utilize those funds "for the purpose of buying and selling Standard and Poor's AAA or AA rated bonds and/or Medium Term Notes" on an "overseas trading platform." Some of the joint venture agreements stated that investors who invested $20,000 would receive $1,000,000 after 60 days, a return of 4,900%. At least one joint venture agreement stated that an investor's $500,000 would grow to $1,500,000 after 60 days, for a 200% rate of return. Most investors, if not all of them, never received either profits or a return of their principal. Instead, over $500,000 in investor funds were transferred to accounts controlled by Freeman and his family. McAdams received many questions about the high yield investment program from the outset, from investors and his own family members, to whom McAdams vouched for the existence and legality of the global trading platforms that supposedly would generate such outlandish returns. McAdams also misrepresented the success of the program. McAdams falsely misrepresented to a potential investor that Global Holdings had participated in hundreds of similar transactions that had already produced hundreds of millions of dollars for dozens of investors.
SEC Investigates Vision Capital
In a wide-ranging investigation, the Securities and Exchange Commission issued subpoenas in the summer to several investment firms that have done business with New York-based Vision Capital, said people familiar with the inquiry.
The hedge fund invests mainly in private placements by small cash-strapped public companies.
The subpoenas sent out by the SEC's New York office seek emails, transaction documents and other communications between Vision Capital and the investment firms going back to early 2005 -- the hedge fund's first year in business. Reuters reviewed a copy of one of the subpoenas.
The focus of the SEC investigation is not clear. But people familiar with Vision, including investors and former employees, said regulators might be examining the methodology the hedge fund has used to put valuations on the equity stakes it has taken in hundreds of struggling small-cap companies.
Vision is led by Adam Benowitz and Randolph "Randy" Cohen, who have been friends since childhood. The pair picked the name Vision Capital because they each suffer from a significant visual impairment: Benowitz is blind in one eye, and Cohen has a degenerative eye disease.
Cohen, currently a visiting professor at the Massachusetts Institute of Technology's Sloan School of Management, was an associate professor of finance at Harvard Business School for nearly nine years.
Benowitz and Cohen caused a bit of a stir on Wall Street in fall 2008 when they considered offering a job to Stanley O'Neal, the former Merrill Lynch chief executive officer who was ousted from the investment firm at the beginning of the financial crisis.
The managers burst on the scene in 2005, when Vision posted a 105 percent gain. They followed that up with an even better 188 percent return in 2006.
But returns fell sharply in more recent years. And since last year, investors have been unable to pull money out of most Vision funds. The managers have told investors that it may be many years before they can redeem their money due to the illiquid nature of Vision's investments in all those small-cap companies, said people familiar with the firm.
Since opening for business, Vision Capital has invested some $266 million in 104 financing deals with small-cap companies, according to Sagient Research, a private placement tracking service.
These so-called PIPE deals, or private investments in public equity, are popular with hedge funds because buyers usually get preferred stock or bonds that convert into shares at discounted prices. The deals often include sweeteners, such as warrants, that permit the investors to buy additional shares at prices well below what ordinary investors would pay on a public market.
Many of the PIPE deals Vision invested were rich in warrants. Over the years, some in the hedge fund industry have criticized Vision's managers for putting too high a valuation on the warrants obtained in these financing transactions, given that many small companies doing PIPEs often falter.
The hedge fund invests mainly in private placements by small cash-strapped public companies.
The subpoenas sent out by the SEC's New York office seek emails, transaction documents and other communications between Vision Capital and the investment firms going back to early 2005 -- the hedge fund's first year in business. Reuters reviewed a copy of one of the subpoenas.
The focus of the SEC investigation is not clear. But people familiar with Vision, including investors and former employees, said regulators might be examining the methodology the hedge fund has used to put valuations on the equity stakes it has taken in hundreds of struggling small-cap companies.
Vision is led by Adam Benowitz and Randolph "Randy" Cohen, who have been friends since childhood. The pair picked the name Vision Capital because they each suffer from a significant visual impairment: Benowitz is blind in one eye, and Cohen has a degenerative eye disease.
Cohen, currently a visiting professor at the Massachusetts Institute of Technology's Sloan School of Management, was an associate professor of finance at Harvard Business School for nearly nine years.
Benowitz and Cohen caused a bit of a stir on Wall Street in fall 2008 when they considered offering a job to Stanley O'Neal, the former Merrill Lynch chief executive officer who was ousted from the investment firm at the beginning of the financial crisis.
The managers burst on the scene in 2005, when Vision posted a 105 percent gain. They followed that up with an even better 188 percent return in 2006.
But returns fell sharply in more recent years. And since last year, investors have been unable to pull money out of most Vision funds. The managers have told investors that it may be many years before they can redeem their money due to the illiquid nature of Vision's investments in all those small-cap companies, said people familiar with the firm.
Since opening for business, Vision Capital has invested some $266 million in 104 financing deals with small-cap companies, according to Sagient Research, a private placement tracking service.
These so-called PIPE deals, or private investments in public equity, are popular with hedge funds because buyers usually get preferred stock or bonds that convert into shares at discounted prices. The deals often include sweeteners, such as warrants, that permit the investors to buy additional shares at prices well below what ordinary investors would pay on a public market.
Many of the PIPE deals Vision invested were rich in warrants. Over the years, some in the hedge fund industry have criticized Vision's managers for putting too high a valuation on the warrants obtained in these financing transactions, given that many small companies doing PIPEs often falter.
Wednesday, September 22, 2010
SEC Charges Minneapolis Attorney And San Francisco Real Estate Lending Fund Promoters With Misleading Investors
The Securities and Exchange Commission announced that on September 21, 2010, it charged a Minneapolis attorney and two San Francisco-area real estate lending fund promoters with defrauding investors in a Minneapolis-based real estate lending fund by concealing the collapse of the fund's sole business partner.
The SEC's complaint, filed in federal court in Minneapolis, alleges that Todd A. Duckson, of Prior Lake, Minnesota, Michael W. Bozora, of Belvedere, California, and Timothy R. Redpath, of Mill Valley, California, raised more than $21 million from investors in the Capital Solutions Monthly Income Fund after the fund's sole business partner defaulted on its obligations to the fund. The SEC alleges that after this May 2008 default, the fund — whose sole business was to make real estate loans to a single borrower — had no meaningful income and was using new investor funds to pay existing investors.
According to the SEC's complaint, Bozora and Redpath launched the fund in 2004 and, through August 2009, raised approximately $74 million from approximately 450 investors from across the U.S. After the May 2008 default by the fund's sole borrower, the fund foreclosed on the borrower's real estate projects. The SEC alleges that in late 2008, Bozora and Redpath asked Duckson, who was acting as the fund's outside counsel, to take over managing the fund. The SEC alleges that Duckson then began managing the fund while Bozora and Redpath continued to raise money from new investors. The SEC alleges that Bozora, Redpath, and Duckson failed to disclose the default and foreclosure to investors for several months. The SEC alleges that Bozora, Redpath, and Duckson eventually made some disclosure of the default and foreclosure, but they minimized the impact of these events and misleadingly promoted the fund's ability to make new loans.
The SEC's complaint, filed in federal court in Minneapolis, alleges that Todd A. Duckson, of Prior Lake, Minnesota, Michael W. Bozora, of Belvedere, California, and Timothy R. Redpath, of Mill Valley, California, raised more than $21 million from investors in the Capital Solutions Monthly Income Fund after the fund's sole business partner defaulted on its obligations to the fund. The SEC alleges that after this May 2008 default, the fund — whose sole business was to make real estate loans to a single borrower — had no meaningful income and was using new investor funds to pay existing investors.
According to the SEC's complaint, Bozora and Redpath launched the fund in 2004 and, through August 2009, raised approximately $74 million from approximately 450 investors from across the U.S. After the May 2008 default by the fund's sole borrower, the fund foreclosed on the borrower's real estate projects. The SEC alleges that in late 2008, Bozora and Redpath asked Duckson, who was acting as the fund's outside counsel, to take over managing the fund. The SEC alleges that Duckson then began managing the fund while Bozora and Redpath continued to raise money from new investors. The SEC alleges that Bozora, Redpath, and Duckson failed to disclose the default and foreclosure to investors for several months. The SEC alleges that Bozora, Redpath, and Duckson eventually made some disclosure of the default and foreclosure, but they minimized the impact of these events and misleadingly promoted the fund's ability to make new loans.
Tuesday, September 21, 2010
SEC Charges California lawyer for role in investment scheme
The Securities and Exchange Commission ("Commission") announced that it charged a California lawyer, George Gustav Bujkovsky, age 67, of Escondido, California, for his role in perpetrating a phony investment pool scheme directed by his clients.
The Commission's complaint, filed September 21, in federal court in San Diego, alleges that while Bujkovsky represented MAK 1 Enterprises Group, LLC ("MAK 1") and its principals, Mohit A. Khanna and Sharanjit K. Khanna, he personally defrauded certain MAK 1 investors, aided and abetted the fraud of MAK 1 and the Khannas, and offered and sold MAK 1's unregistered securities. Investors in the $35 million MAK 1 scheme were promised exorbitantly high returns through guaranteed investments such as foreign currency trading. MAK 1 was in fact a Ponzi scheme and was halted by an emergency action filed by the Commission in federal court in San Diego in August 2009. In that action, SEC v. Mohit A. Khanna, et al., Case No. 09CV1784BEN (filed Aug.17, 2009, the Commission charged MAK 1 and the Khannas with violations of the federal securities laws, Bujkovsky represented MAK 1 and the Khannas as clients between April and August 2009.
The Commission's complaint, filed September 21, in federal court in San Diego, alleges that while Bujkovsky represented MAK 1 Enterprises Group, LLC ("MAK 1") and its principals, Mohit A. Khanna and Sharanjit K. Khanna, he personally defrauded certain MAK 1 investors, aided and abetted the fraud of MAK 1 and the Khannas, and offered and sold MAK 1's unregistered securities. Investors in the $35 million MAK 1 scheme were promised exorbitantly high returns through guaranteed investments such as foreign currency trading. MAK 1 was in fact a Ponzi scheme and was halted by an emergency action filed by the Commission in federal court in San Diego in August 2009. In that action, SEC v. Mohit A. Khanna, et al., Case No. 09CV1784BEN (filed Aug.17, 2009, the Commission charged MAK 1 and the Khannas with violations of the federal securities laws, Bujkovsky represented MAK 1 and the Khannas as clients between April and August 2009.
Saturday, September 18, 2010
SEC Obtains Emergency Asset Freeze to Halt Multimillion Dollar Entertainment Investment Fraud
On September 14, 2010, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Atlanta -based LADP Acquisition, Inc. (LADP Acquisition) and its principals, Atlanta residents William A. Goldstein and Marc E. Bercoon. The SEC alleges that LADP Acquisition, Goldstein and Bercoon are perpetrating an ongoing $3.2 million entertainment investment fraud. The court entered an order halting the alleged fraud and freezing the assets of LADP Acquisition, Goldstein and Bercoon.
The SEC charged LADP Acquisition, Goldstein and Bercoon for allegedly misappropriating investor funds in a “bait-and-switch” scheme. The SEC’s complaint alleges that LADP Acquisition, Goldstein and Bercoon misrepresented that investors would be investing in L.A. Digital Post, Inc. (L.A. Digital), a television and film post-production company with offices in Los Angeles and New York. The SEC’s complaint alleges that prospective investors were provided offering materials listing prominent motion picture studios and television networks that had been clients of L.A. Digital and a “client list” setting forth well-known television shows and movies for which L.A. Digital provided post-production services.
In reality, according to the SEC’s complaint, investors received worthless certificates representing “shares” in LADP Acquisition, an entity with no business operations. The SEC’s complaint further alleges that the defendants represented to potential investors that L.A. Digital is “going public” or going to be the subject of an initial public offering (IPO) within a short period of time, such as 60 or 90 days, and that its shares will be traded on the American Stock Exchange, or some other public exchange such as the New York Stock Exchange or NASDAQ. However, no public offering of L.A. Digital stock has occurred.
The SEC charged LADP Acquisition, Goldstein and Bercoon for allegedly misappropriating investor funds in a “bait-and-switch” scheme. The SEC’s complaint alleges that LADP Acquisition, Goldstein and Bercoon misrepresented that investors would be investing in L.A. Digital Post, Inc. (L.A. Digital), a television and film post-production company with offices in Los Angeles and New York. The SEC’s complaint alleges that prospective investors were provided offering materials listing prominent motion picture studios and television networks that had been clients of L.A. Digital and a “client list” setting forth well-known television shows and movies for which L.A. Digital provided post-production services.
