A hedge fund group owned by Massachusetts Mutual Life Insurance Co. has agreed to pay more than $1 billion to customers of imprisoned fraudster Bernard Madoff, in one of the largest settlements with the trustee in Madoff bankruptcy case.
Under the agreement, announced today, Tremont Group Holdings of Rye, N.Y., and its Rye Select family of funds, will pay more than $1 billion to the fund for defrauded Madoff clients. The entities were the second-largest of the so-called feeder funds to Madoff, private portfolios that directed billions of dollars in client assets to Madoff.
The settlement agreement includes Tremont’s former chief executive; the group’s owner, Oppenheimer Acquisition Corp.; and Springfield-based MassMutual, Oppenheimer’s parent.
According to the complaint, the Tremont Group and related entities were aware, through warnings in both internal communications and publicly available information, that the Madoff operation could be a fraud.
Thursday, July 28, 2011
Aidikoff, Uhl & Bakhtiari Investigates Ridgewood Energy Losses
Aidikoff, Uhl & Bakhtiari announces it is investigating Ridgewood Energy losses on behalf of investors in their oil and gas drilling partnerships.
The Ridgewood Energy funds were sold as income producing having invested in underlying oil and gas projects. These investments were illiquid, highly speculative and not transparent.
To discuss your Ridgewood Energy investment and to determine whether your losses might be recoverable contact us.
The Ridgewood Energy funds were sold as income producing having invested in underlying oil and gas projects. These investments were illiquid, highly speculative and not transparent.
To discuss your Ridgewood Energy investment and to determine whether your losses might be recoverable contact us.
SEC and SIPC Dispute Looming over Allen Stanford Ponzi Scheme Payouts
When regulators froze R. Allen Stanford’s assets two years ago and accused him of running a $7 billion Ponzi scheme, 20,000 investors were left wondering if they’d ever get their money back.
Now the Securities and Exchange Commission and a federally chartered investor protection group are clashing over whether Stanford’s clients should be eligible for payments like the victims of Bernard Madoff. The dispute highlights how the rules can get murky when politics collides with securities law.
The group — the Securities Investor Protection Corp., known as the SIPC — has maintained that the law doesn’t provide for payouts to investors in the Stanford case because it involves only fraud, not theft.
The SEC’s staff initially agreed, but SEC chairwoman Mary Schapiro and two other commissioners rejected the analysis and ordered it redone, according to people with knowledge of the matter.
On June 15, the SEC told the SIPC to start a process that could give as much as $500,000 to each qualified Stanford investor. The agency further surprised the SIPC by threatening to sue if it didn’t carry out the plan.
Stephen Harbeck, the SIPC President, has said publicly that he doesn’t think the Stanford investors are eligible for repayments. The SIPC is supposed to aid investors when their securities are stolen or go missing at a brokerage. Stanford’s customers still have possession of their securities, he said, and fraud by itself isn’t covered.
The question will remain unsettled until at least mid-September, when the SIPC board meets to decide whether to follow the SEC’s opinion.
The SEC decision came after more than two years of political pressure on Schapiro. More than 50 lawmakers signed letters asking her to explain why Stanford investors weren’t getting aid from the SIPC, which is helping a court-appointed receiver return billions of dollars to Madoff victims.
Now the Securities and Exchange Commission and a federally chartered investor protection group are clashing over whether Stanford’s clients should be eligible for payments like the victims of Bernard Madoff. The dispute highlights how the rules can get murky when politics collides with securities law.
The group — the Securities Investor Protection Corp., known as the SIPC — has maintained that the law doesn’t provide for payouts to investors in the Stanford case because it involves only fraud, not theft.
The SEC’s staff initially agreed, but SEC chairwoman Mary Schapiro and two other commissioners rejected the analysis and ordered it redone, according to people with knowledge of the matter.
On June 15, the SEC told the SIPC to start a process that could give as much as $500,000 to each qualified Stanford investor. The agency further surprised the SIPC by threatening to sue if it didn’t carry out the plan.
Stephen Harbeck, the SIPC President, has said publicly that he doesn’t think the Stanford investors are eligible for repayments. The SIPC is supposed to aid investors when their securities are stolen or go missing at a brokerage. Stanford’s customers still have possession of their securities, he said, and fraud by itself isn’t covered.
The question will remain unsettled until at least mid-September, when the SIPC board meets to decide whether to follow the SEC’s opinion.
The SEC decision came after more than two years of political pressure on Schapiro. More than 50 lawmakers signed letters asking her to explain why Stanford investors weren’t getting aid from the SIPC, which is helping a court-appointed receiver return billions of dollars to Madoff victims.
Wednesday, July 27, 2011
FINRA Fines SunTrust Robinson Humphrey, SunTrust Investment Services a Total of $5 Million for Auction Rate Securities Violations
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined SunTrust Robinson Humphrey, Inc. (SunTrust RH) and SunTrust Investment Services, Inc. (SunTrust IS) for violations related to the sale of auction rate securities (ARS). SunTrust RH, which underwrote the ARS, was fined $4.6 million for failing to adequately disclose the increased risk that auctions could fail, sharing material non-public information, using sales material that did not adequately disclose the risks associated with ARS, and having inadequate supervisory procedures and training concerning the sales and marketing of ARS. SunTrust IS was fined $400,000 for having deficient ARS sales material, procedures and training.
