Securities Arbitration and Litigation

Lehman Brothers Proposes End To Bankruptcy

2011-08-24T08:53:00.000-07:00

Lehman Brothers Holdings Inc defended on Tuesday a proposed plan to end the largest bankruptcy in U.S. history, but said it will alter certain language to resolve objections from the U.S. Trustee.

Lehman filed court papers in U.S. Bankruptcy Court in Manhattan asking Judge James Peck to approve the outline for its $65 billion payback plan in the face of 18 objections from various parties, including one from the office of U.S. Trustee Tracy Hope Davis.

If Peck green-lights the outline at a hearing scheduled for Tuesday, it will be sent to creditors for a vote. Lehman, which has negotiated nonstop with creditor groups in an attempt to gain widespread support for its plan, hopes to end its bankruptcy and begin paying back creditors by early 2012.

The trustee argued in an August 11 objection that the outline was too vague on certain issues, including the post-bankruptcy role of the committee installed to oversee fee requests from professionals in the case.

Lehman said it will add language explaining that the committee will continue to exist post-bankruptcy and will be disbanded after professionals submit their final fee applications.

US Files Suit Against Goldman Sachs

2011-08-09T11:33:00.000-07:00

Regulators filed a lawsuit Tuesday against Goldman Sachs Group Inc., accusing the investment bank of violating federal and state securities laws in the sale of $1.2 billion in mortgage-backed securities.

The lawsuit, filed in U.S. District Court in Los Angeles, seeks damages in excess of $491 million. It is the fourth securities lawsuit to be filed in recent months by the National Credit Union Administration, which has been negotiating for months with a variety of banks that sold mortgages securities to failed credit unions it has taken over.

The lawsuit alleges that the securities sold by Goldman Sachs to two failed corporate credit unions were "destined to perform poorly."

Sec Charges Former Professional Baseball Player Doug Decinces And Three Others With Insider Trading

2011-08-05T14:19:00.000-07:00

The Securities and Exchange Commission today charged former professional baseball player Doug DeCinces and three others with insider trading ahead of a company buyout. The SEC alleges that DeCinces and his associates made more than $1.7 million in illegal profits when Abbott Park, Ill.-based Abbott Laboratories Inc. announced its plan to purchase Advanced Medical Optics Inc. through a tender offer.

The SEC alleges that DeCinces, who lives in Laguna Beach, Calif., received confidential information about the acquisition from a source at Santa Ana, Calif.-based Advanced Medical Optics. DeCinces immediately began to purchase shares of Advanced Medical Optics in several brokerage accounts, buying more throughout the course of the impending transaction as he received updated information from his source. During this time, DeCinces also illegally tipped three associates who traded on the confidential information – physical therapist Joseph J. Donohue, real estate lawyer Fred Scott Jackson, and businessman Roger A. Wittenbach.

DeCinces agreed to pay $2.5 million to settle the SEC’s charges, and the three others also agreed to settlements.

MassMutual unit agrees to $1 billion Madoff settlement

2011-07-28T15:05:00.001-07:00

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.

Aidikoff, Uhl & Bakhtiari Investigates Ridgewood Energy Losses

2011-07-28T10:07:00.000-07:00

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.

SEC and SIPC Dispute Looming over Allen Stanford Ponzi Scheme Payouts

2011-07-28T03:47:00.000-07:00

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.

FINRA Fines SunTrust Robinson Humphrey, SunTrust Investment Services a Total of $5 Million for Auction Rate Securities Violations

2011-07-27T10:05:00.000-07:00

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.

State of Georgia Investigates Reverse Convertibles

2011-07-26T10:06:00.000-07:00

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.

Apple REIT Ten

2011-07-26T09:42:00.001-07:00

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.

Aidikoff, Uhl & Bakhtiari Investigates LaeRoc Fund Losses

2011-07-25T14:56:00.000-07:00

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.

SEC v. Trevor G. Cook, Patrick J. Kiley, et al.

2011-07-25T09:41:00.000-07:00

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.

Moody's Adds 5 States to Creditwatch List

2011-07-19T13:17:00.000-07:00

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.

Operator Of $21 Million Forex Ponzi Scheme Charged

2011-07-16T13:47:00.000-07:00

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.

Order Against Former Prudential Registered Representatives In Connection With Deceptive Market Timing Practices

2011-07-15T13:44:00.000-07:00

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.

SEC Charges Philadelphia-Based Registered Investment Adviser With Fraud

2011-07-13T09:28:00.001-07:00

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.

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

2011-07-12T09:29:00.000-07:00

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.

OTC Dealers Catch a Major Break due to Dodd-Frank Setback

2011-07-11T09:10:00.000-07:00

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.

SEC Charges JPMS with Fraudulent Bidding Practices Involving Investment of Municipal Bond Proceeds

2011-07-08T09:29:00.000-07:00

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.

SEC Revamps Security-Based Swap Transactions

2011-07-05T10:38:00.000-07:00

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.

Former Schottenfeld Proprietary Trader David Plate Settles SEC Insider Trading Charges

2011-06-30T09:30:00.000-07:00

The Securities and Exchange Commission announced today that on June 28, 2011, The Honorable Jed S. Rakoff of the United States District Court for the Southern District of New York entered a judgment against David Plate in SEC v. Galleon Management, LP, et al., 09-CV-8811, an insider trading case the SEC filed on October 16, 2009. The SEC charged Plate, who was a registered representative and a proprietary trader at the broker-dealer Schottenfeld Group, LLC, during the relevant time period, with using inside information to trade ahead of an impending acquisition announcement.

In its action, the SEC alleged that, in March 2007, Plate was tipped inside information that Kronos Inc. would be acquired in about a week for a substantial premium. On the basis of the material non-public information he received, Plate traded in a Schottenfeld account he managed.

To settle the SEC's charges, Plate consented to the entry of a judgment that: (i) permanently enjoins him from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) orders him to pay disgorgement of $43,876.37, plus prejudgment interest of $9,415.54. The judgment further provides that the Court later will determine issues relating to a civil penalty. Plate previously pled guilty to charges of securities fraud and conspiracy to commit securities fraud in a related criminal case, United States v. David Plate, 10-CR-0056 (S.D.N.Y.).

Raymond James Settles ARS Case and Agrees to $300 million Buyback

2011-06-29T13:51:00.000-07:00

As part of a settlement with eight states and the Securities and Exchange Commission, Raymond James Financial Inc. will buy back $300 million in auction-rate securities from clients and pay a fine of $1.7 million.

The states in charge of the settlement are Florida and Texas. Other states involved were Indiana, Missouri, New York, North Carolina, Pennsylvania and South Carolina.

Raymond James has 30 days to extend an offer to repurchase the securities, and the offer must be open for 75 days after that initial bid.

FINRA Files Complaint Against David Lerner Associates, Inc.

2011-06-06T10:04:00.000-07:00

David Lerner Associates Inc. has been accused of targeting unsophisticated seniors while selling real estate investment trust shares without considering whether the illiquid securities were suitable for its clients.

The brokerage firm misled investors who bought more than $300 million of shares in the $2 billion Apple REIT Ten offering this year, the Financial Industry Regulatory Authority Inc. said last week in a disciplinary complaint posted on its website. The firm denies the allegations, according to a statement.

In soliciting customers for Apple REIT Ten, the firm provided misleading information about distribution rates for a series of predecessor securities that now are closed to investors, Finra said.

The firm has sold almost $6.8 billion of Apple REIT shares to more than 122,000 customers since 1992, according to Finra. Those sales have generated more than $600 million, accounting for more than 60% of the firm's business since 1996, Finra said.

The complaint is the first step in a formal proceeding, Finra said. It isn't filed in court, and the firm can request a hearing before a disciplinary panel, the regulator said in its statement.

Omni Brokerage, Inc. Closes

2011-06-06T09:59:00.001-07:00

Another small, independent broker-dealer that faces mounting legal claims is exiting the business, this time after selling real estate deals by a bankrupt syndicator.

Omni Brokerage Inc. of South Jordan, Utah, said at the end of April that it would withdraw its registration with the Financial Industry Regulatory Authority Inc., according to its profile on BrokerCheck.

Omni reported a loss of $356,000 last year on revenue of $3 million.