In reality, according to the SEC’s complaint, investors received worthless certificates representing “shares” in LADP Acquisition, an entity with no business operations. The SEC’s complaint further alleges that the defendants represented to potential investors that L.A. Digital is “going public” or going to be the subject of an initial public offering (IPO) within a short period of time, such as 60 or 90 days, and that its shares will be traded on the American Stock Exchange, or some other public exchange such as the New York Stock Exchange or NASDAQ. However, no public offering of L.A. Digital stock has occurred.
Wednesday, September 15, 2010
SEC Settles Claims Involving Scheme to Pay Off Bonds
The Commission announced that on August 26, 2010, Federal District Judge Paul Gardephe of the United States District Court for the Southern District of New York entered final judgments approving settlements between the Commission and the defendants in the pending case against FTC Capital Markets, Inc. ("FTC"), FTC Emerging Markets ("Emerging Markets"), Guillermo David Clamens, and Lina Lopez. The judgments against Clamens, FTC and Emerging Markets order those defendants to pay over $20 million in disgorgement and penalties but provide for full satisfaction of their monetary obligations by defendants' release of their assets frozen at the start of the case and any other assets in the United States. The final judgments, to which the defendants consented without admitting or denying allegations in the Commission's complaint, also permanently enjoin all the defendants from future violations of the relevant provisions of the federal securities laws.
The Commission filed the action on May 19, 2009, charging Clamens, FTC, a registered broker-dealer controlled by Clamens, and Lopez, an FTC employee, with a fraudulent scheme to engage in tens of millions of dollars of unauthorized securities trading through the accounts of two FTC customers. According to the Commission's complaint, Clamens and Lopez defrauded the two FTC customers in part to conceal their prior fraudulent sale of $50 million in non-existent notes to a Venezuelan bank through defendant Emerging Markets, another Clamens-controlled entity. When the fictitious notes held by the Venezuelan bank purportedly came due in August 2008, Clamens allegedly misappropriated $50 million from the two FTC customers to fund the redemption. In addition, the Complaint alleged that Emerging Markets illegally acted as an unregistered broker-dealer. As a result of the alleged misconduct, the Complaint charged that defendants FTC, Emerging Markets, Clamens and Lopez violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; defendant FTC violated Section 15(c) of the Exchange Act; defendant Emerging Markets violated Section 15(a) of the Exchange Act; and defendants Clamens and Lopez aided and abetted FTC's violations of Exchange Act Section 15(c) and Emerging Markets' violations of Exchange Act Section 15(a).
The final judgment against Lopez holds her liable for a civil penalty of $130,000 but does not order her to pay the penalty in light of her conviction in a separate criminal proceeding, United States v. Nazly Cucunuba Lopez a/k/a Lina Lopez, 09 Cr. 985 (RPP)(S.D.N.Y.), and her sworn representations of financial condition. Separately, Clamens and Lopez both agreed to settle related administrative proceedings by the Commission by consenting to be barred from association with any broker or dealer.
The Commission filed the action on May 19, 2009, charging Clamens, FTC, a registered broker-dealer controlled by Clamens, and Lopez, an FTC employee, with a fraudulent scheme to engage in tens of millions of dollars of unauthorized securities trading through the accounts of two FTC customers. According to the Commission's complaint, Clamens and Lopez defrauded the two FTC customers in part to conceal their prior fraudulent sale of $50 million in non-existent notes to a Venezuelan bank through defendant Emerging Markets, another Clamens-controlled entity. When the fictitious notes held by the Venezuelan bank purportedly came due in August 2008, Clamens allegedly misappropriated $50 million from the two FTC customers to fund the redemption. In addition, the Complaint alleged that Emerging Markets illegally acted as an unregistered broker-dealer. As a result of the alleged misconduct, the Complaint charged that defendants FTC, Emerging Markets, Clamens and Lopez violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; defendant FTC violated Section 15(c) of the Exchange Act; defendant Emerging Markets violated Section 15(a) of the Exchange Act; and defendants Clamens and Lopez aided and abetted FTC's violations of Exchange Act Section 15(c) and Emerging Markets' violations of Exchange Act Section 15(a).
The final judgment against Lopez holds her liable for a civil penalty of $130,000 but does not order her to pay the penalty in light of her conviction in a separate criminal proceeding, United States v. Nazly Cucunuba Lopez a/k/a Lina Lopez, 09 Cr. 985 (RPP)(S.D.N.Y.), and her sworn representations of financial condition. Separately, Clamens and Lopez both agreed to settle related administrative proceedings by the Commission by consenting to be barred from association with any broker or dealer.
Tuesday, September 14, 2010
FINRA Sanctions Trillium Brokerage Services, LLC, Director of Trading, Chief Compliance Officer, and Nine Traders $2.26 Million for Illicit Equities Trading Strategy
The Financial Industry Regulatory Authority (FINRA) today announced that it has censured and fined New York-based Trillium Brokerage Services, LLC, $1 million for using an illicit high frequency trading strategy and related supervisory failures. Trillium, through nine proprietary traders, entered numerous layered, non-bona fide market moving orders to generate selling or buying interest in specific stocks. By entering the non-bona fide orders, often in substantial size relative to a stock's overall legitimate pending order volume, Trillium traders created a false appearance of buy- or sell-side pressure.
This trading strategy induced other market participants to enter orders to execute against limit orders previously entered by the Trillium traders. Once their orders were filled, the Trillium traders would then immediately cancel orders that had only been designed to create the false appearance of market activity. As a result of this improper high frequency trading strategy, Trillium's traders obtained advantageous prices that otherwise would not have been available to them on 46,000 occasions. Other market participants were unaware that they were acting on the layered, illegitimate orders entered by Trillium traders.
In addition to the nine traders, FINRA also took action against Trillium's Director of Trading and its Chief Compliance Officer. The 11 individuals were suspended from the securities industry or as principals for periods ranging from six months to two years. FINRA levied a total of $802,500 in fines against the individuals, ranging from $12,500 to $220,000, and required the traders to pay out disgorgements totaling about $292,000.
FINRA's investigation found that nine Trillium proprietary traders intentionally created the appearance of substantial selling or buying interest in the NASDAQ Stock Market and NYSE Arca exchange. Trillium's traders bought and sold NASDAQ securities in this manner in over 46,000 instances, resulting in total profits of approximately $575,000, of which the firm retained over $173,000 and subsequently was required to disgorge.
This trading strategy induced other market participants to enter orders to execute against limit orders previously entered by the Trillium traders. Once their orders were filled, the Trillium traders would then immediately cancel orders that had only been designed to create the false appearance of market activity. As a result of this improper high frequency trading strategy, Trillium's traders obtained advantageous prices that otherwise would not have been available to them on 46,000 occasions. Other market participants were unaware that they were acting on the layered, illegitimate orders entered by Trillium traders.
In addition to the nine traders, FINRA also took action against Trillium's Director of Trading and its Chief Compliance Officer. The 11 individuals were suspended from the securities industry or as principals for periods ranging from six months to two years. FINRA levied a total of $802,500 in fines against the individuals, ranging from $12,500 to $220,000, and required the traders to pay out disgorgements totaling about $292,000.
FINRA's investigation found that nine Trillium proprietary traders intentionally created the appearance of substantial selling or buying interest in the NASDAQ Stock Market and NYSE Arca exchange. Trillium's traders bought and sold NASDAQ securities in this manner in over 46,000 instances, resulting in total profits of approximately $575,000, of which the firm retained over $173,000 and subsequently was required to disgorge.
Thursday, September 2, 2010
SEC Charges NJ Investment Advisor In Offering Fraud Case
The Securities and Exchange Commission announced that is has filed a complaint in the District of New Jersey against Sandra Venetis, a Branchburg, N.J.-based investment adviser and three of her firms, Systematic Financial Services, Inc., Systematic Financial Associates, Inc., and Systematic Financial Services, LLC, with operating a multi-million dollar offering fraud involving the sale of phony promissory notes to investors, many of whom are retired or unsophisticated in investments.
The Commission's complaint alleges that Venetis and the three entities that she founded, owned, or controlled have obtained at least $11 million from investors since approximately 1997. Systematic Financial Associates Inc. is an investment adviser, Systematic Financial Services LLC is an accounting and tax preparation firm, and Systematic Financial Services Inc. is an entity Venetis created to conduct the fraudulent offerings. Venetis, acting on behalf of the three entities, solicited and obtained funds from clients and others to invest in promissory notes, fixed income investments, or other side investments.
The Commission's complaint alleges that Venetis told some investors that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation and would earn interest of approximately 6 to 11 percent per year that would be tax-free due to a loophole in the tax code. She also told investors that she would use their money to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors. Instead of making investments, Venetis looted investor funds to pay business debts and personal expenses accrued from international travel, gambling, and home mortgages and property taxes. She also funneled cash to her relatives.
The Commission's complaint alleges that Venetis and the three entities that she founded, owned, or controlled have obtained at least $11 million from investors since approximately 1997. Systematic Financial Associates Inc. is an investment adviser, Systematic Financial Services LLC is an accounting and tax preparation firm, and Systematic Financial Services Inc. is an entity Venetis created to conduct the fraudulent offerings. Venetis, acting on behalf of the three entities, solicited and obtained funds from clients and others to invest in promissory notes, fixed income investments, or other side investments.
The Commission's complaint alleges that Venetis told some investors that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation and would earn interest of approximately 6 to 11 percent per year that would be tax-free due to a loophole in the tax code. She also told investors that she would use their money to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors. Instead of making investments, Venetis looted investor funds to pay business debts and personal expenses accrued from international travel, gambling, and home mortgages and property taxes. She also funneled cash to her relatives.
Wednesday, September 1, 2010
Final Judgment Enterest Against Thompson Consulting, Inc.
On August 17, 2010, the Honorable Bruce S. Jenkins, United States District Court Judge for the District of Utah, entered final judgments of permanent injunction and other relief against Defendants Thompson Consulting, Inc. (Thompson Consulting), Kyle J. Thompson (Thompson), David C. Condie (Condie) and E. Sherman Warner (Warner). The final judgments against Thompson, Condie and Warner enjoin them from violating Sections 17(a)(2) and (3) of the Securities Exchange Act of 1933 (Securities Act).
The final judgment against Thompson Consulting enjoins Thompson Consulting from violations of Sections 17(a)(2) and (3) of the Securities Act and Section 206(2) of the Investment Advisers Act of 1940. In addition to the injunctive relief, Thompson Consulting is liable for disgorgement of $400,000. Thompson Consulting, Thompson, Condie and Warner consented to the entry of the final judgments without admitting or denying the allegations of the complaint.
The Commission commenced this action on March 4, 2008, alleging Thompson Consulting, a hedge fund adviser, and its principals Thompson, Condie and Warner violated the antifraud provisions of the securities laws by making undisclosed subprime and other high-risk investments which resulted in the near total asset losses of two hedge funds managed by the adviser. The Commission's complaint also alleged that Thompson Consulting's deviations from its stated investment policy resulted in substantial losses to the hedge funds.
The final judgment against Thompson Consulting enjoins Thompson Consulting from violations of Sections 17(a)(2) and (3) of the Securities Act and Section 206(2) of the Investment Advisers Act of 1940. In addition to the injunctive relief, Thompson Consulting is liable for disgorgement of $400,000. Thompson Consulting, Thompson, Condie and Warner consented to the entry of the final judgments without admitting or denying the allegations of the complaint.
The Commission commenced this action on March 4, 2008, alleging Thompson Consulting, a hedge fund adviser, and its principals Thompson, Condie and Warner violated the antifraud provisions of the securities laws by making undisclosed subprime and other high-risk investments which resulted in the near total asset losses of two hedge funds managed by the adviser. The Commission's complaint also alleged that Thompson Consulting's deviations from its stated investment policy resulted in substantial losses to the hedge funds.
Thursday, August 26, 2010
Montana Files Against Securities America for Medical Capital Blow Up
A Montana regulator has filed a cease and desist order against broker-dealer Securities America related to its sales of private placements.
The office of the state auditor for the Commissioner of Securities and Insurance in Montana alleged in an Aug. 5 order that Securities America and some of its executives, including Chief Executive James Nagengast, "withheld material information regarding the heightened risks" of promissory notes it sold that were issued by Medical Capital Holdings Inc. Omaha, Neb.-based Securities America is a unit of Ameriprise Financial Inc. (AMP).
The broker-dealer was the placement agent for the sale of Medical Capital Holdings' promissory notes to Montana investors from 2006 through 2008, and was responsible for the sale of 37% of the total notes from the issuer nationwide since 2003, amounting to $697 million, the regulator said in its legal action.
The broker has requested an administrative hearing on the matter, and the Montana regulator is preparing to set up a scheduling meeting with it, a spokeswoman for the commissioner's office said in an interview Tuesday. Such matters are usually resolved very quickly in the state, she said.