FINRA found that beginning in late summer 2007, SunTrust RH became aware of stresses in the ARS market that raised the risk that auctions might fail. At the same time, SunTrust RH was told by its parent, SunTrust Bank, to reduce its use of the bank's capital and began to examine whether it had the financial capability in the event of a major market disruption to support all ARS in which it acted as the sole or lead broker-dealer. As these stresses increased, the firm failed to adequately disclose the increased risk to its sales representatives while encouraging them to sell SunTrust RH-led ARS issues in order to reduce the firm's inventory. As a result, certain SunTrust RH sales representatives continued to sell these ARS as safe and liquid. In February 2008, SunTrust RH stopped supporting ARS auctions, knowing that those auctions would fail and the ARS would become illiquid.
FINRA found that beginning in late summer 2007, SunTrust RH became aware of stresses in the ARS market that raised the risk that auctions might fail. At the same time, SunTrust RH was told by its parent, SunTrust Bank, to reduce its use of the bank's capital and began to examine whether it had the financial capability in the event of a major market disruption to support all ARS in which it acted as the sole or lead broker-dealer. As these stresses increased, the firm failed to adequately disclose the increased risk to its sales representatives while encouraging them to sell SunTrust RH-led ARS issues in order to reduce the firm's inventory. As a result, certain SunTrust RH sales representatives continued to sell these ARS as safe and liquid. In February 2008, SunTrust RH stopped supporting ARS auctions, knowing that those auctions would fail and the ARS would become illiquid.
Tuesday, July 26, 2011
State of Georgia Investigates Reverse Convertibles
Georgia requested information from UBS AG, Morgan Stanley and Ameriprise Financial Inc. in its probe over whether the firms broke the state’s securities laws in sales of structured notes called reverse convertibles.
The Secretary of State’s office sent subpoenas requesting data from each of the firms on how many reverse convertibles they sold in Georgia and the names of the investors.
Reverse convertibles are short-term bonds generally sold to individuals that convert into stock if a company’s share price plummets.
Sales of structured notes such as reverse convertibles are soaring as investors frustrated by record-low interest rates on savings seek higher returns through investments that carry more risk. The “complex” securities can be difficult for investors and brokers to evaluate, according to the Financial Industry Regulatory Authority.
Regulators have increased scrutiny of the market, fining some brokers for marketing reverse convertibles to elderly investors or those with little money, as sales have increased. Massachusetts is looking into sales of the products.
The Secretary of State’s office sent subpoenas requesting data from each of the firms on how many reverse convertibles they sold in Georgia and the names of the investors.
Reverse convertibles are short-term bonds generally sold to individuals that convert into stock if a company’s share price plummets.
Sales of structured notes such as reverse convertibles are soaring as investors frustrated by record-low interest rates on savings seek higher returns through investments that carry more risk. The “complex” securities can be difficult for investors and brokers to evaluate, according to the Financial Industry Regulatory Authority.
Regulators have increased scrutiny of the market, fining some brokers for marketing reverse convertibles to elderly investors or those with little money, as sales have increased. Massachusetts is looking into sales of the products.
Apple REIT Ten
The newest fund run by the downtown-based Apple REIT Companies has barely skipped a beat since the company was recently dragged into the national spotlight.
In fact, Apple REIT Ten continued a two-month buying streak of multi-million hotel purchases last week when it disclosed that it closed on the purchase of two more hotels for a total price of $28 million.
The deals involved a 103-room Homewood Suites hotel in Knoxville, Tenn. for $15 million and a 103-room Hampton Inn & Suites in Davenport, Iowa for $13 million.
Apple REIT as part of the deal assumed an existing loan secured by the Knoxville hotel with a $11.5 million outstanding balance. The loan matures in Oct. 2016.
The deals cap what has been a busy couple of months for Apple REIT Ten and its sister funds, Apple REITs Six, Seven, Eight and Nine.
Just this month, in addition to two closings last week, Apple REIT Ten entered into purchase contracts on four hotels worth a combined $75.15 million. Those pending deals are for the acquisition of Hilton Garden Inns in Omaha, Neb., Scottsdale, Ariz., Merrillville, Ind.and Mason, Ohio.
In June it closed on the purchase of five hotels for a total of $62.5 million, including an $11 million purchase for a SpringHill Suites near Mayland Drive and Gaskins Road in Glen Allen.
As of June 30, 25.88 million Apple REIT units had been sold to investors resulting in proceeds of $384.8 million. That cash is what the company uses to purchase its hotels.
Though some of the cash is paid in commissions to an entity called Apple Suites Realty Group. That entity, owned by Apple REIT Chairman and CEO Glade Knight, receives a 2 percent commission on every hotel purchase made.
Also receiving commissions is Apple REIT’s exclusive broker, David Lerner Assoc. The New York firm was recently thrown into hot water when federal regulators accused it of misleading investors when selling shares of Apple REIT Eight.