In its annual Focus report filed in March with the Securities and Exchange Commission, the firm said that it had been named in several arbitration claims before Finra. The firm said that investors were seeking $2.8 million in compensatory damages.

Omni, which specialized in real estate investments, had net capital of $142,000, according to the SEC filing.

SEC Halts Fraudulent Beverly Hills Hedge Fund And Wealth Management Business

2011-04-25T15:42:00.001-07:00

On April 22, 2011, the Securities and Exchange Commission obtained an emergency court order to shut down a Beverly Hills, Calif. hedge fund and wealth management business targeting retirees, university professors, and members of the Christian community.

The SEC alleges that IU Group Inc., its principal Elijah Bang, and its salesperson Daniel Lee targeted retirees and claimed on websites to have been founded by “devoted Christians who believe in God, Jesus Christ, and the Holy Spirit.” Lee allegedly also sent “cold call” e-mail solicitations to university professors.

It appears that IU Group was unsuccessful in obtaining any hedge fund investors or wealth management clients before the SEC’s emergency action halted its operations.

According to the SEC’s complaint filed in federal court in Los Angeles, Bang and Lee made numerous false representations to potential investors and wealth management clients, including the following statements:

The hedge fund was operational and had a successful performance history since January 2007.

The majority of IU Wealth’s clients are professional athletes, actors, producers, doctors, professors, politicians, and executives of private corporations.

IU Wealth has over $800 million under management.

SEC Charges Former Hedge Fund Portfolio Manager With Insider Trading

2011-04-19T14:41:00.000-07:00

The Securities and Exchange Commission today charged a former hedge fund portfolio manager with insider trading in a bio-pharmaceutical company based on confidential information about negative results of the company’s clinical drug trial.

The SEC alleges that Dr. Joseph F. “Chip” Skowron, a former portfolio manager for six health care-related hedge funds affiliated with FrontPoint Partners LLC, sold hedge fund holdings of Human Genome Sciences Inc. (HGSI) based on a tip he received unlawfully from a medical researcher overseeing the drug trial. HGSI’s stock fell 44 percent after it publicly announced negative results from the trial of Albumin Interferon Alfa 2-a (Albuferon), and the hedge funds avoided at least $30 million in losses.

The SEC previously charged the medical researcher – Dr. Yves M. Benhamou – who illegally tipped Skowron with the non-public information and received envelopes of cash in return according to the SEC’s amended complaint filed today in federal court in Manhattan to additionally charge Skowron. The hedge funds, which have been charged as relief defendants in the SEC’s amended complaint, have agreed to pay back $33 million in ill-gotten gains.

In a parallel action today, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Skowron.

According to the SEC’s amended complaint, Benhamou served on the Steering Committee overseeing HGSI’s trial for Albuferon, a potential drug to treat Hepatitis C. While serving on the Steering Committee, Benhamou provided consulting services to Skowron through an expert networking firm. But over time, he and Skowron developed a friendship. By April 2007, many of their communications were independent of the expert networking firm. Benhamou tipped Skowron with material, non-public information about the trial as he learned of negative developments that occurred during Phase 3 of the trial.

Wall Street Banks and SEC Near Deal on Toxic Mortgage Investments

2011-04-19T14:36:00.000-07:00

U.S. securities regulators are in talks with several major Wall Street banks to settle fraud allegations related to mortgage-bond deals that helped unleash the financial crisis, according to people familiar with the matter.

U.S. securities regulators are in talks with several major Wall Street banks to settle fraud allegations related to mortgage-bond deals that helped unleash the financial crisis. Jean Eaglesham has details.
.The expected settlements, some of which could be reached as soon as next week, collectively mark the biggest attempt by enforcement agencies to hold Wall Street accountable for its role in the subprime mortgage bust.

The cases highlight the aggressive tactics banks used to sell these securities to investors who suffered big losses. They also show how the banks' desire to keep the $1 trillion mortgage securities business going helped fuel the housing bubble.

The Securities and Exchange Commission is aiming to reach a series of settlements with individual firms over the sales of the investments, rather than a big industrywide deal, according to people familiar with the matter.

The settlements are expected to vary significantly among banks—but few, if any, are expected to surpass the $550 million penalty that Goldman Sachs Group Inc. paid last year to settle allegations that it misled investors in a mortgage-bond investment called Abacus 2007-AC1. That penalty was the largest ever paid by a Wall Street firm to settle SEC charges. Goldman didn't admit or deny the allegations.

Securities and Exchange Commission v. Inofin, Inc., Michael Cuomo, Kevin Mann, Sr., Melissa George, Thomas Keough, David Affeldt, Nancy Keough

2011-04-15T10:39:00.000-07:00

SEC CHARGES SUBPRIME AUTO LOAN LENDER AND EXECUTIVES WITH FRAUD

The Securities and Exchange Commission announced that it filed a civil injunctive action today in federal district court in Massachusetts charging Massachusetts-based subprime auto loan provider Inofin Inc. and three company executives with misleading investors about their lending activities and diverting millions of dollars in investor funds for their personal benefit. The SEC also charged two sales agents with illegally offering to sell company securities without being registered with the SEC as broker-dealers.

The SEC alleges that Inofin executives Michael Cuomo of Plymouth, Mass., Kevin Mann of Marshfield, Mass., and Melissa George of Duxbury, Mass., illegally raised at least $110 million from hundreds of investors in 25 states and the District of Columbia through the sale of unregistered notes. Investors in the notes were told that Inofin would use the money for the sole purpose of funding subprime auto loans. As part of the pitch, Inofin and its executives told investors that they could expect to receive returns of 9 to 15 percent because Inofin loaned investor money to its subprime borrowers at an average rate of 20 percent. But unbeknownst to investors, and starting in 2004, approximately one-third of investor money raised was instead used by Cuomo and Mann to open four used car dealerships and begin multiple real estate property developments for their own benefit.

Inofin is not registered with the SEC to offer securities to investors.

According to the SEC’s complaint filed in federal court in Boston, Inofin and the executives materially misrepresented Inofin’s financial performance beginning as early as 2006 and continuing through 2011. Inofin had a negative net worth and a progressively deteriorating financial condition caused not only by the failure of Inofin’s undisclosed business activities, but also by management’s decisions in 2007, 2008, and 2009 to sell some of its auto loan portfolio at a substantial discount to solve ever-increasing cash shortages that Inofin concealed from investors. Nonetheless, Inofin and its principal officers continued to offer and sell Inofin securities while knowingly or recklessly misrepresenting to investors that Inofin was a profitable business and sound investment.

The SEC further alleges that beginning in 2006 and continuing to April 2010, Inofin’s executives defrauded investors while maintaining Inofin’s license to do business as a motor vehicle sales finance company by preparing and submitting materially false financial statements to its licensing authority, the Massachusetts Division of Banks. The SEC’s complaint charges Cuomo, Mann, and George with violating the antifraud and registration provisions of the federal securities laws, and seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties.

The SEC’s charges against the two sales agents — David Affeldt and Thomas K. (Kevin) Keough — allege that they promoted the offering and sale of Inofin’s unregistered securities. They were unjustly enriched with more than $500,000 in referral fees between 2004 and 2009. Affeldt and Keough are charged with selling the unregistered Inofin securities and failing to register with the SEC as a broker-dealer, and the SEC seeks civil injunctions, the return of ill-gotten gains plus prejudgment interest, and financial penalties. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.

The Commission’s complaint alleges that Inofin, Cuomo, Mann, and George violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and that Kevin Keough, and David Affeldt violated Sections 5(a), and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The Commission seeks the entry of a permanent injunction, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against Inofin, Cuomo, Mann, George, Kevin Keough, and David Affeldt. Keough’s wife Nancy Keough is named in the complaint as a relief defendant for the purposes of recovering proceeds she received as a result of the violations.

The SEC appreciates the assistance of the Secretary of the Commonwealth of Massachusetts William F. Galvin, who today filed charges against Inofin, Cuomo, Mann, George, Affeldt, Kevin Keough, and Nancy Keough based on the same conduct. The SEC also appreciates the assistance of the Massachusetts Division of Banks, which previously took action requiring Inofin to surrender its license to operate as a subprime auto lender in Massachusetts.