In January, William Galvin, Secretary of the Commonwealth of Massachusetts, charged Securities America with improper sales of Medical Capital notes. His office alleged the brokers' representatives failed to disclose risks to customers.
Several broker-dealers have had to shut their doors due to their sales of private-placement securities, which are stocks, bonds or other instruments issued by a corporation to investors outside the public markets.
The office of the state auditor for the Commissioner of Securities and Insurance in Montana alleged in an Aug. 5 order that Securities America and some of its executives, including Chief Executive James Nagengast, "withheld material information regarding the heightened risks" of promissory notes it sold that were issued by Medical Capital Holdings Inc. Omaha, Neb.-based Securities America is a unit of Ameriprise Financial Inc. (AMP).
The broker-dealer was the placement agent for the sale of Medical Capital Holdings' promissory notes to Montana investors from 2006 through 2008, and was responsible for the sale of 37% of the total notes from the issuer nationwide since 2003, amounting to $697 million, the regulator said in its legal action.
The broker has requested an administrative hearing on the matter, and the Montana regulator is preparing to set up a scheduling meeting with it, a spokeswoman for the commissioner's office said in an interview Tuesday. Such matters are usually resolved very quickly in the state, she said.
In January, William Galvin, Secretary of the Commonwealth of Massachusetts, charged Securities America with improper sales of Medical Capital notes. His office alleged the brokers' representatives failed to disclose risks to customers.
Several broker-dealers have had to shut their doors due to their sales of private-placement securities, which are stocks, bonds or other instruments issued by a corporation to investors outside the public markets.
Thursday, August 19, 2010
FINRA Fines HSBC For CMO Sales to Retail Customers
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined HSBC Securities (USA) Inc. $375,000 for recommending unsuitable sales of inverse floating rate Collateralized Mortgage Obligations (CMOs) to retail customers. HSBC failed to adequately supervise the suitability of the CMO sales and fully explain the risks of an inverse floating rate or other risky CMO investment to its customers.
FINRA's investigation found that HSBC recommended the sale of CMOs, including inverse floating rate CMOs, to its retail customers. As a result of HSBC not implementing an adequate supervisory system and procedures relating to the sale of inverse floating rate CMOs to retail customers, six of its brokers made 43 unsuitable sales of inverse floaters to retail customers who were unsophisticated investors and not suited for high-risk investments. In addition, HSBC's procedures required a supervisor's pre-approval of any sale in excess of $100,000; FINRA found that 25 of the 43 CMO sales were in amounts exceeding $100,000 and that in five of these instances, customers lost money in their inverse floating rate CMO investments. HSBC has paid these customers full restitution totaling $320,000.
"Firms must adequately train their brokers on all of the products that they are selling and must reasonably supervise them to ensure that every security recommended is suitable for the particular customer," said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. "The losses incurred by HSBC's customers likely would have been avoided had the firm sufficiently trained its brokers on the suitability and risks of inverse floating rate CMOs and reasonably supervised their brokers to ensure that they were making suitable recommendations."
A CMO is a fixed income security that pools mortgages and issues tranches with various characteristics and risks. CMOs make principal payments throughout the life of the security with the maturity date being the last date by which all of the principal must be returned. The timing of the return of principal payments can vary depending on interest rate changes.
One of the more risky CMO tranches is the inverse floater, a type of tranche that pays an adjustable rate of interest that moves in the opposite direction from movements of an interest rate index, such as LIBOR. Since 1993, FINRA has advised firms that inverse floating rate CMOs "are only suitable for sophisticated investors with a high-risk profile."
FINRA's investigation found that HSBC recommended the sale of CMOs, including inverse floating rate CMOs, to its retail customers. As a result of HSBC not implementing an adequate supervisory system and procedures relating to the sale of inverse floating rate CMOs to retail customers, six of its brokers made 43 unsuitable sales of inverse floaters to retail customers who were unsophisticated investors and not suited for high-risk investments. In addition, HSBC's procedures required a supervisor's pre-approval of any sale in excess of $100,000; FINRA found that 25 of the 43 CMO sales were in amounts exceeding $100,000 and that in five of these instances, customers lost money in their inverse floating rate CMO investments. HSBC has paid these customers full restitution totaling $320,000.
"Firms must adequately train their brokers on all of the products that they are selling and must reasonably supervise them to ensure that every security recommended is suitable for the particular customer," said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. "The losses incurred by HSBC's customers likely would have been avoided had the firm sufficiently trained its brokers on the suitability and risks of inverse floating rate CMOs and reasonably supervised their brokers to ensure that they were making suitable recommendations."
A CMO is a fixed income security that pools mortgages and issues tranches with various characteristics and risks. CMOs make principal payments throughout the life of the security with the maturity date being the last date by which all of the principal must be returned. The timing of the return of principal payments can vary depending on interest rate changes.
One of the more risky CMO tranches is the inverse floater, a type of tranche that pays an adjustable rate of interest that moves in the opposite direction from movements of an interest rate index, such as LIBOR. Since 1993, FINRA has advised firms that inverse floating rate CMOs "are only suitable for sophisticated investors with a high-risk profile."
Wednesday, August 18, 2010
FINRA Fines Merrill Lynch Over UIT Abuse
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Merrill Lynch $500,000 for failing to provide sales charge discounts to customers on eligible purchases of Unit Investment Trusts (UITs). FINRA also found that Merrill Lynch failed to have an adequate supervisory system in place to ensure customers received appropriate UIT discounts. The firm also agreed to provide remediation of more than $2 million to affected customers.
"Firms have been on notice since at least 2004 that they must develop and implement procedures to ensure customers receive appropriate sales charge discounts for UIT investments," said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. "In this case, it was critical for the firm to ensure that its brokers were diligent in providing sales charge discounts to which customers were entitled. This failure resulted in increased investment costs to Merrill's customers."
A UIT is a type of investment company that offers redeemable units, of a generally fixed portfolio of securities, that terminate on a specific date. UIT sponsors generally offer sales charge discounts to investors, known as "breakpoint discounts" and "rollover and exchange discounts."
A breakpoint discount is a reduced sales charge based on the dollar amount of the purchase – the higher the amount the greater the discount. Breakpoints generally function as a sliding reduction in the sales charge percentage available for purchases, usually beginning at $25,000 or $50,000 (or the corresponding number of units).
A rollover or exchange discount is a reduced sales charge that is offered to investors who use the termination or redemption proceeds from one UIT to purchase another UIT.
"Firms have been on notice since at least 2004 that they must develop and implement procedures to ensure customers receive appropriate sales charge discounts for UIT investments," said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. "In this case, it was critical for the firm to ensure that its brokers were diligent in providing sales charge discounts to which customers were entitled. This failure resulted in increased investment costs to Merrill's customers."
A UIT is a type of investment company that offers redeemable units, of a generally fixed portfolio of securities, that terminate on a specific date. UIT sponsors generally offer sales charge discounts to investors, known as "breakpoint discounts" and "rollover and exchange discounts."
A breakpoint discount is a reduced sales charge based on the dollar amount of the purchase – the higher the amount the greater the discount. Breakpoints generally function as a sliding reduction in the sales charge percentage available for purchases, usually beginning at $25,000 or $50,000 (or the corresponding number of units).
A rollover or exchange discount is a reduced sales charge that is offered to investors who use the termination or redemption proceeds from one UIT to purchase another UIT.
Names of Rothstein Ponzi Scheme Victims to Remain Private
The names of the 259 people and companies that Florida attorney Scott Rothstein duped in his massive Ponzi scheme will be kept secret, a federal judge ruled this week.
U.S. District Judge James I. Cohn decided to seal the list of victims, entitled to $279 million in restitution, at the behest of the Justice Department, the Sun Sentinel reported.
Attorneys at the Justice Department said victims had expressed their concerns at having the world know they were among the investors Rothstein bilked out of at least $1.2 billion. Attorneys argued that shielding the names from public view is for the good of the victims’ financial and emotional well-being.
U.S. District Judge James I. Cohn decided to seal the list of victims, entitled to $279 million in restitution, at the behest of the Justice Department, the Sun Sentinel reported.
Attorneys at the Justice Department said victims had expressed their concerns at having the world know they were among the investors Rothstein bilked out of at least $1.2 billion. Attorneys argued that shielding the names from public view is for the good of the victims’ financial and emotional well-being.
Tuesday, August 17, 2010
8 Charged In California Real Estate Scheme
Eight people have been charged in a real estate scheme that federal prosecutors say swindled investors out of more than $11.4 million between 2006 and 2008.
Prosecutors allege the defendants solicited investors through their family run company in Sacramento, Heaven Investments. They promised to buy, renovate and resell single-family homes and use investors' money to develop four pieces of property, pitching annual returns of 12 to 15 percent.
The indictment says the company operated like a Ponzi scheme, using money from new investors to make interest payments to earlier ones.
Prosecutors allege the defendants solicited investors through their family run company in Sacramento, Heaven Investments. They promised to buy, renovate and resell single-family homes and use investors' money to develop four pieces of property, pitching annual returns of 12 to 15 percent.
The indictment says the company operated like a Ponzi scheme, using money from new investors to make interest payments to earlier ones.
Monday, August 16, 2010
Leveraged Municipal Arbitrage Funds Under Investigation
Aidikoff, Uhl & Bakhtiari announced today that it is investigating potential claims on behalf of investors who invested in the following municipal arbitrage funds:
1861 Capital Management
Citigroup's Mat and ASTA Funds
Aravali Fund
Blue River Asset Management
GEM Capital
Havell Capital Enhanced Municipal Income Fund
Rockwater Hedge Fund, LLC
Stone and Youngberg Municipal Advantage Fund
TW Tax Advantaged Fund
Aidikoff, Uhl & Bakhtiari represents high net worth investors who sustained losses in leveraged municipal bond arbitrage hedge funds sold by brokerage firms and banks across the country.
The municipal bond arbitrage strategy employed by these funds was risky and exposed investors principal losses.
For more information please visit our website or contact an attorney.
1861 Capital Management
Citigroup's Mat and ASTA Funds
Aravali Fund
Blue River Asset Management
GEM Capital
Havell Capital Enhanced Municipal Income Fund
Rockwater Hedge Fund, LLC
Stone and Youngberg Municipal Advantage Fund
TW Tax Advantaged Fund
Aidikoff, Uhl & Bakhtiari represents high net worth investors who sustained losses in leveraged municipal bond arbitrage hedge funds sold by brokerage firms and banks across the country.
The municipal bond arbitrage strategy employed by these funds was risky and exposed investors principal losses.
For more information please visit our website or contact an attorney.
Lakewood New Jersey Real Estate Devloper Charged
Eli Weinstein, a member of Lakewood’s ultra-Orthodox community who has been accused of ripping off former partners in courts from New Jersey to Israel, was arrested by federal agents early this morning and charged with a $200 million ponzi scheme.
The 35-year-old real estate investor and former used car salesman, taken into custody at his home, was charged with bank and wire fraud for allegedly running an investment fraud scheme, said the U.S. Attorney’s Office in Newark.
Weinstein faces a string of civil lawsuits seeking millions in damages over real estate transactions that span the world.
The 35-year-old real estate investor and former used car salesman, taken into custody at his home, was charged with bank and wire fraud for allegedly running an investment fraud scheme, said the U.S. Attorney’s Office in Newark.
Weinstein faces a string of civil lawsuits seeking millions in damages over real estate transactions that span the world.
Sunday, August 15, 2010
Illinois Money Manager William A. Huber Pleads Guilty To Criminal Charges In Connection With Securities Fraud
The Securities and Exchange Commission announced today that on August 10, former Forsyth, Illinois money manager, William A. Huber, pled guilty to one count of mail fraud, one count of money laundering and one count of engaging in prohibited monetary transactions in a case being prosecuted by the U.S. Attorney for the Central District of Illinois. Also on August 10, 2010, the U.S Attorney's Office filed a criminal Information against Huber charging that he defrauded investors by operating a Ponzi-type scheme in which he used money invested by clients to make payment to other investors. The Information also charges Huber with defrauding investors by grossly inflating the amount of money he managed and the amounts of investors' returns. The Information further charges that Huber used investor funds to support his lavish lifestyle, including paying mortgage payments and remodeling expenses for residences in California and Florida and his personal life insurance premiums. Huber is scheduled for sentencing in front of U.S. District Court Judge Joe Billy McDade on December 10, 2010.