The Apple REITs and Lerner have consequently since been hit with class action lawsuits from disgruntled investors.
In fact, Apple REIT Ten continued a two-month buying streak of multi-million hotel purchases last week when it disclosed that it closed on the purchase of two more hotels for a total price of $28 million.
The deals involved a 103-room Homewood Suites hotel in Knoxville, Tenn. for $15 million and a 103-room Hampton Inn & Suites in Davenport, Iowa for $13 million.
Apple REIT as part of the deal assumed an existing loan secured by the Knoxville hotel with a $11.5 million outstanding balance. The loan matures in Oct. 2016.
The deals cap what has been a busy couple of months for Apple REIT Ten and its sister funds, Apple REITs Six, Seven, Eight and Nine.
Just this month, in addition to two closings last week, Apple REIT Ten entered into purchase contracts on four hotels worth a combined $75.15 million. Those pending deals are for the acquisition of Hilton Garden Inns in Omaha, Neb., Scottsdale, Ariz., Merrillville, Ind.and Mason, Ohio.
In June it closed on the purchase of five hotels for a total of $62.5 million, including an $11 million purchase for a SpringHill Suites near Mayland Drive and Gaskins Road in Glen Allen.
As of June 30, 25.88 million Apple REIT units had been sold to investors resulting in proceeds of $384.8 million. That cash is what the company uses to purchase its hotels.
Though some of the cash is paid in commissions to an entity called Apple Suites Realty Group. That entity, owned by Apple REIT Chairman and CEO Glade Knight, receives a 2 percent commission on every hotel purchase made.
Also receiving commissions is Apple REIT’s exclusive broker, David Lerner Assoc. The New York firm was recently thrown into hot water when federal regulators accused it of misleading investors when selling shares of Apple REIT Eight.
The Apple REITs and Lerner have consequently since been hit with class action lawsuits from disgruntled investors.
Monday, July 25, 2011
Aidikoff, Uhl & Bakhtiari Investigates LaeRoc Fund Losses
Aidikoff, Uhl & Bakhtiari announces it is investigating LaeRoc Fund losses on behalf of investors in their non-traded real estate partnerships.
The LaeRoc Income funds were sold as income producing having invested in underlying income producing properties in the western United States with a focus on Southern California. LaeRoc is located in Hermosa Beach, California.
Some of the funds, including the LaeRoc 2002 Income Fund, L.P. appear to be dissolving. Others including LaeRoc 2005 Income Fund, L.P. have issued capital calls to the investors.
To discuss your LaeRoc Income Fund investment and to determine whether your losses might be recoverable contact us.
The LaeRoc Income funds were sold as income producing having invested in underlying income producing properties in the western United States with a focus on Southern California. LaeRoc is located in Hermosa Beach, California.
Some of the funds, including the LaeRoc 2002 Income Fund, L.P. appear to be dissolving. Others including LaeRoc 2005 Income Fund, L.P. have issued capital calls to the investors.
To discuss your LaeRoc Income Fund investment and to determine whether your losses might be recoverable contact us.
SEC v. Trevor G. Cook, Patrick J. Kiley, et al.
The Securities and Exchange Commission announced that on July 19, 2011, the U.S. Attorney's Office in Minnesota filed criminal charges against Jason Bo-Alan Beckman, Gerald Joseph Durand, and Patrick Joseph Kiley for their roles in a $194 million fraudulent foreign currency trading scheme orchestrated by Trevor Cook. The U.S. Attorney’s Office previously charged Cook and Christopher Pettengill for their involvement in the fraud. In August 2010, Cook entered a guilty plea to mail fraud and tax evasion and was sentenced to 25 years in prison and ordered to pay $155 million in restitution. On June 21, 2011, Pettengill agreed to plead guilty to securities fraud and awaits sentencing.
In November 2009, the SEC filed a civil injunctive action against Cook and Kiley and in March 2011, filed an injunctive action against Beckman. The SEC’s actions against these defendants, which were filed in the United States District Court for the District of Minnesota, arose out of the same facts that are the subject of the criminal case. The SEC’s complaints allege that from at least 2006 through 2009, Cook and Kiley with the help of Beckman and others raised at least $194 million from at least 1,000 investors through the unregistered offer and sale of investments in a purported foreign currency trading venture (the “Currency Program”). According to the SEC’s complaints, the defendants told investors that each investor’s money would be invested in the Currency Program, their money would be held in a segregated account, there was little or no risk to their money, they would receive guaranteed returns ranging from approximately 10% to 12% per year, and they could withdraw their money at any time. The SEC alleges that these representations were false. According to the SEC’s complaints, a significant portion of the investors’ funds were never invested in the Currency Program but instead were used to make purported interest and return of principal payments to other investors and also diverted to certain of the defendants and their companies. None of the funds were ever placed in segregated accounts at banks or foreign currency trading firms and the funds sent to the trading firms sustained significant losses.