Proposed Rule Change to Amend the Customer and Industry Codes of Arbitration Procedure Relating to Motion Practice

2011-04-14T14:41:00.000-07:00

Financial Industry Regulatory Authority, Inc.'s filing with the Securities and Exchange Commission of a proposed rule change to amend FINRA Rules 12206, 12503, and 12504 of the Code of Arbitration Procedure for Customer Disputes and Rules 13206, 13503, and 13504 of the Code of Arbitration Procedure for Industry Disputes to provide moving parties with a five-day period to reply to responses to motions has now been approved.

JPMorgan Ex-Structured Product CDO Head Llodra May Face SEC Suit

2011-04-13T14:11:00.001-07:00

U.S. regulators notified a former JPMorgan Chase & Co. (JPM) executive whose unit packaged mortgage- linked investments that he may be sued for his role in selling the securities as the housing crisis worsened in 2007.

Michael Llodra, who was global head of structured-product collateralized debt obligations when he left JPMorgan, received a Wells notice from the Securities and Exchange Commission on Jan. 4 saying investigators planned to pursue civil claims against him related to the sale of a 2007 product, according to Llodra’s broker registration filings. The SEC also gave a Wells notice on Jan. 14 to Edward Steffelin, a former executive at a firm that helped manage JPMorgan’s 2007 “Squared” CDO, his brokerage records show.

The SEC has been probing whether JPMorgan, the second biggest U.S. bank by assets, and Steffelin’s former firm, GSC Group, misled investors about hedge-fund Magnetar Capital LLC’s possible role in selecting underlying assets in the $1.1 billion Squared deal, according to a person briefed on the matter who spoke on condition of anonymity because the probe isn’t public.

Magnetar has said it bought the junior-most slice of the Squared CDO as part of its strategy of investing in some mortgage-linked securities while betting against other housing debt, sometimes including bonds from the same deals. CDOs package assets such as mortgage bonds and buyout loans into new securities with varying risks.

UBS Fined By FINRA For Lehman Principal Protected Note Meltdown

2011-04-12T14:44:00.000-07:00

The Financial Industry Regulatory Authority imposed a $2.5 million fine on UBS AG's (UBS) wealth-management services unit and ordered $8.25 million in restitution in settlement of charges that it had misled investors about the risk of default in certain Lehman Brothers Holdings Inc. notes.

In the months leading up to Lehman's collapse, UBS Financial Services Inc. advertised the investment bank's so-called principal-protection notes without emphasizing that the debt was still unsecured, Finra said. Lehman eventually filed for bankruptcy in September 2008.

PPNs are fixed-income securities with a bond and an option component that promise a minimum return equal to the investor's initial investment. They don't guarantee the principal in the event of a default.

"This matter underscores a firm's need to be clear and comprehensive in disclosing risks of the structured products it sells to retail investors," Finra enforcement chief Brad Bennett said. "In cases, UBS's financial advisers did not even understand the complex products they were selling, and as a result, they neglected to disclose necessary information to customers about the issuer's credit risk so investors would understand the magnitude of the potential losses."

U.S. appeals court upholds Jeff Skilling conviction

2011-04-07T09:03:00.001-07:00

Former Enron Chief Executive Jeffrey Skilling was unsuccessful in his latest bid to overturn his criminal conviction as a U.S. appeals court called any errors in his trial "harmless."

A jury convicted Skilling in 2006 on 19 counts, including conspiracy and securities fraud, in connection with the collapse of the one-time energy trading giant. Prosecutors said Skilling's fraud was an elaborate ruse to fool investors into believing the shaky company was healthy.

He was sentenced to 292 months in prison. However, the U.S. Supreme Court later invalidated one theory underpinning the conspiracy conviction, and instructed the appeals court to review the case again.

The U.S. 5th Circuit Court of Appeals on Wednesday found that any error committed by the trial judge was "harmless." Skilling's challenge to all of his convictions must fail, the appeals court ruled.

Wachoiva to Face SEC Civil Charges Over Mortgage Backed Bond Deals

2011-04-04T13:24:00.001-07:00

The Securities and Exchange Commission is preparing to bring civil charges against Wachovia Corp., the once-troubled bank now owned by Wells Fargo & Co., for allegedly overpricing mortgage-bond deals, according to people familiar with the matter.

The agency has focused on the amounts Wachovia charged investors for collateralized debt obligations, a type of security created by packaging mortgages, according to people familiar with the matter. SEC officials believe the Charlotte, N.C., bank applied excessive markups that didn't reflect the diminishing value of the underlying loans, according to people familiar with the matter.

Wells Fargo, which assumed Wachovia's liabilities when it purchased the bank for $19.36 billion in 2008, declined to comment. John Nester, a spokesman for the SEC, also declined to comment.

The Wachovia inquiry is part of a broader probe by the SEC into Wall Street's sales of about $1 trillion worth of CDOs. Banks' appetite for the lucrative deals fueled the demand for the risky subprime mortgages underlying many of the bonds. But the housing collapse dragged down the value of CDOs, spreading losses to investors around the world.

As part of its broad probe, the SEC, which has stepped up efforts to hold Wall Street accountable for some of the losses during the financial crisis, has issued subpoenas for documents and interviewed officials from nearly every bank or securities firm that was a major player in creating, selling or trading CDOs. The agency is in discussions with firms and could announce charges and settlements concurrently, said one person familiar with the matter. Banks that received SEC subpoenas include Citigroup Inc., Deutsche Bank AG, J.P. Morgan Chase & Co., Morgan Stanley and UBS AG.

SEC Charges South Florida Man And Woman In $30 Million Ponzi Scheme

2011-03-31T11:24:00.000-07:00

The Securities and Exchange Commission today charged two South Florida residents for conducting a $30 million Ponzi scheme with funds primarily raised by offering and selling unregistered investment contracts and promissory notes to hundreds of investors nationwide from 2005 until the summer of 2007.

The SEC alleges that James Clements and Zeina Smidi of Plantation, Florida, through the companies they jointly controlled: MRT, LLC; MRT Holdings, LTD; and Maximum Return Transaction, LLC, collectively “MRT”; operated a Ponzi scheme that offered investors guaranteed monthly returns as high as 11%. From 2005 until the end of 2006, MRT, Clements and Smidi told investors that MRT used investor proceeds to trade foreign currencies and touted MRT’s investment success to draw in new investors. The SEC’s complaint further alleges that MRT and Clements used certain investors who agreed to be “account managers” to solicit hundreds of investors through informal gatherings and word of mouth.

According to the SEC’s complaint, Clements explained that from the foreign currency trading profits, MRT would pay a small percentage of each investor’s returns to the investors’ account manager, pay each investor their promised rate of return, and keep any excess profits. Clements and account managers referred investors to Smidi who provided investors information on how to effect their investment in MRT and where to wire funds.

SEC Investigating Reverse Convertibles

2011-03-31T11:03:00.001-07:00

The Securities and Exchange Commission is investigating whether Wall Street firms sold a complex type of bond without clarifying the risks attached to it, the Wall Street Journal said, citing people familiar with the matter.

The financial product known as "reverse convertible notes" pays interest but also is tied to the performance of an underlying stock, so if the stock falls, investors could lose money, the WSJ said.

The regulators are also looking into the disclosures of potential conflict of interest, such as a bank selling a note linked to the stock of a company it is advising, the newspaper said.

In addition, Wall Street regulator Financial Industry Regulatory Authority was likely to impose a large fine against a brokerage firm for improperly selling reverse convertible notes, the WSJ said, citing people familiar with the matter.

SEC Obtains Asset Freeze And Other Relief In $47 Million Offering Fraud

2011-03-26T11:25:00.000-07:00

On March 25, 2011, the Securities and Exchange Commission obtained an emergency asset freeze in a $47 million offering fraud and Ponzi scheme orchestrated by John Scott Clark (Clark) through Impact Cash, LLC and Impact Payment Systems, LLC (collectively Impact), companies owned and controlled by Clark, which operated an online payday loan company. In addition to the asset freeze, the court has appointed a receiver to preserve and marshal assets for the benefit of investors. That Receiver is Gil A. Miller.