The Commission previously filed a civil injunctive action against Huber in the Northern District of Illinois based on similar conduct on September 29, 2009. The Commission's complaint alleged that Huber, operating through his investment firm Hubadex, Inc., made Ponzi-like payments to investors by using newer investor funds to make redemption payments at inflated amounts. The complaint also alleged that Huber significantly inflated the fees that he was entitled to receive based on the outsized investment returns that he reported to investors. According to the SEC's complaint, Huber diverted over $1.9 million in investor funds into his and his wife's bank accounts and used investor funds to pay other lavish personal expenses. The SEC further alleged that on December 17, 2008, one week after Bernard Madoff was arrested for perpetrating a massive Ponzi scheme, Huber sent an e-mail message to investors reassuring them that he managed his funds honestly and that his funds bore no resemblance to Madoff's scheme. According to the complaint, Huber made a series of additional misrepresentations to investors, including, overstating the amount of assets under management and inflating investor returns. Huber also lied to SEC staff members during their investigation of his activities, reporting false account balances and claiming he had made hedge fund investments that did not exist.
The Commission previously filed a civil injunctive action against Huber in the Northern District of Illinois based on similar conduct on September 29, 2009. The Commission's complaint alleged that Huber, operating through his investment firm Hubadex, Inc., made Ponzi-like payments to investors by using newer investor funds to make redemption payments at inflated amounts. The complaint also alleged that Huber significantly inflated the fees that he was entitled to receive based on the outsized investment returns that he reported to investors. According to the SEC's complaint, Huber diverted over $1.9 million in investor funds into his and his wife's bank accounts and used investor funds to pay other lavish personal expenses. The SEC further alleged that on December 17, 2008, one week after Bernard Madoff was arrested for perpetrating a massive Ponzi scheme, Huber sent an e-mail message to investors reassuring them that he managed his funds honestly and that his funds bore no resemblance to Madoff's scheme. According to the complaint, Huber made a series of additional misrepresentations to investors, including, overstating the amount of assets under management and inflating investor returns. Huber also lied to SEC staff members during their investigation of his activities, reporting false account balances and claiming he had made hedge fund investments that did not exist.
Saturday, August 14, 2010
Morgan Stanley Fined By FINRA Over Failure to Disclose
The Financial Industry Regulatory Authority on Tuesday said it ordered Morgan Stanley to pay $800,000 for failing to disclose conflicts of interests in thousands of stock-research reports since 2006.
The group said that Morgan Stanley & Co., a subsidiary of the investment bank, failed to disclose accurate information about the firm's relationships with those companies it covered in more than 6,500 equity research reports. In addition, relevant disclosures weren't made for 84 public appearances of its research analysts.
The deficient disclosures include failing to reveal the personal securities holdings of an analyst or a member of the analyst's household. Finra is continuing its investigation into the trading behavior of one former analyst involved in the case, according to people familiar with the matter. The names of the analysts weren't disclosed.
Morgan Stanley's infractions took place in an area that regulators targeted a decade ago when it became clear that research recommendations were often driven by Wall Street's desire to keep banking clients happy.
The group said that Morgan Stanley & Co., a subsidiary of the investment bank, failed to disclose accurate information about the firm's relationships with those companies it covered in more than 6,500 equity research reports. In addition, relevant disclosures weren't made for 84 public appearances of its research analysts.
The deficient disclosures include failing to reveal the personal securities holdings of an analyst or a member of the analyst's household. Finra is continuing its investigation into the trading behavior of one former analyst involved in the case, according to people familiar with the matter. The names of the analysts weren't disclosed.
Morgan Stanley's infractions took place in an area that regulators targeted a decade ago when it became clear that research recommendations were often driven by Wall Street's desire to keep banking clients happy.
Friday, August 13, 2010
Northamerican Energy - SEC Seeks Receiever
On August 11, 2010, the U.S. Securities and Exchange Commission filed a complaint in the United States District Court for the Southern District of Texas, Houston Division seeking emergency relief including the appointment of a receiver, against Houston resident Jon C. Ginder ("Ginder") and two related oil and gas companies, Northamerican Energy Group, Inc. ("NEG") and Northamerican Energy Group Corp. (NEGC). The complaint alleges that from February 2008 to May 2010, the defendants fraudulently raised approximately $3.5 million from over 50 investors nationwide through unregistered oil and gas limited partnership offerings. Investors were solicited through television advertisements touting annual returns as high as 40% from low risk producing wells. The estimated returns were purportedly based upon historical oil and gas data. In fact, the complaint alleges that historical oil and gas production from the leases in the first two partnership offerings was very poor, and many of the wells had no recent production history.
Thursday, August 12, 2010
ASTA and Mat Municipal Arbitrage Claims Continue to Be Investigated by Aidikoff, Uhl & Bakhtiari
Aidikoff, Uhl & Bakhtiari announces it's continuing investigation into the ASTA/Mat municipal arbitrage funds launched by Citigroup Global Markets, Inc. and sold through Smith Barney, part of Citigroup's (NYSE:C) Global Wealth Management Group. The ASTA/Mat funds were first rolled out in 2002 and imploded in February 2008 causing catastrophic losses to investors.
"The Mat funds were marketed to clients as a fixed income product producing a couple of extra points above municipal bonds," according to Philip M. Aidikoff. "In truth, the Mat funds were a highly risk leveraged bet subjecting clients of the firm to losses that could possibly exceed 100 percent or more of an investors initial capital."
In May 2010 two Los Angeles based Financial Industry Regulatory Authority (FINRA) arbitration panels awarded more than $2.2 million to clients of Aidikoff, Uhl & Bakhtiari representing a return of 100 percent of the clients' principal losses.
"The municipal arbitrage strategy employed by the Mat funds was risky and exposed investors to 2 times more volatility than the S&P 500 and 7 times more volatility than a traditional portfolio of municipal bonds," stated Ryan K. Bakhtiari.
Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters. Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions. More information is available at www.securitiesarbitration.com or to discuss your options please contact an attorney below.
"The Mat funds were marketed to clients as a fixed income product producing a couple of extra points above municipal bonds," according to Philip M. Aidikoff. "In truth, the Mat funds were a highly risk leveraged bet subjecting clients of the firm to losses that could possibly exceed 100 percent or more of an investors initial capital."
In May 2010 two Los Angeles based Financial Industry Regulatory Authority (FINRA) arbitration panels awarded more than $2.2 million to clients of Aidikoff, Uhl & Bakhtiari representing a return of 100 percent of the clients' principal losses.
"The municipal arbitrage strategy employed by the Mat funds was risky and exposed investors to 2 times more volatility than the S&P 500 and 7 times more volatility than a traditional portfolio of municipal bonds," stated Ryan K. Bakhtiari.
Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters. Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions. More information is available at www.securitiesarbitration.com or to discuss your options please contact an attorney below.
Wednesday, August 11, 2010
1861 Capital Investigation Continues...
Aidikoff, Uhl & Bakhtiari announces an investigation into the 1861 Capital Management municipal arbitrage funds sold by UBS and other broker dealers. The 1861 Capital funds imploded in February 2008, causing catastrophic losses to investors.
"1861 municipal arbitrage funds were marketed to clients as a fixed income product producing a couple of extra points above municipal bonds," according to Philip M. Aidikoff. "In truth, the 1861 funds were a high risk leveraged bet subjecting clients to a significant loss of principal."
In May 2010 two Los Angeles based Financial Industry Regulatory Authority (FINRA) arbitration panels awarded more than $2.2 million to clients of Aidikoff, Uhl & Bakhtiari, representing a return of 100 percent of the clients' principal losses in cases involving the Citibank ASTA/Mat municipal arbitrage funds which are similar to the 1861 product.
"The municipal arbitrage strategy employed was risky and exposed investors to about 2 times more volatility than the S&P 500 and about 7 times more volatility than a traditional portfolio of municipal bonds," stated Ryan K. Bakhtiari.
"1861 municipal arbitrage funds were marketed to clients as a fixed income product producing a couple of extra points above municipal bonds," according to Philip M. Aidikoff. "In truth, the 1861 funds were a high risk leveraged bet subjecting clients to a significant loss of principal."
In May 2010 two Los Angeles based Financial Industry Regulatory Authority (FINRA) arbitration panels awarded more than $2.2 million to clients of Aidikoff, Uhl & Bakhtiari, representing a return of 100 percent of the clients' principal losses in cases involving the Citibank ASTA/Mat municipal arbitrage funds which are similar to the 1861 product.
"The municipal arbitrage strategy employed was risky and exposed investors to about 2 times more volatility than the S&P 500 and about 7 times more volatility than a traditional portfolio of municipal bonds," stated Ryan K. Bakhtiari.
FINRA Seeks Extension of Discovery Guide Comment Period
The Financial Industry Regulatory Authority has requested to extend the public-comment period for a rule proposal that would redefine the type of information that parties typically exchange during securities arbitration proceedings.
Finra filed a regulatory notice with the Securities and Exchange Commission on Tuesday to extend the comment period for proposed changes to its arbitration discovery guide by 45 days until Oct. 8. The comment period was set to expire on Aug. 24.
The extension is subject to SEC approval.
Finra's proposal aims, in part, to address concerns raised by investor advocates and the securities industry about an earlier version of the proposal that Finra submitted to the SEC in 2008 and later withdrew.
Investor advocates said the 2008 proposal would have obliged customers to turn over too much personal information, such as years of tax returns, and could discourage claims. Some industry advocates said the terms were too broad and would require them to provide irrelevant information.
The new proposal would still require investors to submit certain in-depth information about their financial histories, such as tax returns and loan histories, among other papers. Some requirements are scaled back, however: For example, investors wouldn't have to provide transaction confirmations or documents that illustrate steps that may have taken to limit losses.
Finra filed a regulatory notice with the Securities and Exchange Commission on Tuesday to extend the comment period for proposed changes to its arbitration discovery guide by 45 days until Oct. 8. The comment period was set to expire on Aug. 24.
The extension is subject to SEC approval.
Finra's proposal aims, in part, to address concerns raised by investor advocates and the securities industry about an earlier version of the proposal that Finra submitted to the SEC in 2008 and later withdrew.
Investor advocates said the 2008 proposal would have obliged customers to turn over too much personal information, such as years of tax returns, and could discourage claims. Some industry advocates said the terms were too broad and would require them to provide irrelevant information.
The new proposal would still require investors to submit certain in-depth information about their financial histories, such as tax returns and loan histories, among other papers. Some requirements are scaled back, however: For example, investors wouldn't have to provide transaction confirmations or documents that illustrate steps that may have taken to limit losses.
Tuesday, August 10, 2010
Medical Capital - Update
The following was released today by Aidikoff, Uhl & Bakhtiari (www.securitiesarbitration.com).
A regulatory action filed by the Commonwealth of Massachusetts against Securities America today provides further evidence that investors were misled by the brokerage firm in connection with the sale of Medical Capital promissory notes.
The Massachusetts complaint is based on Securities America's "material omissions and misleading statements made" in the course of the sale of approximately $697 million of promissory notes to Medical Capital investors.
The Massachusetts complaint states "…all material risks and information regarding MC Notes were not disclosed to investors. These risks were known to [Securities America]. Year after year, the due diligence analyst, retained by [Securities America] to conduct a review of the various Medical Capital offerings, specifically requested and at many times pleaded that investors be informed of certain heightened risks."
At the deposition taken by Massachusetts of Securities America's Chairman of Due Diligence and Head of Sales, Thomas Cross, it is reported that Mr. Cross was asked why certain information recommended to be given to the investors by the due diligence analyst was not provided. Mr. Cross responded that giving such information would be a "bad thing."
The Massachusetts investigation also uncovered that "top executives" at Securities America enjoyed vacation trips such as golfing at Pebble Beach and stays at Las Vegas resorts which were paid for by Medical Capital.
To date, Aidikoff, Uhl & Bakhtiari has been retained by approximately 50 investors seeking nearly $20 million in damages against several brokerage firms including Securities America. The individual Securities America brokers 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 before 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.
Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters. Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions. More information is available at www.securitiesarbitration.com or to discuss your options please contact an attorney below.
A regulatory action filed by the Commonwealth of Massachusetts against Securities America today provides further evidence that investors were misled by the brokerage firm in connection with the sale of Medical Capital promissory notes.
The Massachusetts complaint is based on Securities America's "material omissions and misleading statements made" in the course of the sale of approximately $697 million of promissory notes to Medical Capital investors.
The Massachusetts complaint states "…all material risks and information regarding MC Notes were not disclosed to investors. These risks were known to [Securities America]. Year after year, the due diligence analyst, retained by [Securities America] to conduct a review of the various Medical Capital offerings, specifically requested and at many times pleaded that investors be informed of certain heightened risks."
At the deposition taken by Massachusetts of Securities America's Chairman of Due Diligence and Head of Sales, Thomas Cross, it is reported that Mr. Cross was asked why certain information recommended to be given to the investors by the due diligence analyst was not provided. Mr. Cross responded that giving such information would be a "bad thing."
The Massachusetts investigation also uncovered that "top executives" at Securities America enjoyed vacation trips such as golfing at Pebble Beach and stays at Las Vegas resorts which were paid for by Medical Capital.