In November 2009, the SEC filed a civil injunctive action against Cook and Kiley and in March 2011, filed an injunctive action against Beckman. The SEC’s actions against these defendants, which were filed in the United States District Court for the District of Minnesota, arose out of the same facts that are the subject of the criminal case. The SEC’s complaints allege that from at least 2006 through 2009, Cook and Kiley with the help of Beckman and others raised at least $194 million from at least 1,000 investors through the unregistered offer and sale of investments in a purported foreign currency trading venture (the “Currency Program”). According to the SEC’s complaints, the defendants told investors that each investor’s money would be invested in the Currency Program, their money would be held in a segregated account, there was little or no risk to their money, they would receive guaranteed returns ranging from approximately 10% to 12% per year, and they could withdraw their money at any time. The SEC alleges that these representations were false. According to the SEC’s complaints, a significant portion of the investors’ funds were never invested in the Currency Program but instead were used to make purported interest and return of principal payments to other investors and also diverted to certain of the defendants and their companies. None of the funds were ever placed in segregated accounts at banks or foreign currency trading firms and the funds sent to the trading firms sustained significant losses.
Tuesday, July 19, 2011
Moody's Adds 5 States to Creditwatch List
Moody's Investors Service placed its ratings on five Aaa-rated states on watch for downgrade, saying if the U.S. government's ratings were to be lowered, those states would face probable cuts as well.
The ratings agency's action on Maryland, New Mexico, South Carolina, Tennessee and Virginia affect a combined $24 billion of general obligation and related debt. It follows Moody's announcement last week that it would consider a downgrade on the U.S. government's bond rating, citing the "rising possibility that the statutory debt limit will not be raised on a timely basis," which would lead to a default on U.S. Treasury debt obligations.
Moody's on Tuesday said it would review each of the five states on a case-by-case basis and plans to act on the ratings within seven to 10 days following a sovereign action.
The ratings agency's action on Maryland, New Mexico, South Carolina, Tennessee and Virginia affect a combined $24 billion of general obligation and related debt. It follows Moody's announcement last week that it would consider a downgrade on the U.S. government's bond rating, citing the "rising possibility that the statutory debt limit will not be raised on a timely basis," which would lead to a default on U.S. Treasury debt obligations.
Moody's on Tuesday said it would review each of the five states on a case-by-case basis and plans to act on the ratings within seven to 10 days following a sovereign action.
Saturday, July 16, 2011
Operator Of $21 Million Forex Ponzi Scheme Charged
The Securities and Exchange Commission on July 14, 2011 filed fraud charges against the CEO of a purported foreign currency trading firm, alleging he scammed hundreds of investors with false promises of high, fixed-rate returns while secretly using their money to fund his start-up alternative newspaper.
First Capital Savings & Loan Ltd. Chief Executive Jeffery A. Lowrance, who had fled to Peru and was arrested there earlier this year, was arraigned today on criminal fraud charges in a 2010 indictment filed by the United States Attorney’s Office for the Northern District of Illinois. In addition, the Commodity Futures Trading Commission filed fraud charges Thursday against Lowrance and First Capital.
The SEC alleges that Lowrance raised approximately $21 million from investors in at least 26 states, including California, Oregon, Illinois and Utah by promising huge profits from a specialized foreign currency trading program. In reality, First Capital conducted little foreign currency trading, lost money on the little trading that it conducted, and never engaged in any profitable business operations. Lowrance targeted investors by purporting to share their Christian values and limited-government political views. He solicited investors through, among other things, ads in his start-up newspaper USA Tomorrow, which he distributed at a September 2, 2008 political rally in Minneapolis, Minnesota.
First Capital Savings & Loan Ltd. Chief Executive Jeffery A. Lowrance, who had fled to Peru and was arrested there earlier this year, was arraigned today on criminal fraud charges in a 2010 indictment filed by the United States Attorney’s Office for the Northern District of Illinois. In addition, the Commodity Futures Trading Commission filed fraud charges Thursday against Lowrance and First Capital.
The SEC alleges that Lowrance raised approximately $21 million from investors in at least 26 states, including California, Oregon, Illinois and Utah by promising huge profits from a specialized foreign currency trading program. In reality, First Capital conducted little foreign currency trading, lost money on the little trading that it conducted, and never engaged in any profitable business operations. Lowrance targeted investors by purporting to share their Christian values and limited-government political views. He solicited investors through, among other things, ads in his start-up newspaper USA Tomorrow, which he distributed at a September 2, 2008 political rally in Minneapolis, Minnesota.
Friday, July 15, 2011
Order Against Former Prudential Registered Representatives In Connection With Deceptive Market Timing Practices
Martin J. Druffner Ordered to Pay $1,131,157 in Ill-Gotten Gains and Prejudgment Interest; Skifter Ajro Ordered to Pay $124,427
The Commission today announced that, on July 13, 2011, a Massachusetts federal court entered an order against Martin J. Druffner of Hopkinton, Massachusetts, and Skifter Ajro of Milford, Massachusetts, two defendants in a civil injunctive action filed by the Commission on November 4, 2003, requiring them to pay $1,131,157 and $124,427, respectively, in disgorgement and prejudgment interest. The court had previously entered judgments against Druffner and Ajro on October 10, 2006 enjoining them from future violations of the federal securities laws. The Commission alleged in its complaint that Druffner and Ajro, former registered representatives of broker-dealer Prudential Securities, Inc., committed fraud in connection with their deceptive market timing trades in dozens of mutual funds.