The complaint alleges that from March 2006 through September 2010, Impact and Clark (by himself and through sales persons) raised more than $47 million from at least 120 investors for the stated purposes of funding payday loans, purchasing lists of leads for payday loan customers, and paying the operating expenses of Impact. The complaint further alleges that Clark did not deploy investor capital to make payday loans as represented, but instead diverted investor funds to maintain a lavish lifestyle, including buying expensive cars, art and a home theatre system. Clark also misappropriated investor money to fund outside business ventures and used new investor funds to pay purported profits to earlier investors.

The Commission’s complaint charges Impact and Clark with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and charges Clark with violations of Section 15(a) of the Exchange Act. The complaint seeks a preliminary and permanent injunction as well as disgorgement

SEC Charges Three Firms And Four Individuals In Los Angeles-Based Boiler Room Operation

2011-03-23T11:26:00.000-07:00

The Securities and Exchange Commission today charged three firms and four individuals involved in a boiler room scheme operating out of Los Angeles that defrauded investors who they persuaded to buy purportedly profitable trading systems.

The SEC alleges that representatives of Spyglass Equity Systems Inc. cold-called investors and made false and misleading statements to help raise more than $2.15 million from nearly 200 investors nationwide for two related investment companies – Flatiron Capital Partners LLC (FCP) and Flatiron Systems LLC (FS). However, only a little more than half of that money was actually used for the advertised trading purposes, and much of the trading that did occur failed to use the purported trading systems. FCP and FS wound up losing about $1 million in investor funds. The managing member of the two firms – David E. Howard II – misused almost $500,000 of investor money for unauthorized business expenses as well as personal expenses including travel, entertainment, and gifts for his girlfriend.

Along with FCP, FS and Howard, Spyglass and its owners – Richard L. Carter, Preston L. Sjoblom and Tyson D. Elliott – also are charged with fraud in connection with the unregistered securities offerings.

According to the SEC’s complaint filed in federal court in the Central District of California, Howard conspired with Spyglass to sell the securities, and Spyglass earned an estimated $1 million in the deal. The trading systems pitched to investors by Spyglass representatives could only be used if the investor also funded a brokerage account at FCP. However, FCP was not a broker-dealer and thus could not offer brokerage services to customers.

The SEC alleges that Spyglass representatives falsely touted a successful performance history and level of automation of the trading systems, and misled investors to believe that FCP had a positive reputation and solid affiliations in the brokerage industry. To seal the deal, Spyglass offered investors a money-back guarantee if the system did not generate a profit within the first 180 days of trading. However it was only after an investor paid Spyglass a license fee of about $6,000 that Spyglass put the investor in contact with Flatiron, ostensibly to open a brokerage account.

Judge Halts Securities America Class Action Settlement

2011-03-20T09:35:00.000-07:00

In a potentially costly blow to the brokerage firm Securities America, a federal judge in Dallas ruled on Friday that hundreds of arbitration claims against the company should move forward rather than being stuffed into a catch-all class-action lawsuit.

The case, which was heard by Judge Royal Furgeson, stems from litigation against Securities America, a division of Ameriprise Financial, one of the country’s largest advisory firms. Securities America sold hundreds of millions of dollars of so-called private placement notes in Medical Capital Holdings, which in 2009 was found to be fraud. Since then, Securities America has come under fire for failing to provide adequate due diligence on Medical Capital.

Many investors filed arbitration claims against Securities America. Recently, however, Ameriprise, Securities America and class-action lawyers, who represent other clients of the brokerage firm, struck an agreement that would affect all investors — regardless of how they chose to make their legal claim. Collectively, investors lost about $400 million. The deal would have halted all arbitration claims, leaving investors with the ability to recoup about 10 cents on the dollar from a settlement fund worth $48 million.

On Friday, lawyers who attended the session said Securities America pleaded poverty, saying the firm did not have enough cash on hand to pay if the arbitration claims start to add up. Regardless, the judge ruled that the arbitration claims should move forward along with two separate state enforcement actions that class-action lawyers had also tried to halt.

SEC Charges Three Executives With Conducting $230 Million Investment Scheme At Ohio-Based Company

2011-03-17T11:27:00.000-07:00

The Securities and Exchange Commission announced that, on March 16, 2011, it filed a civil action in the United States District Court for the Southern District of Indiana, charging three senior executives at Akron, Ohio-based Fair Finance Company (“Fair Finance”) with orchestrating a $230 million fraudulent scheme involving at least 5,200 investors – many of them elderly.

The Commission’s complaint alleges that after purchasing Fair Finance Company, chief executive officer Timothy S. Durham, chairman James F. Cochran and chief financial officer Rick D. Snow, deceived investors while selling them interest-bearing certificates. Fair Finance had previously operated for decades as a privately-held consumer finance company. But under the guise of loans, Durham and Cochran schemed to divert investor proceeds to themselves and others, as well as struggling and unprofitable entities that they controlled. Durham and Cochran further misused investor funds to buy classic cars and other luxury items to enhance their own lavish lifestyles.

In a parallel criminal proceeding the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Indiana unsealed criminal charges against Durham, Cochran and Snow for the same alleged misconduct.

CDO Fraud Probes to Be 2011 Priority

2011-03-06T14:33:00.000-08:00

U.S. criminal investigators will step up probes into possible fraud involving collateralized debt obligations and credit default swaps, a top federal prosecutor in New York said.

Christopher Garcia, chief of the Securities and Commodities Fraud Task Force in the U.S. Attorney’s Office in Manhattan, told white-collar criminal-defense lawyers at a conference today that his office will spend this year investigating possible fraud involving CDOs and CDSs.

“If there’s crime there, we’re going to find it and we’re going to pursue it,” Garcia said at an American Bar Association meeting in San Diego. Investigators won’t be deterred by the complexity of the financial instruments, he said.

CDOs are pools of assets such as mortgage bonds packaged into new securities. Interest payments on the underlying bonds or loans are used to pay investors.

Puerto Rico Conservation Trust Fund Secured Notes

2011-03-01T14:55:00.000-08:00

Aidikoff, Uhl & Bakhtiari is investigating potential claims on behalf of investors who sustained losses in Puerto Rico Conservation Trust Fund Secured Notes 5.90%, due April 15, 2034. Issued on March 31, 2004, the Notes were underwritten by UBS Financial Services, Inc. of Puerto Rico, Popular Securities, R-G Investments Corp. and Santander Securities Corp. Approximately $100 million of the Notes were sold to investors.

Investors who sustained losses in Puerto Rico Conservation Trust Fund Secured Notes can contact AU&B to explore their options.

SEC Charges Attorney with Fraud for Issuing False Legal Opinion in Connection with Illegal Stock Offering

2011-02-23T11:11:00.001-08:00

On February 10, 2011, the Commission amended its complaint in SEC v. Greenstone Holdings, Inc., et al., 10 civ. 1302 (S.D.N.Y.), to add as a defendant Virginia K. Sourlis, a securities lawyer. According to the amended complaint, in early 2006, Sourlis intentionally authored a materially false and misleading legal opinion, which Greenstone used to illegally issue millions of shares of stock in unregistered transactions. Among other things, Sourlis falsely described promissory notes, note holders, and communications with those holders, none of which actually existed. The SEC alleges that, contrary to Sourlis’ fraudulent opinion letter, the stock issuance did not qualify for an exemption from registration under the federal securities laws.

The amended complaint alleges that Sourlis violated Sections 5 of the Securities Act of 1933 (the “Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder and aided and abetted defendant Greenstone’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks injunctive relief and financial penalties, disgorgement, and a penny stock bar from Sourlis.

SEC Charges Filed in $7 Million Pump and Dump Scheme

2011-02-19T11:12:00.000-08:00

Today, the Commission filed a complaint against

Jonathan R. Curshen, 46, a Sarasota, Florida resident who allegedly founded and led Red Sea Management Ltd., (“Red Sea”), a Costa Rican asset protection company that, according to the complaint, effected pump-and-dump schemes on behalf of its clients and laundered millions of dollars in trading proceeds out of the United States to its clients;

David C. Ricci, 39, and Ronny Morales Salazar, 39, of San Jose, Costa Rica, whom the complaint describes as Red Sea stock traders;

Ariav “Eric” Weinbaum, 37, and Yitzchak (or Izhack) Zigdon, 47, of Israel, allegedly two of Red Sea’s clients;

Robert L. Weidenbaum, 44, of Coral Gables, Florida, allegedly a stock promoter who operates a company called CLX & Associates, Inc.; and

Michael S. Krome, 49, a Lake Grove, New York lawyer, who allegedly wrote a fraudulent opinion letter for their respective roles in a fraudulent pump-and-dump scheme in the common stock of CO2 Tech Ltd. that was carried out from late 2006 through April 2007.