To date, Aidikoff, Uhl & Bakhtiari has been retained by approximately 50 investors seeking nearly $20 million in damages against several brokerage firms including Securities America. The individual Securities America brokers 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 before 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.
Aidikoff, Uhl & Bakhtiari represents retail and institutional investors around the world in securities arbitration and litigation matters. Attorneys for the firm have appeared before the Financial Industry Regulatory Authority (FINRA) and in numerous state and federal courts to resolve financial disputes between customers, banks, brokerage firms and other financial institutions. More information is available at www.securitiesarbitration.com or to discuss your options please contact an attorney below.
Sunday, August 8, 2010
Virgin Island Financier Accused of Ponzi Scheme Fraud
A U.S. Virgin Islands financier accused by the Securities and Exchange Commission of running a $105 million Ponzi scheme was charged with criminal fraud and taken into custody in Chicago.
Daniel Spitzer, of St. Thomas, controlled a group of 12 investment funds, collectively called the Kenzie Funds, through which he raised more than $100 million from 400 investors between 2004 and 2010, according to a sworn statement by U.S. Postal Inspector Natalie Reda, attached to the criminal complaint.
“Rather than invest those funds as represented to investors, Spitzer used the vast majority -- approximately $71 million -- to make Ponzi payments to investors to keep his scheme afloat,” said Reda.
Spitzer, 51, who also has a home in Barrington, Illinois, was charged yesterday and is being held in federal custody after appearing before a U.S. magistrate judge in Chicago, said Kimberly Nerheim, a spokeswoman for Chicago U.S. Attorney Patrick J. Fitzgerald.
Ponzi schemes, named after 1920s swindler Charles Ponzi, typically involve the use of newer investors’ money by the perpetrator to repay those who got in earlier.
The SEC, in June, filed a civil lawsuit against Spitzer in the same Chicago courthouse, alleging he used some investor money for business expenses and comingled assets to conceal his activities.
Daniel Spitzer, of St. Thomas, controlled a group of 12 investment funds, collectively called the Kenzie Funds, through which he raised more than $100 million from 400 investors between 2004 and 2010, according to a sworn statement by U.S. Postal Inspector Natalie Reda, attached to the criminal complaint.
“Rather than invest those funds as represented to investors, Spitzer used the vast majority -- approximately $71 million -- to make Ponzi payments to investors to keep his scheme afloat,” said Reda.
Spitzer, 51, who also has a home in Barrington, Illinois, was charged yesterday and is being held in federal custody after appearing before a U.S. magistrate judge in Chicago, said Kimberly Nerheim, a spokeswoman for Chicago U.S. Attorney Patrick J. Fitzgerald.
Ponzi schemes, named after 1920s swindler Charles Ponzi, typically involve the use of newer investors’ money by the perpetrator to repay those who got in earlier.
The SEC, in June, filed a civil lawsuit against Spitzer in the same Chicago courthouse, alleging he used some investor money for business expenses and comingled assets to conceal his activities.
Saturday, August 7, 2010
Former Deloitte and Touche Partner and Son Charged With Insider Trading
The Securities and Exchange Commission today charged a former Deloitte and Touche LLP partner and his son with insider trading in the securities of several of the firm's audit clients.
The SEC alleges that Thomas P. Flanagan of Chicago traded in the securities of Deloitte clients, often while serving as a liaison between those companies' management teams and Deloitte's audit engagement teams. In this role, Flanagan had access to advance earnings results and other nonpublic information from Deloitte's audit engagements with Best Buy, Sears, and Walgreens as well as the firm's consulting engagement with Motorola. Flanagan made trades in the securities of these and other companies while in possession of the confidential information, and also tipped his son Patrick T. Flanagan who then traded on the basis of the nonpublic information.
The Flanagans agreed to pay more than $1.1 million to settle the SEC's charges.
The SEC alleges that Thomas P. Flanagan of Chicago traded in the securities of Deloitte clients, often while serving as a liaison between those companies' management teams and Deloitte's audit engagement teams. In this role, Flanagan had access to advance earnings results and other nonpublic information from Deloitte's audit engagements with Best Buy, Sears, and Walgreens as well as the firm's consulting engagement with Motorola. Flanagan made trades in the securities of these and other companies while in possession of the confidential information, and also tipped his son Patrick T. Flanagan who then traded on the basis of the nonpublic information.
The Flanagans agreed to pay more than $1.1 million to settle the SEC's charges.
Friday, August 6, 2010
SEC Charges Boiler Room Operators
The Securities and Exchange Commission today charged two California boiler-room operators and four salesmen for conducting a fraudulent green energy investment scheme. The SEC's complaint names as defendants, boiler-room operators Joseph R. Porche, age 51, of Aliso Viejo, CA, and Larry R. Crowder, age 53, of Newport Coast, CA; and salesmen Konrad C. Kafarski, age 40, of Trabuco Canyon, CA, Carlton L. Williams, age 51, of Coto de Caza, CA, Gary K. Juncker, age 47, of Rancho Santa Margarita, CA, and Dale J. Engelhardt, age 46, of San Clemente, CA.
The SEC's complaint, filed in U.S. District Court in Santa Ana, alleges that between early 2008 to February 2009, Kensington Resources, Inc., through its principals, Porche and Crowder, and its salespeople, raised $11 million from approximately 200 investors nationwide selling unregistered shares of American Environmental Energy, Inc. ("AEEI") common stock. The SEC's complaint alleges that Porche, Crowder, and Kafarski falsely disclosed to investors that payments of sales commissions were limited to 10% of the funds raised, when, in reality, 25% of the funds raised were paid to salesmen and sales managers. The complaint further alleges that these defendants misrepresented how the funds raised would be used, telling investors that 80% of the funds raised would be used by AEEI to conduct its green energy business. In reality, most of the funds raised were kept by Porche and Crowder to fund their lavish lifestyles and only $315,000 of the $11 million raised went to AEEI.
The SEC's complaint, filed in U.S. District Court in Santa Ana, alleges that between early 2008 to February 2009, Kensington Resources, Inc., through its principals, Porche and Crowder, and its salespeople, raised $11 million from approximately 200 investors nationwide selling unregistered shares of American Environmental Energy, Inc. ("AEEI") common stock. The SEC's complaint alleges that Porche, Crowder, and Kafarski falsely disclosed to investors that payments of sales commissions were limited to 10% of the funds raised, when, in reality, 25% of the funds raised were paid to salesmen and sales managers. The complaint further alleges that these defendants misrepresented how the funds raised would be used, telling investors that 80% of the funds raised would be used by AEEI to conduct its green energy business. In reality, most of the funds raised were kept by Porche and Crowder to fund their lavish lifestyles and only $315,000 of the $11 million raised went to AEEI.
Thursday, August 5, 2010
Madoff Settlement on Hold
Irving Picard, the man charged with recovering money for the Madoff victims, has for months been touting that he was close to reaching a big settlement with the estate of Jeffry Picower, a Florida businessman whom Picard has said withdrew $7.2 billion from the Madoff Ponzi scheme.
But the deal isn’t quite ready to be finalized; it’s gotten delayed by other lawsuits competing for the same funds. Click here for the WSJ story, from reporter Michael Rothfeld.
Lawyers for Picard have said in court that the proposed deal with Picower would far exceed $2 billion, more than doubling what he has collected to date.
But the negotiations have stalled, largely over a pair of lawsuits against the Picower estate in federal court in Florida, people familiar with the situation said.
The suits, which seek class-action status, were filed for Madoff investors whose claims were rejected entirely or in part by Picard on grounds that they were based on fictitious profits and not actual losses.
But the deal isn’t quite ready to be finalized; it’s gotten delayed by other lawsuits competing for the same funds. Click here for the WSJ story, from reporter Michael Rothfeld.
Lawyers for Picard have said in court that the proposed deal with Picower would far exceed $2 billion, more than doubling what he has collected to date.
But the negotiations have stalled, largely over a pair of lawsuits against the Picower estate in federal court in Florida, people familiar with the situation said.
The suits, which seek class-action status, were filed for Madoff investors whose claims were rejected entirely or in part by Picard on grounds that they were based on fictitious profits and not actual losses.
Wednesday, August 4, 2010
UBS Hit With $81 Million Auction Rate Securities Award By FINRA Arbitration Panel
A FINRA arbitration panel ordered UBS AG on Tuesday to pay $81 million in damages to a Bethesda, Maryland-based cellphone marketer that purchased auction-rate securities through the U.S. brokerage.
FINRA documents posted online showed a panel comprised of three public arbitrators ordered to pay the damages to Kajeet Inc, which purchased student-loan auction-rate securities that lost value during the credit crisis.
Kajeet, which sells pay-as-you-go cell phones aimed at children, had claimed $110 million in losses.
State and federal regulators have forced UBS to repurchase $22.7 billion of auction rates from individual investors. The Securities and Exchange Commission continues to investigate the role of individual executives at the firm.
In March, UBS agreed with a coalition of state securities regulators to purchase up to $200 million in auction-rates from investors not covered by the initial agreement.
FINRA documents posted online showed a panel comprised of three public arbitrators ordered to pay the damages to Kajeet Inc, which purchased student-loan auction-rate securities that lost value during the credit crisis.
Kajeet, which sells pay-as-you-go cell phones aimed at children, had claimed $110 million in losses.
State and federal regulators have forced UBS to repurchase $22.7 billion of auction rates from individual investors. The Securities and Exchange Commission continues to investigate the role of individual executives at the firm.
In March, UBS agreed with a coalition of state securities regulators to purchase up to $200 million in auction-rates from investors not covered by the initial agreement.
Pennsylvania Files Complaint Against TD Ameritrade For Reserve Yield Plus Fund
Pennsylvania regulators filed a civil complaint against broker-dealer TD Ameritrade, alleging it committed fraud in the sale of Reserve Yield Plus Fund.
The Pennsylvania Securities Commission's enforcement division alleges that TD Ameritrade and Amerivest Investment Management LLC repeatedly told investors, in calls that were recorded, that the fund was a money-market fund. It actually was a cash-enhanced mutual fund with more risks than a money-market fund, the June 17 complaint said. Both TD Ameritrade and Amerivest Investment Management are subsidiaries of TD Ameritrade Holding Corp.
TD Ameritrade said it is "cooperating with any investigation or request."
.According to the complaint, TD Ameritrade and Amerivest continued to sell the fund even after senior management at TD Ameritrade determined around November 2007 that the fund's net asset value might dip below the $1-a-share level that money-market funds strive to maintain, known as "breaking the buck."
A TD Ameritrade spokeswoman said the firm is "cooperating with any investigation or request." She said Reserve Yield Plus Fund has distributed about 95% of its assets to investors. She declined to comment further.
The fund, which once held $1.2 billion in assets, was frozen just after the bigger Reserve Primary Fund told investors it was unable to redeem their money. That news, amid the financial crisis in September 2008, sent shock waves through the money-fund industry.
About $39.7 million remains in Yield Plus fund, most of it set aside by the fund's trustees to cover potential claims and fees.
The Pennsylvania Securities Commission's enforcement division alleges that TD Ameritrade and Amerivest Investment Management LLC repeatedly told investors, in calls that were recorded, that the fund was a money-market fund. It actually was a cash-enhanced mutual fund with more risks than a money-market fund, the June 17 complaint said. Both TD Ameritrade and Amerivest Investment Management are subsidiaries of TD Ameritrade Holding Corp.
TD Ameritrade said it is "cooperating with any investigation or request."
.According to the complaint, TD Ameritrade and Amerivest continued to sell the fund even after senior management at TD Ameritrade determined around November 2007 that the fund's net asset value might dip below the $1-a-share level that money-market funds strive to maintain, known as "breaking the buck."
A TD Ameritrade spokeswoman said the firm is "cooperating with any investigation or request." She said Reserve Yield Plus Fund has distributed about 95% of its assets to investors. She declined to comment further.
The fund, which once held $1.2 billion in assets, was frozen just after the bigger Reserve Primary Fund told investors it was unable to redeem their money. That news, amid the financial crisis in September 2008, sent shock waves through the money-fund industry.
About $39.7 million remains in Yield Plus fund, most of it set aside by the fund's trustees to cover potential claims and fees.
North Beach's Joseph Viola Indicted For Fraud
A North Beach 'investment consultant' named Joseph "Giuseppe" Viola was indicted in federal court in S.F. yesterday on multiple counts of mail fraud, wire fraud, and aggravated identity theft after defrauding at least 60 people out of $7 million between 2004 and 2010.
As the Chron reports, Viola was running a Ponzi scheme of sorts, sending investors falsified statements about the profitability of their fictional accounts. He used $2 million of the money to design and build a custom sports car called the "SV 9 Competizione," and presumably spent the rest of the money on similarly indulgent stuff. Also, he used the name of a dead man to open accounts and conduct the scheme.
