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.
Thursday, August 26, 2010
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.
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