According to the complaint, the defendants’ coordinated misconduct enabled them to sell CO2 Tech stock at artificially inflated prices, resulting in profits of over $7 million. Defendant Ricci simultaneously offered to settle with the Commission in a consent submitted for the Court’s consideration.

Barrington man charged in $105M Ponzi scheme

2011-02-17T10:55:00.001-08:00

Daniel Spitzer promised his investors a good deal: low risk and sizeable returns if they agreed to put their money into a fund he told them he invested primarily in foreign currency trading, authorities announced today.

But instead of investing, Spitzer took most the money he obtained from about 400 people and used it to pay off other investors in what amounted to a $105 million Ponzi scheme, according to an indictment filed Thursday against Spitzer.

Spitzer, 51, who currently lives in Barrington, allegedly controlled 12 investment funds, known as “the Kenzie Funds,” which he told potential investors had never lost money and had achieved historical returns.

In reality, federal authorities said that Spitzer only invested about one third of the money raised from investors, which yielded a total net return of less than 1 percent. As of June 30, 2009, the Kenzie Funds only had about $4 million in bank accounts, though Spitzer had told investors it was worth about $250 million, according to the indictment.

“Daniel Spitzer made Ponzi-type payments to investors, made and caused to be made misrepresentations about the status of investments, and took other steps to lull investors into false sense of security that their investments were safe and profitable,” the indictment stated.

Spitzer now faces eight counts of mail fraud, which each carry a maximum penalty of 20 years in prison and a $250,000 fine.

Florida Man Sentenced 17 Years for Investment Fraud

2011-02-16T10:55:00.000-08:00

A man has been sentenced to 17 years in prison for his role in a Ponzi scheme that scammed more than $14 million from hundreds of Haitian-American investors in South Florida and New Jersey.

U.S. District Court Judge Kenneth Marra sentenced 37-year-old Ronnie Bass Jr. of Delray Beach on Friday and ordered him to pay nearly $4 million in restitution. Victims of the scam who invested with the Homepals Investment Club fear they may never see their money.

The attorney for Bass had aruged in court that his client should be sentenced to 10 years in prison since two others involved in the scheme received 5-year sentences.

Prosecutors argued that the others had cooperated with investigators and asked for a lenghty sentence.

Downey man who ran a Ponzi scheme for 15 years faces sentencing

2011-02-14T13:08:00.000-08:00

Prosecutors are expected to ask a judge today to send a man to prison for 15 years for running a Ponzi scheme that took in about $30 million as well as a scam that preyed on homeowners facing foreclosure.

Juan Rangel of Downey, who is already behind bars awaiting sentencing for a 2009 conviction for bribing a Bank of America branch manager, pleaded guilty last October before U.S. District Judge S. James Otero to one count each of mail fraud and money laundering.

Rangel, 47, was indicted last year in Los Angeles federal court on charges that he and his Commerce-based company, Financial Plus Investments, recruited investors through Spanish-language newspapers, magazines, radio spots and infomercials.

Prosecutors said investors were promised guaranteed returns of 60 percent each year out of the profits from Rangel's real estate investments and his lending business.

Instead, Rangel used the victims' cash to make monthly mortgage payments on his $3 million home, to lease a Lamborghini and a limousine, and to buy cocaine, prosecutors said.

Rangel participated in "a scheme to defraud investors" and used the U.S. mail to do so, Otero said at a 2010 hearing.

In the related mortgage fraud scheme, Rangel and others targeted Spanish-speaking homeowners who were at risk of losing their homes and offered to help them avoid foreclosure, Assistant U.S. Attorney James A. Bowman said.

Rather than assist them, however, Rangel took titles to their homes and drained the remaining equity out of the properties, the prosecutor said.

Enough Transparency in the Municipal Bond Market?

2011-02-08T11:56:00.000-08:00

The municipal bond market, already under a dark cloud due to rising risk levels, apparently has a pattern of lax financial reporting practices that could further elevate concerns about the market.

A new study from DPC Data Inc. found that bond-issuing municipalities in general are delaying or ignoring their annual financial disclosure reporting requirements.

In a sample analysis of 17,056 muni bonds, DPC found that 40% failed to meet self-reporting of financial disclosure requirements in 2009, the most recent fiscal year studied.

That is up from 36% in 2008 and 33% during the period from 2005 through 2007.

Of those municipalities that are submitting financial reports to the Municipal Securities Rulemaking Board's Electronic Municipal Market Access system, many are filing more than 180 days late.

In fact, nearly three quarters of the studied bond offers either did not file required financial statements or filed so late that they were useless for credit analysis, according to DPC chief executive Peter Schmitt.

Studio City Man Faces Securities Fraud Charges In Alabama

2011-02-07T09:19:00.001-08:00

Authorities say three men are facing securities fraud charges involving what officials call a multimillion-dollar investment scam.

Jail records show 37-year-old Paul Liggett of Fenton, Mo., was booked into the Baldwin County Corrections Center on Thursday and was released on $35,000 bail. On Jan. 28, 33-year-old Michael David Judd of Studio City, Calif., was booked and later released on $100,000 bail.

Both men are scheduled to be arraigned March 18 in Baldwin County Circuit Court.

Charges for both men stem from an alleged scheme involving 38-year-old Richard Tucker of Robertsdale, and his company, Synergy Finance Group. Tucker is due in court next week.

Officials say agents persuaded investors to wire money to Synergy accounts with the promise of multimillion-dollar returns.

SEC Approves FINRA Proposal to Give Investors Permanent Option of All Public Arbitration Panels

2011-02-02T08:40:00.001-08:00

The Financial Industry Regulatory Authority (FINRA) today announced that the Securities and Exchange Commission (SEC) has approved its proposed rule change to provide customers in all FINRA arbitrations the option of having an all public panel. Historically, in cases with three arbitrators, the panels have been comprised of two public arbitrators and one arbitrator with a nexus to the securities industry. The amended rules will apply to all customer cases in which a list of potential arbitrators has not yet been sent to the parties.

"This change will give investors an additional choice in selecting their arbitrators when they file claims,” said Richard Ketchum, FINRA Chairman and Chief Executive Officer. “We believe that giving investors the ability to have an all-public panel will increase public confidence in the fairness of our dispute resolution process.”

FINRA sought the SEC’s approval for the rule change in October after results of a 27-month pilot program showed that investors presented with this option chose the new method of arbitrator selection nearly 60 percent of the time. Investors regularly accepted a non-public arbitrator, but the ability to choose the circumstances improved their perception of the process. Participation in FINRA’s Public Arbitrator Pilot Program was voluntary and ultimately included the participation of 14 firms.

“There was strong support from investor and consumer groups for giving arbitration customers the right to decide whether their panel should include a non-public member,” said Ketchum.

Investment Adviser Charged in Fraud Case

2011-01-29T04:39:00.000-08:00

The Securities and Exchange Commission charged a Connecticut man with misappropriating at least $53 million of investor funds, saying he invested the money for himself.

The SEC alleges that Francisco Illarramendi defrauded investors in the hedge funds he managed by improperly transferring their money into bank accounts he personally controlled and then investing that money in private-equity investments, including a developmental-stage West Coast nuclear energy company and a manufacturing company in early development of clean-tech mass-transportation alternatives.

His biggest investor, an unnamed foreign company pension fund, contributed 90% of the money in his funds, the SEC said in a complaint filed Friday in federal court in Connecticut. Other investors were also based offshore.

Mr. Illarramendi, 41 years old, is the majority owner of Stamford, Conn.-based Michael Kenwood Group, LLC, an unregistered investment adviser, which in turn owns a number of entities through which Mr. Illarramendi advised hedge funds. According to a filing with the Financial Industry Regulatory Authority, he worked at Credit Suisse from 1994 to 2004 and was recently affiliated with a Stamford-based registered investment adviser, Highview Point Partners.

NIR Group Probe

2011-01-28T16:24:00.000-08:00

Hedge fund manager Corey Ribotsky recently sent a letter to his investors in his NIR Group telling them he has been the subject of "rumor and innuendo" and that his firm did nothing wrong.