The Commission filed its complaint against Druffner and Ajro, three other former Prudential Securities registered representatives, and their former branch manager, on November 4, 2003, and amended its complaint on July 14, 2004. The amended complaint alleged that Druffner and Ajro were part of a group of registered representatives that defrauded mutual fund companies and the funds' shareholders by placing thousands of market timing trades worth more than $1 billion for five hedge fund customers from at least January 2001 through September 2003. According to the amended complaint, Druffner and Ajro knew that the mutual fund companies monitored and attempted to restrict excessive trading in their mutual funds. The amended complaint alleged that, to evade those restrictions when placing market timing trades, members of the group disguised their own identities by establishing multiple broker identification numbers and disguised their customers' identities by opening numerous customer accounts for what were, in reality, only a handful of customers.
The order was entered by the Honorable Nathaniel M. Gorton of the United States District Court for the District of Massachusetts.
The Commission today announced that, on July 13, 2011, a Massachusetts federal court entered an order against Martin J. Druffner of Hopkinton, Massachusetts, and Skifter Ajro of Milford, Massachusetts, two defendants in a civil injunctive action filed by the Commission on November 4, 2003, requiring them to pay $1,131,157 and $124,427, respectively, in disgorgement and prejudgment interest. The court had previously entered judgments against Druffner and Ajro on October 10, 2006 enjoining them from future violations of the federal securities laws. The Commission alleged in its complaint that Druffner and Ajro, former registered representatives of broker-dealer Prudential Securities, Inc., committed fraud in connection with their deceptive market timing trades in dozens of mutual funds.
The Commission filed its complaint against Druffner and Ajro, three other former Prudential Securities registered representatives, and their former branch manager, on November 4, 2003, and amended its complaint on July 14, 2004. The amended complaint alleged that Druffner and Ajro were part of a group of registered representatives that defrauded mutual fund companies and the funds' shareholders by placing thousands of market timing trades worth more than $1 billion for five hedge fund customers from at least January 2001 through September 2003. According to the amended complaint, Druffner and Ajro knew that the mutual fund companies monitored and attempted to restrict excessive trading in their mutual funds. The amended complaint alleged that, to evade those restrictions when placing market timing trades, members of the group disguised their own identities by establishing multiple broker identification numbers and disguised their customers' identities by opening numerous customer accounts for what were, in reality, only a handful of customers.
The order was entered by the Honorable Nathaniel M. Gorton of the United States District Court for the District of Massachusetts.
Wednesday, July 13, 2011
SEC Charges Philadelphia-Based Registered Investment Adviser With Fraud
According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of Pennsylvania, from approximately 2002 through October 2010, Folin, Benchmark and Harvest offered and sold securities in Harvest, Benchmark, and Safe Haven Portfolios LLC (Safe Haven), a pooled investment vehicle, promising investors that their funds would be invested in public and private companies with “socially responsible” goals and purposes. Instead, the complaint alleges that Folin, Benchmark and Harvest diverted a portion of the invested funds to pay previous investors as well as to sustain Benchmark’s and Harvest’s expenses which included paying Folin’s salary.
More specifically, the complaint alleges that Benchmark and Harvest issued various “notes” to advisory clients, friends and family promising guaranteed above-market interest rates. Folin, Benchmark and Harvest assured investors that such notes were conservative and safe. According to the complaint, Folin, Benchmark and Harvest failed to disclose the true uses of those funds and continually misrepresented the value of the notes on quarterly statements.
In addition, the complaint alleges that in August 2004 Folin and Benchmark formed Safe Haven which purported to offer investments in several different portfolios, including the Private Fixed Income Portfolio, the Hedged Equity Portfolio, the Green Real Estate Portfolio and the Sustainable Enhanced Cash Portfolio. The complaint also alleges that Folin and Benchmark caused Benchmark’s advisory clients to invest in Safe Haven and that Folin and Benchmark also acted as investment advisers to Safe Haven. From 2006 through 2009, the complaint alleges that Folin and Benchmark caused Safe Haven to pay over $1.7 million to Benchmark and Harvest under the guise of “development costs.” The complaint alleges that these “development costs” did not relate to any actual expenses incurred by Harvest or Benchmark in connection with the formation or offering of Safe Haven securities. Rather, the complaint alleges, the payments coincided with Harvest’s and Benchmark’s need for funds to pay previous investors, expenses and Folin’s salary. Moreover, the complaint alleges that Folin and Benchmark improperly amortized the development costs rather than expensing them as incurred in accordance with Generally Accepted Accounting Principles (GAAP) thereby causing the reported net asset values of the Safe Haven portfolio to be overstated on statements provided to advisory clients and investors.