As the Chron reports, Viola was running a Ponzi scheme of sorts, sending investors falsified statements about the profitability of their fictional accounts. He used $2 million of the money to design and build a custom sports car called the "SV 9 Competizione," and presumably spent the rest of the money on similarly indulgent stuff. Also, he used the name of a dead man to open accounts and conduct the scheme.
Tuesday, August 3, 2010
Texas Registered Representative Charged by SEC
The Securities and Exchange Commission today filed a partially settled civil injunctive action against Gregory Todd Froning, a Coppell, Texas-based registered representative, accusing him of misappropriating over $800,000 from fifteen investors with whom he had pre-existing brokerage and advisory relationships. Froning consented on a neither-admit-nor-deny basis to the entry of a permanent injunction prohibiting him from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder. The injunction is subject to court approval.
The Commission's civil complaint, filed in federal district court in Dallas, alleges that between 2005 and 2009 Froning solicited fifteen individuals through an unregistered offering of promissory notes secured by rights to convert to equity interests in a now-defunct financial planning company Froning owned. While Froning represented to investors that offering proceeds would be used to fund operating expenses and growth of the financial planning company, he diverted the proceeds to a personal bank account and used them to pay for personal expenses such as cash withdrawals, purchases from internet retailers, adult entertainment, meals, and groceries. He also used investor funds to make Ponzi payments to some investors.
The Commission's civil complaint, filed in federal district court in Dallas, alleges that between 2005 and 2009 Froning solicited fifteen individuals through an unregistered offering of promissory notes secured by rights to convert to equity interests in a now-defunct financial planning company Froning owned. While Froning represented to investors that offering proceeds would be used to fund operating expenses and growth of the financial planning company, he diverted the proceeds to a personal bank account and used them to pay for personal expenses such as cash withdrawals, purchases from internet retailers, adult entertainment, meals, and groceries. He also used investor funds to make Ponzi payments to some investors.
Monday, August 2, 2010
Uptick in Ponzi Scheme Filings At FINRA Arbitration
A year after Bernard Madoff went to prison for masterminding the biggest-ever Ponzi scheme, lawyers and regulators say a growing number of these scams are preying on investors and their hunger for high yields.
Razor-thin interest rates are squeezing the flow of income to Americans putting savings into CDs, money-market accounts and bonds. Swindlers have responded with schemes that lure victims, often retirees and the elderly, with promises of high rates for seemingly safe vehicles.
Such scams, that use money from new victims to pay earlier rounds of investors, have been around for centuries, including the namesake one, perpetrated by Charles Ponzi, that collapsed in 1920.
The recent financial crisis helped end Madoff's decades-long phony investment business responsible for an estimated $18 billion in losses for thousands of victims.
But the combination of paltry rates and turbulent stock markets has helped create an audience more receptive to real estate investment trusts (REITs), promissory notes and other seemingly safe vehicles offering rich yields.
The Financial Industry Regulatory Authority, which regulates U.S. broker-dealers, says it has been catching more Ponzi schemes in the past year or so.
Razor-thin interest rates are squeezing the flow of income to Americans putting savings into CDs, money-market accounts and bonds. Swindlers have responded with schemes that lure victims, often retirees and the elderly, with promises of high rates for seemingly safe vehicles.
Such scams, that use money from new victims to pay earlier rounds of investors, have been around for centuries, including the namesake one, perpetrated by Charles Ponzi, that collapsed in 1920.
The recent financial crisis helped end Madoff's decades-long phony investment business responsible for an estimated $18 billion in losses for thousands of victims.
But the combination of paltry rates and turbulent stock markets has helped create an audience more receptive to real estate investment trusts (REITs), promissory notes and other seemingly safe vehicles offering rich yields.
The Financial Industry Regulatory Authority, which regulates U.S. broker-dealers, says it has been catching more Ponzi schemes in the past year or so.
Friday, July 30, 2010
Bank of America Sells Record Number of Structured Notes
Bank of America Corp. raised $4.7 billion selling structured notes to U.S. investors through June, the most of any issuer and more than its 2009 total, as sales of the securities rose to a record pace.
Banks have sold $22 billion of structured notes to individual investors in the U.S. this year, according to data from regulatory filings compiled by Bloomberg. Sales are on pace to exceed what was a record $38 billion in 2008, according to StructuredRetailProducts.com, a database used by the industry.
The securities are created by banks, which package their own debt with derivatives to offer customized bets to investors while also raising money. Last year, Bank of America sold $4.1 billion of the products, second to Barclays’ $4.5 billion in sales, according to StructuredRetailProducts.com.
Banks have sold $22 billion of structured notes to individual investors in the U.S. this year, according to data from regulatory filings compiled by Bloomberg. Sales are on pace to exceed what was a record $38 billion in 2008, according to StructuredRetailProducts.com, a database used by the industry.
The securities are created by banks, which package their own debt with derivatives to offer customized bets to investors while also raising money. Last year, Bank of America sold $4.1 billion of the products, second to Barclays’ $4.5 billion in sales, according to StructuredRetailProducts.com.
Subprime Settlement With New Century Officers
On July 29, 2010, the Commission accepted settlement offers from three former officers of New Century Financial Corporation. Brad A. Morrice, the former CEO and co-founder; Patti M. Dodge, the former CFO; and David N. Kenneally, the former controller, consented to the relief described below without admitting or denying the allegations in the Commission's Complaint. The settlement offers, which have been submitted to the Court for approval, are contingent upon the Court's approval of a global settlement in In re New Century, Case No. 07-931-DDP (C.D. Cal.).
The Commission's complaint alleges, among other things, that New Century's second and third quarter 2006 Forms 10-Q and two late 2006 private stock offerings contained false and misleading statements regarding its subprime mortgage business. The complaint further alleges that Morrice and Dodge knew about certain negative trends in New Century's loan portfolio from reports they received and that they participated in the disclosure process, but they did not take adequate steps to ensure that the negative trends were properly disclosed. The Commission's complaint also alleges that in the second and third quarters of 2006, Kenneally, contrary to Generally Accepted Accounting Principles, implemented changes to New Century's method for estimating its loan repurchase obligation and failed to ensure that New Century's backlog of pending loan repurchase requests were properly accounted for, resulting in an understatement of New Century's repurchase reserve and a material overstatement of New Century's financial results. The complaint further alleges that Dodge was told of the methodology changes and the backlog of repurchase requests but did not ensure that they were properly accounted for and disclosed.
To settle the charges, Morrice consented to the entry of a permanent injunction prohibiting him from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and the internal controls, false statements to accountants, and certification provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-2 and 13a-14 thereunder; and from aiding and abetting violations of the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. He also agreed to disgorge $464,354 with $76,991 in prejudgment interest thereon, and to pay a $250,000 civil penalty.
The Commission's complaint alleges, among other things, that New Century's second and third quarter 2006 Forms 10-Q and two late 2006 private stock offerings contained false and misleading statements regarding its subprime mortgage business. The complaint further alleges that Morrice and Dodge knew about certain negative trends in New Century's loan portfolio from reports they received and that they participated in the disclosure process, but they did not take adequate steps to ensure that the negative trends were properly disclosed. The Commission's complaint also alleges that in the second and third quarters of 2006, Kenneally, contrary to Generally Accepted Accounting Principles, implemented changes to New Century's method for estimating its loan repurchase obligation and failed to ensure that New Century's backlog of pending loan repurchase requests were properly accounted for, resulting in an understatement of New Century's repurchase reserve and a material overstatement of New Century's financial results. The complaint further alleges that Dodge was told of the methodology changes and the backlog of repurchase requests but did not ensure that they were properly accounted for and disclosed.
To settle the charges, Morrice consented to the entry of a permanent injunction prohibiting him from violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and the internal controls, false statements to accountants, and certification provisions of Section 13(b)(5) of the Exchange Act and Rules 13b2-2 and 13a-14 thereunder; and from aiding and abetting violations of the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. He also agreed to disgorge $464,354 with $76,991 in prejudgment interest thereon, and to pay a $250,000 civil penalty.
Thursday, July 29, 2010
Citi to Settle With SEC for $75 Million
Citigroup will pay U.S. regulators $75 million to settle charges that it failed to disclose $40 billion in subprime exposure to investors in 2007, the Wall Street Journal reported on Thursday.
Under Citigroup's settlement, the Securities and Exchange Commission will charge the bank with material omission of disclosure requirements, but not with fraud, the newspaper said, citing people familiar with the matter.
The SEC is expected to indicate that Citigroup did not intentionally mislead investors, according to the report.
Citigroup failed to disclose its subprime exposure in the second and third quarters of 2007, according to the settlement, the Journal reported.
Under Citigroup's settlement, the Securities and Exchange Commission will charge the bank with material omission of disclosure requirements, but not with fraud, the newspaper said, citing people familiar with the matter.
The SEC is expected to indicate that Citigroup did not intentionally mislead investors, according to the report.
Citigroup failed to disclose its subprime exposure in the second and third quarters of 2007, according to the settlement, the Journal reported.
Wednesday, July 28, 2010
Raymond James Loses $2.5 Million FINRA Arbitration
A FINRA panel ordered Raymond James to pay $2.5 million to investors who alleged that Raymond James failed to divulge ‘risk of illiquidity' in auction-rate securities market
Raymond James Financial Inc., still carrying $600 million in auction rate securities. The firm is reportedly working to draw down its position in the ARS market, which seized up in February 2008, precipitating the credit crisis. When the market froze, Raymond James clients held $1.9 billion of the securities.
Raymond James Financial Inc., still carrying $600 million in auction rate securities. The firm is reportedly working to draw down its position in the ARS market, which seized up in February 2008, precipitating the credit crisis. When the market froze, Raymond James clients held $1.9 billion of the securities.
Tuesday, July 27, 2010
SEC Awards $1 Million for Information Provided in Insider Trading Case
Securities and Exchange Commission v. Pequot Capital Management, Inc., et al., Civil Action No. 3:10-CV-00831-CVD (United States District Court for the District of Connecticut, Complaint filed May 27, 2010).
The Securities and Exchange Commission today announced the award of $1 million to Glen Kaiser and Karen Kaiser of Southbury, Connecticut, who provided information and documents leading to the imposition and collection of civil penalties in the above litigation. This is the largest award paid by the SEC for information provided in connection with an insider trading case.
The SEC staff previously investigated alleged insider trading in Microsoft Corp. securities by hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee who accepted an employment offer at Pequot, but closed its investigation without action. In late 2008, Karen Kaiser, the ex-wife of Zilkha, and her husband, Glen Kaiser, discovered key evidence that ultimately led to the filing of a settled enforcement action against Defendants Pequot and Samberg alleging they engaged in insider trading. Among other documents and information the Kaisers provided the SEC was a key email communication between Zilkha and another Microsoft employee that was not turned over to the SEC in the first investigation. Without admitting or denying the allegations in the SEC’s complaint, Pequot and Samberg consented to the entry of injunctions and orders requiring the payment of civil penalties totaling $10 million (as well as the payment of disgorgement and prejudgment interest totaling over $17 million and an investment advisory bar as to Samberg and censure as to Pequot).
The Securities and Exchange Commission today announced the award of $1 million to Glen Kaiser and Karen Kaiser of Southbury, Connecticut, who provided information and documents leading to the imposition and collection of civil penalties in the above litigation. This is the largest award paid by the SEC for information provided in connection with an insider trading case.
The SEC staff previously investigated alleged insider trading in Microsoft Corp. securities by hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee who accepted an employment offer at Pequot, but closed its investigation without action. In late 2008, Karen Kaiser, the ex-wife of Zilkha, and her husband, Glen Kaiser, discovered key evidence that ultimately led to the filing of a settled enforcement action against Defendants Pequot and Samberg alleging they engaged in insider trading. Among other documents and information the Kaisers provided the SEC was a key email communication between Zilkha and another Microsoft employee that was not turned over to the SEC in the first investigation. Without admitting or denying the allegations in the SEC’s complaint, Pequot and Samberg consented to the entry of injunctions and orders requiring the payment of civil penalties totaling $10 million (as well as the payment of disgorgement and prejudgment interest totaling over $17 million and an investment advisory bar as to Samberg and censure as to Pequot).
Wednesday, July 21, 2010
Financial Overhaul Signed Into Law
Reveling in victory, President Barack Obama on Wednesday signed into law the most sweeping reform of financial regulations since the Great Depression, a package that aims to protect consumers and ensure economic stability from Main Street to Wall Street.
The law, pushed through mainly by Democrats in Washington's deeply partisan environment, comes almost two years after the infamous near financial meltdown in 2008 in the United States that was felt around the globe. The legislation gives the government new powers to break up companies that threaten the economy, creates a new agency to guard consumers in their financial transactions and puts more light on the financial markets that escaped the oversight of regulators.