Ribotsky wrote to his clients -- a relatively rare occurrence -- nearly a year after the initial disclosure that his $750 million hedge fund was being investigated by federal prosecutors for allegedly inflating returns.

"We are forwarding this letter in order to attempt to alleviate some of the concerns you may have," Ribotsky said in the Jan. 14 letter to investors in his Roslyn, New York-based fund. "We do not believe NIR has engaged in any wrongdoing, and NIR continues to cooperate fully in the governmental investigation."

Ribotsky, in his Jan. 14 investor letter, said the suspension of redemptions in 2008 was necessary to preserve the fund. He likened himself to a "captain" navigating a ship through a terrible storm and expressed dismay at how his name "has been maligned in the press."

Concern Over Lack of Transparency in Municipal Marketplace Grows

2011-01-26T08:30:00.000-08:00

Investors and regulators are growing increasingly concerned about the quality and timeliness of information that state and local governments are disclosing about their finances.

The Securities and Exchange Commission is inquiring about public statements Illinois made about its pension funds amid the agency's increased scrutiny of the municipal-bond market, a representative for the governor said.

Amid governments' financial woes, meanwhile, angry investors are finding themselves blindsided by bad news. Those concerns are reflected in a forthcoming study that shows that public issuers routinely file information about their financial health well beyond the date they promise to bondholders, if at all.

This weak disclosure is raising anxiety in the $2.9 trillion market, where investors withdrew more than $20 billion from municipal bond funds in recent weeks.

Federal regulators' power in this realm is limited because municipal borrowers are unregulated. But they are trying to crack down on the disclosure issue

SEC Urges Uniform Fiduciary Duty For Brokers and Advisers

2011-01-25T08:30:00.000-08:00

U.S. securities regulators on Friday called for a new uniform fiduciary standard for broker-dealers and investment advisers that would require them to put retail customers ahead of their own financial interests. The recommendations, laid out by the Securities and Exchange Commission in a study reviewed by Reuters late on Friday, would drastically alter the landscape for broker-dealers who under current laws are only required to recommend products that are "suitable" to mom-and-pop investors.

It could also potentially mean changes for investment advisers if the SEC opts to replace their fiduciary standard with a new one, although the study says it would be "no less stringent" than what they face today.

Under today's standard, advisers must act in a client's best interest. The study was required under the Dodd-Frank financial law, and its findings are likely to help shape future rule-making at the agency. SEC Chairman Mary Schapiro has long called for harmonizing regulations between brokers and advisers who offer retail customers advice, saying investors may not know the difference between those acting in their best interest and those who are just peddling products.

But both Republican commissioners issued a harsh critique of the study on Friday, saying it failed to provide evidence that investors are "being systemically harmed or disadvantaged". They also questioned if a uniform standard would eliminate any investor confusion.

SEC Charges 3 Investment Firms With Fraud

2011-01-21T09:37:00.000-08:00

Three affiliated New York investment firms and four senior officers were charged with fraud, misuse of client assets and other violations involving their advisory business, according to the Securities and Exchange Commission.

The SEC alleged that investment adviser William Landberg and President Kevin Kramer, through firms West End Financial Advisors LLC, West End Capital Management LLC and Sentinel Investment Management Corp., misused investor assets, fraudulently obtained more than $8.5 million from a bank and used a reserve account for unauthorized purposes.

"West End raised millions from investors by touting false positive returns while concealing fraudulent bank loans, cash flow problems and the misappropriation of investor assets," said David Rosenfeld, associate director of the SEC's New York regional office.

Mr. Landberg allegedly used substantial amounts of fraudulently obtained bank loans to make distributions to certain West End investors, sustaining the illusion their investments were performing well.

The SEC accused Mr. Kramer of knowing, or being reckless in not knowing that West End faced severe financial problems and had difficulty obtaining funding its investment strategy, though he continued to market the funds to investors through April 2009.

West End Financial Officer Steven Gould and Controller Janis Barsuk also face charges related to the alleged misconduct, which the SEC said occurred from January 2008 to May 2009. The SEC accused the two of knowing, or being reckless for not knowing, about Mr. Landberg's alleged fraud. Mr. Gould allegedly used improper accounting methods and issued account statement with false investment returns.

Mr. Landberg also is accused officials of misappropriating at least $1.5 million for himself and his family.

SEC Investigating Life Partners

2011-01-20T08:27:00.000-08:00

The Securities and Exchange Commission is investigating Life Partners Holdings Inc., a Waco, Texas, company that has arranged for investors to buy several billion dollars of life-insurance policies from their original owners, according to four people who have been contacted recently by the agency.

As part of its probe, the SEC's enforcement division has been seeking experts to analyze the way Life Partners has estimated the life expectancies of the insured individuals, these people say. The estimates—projections of how long the people might have to live—are a crucial part of the investment equation.

The shorter an insured person's expected life span, the more Life Partners generally can charge for that policy, because investors expect a faster payout. If the death comes later than anticipated, not only is the policy payout delayed, but investors who buy policies or parts of them must continue to pay premium bills while they wait to collect on a death benefit.

Questions about the accuracy of Life Partners' life-expectancy estimates were the focus of a December Page One article in The Wall Street Journal. The article reported that many of the insured people are living well beyond the company's estimates, suggesting that the 10% or 15% yearly returns promoted to Life Partners' investor clients may prove elusive for many.

The company has said it remains confident in its methodology, and that even if many insured people outlive their projected life spans, investors likely will still make respectable single-digit annual returns.
Attractive projected returns for clients are a key part of Life Partners' formula for success. One of the fastest-growing small companies in the U.S. in recent years, Life Partners reported earnings of $29.4 million on $113 million of revenue for its fiscal year ended Feb. 28, 2010.

Life Partners says it has sold 6,400 policies with a face value of $2.8 billion to 27,000 clients since its 1991 founding. Life Partners extracts often-hefty fees in the deals, averaging $308,000 apiece for the 201 policies sold in its most recent fiscal year. Investors often buy pieces of multiple policies.

The company uses a Reno, Nev., physician, Donald T. Cassidy, to provide its life-expectancy estimates. Wednesday, Dr. Cassidy didn't respond to requests to his office for comment. He declined to be interviewed for the Journal's earlier story.

Rick Bergstrom, an actuary in Bellevue, Wash., who has worked in the life-settlements field since 1997, said an attorney from the SEC's Fort Worth, Texas, office called him last week, to ask whether he could help analyze Life Partners' life-expectancy projections.

Mr. Bergstrom said he and a partner five years ago examined Dr. Cassidy's work for an institutional investor that was thinking of hiring the physician. They concluded Dr. Cassidy was using an "unrealistic" approach that tended to produce inaccurately short life expectancies, Mr. Bergstrom said.

Securities America Loses $1.2 million FINRA Arbitration

2011-01-03T19:01:00.000-08:00

A FINRA arbitration panel ordered Securities America to pay an investor more than $1.2 million in damages related to losses in promissory notes issued by Medical Capital Holdings Inc., which entered receivership in 2009. The sum included $250,000 in punitive damages.

The case, decided on Dec. 31, was the first among dozens of arbitration cases against Securities America involving its sale of Medical Capital notes to proceed to an arbitration hearing, a Securities America spokeswoman confirmed. Private placements are sales of unregistered securities that are supposed to be marketed only to institutions and sophisticated individuals who meet certain income and net worth requirements.

Josephine Wayman, a California-based investor, filed the case against Securities America and one of its brokers, Randall R. Talbott of Newport Beach, Calif., in late 2009, alleging misrepresentation and fraud, among other things, according to the ruling. She sought $729,000 plus interest, legal fees, punitive damages and other relief. The panel ruled that Securities America and Talbott as jointly responsible for more than $905,000 of the total award, including $734,000 in damages plus interest, $111,465 in legal fees and $59,883 in expert witness fees, according to the award. The firm and Talbott must also pay an additional $17,000 in hearing fees, which are typically split between the parties in most cases.

Securities America, however, is solely responsible for the $250,000 in punitive damages. The panel didn't fully explain its decision, as is customary in arbitration rulings. One paragraph of the ruling, however, suggests that issues related to witnesses and the discovery phase of the proceeding, when parties exchange information, may have prompted the punitive damages.