More specifically, the complaint alleges that Benchmark and Harvest issued various “notes” to advisory clients, friends and family promising guaranteed above-market interest rates. Folin, Benchmark and Harvest assured investors that such notes were conservative and safe. According to the complaint, Folin, Benchmark and Harvest failed to disclose the true uses of those funds and continually misrepresented the value of the notes on quarterly statements.
In addition, the complaint alleges that in August 2004 Folin and Benchmark formed Safe Haven which purported to offer investments in several different portfolios, including the Private Fixed Income Portfolio, the Hedged Equity Portfolio, the Green Real Estate Portfolio and the Sustainable Enhanced Cash Portfolio. The complaint also alleges that Folin and Benchmark caused Benchmark’s advisory clients to invest in Safe Haven and that Folin and Benchmark also acted as investment advisers to Safe Haven. From 2006 through 2009, the complaint alleges that Folin and Benchmark caused Safe Haven to pay over $1.7 million to Benchmark and Harvest under the guise of “development costs.” The complaint alleges that these “development costs” did not relate to any actual expenses incurred by Harvest or Benchmark in connection with the formation or offering of Safe Haven securities. Rather, the complaint alleges, the payments coincided with Harvest’s and Benchmark’s need for funds to pay previous investors, expenses and Folin’s salary. Moreover, the complaint alleges that Folin and Benchmark improperly amortized the development costs rather than expensing them as incurred in accordance with Generally Accepted Accounting Principles (GAAP) thereby causing the reported net asset values of the Safe Haven portfolio to be overstated on statements provided to advisory clients and investors.
Tuesday, July 12, 2011
SEC Charges Ronald F. LeGrand and Frederick E. Wheat, Jr. with Making Fraudulent Representations in the Unregistered Offer and Sale of Securities in Mountain Country Partners, LLC
The Securities and Exchange Commission announced today that on July 12, 2011, it filed a settled civil action in the United States District Court for the Southern District of West Virginia against Ronald F. LeGrand ("LeGrand"), a founder and the sole manager of Mountain Country Partners, LLC ("MCP"), a West Virginia oil and gas company, and one of his former partners, Frederick E. Wheat ("Wheat"). The Commission alleges that, from September 2006 through December 2006, LeGrand and Wheat raised over $9.5 million for MCP from approximately 54 investors located throughout the United States through the sale of promissory notes and limited partnership membership interests. These funds were raised primarily via e-mail and in-person solicitations from individuals who attended real estate investment seminars promoted and taught by LeGrand, and were used to purchase the land and other assets of a bankrupt oil and gas company headquartered in West Virginia. At the time of their solicitations, neither LeGrand nor Wheat was experienced in working or investing in the oil and gas industry. Despite this inexperience, LeGrand and Wheat solicited investors by making material misrepresentations and omissions regarding the investment, including the degree of risk, amount of expected returns, value of the company's assets, and the guaranteed return of principal and interest within as little as 90 days. In addition, LeGrand and Wheat failed to register MCP's securities offerings, although no exemption from registration applies. To date, MCP has been unable to repay investors the returns promised by LeGrand and Wheat.
LeGrand and Wheat agreed to settle the Commission's charges, without admitting or denying the allegations in the Commission's complaint. Under the settlement, which is subject to the court's approval, LeGrand and Wheat consented to a judgment permanently enjoining them from violating Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act of 1933. The judgment also orders LeGrand to pay a civil penalty in the amount of $150,000.
LeGrand and Wheat agreed to settle the Commission's charges, without admitting or denying the allegations in the Commission's complaint. Under the settlement, which is subject to the court's approval, LeGrand and Wheat consented to a judgment permanently enjoining them from violating Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act of 1933. The judgment also orders LeGrand to pay a civil penalty in the amount of $150,000.
Monday, July 11, 2011
OTC Dealers Catch a Major Break due to Dodd-Frank Setback
Thanks to a sudden slowdown in the implementation of key financial market reforms, banks have found themselves in the lucrative position of being able to hold on to over-the counter derivatives for longer than expected.
The proposal to shift over-the-counter derivatives to electronic trading platforms during the post-crisis clean-up of the financial system was brought forward in the G20 commitments and finally agreed upon in 2009.
The derivatives, including credit default swaps and interest rate swaps, were initially destined to be processed through clearing houses in order to help safeguard the financial system against possible future default fallouts. Yet implementation of the Dodd-Frank act has been put back about six months, after the Commodity Futures Trading Commission and the Securities and Exchange Commission agreed to delay implementation from a deadline set by Congress of July 15 to the end of the year.
Larry Tabb, chief executive of Tabb Group, a consultancy, said the delay, coupled with moves by Republicans in the House of Representatives to curtail funding of the two US regulators, meant dealers had won a reprieve from a requirement to relax their grip on the $600,000bn OTC derivatives market.
In a statement made to the Financial Times by Michael Spencer, chief executive of Icap, the world’s largest interdealer broker, Mr. Spencer remarked that “Because the Dodd-Frank process has been caught in treacle, many in the financial industry aren’t pushing electronification yet”.
“I think if you go back six to eight months, when the pressure was on to get everything done by July, the dealers were moving quickly toward trying to resolve the issues to make electronic trading and clearing happen,” Mr Tabb said. “However, we see a definite slowdown of the dealers and everyone in the market to adapt to the new practices. No one knows what’s going to happen.”