Obama described them all as commonsense reforms that will help people in their daily life — signing contracts, understanding fees, understanding risks.
He went so far as to call the reforms "the strongest consumer protections in history." The president added to a burst of applause: "Because of this law, the American people will never again be asked to foot the bill for Wall Street's mistakes."
The law, pushed through mainly by Democrats in Washington's deeply partisan environment, comes almost two years after the infamous near financial meltdown in 2008 in the United States that was felt around the globe. The legislation gives the government new powers to break up companies that threaten the economy, creates a new agency to guard consumers in their financial transactions and puts more light on the financial markets that escaped the oversight of regulators.
Obama described them all as commonsense reforms that will help people in their daily life — signing contracts, understanding fees, understanding risks.
He went so far as to call the reforms "the strongest consumer protections in history." The president added to a burst of applause: "Because of this law, the American people will never again be asked to foot the bill for Wall Street's mistakes."
Friday, July 16, 2010
FINRA Warns About Social Media Ponzi Schemes
The Financial Industry Regulatory Authority (FINRA) warned investors today about Internet-based Ponzi schemes called high-yield investment programs (HYIPs), which purport to offer returns of 20, 30, 100 percent or more per day. HYIPs are unregistered investments sold by unlicensed individuals using sophisticated-looking websites.
The con artists behind HYIPs are experts at using social media — including YouTube, Twitter and Facebook — to lure investors and create the illusion of social consensus that these investments are legitimate, but investors should know that HYIPs are just Internet-based scams.
As FINRA's investor alert HYIPs—Hazardous to Your Investment Portfolio points out, many HYIPs have a worldwide reach: the recently exposed Pathway to Prosperity scheme allegedly defrauded over 40,000 investors in over 120 countries of $70 million. The Federal Bureau of Investigation has reported that the number of new HYIP investigations during fiscal year 2009 increased more than 100 percent over fiscal year 2008. In order to help combat this growing online fraud, FINRA will be using search engine advertising to direct online investors searching for HYIPS to today's Investor Alert.
"HYIPs are old-fashioned Ponzi schemes dressed up for a Web 2.0 world. Some of these schemes encourage people to bring in new victims, while others entice investors to 'ride the Ponzi' by attempting to get in and get out before the scheme collapses," said FINRA Senior Vice President John Gannon. "By using Google AdWords, we are hoping to reach anyone searching the Internet for HYIPs before they fall into the hands of con artists."
HYIPs display multiple signs of fraud, including the promise of extraordinarily high returns. For example, the Genius Fund HYIP at one time promised 36 to 40 percent daily, with two-day yields of 106 percent. Many of the con artists behind HYIPs use existing investors to keep their Ponzi schemes growing by paying current investors "referral bonuses" of up to 25 percent for bringing in new recruits.
HYIPs—Hazardous to Your Investment Portfolio outlines in detail the characteristics of HYIPs, the steps investors can take to protect themselves and where investors can turn for help if they think they have been scammed.
The con artists behind HYIPs are experts at using social media — including YouTube, Twitter and Facebook — to lure investors and create the illusion of social consensus that these investments are legitimate, but investors should know that HYIPs are just Internet-based scams.
As FINRA's investor alert HYIPs—Hazardous to Your Investment Portfolio points out, many HYIPs have a worldwide reach: the recently exposed Pathway to Prosperity scheme allegedly defrauded over 40,000 investors in over 120 countries of $70 million. The Federal Bureau of Investigation has reported that the number of new HYIP investigations during fiscal year 2009 increased more than 100 percent over fiscal year 2008. In order to help combat this growing online fraud, FINRA will be using search engine advertising to direct online investors searching for HYIPS to today's Investor Alert.
"HYIPs are old-fashioned Ponzi schemes dressed up for a Web 2.0 world. Some of these schemes encourage people to bring in new victims, while others entice investors to 'ride the Ponzi' by attempting to get in and get out before the scheme collapses," said FINRA Senior Vice President John Gannon. "By using Google AdWords, we are hoping to reach anyone searching the Internet for HYIPs before they fall into the hands of con artists."
HYIPs display multiple signs of fraud, including the promise of extraordinarily high returns. For example, the Genius Fund HYIP at one time promised 36 to 40 percent daily, with two-day yields of 106 percent. Many of the con artists behind HYIPs use existing investors to keep their Ponzi schemes growing by paying current investors "referral bonuses" of up to 25 percent for bringing in new recruits.
HYIPs—Hazardous to Your Investment Portfolio outlines in detail the characteristics of HYIPs, the steps investors can take to protect themselves and where investors can turn for help if they think they have been scammed.
Thursday, July 15, 2010
New Financial Reforms Move Forward
The financial-overhaul legislation cleared a major procedural hurdle on the way to President Barack Obama's desk Thursday, setting the stage for the Senate to give its final approval to the measure later Thursday.
The Senate voted 60-to-38 to end debate on the wide-ranging legislation, a move that required 60 votes to succeed. The Senate has another procedural vote, scheduled for 2 p.m., to resolve Republicans' budget objections, and then final passage is expected after that point. The final vote will require only a simple majority to pass the bill. Mr. Obama has said he hopes to sign the legislation into law next week.
The successful procedural vote on the "conference" report negotiated between House and Senate lawmakers brings the Obama administration just inches away from scoring a major domestic policy victory.
The measure will touch all areas of the financial markets, affecting how consumers obtain credit cards and mortgages, dictating how the government dismantles failing financial firms, and directing federal regulators' focus on potential flashpoints in the economy.
The Senate voted 60-to-38 to end debate on the wide-ranging legislation, a move that required 60 votes to succeed. The Senate has another procedural vote, scheduled for 2 p.m., to resolve Republicans' budget objections, and then final passage is expected after that point. The final vote will require only a simple majority to pass the bill. Mr. Obama has said he hopes to sign the legislation into law next week.
The successful procedural vote on the "conference" report negotiated between House and Senate lawmakers brings the Obama administration just inches away from scoring a major domestic policy victory.
The measure will touch all areas of the financial markets, affecting how consumers obtain credit cards and mortgages, dictating how the government dismantles failing financial firms, and directing federal regulators' focus on potential flashpoints in the economy.
FINRA to Make Additional Information About Brokers, Former Brokers Publicly Available Through BrokerCheck
The amount of information available to the public about current and former securities brokers will expand significantly in coming months, as the Financial Industry Regulatory Authority (FINRA) implements changes to its free, online BrokerCheck service recently approved by the Securities and Exchange Commission.
The changes will increase the number of customer complaints reported publicly; extend the public disclosure period for the full record of a broker who leaves the industry from two years to 10 years; and, make certain information about former brokers available permanently, such as criminal convictions and certain civil injunctive actions and arbitration awards against the broker.
The changes will also formalize a dispute process for current or former brokers to dispute the accuracy of, or update, factual information disclosed through BrokerCheck.
"This additional information will benefit investors who are considering whether to conduct, or continue to conduct, business with a particular securities firm or broker," said FINRA Chairman and CEO Rick Ketchum. "Just as important, it will provide valuable information about persons who have left the securities industry, often not of their own accord, who have established themselves in other segments of the financial services industry and can still cause great harm to the investing public."
When the expansion is implemented, BrokerCheck will:
Disclose all "historic" complaints against a broker dating back to 1999, when electronic filing of broker information began. Generally, historic complaints are customer complaints, arbitrations or litigations more than two years old that have not been adjudicated or have been settled for an amount less than the reporting requirement (currently $15,000). They are currently reported on BrokerCheck when the broker has three or more currently disclosable regulatory actions, customer complaints, arbitrations, litigations or historic complaints. The expanded BrokerCheck will disclose all historic complaints dating back to 1999 for individual brokers who are currently registered or whose registrations were terminated within the preceding 10 years.
Expand the disclosure period for former brokers. Currently, a broker's record is publicly available for two years after he or she leaves the securities industry. That two-year period coincides with the period in which an individual remains subject to FINRA's jurisdiction and within which an individual can return to the industry without having to take re-qualifying exams. The expanded BrokerCheck will make a former broker's record public for 10 years, so investors can access information about individuals who may work in other sectors of the financial services industry or who have attained other positions of trust.
Further expand the amount of information that is permanently available on former brokers. Last year, BrokerCheck started making information about final regulatory actions (i.e. bars, suspensions, fines, etc.) against former brokers permanently available to the public. The expanded BrokerCheck will make additional information that has been reported to FINRA since 1999 permanently available – including reportable criminal convictions or pleas of guilty or nolo contendere; civil injunctions or findings of involvement in a violation of any investment-related statute or regulation; and, arbitration awards or civil judgments based on the individual's involvement in alleged sales practice violations.
Formalize the process for current and former brokers to dispute the accuracy of factual information disclosed through BrokerCheck. Brokers will be able to submit a written notice of the dispute to FINRA – FINRA will post the appropriate form on its website – with all available supporting documentation. If FINRA determines that the dispute is eligible for investigation, it will add a general notation to the broker's BrokerCheck report stating that the broker is disputing certain information in the report – and that notation will only be removed when FINRA has resolved the dispute. If its investigation shows the information is in fact inaccurate, FINRA will update, modify or remove that information as appropriate.
The BrokerCheck expansion will be implemented in two phases. In late August, historic complaints will be added to the public records of all current and former brokers. By the end of the year, full records will be publicly available for all brokers whose registrations have terminated within the last 10 years. Also by the end of the year, the additional information that will be permanently available will be added to the records of the appropriate former brokers and the formal dispute process will be fully in place.
The changes will increase the number of customer complaints reported publicly; extend the public disclosure period for the full record of a broker who leaves the industry from two years to 10 years; and, make certain information about former brokers available permanently, such as criminal convictions and certain civil injunctive actions and arbitration awards against the broker.
The changes will also formalize a dispute process for current or former brokers to dispute the accuracy of, or update, factual information disclosed through BrokerCheck.
"This additional information will benefit investors who are considering whether to conduct, or continue to conduct, business with a particular securities firm or broker," said FINRA Chairman and CEO Rick Ketchum. "Just as important, it will provide valuable information about persons who have left the securities industry, often not of their own accord, who have established themselves in other segments of the financial services industry and can still cause great harm to the investing public."
When the expansion is implemented, BrokerCheck will:
Disclose all "historic" complaints against a broker dating back to 1999, when electronic filing of broker information began. Generally, historic complaints are customer complaints, arbitrations or litigations more than two years old that have not been adjudicated or have been settled for an amount less than the reporting requirement (currently $15,000). They are currently reported on BrokerCheck when the broker has three or more currently disclosable regulatory actions, customer complaints, arbitrations, litigations or historic complaints. The expanded BrokerCheck will disclose all historic complaints dating back to 1999 for individual brokers who are currently registered or whose registrations were terminated within the preceding 10 years.
Expand the disclosure period for former brokers. Currently, a broker's record is publicly available for two years after he or she leaves the securities industry. That two-year period coincides with the period in which an individual remains subject to FINRA's jurisdiction and within which an individual can return to the industry without having to take re-qualifying exams. The expanded BrokerCheck will make a former broker's record public for 10 years, so investors can access information about individuals who may work in other sectors of the financial services industry or who have attained other positions of trust.
Further expand the amount of information that is permanently available on former brokers. Last year, BrokerCheck started making information about final regulatory actions (i.e. bars, suspensions, fines, etc.) against former brokers permanently available to the public. The expanded BrokerCheck will make additional information that has been reported to FINRA since 1999 permanently available – including reportable criminal convictions or pleas of guilty or nolo contendere; civil injunctions or findings of involvement in a violation of any investment-related statute or regulation; and, arbitration awards or civil judgments based on the individual's involvement in alleged sales practice violations.
Formalize the process for current and former brokers to dispute the accuracy of factual information disclosed through BrokerCheck. Brokers will be able to submit a written notice of the dispute to FINRA – FINRA will post the appropriate form on its website – with all available supporting documentation. If FINRA determines that the dispute is eligible for investigation, it will add a general notation to the broker's BrokerCheck report stating that the broker is disputing certain information in the report – and that notation will only be removed when FINRA has resolved the dispute. If its investigation shows the information is in fact inaccurate, FINRA will update, modify or remove that information as appropriate.
The BrokerCheck expansion will be implemented in two phases. In late August, historic complaints will be added to the public records of all current and former brokers. By the end of the year, full records will be publicly available for all brokers whose registrations have terminated within the last 10 years. Also by the end of the year, the additional information that will be permanently available will be added to the records of the appropriate former brokers and the formal dispute process will be fully in place.
Wednesday, July 14, 2010
SEC eyes changes to shareholder voting system
The Securities and Exchange Commission asked the public to comment on changes to the voting system, including whether companies need more information about the identity of their shareholders.
There are more than 13,000 meetings a year where shareholders can vote in person, via the Internet or by phone, or by mailing in a proxy form.