SEC Charges Hedge Fund Managers with Offering Fraud

2011-01-02T10:08:00.000-08:00

The Securities and Exchange Commission announced today that it filed a civil injunctive action against Robert Buckhannon, Terry Rawstern, Dale St. Jean and Gregory Tindall (the "Managing Members"), the four managing members of two now-defunct hedge funds, Arcanum Equity Fund, LLC and Vestium Equity Fund, LLC (the "Funds"), through which they conducted an offering fraud that raised $34 million from 101 investors throughout the U.S. and Canada. The SEC also charged Imperium Investment Advisors, LLC, a registered investment adviser which served as trustee for Vestium Equity Fund, and its three principals, Richard Mittasch, Christopher Paganes and Glenn Barikmo, for their roles in the scheme.

The SEC's complaint, filed in the U.S. District Court for the Middle District of Florida, alleges that from April 2008 through April 2010, the Managing Members raised funds promising investors that they would generate substantial returns through conservative investments in high-grade debt instruments and, in some cases, limited physical commodities transactions. Additionally, the offering materials and prospectus for Vestium Equity Funds further assured investors that Imperium would safeguard their funds from impermissible uses. Contrary to these assurances, however, the defendants disregarded the Funds' respective investment parameters and used investor funds for illiquid private investments and loans to affiliate entities. Additionally, although the Funds incurred investment losses of at least $8.1 million, the Managing Members disseminated monthly statements falsely depicting consistent profits and paid at least $6 million to investors in alleged profits. The Managing members further paid themselves over $1.3 million in compensation that was improperly based on inflated asset values and fictitious profits. The SEC's complaint further alleges that Buckhannon, Mittasch, Paganes and Barikmo collectively misappropriated at least $734,000 of investor funds to themselves and others.

Securities and Exchange Commission v. Kenneth W. Burnt, Perimeter Wealth Financial Services, Inc., and KSB Financial, Inc.

2011-01-01T10:07:00.000-08:00

On December 20, 2010 the Securities and Exchange Commission filed a civil injunctive action in U.S. District Court for the Northern District of Georgia, charging Kenneth W. Burnt (“Burnt”), Perimeter Wealth Financial Services, Inc. (“Perimeter Wealth”) and KSB Financial, Inc. (“KSB”), with violations of federal securities laws for making false and misleading statements in connection with an unregistered covered-call equities trading program.

The Commission’s Complaint alleges that Burnt, through two entities which he controls, Perimeter Wealth and KSB, raised approximately $4.5 million from more than 20 investors. Burnt represented to investors that: (1) investment returns were guaranteed to be between 8% to 12% per annum; (2) Burnt would not be paid any funds for his advisory services unless investors were earning 8% minimum annualized returns; and (3) any principal losses or shortfalls to the guaranteed returns would be contractually covered by a reserve account funded by defendants. These representations were false in that Burnt failed to disclose to investors that he had begun directly drawing on investor funds prior to their earning the minimum guaranteed interest and that the purported reserve account was inadequately funded and incapable of covering the investor losses incurred. Since its inception through November 30, 2010, the defendants’ covered-call program has suffered net equalized losses of approximately 15%.

In its Complaint, the Commission alleges that Burnt and Perimeter Wealth violated Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”). The Complaint further alleges that KSB violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Advisers Act.

On December 21, 2010 the Honorable William S. Duffey, Jr., United States District Judge for the Northern District of Georgia, entered an order preliminarily enjoining the defendants’ violative conduct, instituting a limited asset freeze, and requiring defendants to produce an accounting of all funds raised in violation of the federal securities laws as well as an accounting of the disposition and use of said proceeds. The defendants consented to the order without admitting or denying the allegations of the Commission’s complaint. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Northern District of Georgia and the Federal Bureau of Investigation in this matter.

SEC Charges Kenneth Ira Starr

2010-12-22T10:09:00.000-08:00

The Securities and Exchange Commission today charged Jonathan Star Bristol, attorney for former financial advisor Kenneth Ira Starr, with aiding and abetting Starr's multi-million dollar fraud by allowing Starr to use Bristol's attorney trust accounts to mask the misappropriation scheme. Beginning in November 2008 through Starr's arrest in May 2010, more than $25 million of Starr's clients' funds flowed through Bristol's attorney trust accounts. Throughout that time, Bristol was a partner with a prominent international law firm.

The SEC's amended complaint, filed in federal court in Manhattan, alleges that Bristol repeatedly allowed Starr to use Bristol's attorney trust accounts as conduits when Starr stole money from his advisory clients. Starr would transfer, without authorization, clients' funds into the attorney trust accounts, and then Bristol, who was the sole owner of the trust accounts, would transfer the stolen funds to, among others, Starr and two Starr-controlled entities — Starr Investment Advisors LLC and Starr & Company LLC. The account documentation for the attorney trust accounts was sent directly to Bristol's home address. Bristol received monthly statements for the attorney trust accounts, which clearly listed the names of Starr's clients as the source of the incoming transfers. Bristol never disclosed the existence of the accounts to his law firm. Bristol did, however, tout his relationship with Starr to his colleagues and others, even claiming that Starr managed $70 billion in assets, when in fact Starr managed a fraction of that amount.

Messing With J.R., Take Four

2010-11-24T13:18:00.000-08:00

Not so fast, J.R.

Larry Hagman, who played the rapacious oil tycoon J.R. Ewing in the 1980s hit TV series “Dallas,” recently won $11.6 million in a securities arbitration case against Citigroup. As DealBook reported last month, it was the largest arbitration award an individual investor received this year and the ninth largest award ever, according to the Financial Industry Regulatory Authority, or Finra, which oversaw the arbitration.

But Citi Global Markets is now crying foul.

The California-based law firm of Munger, Tolles & Olson has filed a motion to dismiss the award in Los Angeles Superior Court, alleging that the chairman of the arbitration panel failed to disclose a potential conflict of interest. Such motions are rarely successful.

A Citi spokesman, Alex Samuelson, said, “We are pursuing our legal options.”

Citi's petition cited a Finra rule requiring arbitrators to disclose “any circumstances which might preclude the arbitrator from rendering an objective and impartial determination.”

According to Citi’s petition, the lead arbitrator had a potential conflict because he was once a plaintiff in a lawsuit “involving the same claims and the same subject matter involved in this arbitration proceeding.”

Same claims? You be the judge.

Mr. Hagman, 79, and his wife Maj, 82, accused Citi of, among other things, fraud and breach of fiduciary duty. The couple contended that they sustained losses on stocks and bonds and a life insurance policy they held with Citi.

Two years earlier, the lead Finra arbitrator sued his real estate investment partner for fraud and breach of fiduciary duty, according to Citi’s petition. The arbitrator “alleged that he and his wife had ‘trusted and relied upon’ the investment advice of their former real estate partner with respect to ‘almost all their life savings,’” Citi’s petition said.

O.K., but were the subject matters the same?

According to a recent memo that Mr. Hagman’s lawyers filed with the court, the arbitrator’s suit against his real estate partner was “unrelated” to Mr. Hagman’s case.

The memo noted that the arbitrator’s case “did not involve a securities investment” nor did the two cases involve the same facts or parties.

The memo called Citi’s petition a “last-ditch effort.”

In its petition, Citi also said “the arbitrators refused to postpone the hearing to allow Citigroup’s key witness — the Hagmans’ financial adviser — to testify.” The panel ultimately allowed the broker, who was having surgery during the hearing, to testify about a month after the arbitration ended.

“It is noteworthy that she testified after having the opportunity to review the entire record, which was a strategic advantage,” the memo said.

Philip M. Aidikoff, a lawyer for Mr. Hagman, declined comment. So did a spokeswoman for Finra.

A hearing in Los Angeles Superior Court is scheduled for Dec. 17.

Meanwhile, Citigroup is on the hook for paying 10 percent interest on Mr. Hagman’s award. That is good news for charity: The Finra arbitration panel demanded that Citi pay $1.1 million in compensatory damages for Mr. Hagman and $10 million in punitive damages to be donated to the charities of his choice.