The European parliament this week postponed finalisation of the European Market Infrastructure Regulation (Emir), which contains similar provisions on clearing of OTC derivatives to Dodd-Frank. “Everyone has realised this legislation is much more complex than was originally given credit for,” said David Clark, chairman of the Wholesale Markets Brokers’ Association, a London-based trade group representing interdealer brokers.
According to Steve O’Conner, Chair Member for the International Swaps and Derivatives Association (Isda) and Morgan Stanley banker, “Dealers reject any suggestion that they are reluctant to embrace the reforms.” Regardless of the major delays encompassing this topic, Isda says that more than 90 per cent of eligible credit and interest rate derivatives currently traded, have in fact already been cleared.
The proposal to shift over-the-counter derivatives to electronic trading platforms during the post-crisis clean-up of the financial system was brought forward in the G20 commitments and finally agreed upon in 2009.
The derivatives, including credit default swaps and interest rate swaps, were initially destined to be processed through clearing houses in order to help safeguard the financial system against possible future default fallouts. Yet implementation of the Dodd-Frank act has been put back about six months, after the Commodity Futures Trading Commission and the Securities and Exchange Commission agreed to delay implementation from a deadline set by Congress of July 15 to the end of the year.
Larry Tabb, chief executive of Tabb Group, a consultancy, said the delay, coupled with moves by Republicans in the House of Representatives to curtail funding of the two US regulators, meant dealers had won a reprieve from a requirement to relax their grip on the $600,000bn OTC derivatives market.
In a statement made to the Financial Times by Michael Spencer, chief executive of Icap, the world’s largest interdealer broker, Mr. Spencer remarked that “Because the Dodd-Frank process has been caught in treacle, many in the financial industry aren’t pushing electronification yet”.
“I think if you go back six to eight months, when the pressure was on to get everything done by July, the dealers were moving quickly toward trying to resolve the issues to make electronic trading and clearing happen,” Mr Tabb said. “However, we see a definite slowdown of the dealers and everyone in the market to adapt to the new practices. No one knows what’s going to happen.”
The European parliament this week postponed finalisation of the European Market Infrastructure Regulation (Emir), which contains similar provisions on clearing of OTC derivatives to Dodd-Frank. “Everyone has realised this legislation is much more complex than was originally given credit for,” said David Clark, chairman of the Wholesale Markets Brokers’ Association, a London-based trade group representing interdealer brokers.
According to Steve O’Conner, Chair Member for the International Swaps and Derivatives Association (Isda) and Morgan Stanley banker, “Dealers reject any suggestion that they are reluctant to embrace the reforms.” Regardless of the major delays encompassing this topic, Isda says that more than 90 per cent of eligible credit and interest rate derivatives currently traded, have in fact already been cleared.
Friday, July 8, 2011
SEC Charges JPMS with Fraudulent Bidding Practices Involving Investment of Municipal Bond Proceeds
J.P. Morgan to Pay $228 Million to Settle Charges By SEC, Others
The Securities and Exchange Commission today charged J.P. Morgan Securities LLC (JPMS) with fraudulently rigging at least 93 municipal bond reinvestment transactions in 31 states, generating millions of dollars in ill-gotten gains.
To settle the SEC’s fraud charges, JPMS agreed to pay approximately $51.2 million that will be returned to the affected municipalities or conduit borrowers. JPMS and its affiliates also agreed to pay $177 million to settle parallel charges brought by other federal and state authorities.
Typically, when investors purchase municipal securities, the municipalities temporarily invest the proceeds of the sales in municipal reinvestment products until the money is used for the intended purposes. Under relevant Internal Revenue Service (IRS) regulations, the proceeds of tax-exempt municipal securities generally must be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.
The SEC alleges that from 1997 through 2005, JPMS’s fraudulent practices, misrepresentations and omissions undermined the competitive bidding process, affected the prices that municipalities paid for reinvestment products, and deprived certain municipalities of a conclusive presumption that the reinvestment instruments had been purchased at fair market value. JPMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted. The employees involved in the alleged misconduct are no longer with the company.
The Securities and Exchange Commission today charged J.P. Morgan Securities LLC (JPMS) with fraudulently rigging at least 93 municipal bond reinvestment transactions in 31 states, generating millions of dollars in ill-gotten gains.
To settle the SEC’s fraud charges, JPMS agreed to pay approximately $51.2 million that will be returned to the affected municipalities or conduit borrowers. JPMS and its affiliates also agreed to pay $177 million to settle parallel charges brought by other federal and state authorities.
Typically, when investors purchase municipal securities, the municipalities temporarily invest the proceeds of the sales in municipal reinvestment products until the money is used for the intended purposes. Under relevant Internal Revenue Service (IRS) regulations, the proceeds of tax-exempt municipal securities generally must be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.
The SEC alleges that from 1997 through 2005, JPMS’s fraudulent practices, misrepresentations and omissions undermined the competitive bidding process, affected the prices that municipalities paid for reinvestment products, and deprived certain municipalities of a conclusive presumption that the reinvestment instruments had been purchased at fair market value. JPMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted. The employees involved in the alleged misconduct are no longer with the company.