The SEC issued a discussion paper to examine the accuracy and transparency of the voting process, shareholder participation and the relationship between voting power and economic interest.
The agency is exploring whether rules are needed for proxy advisory firms and how to get more shareholders to participate in the governance of their companies.
Schapiro has said she wants to give shareholders more say in how companies are governed. The SEC has already adopted rules that would bar broker-dealers from voting for corporate directors on behalf of their clients unless told to do so.
Schapiro has also said she soon wants to adopt rules giving shareholders "proxy access" or an easier and cheaper way to nominate corporate board directors.
"Proxy access" has emerged as a priority for activist investors, who want to have some influence on the composition of the board.
The SEC's discussion paper, also known as a concept release, will be open for a 90-day comment period. A concept release is sometimes the first step in the rule-making process, but does not always lead to new rules.
There are more than 13,000 meetings a year where shareholders can vote in person, via the Internet or by phone, or by mailing in a proxy form.
The SEC issued a discussion paper to examine the accuracy and transparency of the voting process, shareholder participation and the relationship between voting power and economic interest.
The agency is exploring whether rules are needed for proxy advisory firms and how to get more shareholders to participate in the governance of their companies.
Schapiro has said she wants to give shareholders more say in how companies are governed. The SEC has already adopted rules that would bar broker-dealers from voting for corporate directors on behalf of their clients unless told to do so.
Schapiro has also said she soon wants to adopt rules giving shareholders "proxy access" or an easier and cheaper way to nominate corporate board directors.
"Proxy access" has emerged as a priority for activist investors, who want to have some influence on the composition of the board.
The SEC's discussion paper, also known as a concept release, will be open for a 90-day comment period. A concept release is sometimes the first step in the rule-making process, but does not always lead to new rules.
Sunday, July 11, 2010
SEC Charges Stock Promoter
The Securities and Exchange Commission filed a civil action against a Huntington Beach-based penny stock promoter, Songkram Roy Sahachaisere, and his company, InvestSource, Inc. for committing fraud while promoting stock of their clients through massive email campaigns.
In its complaint filed in the United States District Court for the Central District of California, the SEC alleges that Sahachaisere, age 40, and InvestSource provide "investor relations services" by touting various penny stocks in its daily email newsletter, called the "Daily Digest," and by posting company profiles on its website. From January 2008 to March 2009, defendants sent nearly 450 email messages publicizing these penny stocks to over 24 million recipients, receiving clients' stock as compensation. The complaint focuses on seven specific penny stocks that defendants touted in which, the SEC alleges, defendants made misleading statements regarding the nature of their compensation on InvestSource's website and in the promotional emails. The defendants also failed to disclose that they were selling the very securities they were recommending investors buy. According to the complaint, between April 2008 and March 2009, defendants sold over 5 million shares of these seven clients through one or more of their approximately 36 brokerage accounts, illegally reaping profits of at least $276,000.
The SEC's complaint charges InvestSource and Sahachaisere with violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. It also charges them with violating the antitouting provisions contained in Section 17(b) of the Securities Act. The SEC's complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties against both defendants. In addition, the SEC seeks penny stock and officer and director bars against defendant Sahachaisere.
In its complaint filed in the United States District Court for the Central District of California, the SEC alleges that Sahachaisere, age 40, and InvestSource provide "investor relations services" by touting various penny stocks in its daily email newsletter, called the "Daily Digest," and by posting company profiles on its website. From January 2008 to March 2009, defendants sent nearly 450 email messages publicizing these penny stocks to over 24 million recipients, receiving clients' stock as compensation. The complaint focuses on seven specific penny stocks that defendants touted in which, the SEC alleges, defendants made misleading statements regarding the nature of their compensation on InvestSource's website and in the promotional emails. The defendants also failed to disclose that they were selling the very securities they were recommending investors buy. According to the complaint, between April 2008 and March 2009, defendants sold over 5 million shares of these seven clients through one or more of their approximately 36 brokerage accounts, illegally reaping profits of at least $276,000.
The SEC's complaint charges InvestSource and Sahachaisere with violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. It also charges them with violating the antitouting provisions contained in Section 17(b) of the Securities Act. The SEC's complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil monetary penalties against both defendants. In addition, the SEC seeks penny stock and officer and director bars against defendant Sahachaisere.
Tuesday, July 6, 2010
SEC To Review Marketing of Principal Protected Products
The U.S. Securities and Exchange Commission is asking financial firms for information on how they market "principal-protected" notes," Bloomberg reported on Friday, citing people familiar with the matter.
Principal-protected notes, complex securities marketed as carrying a
money-back guarantee, have started to make a comeback lately after losing much of their luster when Lehman Brothers collapsed in 2008.
The SEC wants to know if investors in "principal protected" securities are being misled into thinking the principal of their investment will not
decline in value because of the name of the security, Bloomberg said. The
agency is also looking at how firms describe the risks associated with the products.
This year, Bank of America Corp , Barclays Plc , Citigroup Inc , HSBC
Holdings Plc and JPMorgan Chase & Co all have filed offering statements with U.S. securities regulators to sell principal-protected notes that guarantee investors the return of either 95 percent or 100 percent of their initial outlay, even if the underlying investment does not pay off.
In December, the Financial Industry Regulatory Authority, the securities
industry's main self-regulatory agency, issued a notice to firms reminding them that any "promotional materials" used to market principal-protected notes must be "fair and balanced" and not overstate the "level of protection."
Principal-protected notes, complex securities marketed as carrying a
money-back guarantee, have started to make a comeback lately after losing much of their luster when Lehman Brothers collapsed in 2008.
The SEC wants to know if investors in "principal protected" securities are being misled into thinking the principal of their investment will not
decline in value because of the name of the security, Bloomberg said. The
agency is also looking at how firms describe the risks associated with the products.
This year, Bank of America Corp , Barclays Plc , Citigroup Inc , HSBC
Holdings Plc and JPMorgan Chase & Co all have filed offering statements with U.S. securities regulators to sell principal-protected notes that guarantee investors the return of either 95 percent or 100 percent of their initial outlay, even if the underlying investment does not pay off.
In December, the Financial Industry Regulatory Authority, the securities
industry's main self-regulatory agency, issued a notice to firms reminding them that any "promotional materials" used to market principal-protected notes must be "fair and balanced" and not overstate the "level of protection."
Sunday, July 4, 2010
Maine Settles With Oppenheimer Over Fund Losses
The state of Maine has reached a settlement with OppenheimerFunds Inc., over losses in some of the funds that make up Maine's state-sponsored NextGen College Investing Plan.
The settlement announced Monday ends an investigation requested by the Finance Authority of Maine, which administers the NextGen program.
The settlement divides more than $6 million among certain account holders based on their exposure to Oppenheimer Core Bond Fund from Jan. 1, 2008 through March 31, 2009. State officials say a relatively small amount of the NextGen investments was invested in that fund.
The finance authority terminated all OppenheimerFunds portfolios in NextGen in July 2009.
Officials say the settlement is similar to those reached by other states.
The settlement announced Monday ends an investigation requested by the Finance Authority of Maine, which administers the NextGen program.
The settlement divides more than $6 million among certain account holders based on their exposure to Oppenheimer Core Bond Fund from Jan. 1, 2008 through March 31, 2009. State officials say a relatively small amount of the NextGen investments was invested in that fund.
The finance authority terminated all OppenheimerFunds portfolios in NextGen in July 2009.
Officials say the settlement is similar to those reached by other states.
Saturday, July 3, 2010
Waterford Funding Fraud
The Commission today announced the filing of a complaint in federal district court against Travis L. Wright, of Salt Lake City, Utah, based on his having carried out an offering fraud in which he raised nearly $145 million from approximately 175 investors. Wright sold these investors promissory notes issued by Waterford Loan Fund, LLC (the "Fund") that were purportedly secured by a lien on a trust that held all the assets of the Fund.
The Fund and its affiliate Waterford Funding, LLC are currently under the supervision of a Chapter 11 trustee, and their assets are being liquidated for the benefit of creditors. In re Waterford Funding LLC and Waterford Loan Fund, LLC, case no. 09-22584 (D. Utah).
The complaint alleges that, in raising these funds, Wright made numerous material misrepresentations to investors, including the following: 1) he assured them that their funds would be used only to make loans secured by commercial real estate, when in fact he used their funds primarily for loans and investments having nothing to do with real estate; 2) he represented to them that their promissory notes were secured by interests in a trust, but no such trust existed, and the notes were not secured; and 3) he represented that Waterford would never lend more than 50% of the value of the real estate in question. Wright also omitted to disclose to investors 1) that he never obtained an appraisal or valuation of real estate before lending investor funds against it; and 2) that he was using investor funds to pay for a lavish lifestyle for himself and his friends and family.
The Commission's complaint charges Wright with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. The complaint seeks an injunction, disgorgement, prejudgment interest and a civil penalty, and the issuance of an order prohibiting Wright from offering, selling or soliciting the sale of securities in a private or public offering, except for purchases or sales of securities by him for a personal account maintained at a broker or dealer registered with the Commission.
The Fund and its affiliate Waterford Funding, LLC are currently under the supervision of a Chapter 11 trustee, and their assets are being liquidated for the benefit of creditors. In re Waterford Funding LLC and Waterford Loan Fund, LLC, case no. 09-22584 (D. Utah).
The complaint alleges that, in raising these funds, Wright made numerous material misrepresentations to investors, including the following: 1) he assured them that their funds would be used only to make loans secured by commercial real estate, when in fact he used their funds primarily for loans and investments having nothing to do with real estate; 2) he represented to them that their promissory notes were secured by interests in a trust, but no such trust existed, and the notes were not secured; and 3) he represented that Waterford would never lend more than 50% of the value of the real estate in question. Wright also omitted to disclose to investors 1) that he never obtained an appraisal or valuation of real estate before lending investor funds against it; and 2) that he was using investor funds to pay for a lavish lifestyle for himself and his friends and family.
The Commission's complaint charges Wright with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. The complaint seeks an injunction, disgorgement, prejudgment interest and a civil penalty, and the issuance of an order prohibiting Wright from offering, selling or soliciting the sale of securities in a private or public offering, except for purchases or sales of securities by him for a personal account maintained at a broker or dealer registered with the Commission.
Friday, July 2, 2010
UBS re-Files Highland Capital CDO Case
UBS is re-filing its lawsuit against distressed hedge fund firm Highland Capital claiming the firm did the Swiss bank out of $686 million in a CDO deal.
The new case, filed Monday in New York State court, is reminiscent of the SEC’s case against Goldman Sachs over a CDO deal gone bad. However, in the UBS case, it is the bank that is claiming to be the wronged party.
UBS is alleging that Highland didn’t tell it about some of its counterparties’ weaknesses when the bank consented to restructure the CDO deal after losses started piling up 2007.
The new case, filed Monday in New York State court, is reminiscent of the SEC’s case against Goldman Sachs over a CDO deal gone bad. However, in the UBS case, it is the bank that is claiming to be the wronged party.
UBS is alleging that Highland didn’t tell it about some of its counterparties’ weaknesses when the bank consented to restructure the CDO deal after losses started piling up 2007.
Wednesday, June 30, 2010
SEC Moves to Halt Robert Stinson
The Securities and Exchange Commission today announced fraud charges, an asset freeze and other emergency relief against Robert Stinson, Jr., of Berwyn, Pennsylvania, and several Philadelphia-area entities he controlled, with perpetrating an offering fraud and Ponzi scheme in which at least $16 million was raised from more than 140 investors.
According to the SEC's complaint, from at least 2006 through the present, Stinson, primarily through Life's Good, Inc. and Keystone State Capital Corporation, two companies he controlled, sold purported "units" in four Life's Good private real estate hedge funds. ("Life's Good Funds"). Stinson falsely claimed that the Life's Good Funds generated annual returns of 10 to 16 percent by originating more than $30 million in commercial mortgage loans, and other investment income gained on the sale of foreclosure and investment properties. In reality, the SEC's complaint alleges that Stinson has been stealing investor funds for his personal use, transferring money to family members and others, and using new investor proceeds to make payments to existing investors in the nature of a Ponzi scheme.
According to the SEC's complaint, from at least 2006 through the present, Stinson, primarily through Life's Good, Inc. and Keystone State Capital Corporation, two companies he controlled, sold purported "units" in four Life's Good private real estate hedge funds. ("Life's Good Funds"). Stinson falsely claimed that the Life's Good Funds generated annual returns of 10 to 16 percent by originating more than $30 million in commercial mortgage loans, and other investment income gained on the sale of foreclosure and investment properties. In reality, the SEC's complaint alleges that Stinson has been stealing investor funds for his personal use, transferring money to family members and others, and using new investor proceeds to make payments to existing investors in the nature of a Ponzi scheme.
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