Tuesday, July 5, 2011
SEC Revamps Security-Based Swap Transactions
Wednesday June 29, 2011 marked the unveiling of proposed rules brought forth by U.S. securities regulators and aimed at protecting investors. The proposals which were issued by the Securities and Exchange Commission (SEC) are designed to set standards for how dealers treat customers entering into "security-based" swap transactions, and are part of the SEC’s plan to begin policing the over-the-counter derivatives market and to help prevent another financial crisis.
Security-based swaps are connected to the performance of a small basket of securities stock, or bond. This then allows investors to bet on the possibility a company or government will default on its debt. During the housing boom, the credit-default-swaps market found its footing and swelled after banks began tying the instruments to the performances of risky mortgage bonds. American International Group Inc. (AIG) and other institutions that sold the swaps were badly burned when the housing balloon burst and companies that had bet against the market demanded payment on their swaps.
In 2010, the Dodd-Frank law delegated responsibilities to the SEC and the Commodity Futures Trading Commission to draft rules requiring all swaps, a type of derivatives contract in which one asset or liability is exchanged for another in the future, to be traded on exchanges and other open platforms. The law also requires swaps dealers and major players in the market to follow certain standards when dealing with counterparties.
Swaps dealers would be required to recommend to their customers only transactions and strategies deemed suitable, using a standard that is already applied broadly to the brokerage industry by the Financial Industry Regulatory Authority.
Dealers would have to communicate with their customers in a fair manner, disclose information about the transaction's risks and any conflicts of interest, and verify that counterparty meets the financial threshold for entering into a swap. They would also have to appoint a chief compliance officer.
The obligations would be even tougher for dealers selling swaps to pension plans, municipalities, endowments or other similar entities. Dealers advising such entities on their swap transactions or strategies, rather than serving as a counterparty to the transaction, would have to act in the customer's best interest.
Ultimately, the proposals issued Wednesday would "level the playing field" in the swaps market and "ensure that customers in these transactions are treated fairly," SEC Chairman Mary Schapiro said at the meeting.
Last fall the CFTC proposed similar standards for the rest of the swaps market—and drew fire from banks that serve as swap dealers. The banks said the plan wouldn't give them enough legal certainty that they are serving as a counterparty rather than an adviser on swap transactions and therefore not under obligation to serve the customer's best interest.
The SEC sought to address these concerns by clarifying what counts as advice on a swaps transaction. Under its proposal, parties also could agree contractually that the dealer isn't serving as an adviser to a customer as long as certain tests are met, such as the customer has its own independent adviser, and the dealer discloses that it isn't acting in the customer's best interest. That would allow a dealer selling swaps to make recommendations to pension plans and similar entities without triggering the stiffer obligations.
Security-based swaps are connected to the performance of a small basket of securities stock, or bond. This then allows investors to bet on the possibility a company or government will default on its debt. During the housing boom, the credit-default-swaps market found its footing and swelled after banks began tying the instruments to the performances of risky mortgage bonds. American International Group Inc. (AIG) and other institutions that sold the swaps were badly burned when the housing balloon burst and companies that had bet against the market demanded payment on their swaps.
In 2010, the Dodd-Frank law delegated responsibilities to the SEC and the Commodity Futures Trading Commission to draft rules requiring all swaps, a type of derivatives contract in which one asset or liability is exchanged for another in the future, to be traded on exchanges and other open platforms. The law also requires swaps dealers and major players in the market to follow certain standards when dealing with counterparties.
Swaps dealers would be required to recommend to their customers only transactions and strategies deemed suitable, using a standard that is already applied broadly to the brokerage industry by the Financial Industry Regulatory Authority.
Dealers would have to communicate with their customers in a fair manner, disclose information about the transaction's risks and any conflicts of interest, and verify that counterparty meets the financial threshold for entering into a swap. They would also have to appoint a chief compliance officer.
The obligations would be even tougher for dealers selling swaps to pension plans, municipalities, endowments or other similar entities. Dealers advising such entities on their swap transactions or strategies, rather than serving as a counterparty to the transaction, would have to act in the customer's best interest.
Ultimately, the proposals issued Wednesday would "level the playing field" in the swaps market and "ensure that customers in these transactions are treated fairly," SEC Chairman Mary Schapiro said at the meeting.
Last fall the CFTC proposed similar standards for the rest of the swaps market—and drew fire from banks that serve as swap dealers. The banks said the plan wouldn't give them enough legal certainty that they are serving as a counterparty rather than an adviser on swap transactions and therefore not under obligation to serve the customer's best interest.
The SEC sought to address these concerns by clarifying what counts as advice on a swaps transaction. Under its proposal, parties also could agree contractually that the dealer isn't serving as an adviser to a customer as long as certain tests are met, such as the customer has its own independent adviser, and the dealer discloses that it isn't acting in the customer's best interest. That would allow a dealer selling swaps to make recommendations to pension plans and similar entities without triggering the stiffer obligations.
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