First Arrest Made In Insider Trading Probe

2010-11-24T13:11:00.000-08:00

An East Coast employee of a California research consulting firm is accused of hooking up hedge fund operators with corporate executives who provided inside information. One of the executives who allegedly provided information works for Broadcom Corp. in Taiwan.

Federal prosecutors in New York disclosed charges Wednesday against Don Ching Trang Chu, who works at one of the research firms believed to be part of the government's investigation.

Prosecutors accused Chu of conspiracy for allegedly hooking up hedge fund operators with corporate executives who provided inside information about their companies.

Investigation of McLoed Ponzi Scheme Launched

2010-10-30T15:48:00.000-07:00

Potential arbitration claims against certain of the securities brokerage firms with which Kenneth McLeod was associated during the time he engaged in the Ponzi scheme as alleged and described in the SEC's Complaint filed against his estate in June 2010.

The SEC's Complaint alleges that McLeod, through his benefits consulting firm, Federal Employee Benefits Group, Inc., and his registered investment adviser, F&S Asset Management Group, Inc., solicited government employees to invest in a government bond fund that did not exist. McLeod lured many of his investors through retirement benefits seminars he gave at government agencies nationwide, raising at least $34 million since 1988 from an estimated 260 investors around the country, according to the SEC.

While engaged in the alleged Ponzi scheme, McLeod was associated with several FINRA registered securities brokerage firms which, under the securities laws, had an obligation to reasonably supervise his activities.

Aidikoff, Uhl & Bakhtiari Investigates Bank of America Structured Products

2010-10-29T20:40:00.000-07:00

Aidikoff, Uhl & Bakhtiari launches investigation on behalf of investors that purchased Bank of America structured investments which were represented as protecting principal. The investments the firm is investigating includes:

Bank of America (Basket EAGLES) Equity Appreciation Growth Linked Securities
Bank of America Return Linked Notes
Bank of America CYCLES (Capital Protected Equity Performance Linked Securities)
Bank of America EAGLES (Equity Appreciation Growth Linked Securities)
Bank of America Strategic Equity Exposure Performance Linked Securities
Bank of America Columbia Strategic Cash Portfolio

Messing With J.R., the Postscript

2010-10-20T11:00:00.000-07:00

Many people on Wall Street were surprised when an arbitration panel awarded Larry Hagman, who played the rapacious oil baron J.R. Ewing in the 1980s hit series “Dallas,” won $11.6 million in a securities arbitration case against Citigroup.

His broker, Lisa Detanna, was also surprised. She recently sent a letter about the case to hundreds of clients at Morgan Stanley Smith Barney, where she now works. Citigroup sold a controlling stake in its brokerage arm to Morgan Stanley in 2009.

“Nothing to me is more important to me than the trust and confidence of my clients,” she wrote last week. “Even if there is no appeal, I want you to know that I, too, am deeply disappointed and astonished by the ruling.”

The ruling against Citigroup Global Markets, released earlier this month, includes $1.1 million in compensatory damages for Mr. Hagman and his wife and $10 million in punitive damages to be donated to the charities of Mr. Hagman’s choice. Citigroup must also pay about $460,000 in legal fees and other costs. It is the largest award given to an individual this year, according to the Financial Industry Regulatory Authority, or Finra, which oversaw the arbitration.

According to a recent column by Gretchen Morgenson, a DealBook colleague, Mr. Hagman and his wife moved their account to Ms. Detanna in 2005.

Ms. Morgenson wrote that documents produced in the Hagmans’ case show Ms. Detanna began upending the couple’s portfolio, taking it from a conservative blend of 25 percent stocks and 75 percent fixed income and cash to the opposite: 75 percent stocks and the rest cash and bonds.

This happened even though the Hagmans told her that they needed income-producing investments that would preserve their principal, according to the documents. Ms. Detanna also sold Mr. Hagman a $4 million life insurance policy that required onerous annual premium payments of $168,000.

When the market fell, Mr. Hagman’s lawyer Philip M. Aidikoff argued that the account’s losses were far larger than they would have been had Ms. Detanna maintained the conservative portfolio. And the life insurance policy, which Mr. Hagman did not need and was therefore unsuitable according to his lawyer, generated losses of almost $437,000 when sold, Ms. Morgenson reported. The losses included an exit fee of $168,610, which Citigroup extracted when Mr. Hagman sold the policy.

A Morgan Stanley spokeswoman declined to comment on the letter and said Ms. Detanna was not available to comment.

A Citigroup spokesman said: “We are disappointed and disagree with the panel’s finding, and we are reviewing our options.”

Colorado Based Ponzi Scheme Snares Quarterback

2010-10-18T14:50:00.001-07:00

Hall of Fame quarterback John Elway was among 65 investors named in an alleged Ponzi scheme case against a former hedge fund manager in Colorado, according to the Denver Post.

The Denver district attorney charged 42-year-old Sean Mueller with violating the state's Organized Crime Control Act, securities fraud and two counts of theft.

Authorities told the paper that Mueller allegedly ran a Ponzi scheme where he lured new investors to pay off old ones. Officials believe that the losses total in the tens of millions.

According to an affidavit filed by the district attorney's office, 65 people -- including former Denver Broncos quarterback Elway -- invested nearly $71 million with Mueller since 2000.

It is not known how much Elway potentially lost in the alleged scheme. His agent and spokesman declined to comment to the Denver Post.

Morgan Keegan Loses $9.2 Million FINRA Case

2010-10-06T10:50:00.000-07:00

Morgan Keegan, a unit of Regions Financial Corp (RF.N), was accused of inducing investors to invest in funds that were unsuitable given their high levels of exposure to risky "subprime" mortgage assets. Customers also alleged they were encouraged to reinvest dividends in the funds.

The $9.2 million award by the Financial Industry Regulatory Authority panel was the largest yet handed down against Morgan Keegan. The investors had asked for $10.5 million in damages.

All 18 investors were customers of Houston broker Russell Stein, a veteran who started his career at Merrill Lynch in 1969 and worked at Morgan Keegan from May 2001 until March 2008, according to FINRA records.

Micro Cap Stock Manipulation - Exit Only and CX2 Technologies

2010-10-04T16:07:00.000-07:00

The Securities and Exchange Commission announced today that it charged four individuals and one entity involved in a scheme to manipulate the market in two separate microcap stocks - Exit Only, Inc. and CX2 Technologies, Inc.

The Commission's complaint, filed in federal district court in Philadelphia, alleges that, from at least January 2008 through March 2008, Mark Johnson of Baltimore, Maryland, Mark Manoff of Wayne, Pennsylvania, Leonard Gotshalk of Ashland, Oregon, and Kyle Gotshalk of Canyon Country, California, the President and Chief Executive Officer of Exit Only, Inc., engaged in a scheme to manipulate the market for the purpose of artificially inflating each company's stock price and to create the false appearance of an active and liquid market. The defendants entered into agreements with individuals they believed would generate purchases of each company's stock in exchange for the payment of cash kickbacks. Unbeknownst to the defendants, they had actually entered into agreements with a witness secretly cooperating with the government and an undercover Special Agent of the Federal Bureau of Investigation (FBI). The complaint alleges that, to effectuate this scheme, defendants provided information regarding press releases before being issued to the public, nonpublic shareholders lists, and paid cash kickbacks to generate purchases of 539,000 shares of stock in Exit Only, Inc. and CX2 Technologies, Inc.

Raymond Thomas Sentenced

2010-10-03T16:04:00.000-07:00

The Securities and Exchange Commission ("SEC") announced that on September 23, 2010, the Honorable John R. Adams of the United States District Court for the Northern District of Ohio sentenced Raymond Thomas to 6 years in prison and ordered Thomas to pay almost $1 million in restitution in connection with his conviction for one count of mail fraud and one count of filing a false tax return. Thomas's conviction stemmed from his role in a fraudulent offering scheme that defrauded at least 26 investors. Thomas was charged on June 3, 2010 and pleaded guilty on July 6, 2010.

Previously, on October 22, 2008, the SEC filed a civil injunctive complaint alleging that Thomas and his company, Strictly Stocks Investment Company, Inc. ("Strictly Stocks") operated a fraudulent offering scheme that raised at least $620,000 from at least 26 investors, many of whom were retired police officers and firefighters, while acting as unregistered investment advisers. The complaint alleged that Thomas and Strictly Stocks told investors that their funds would be invested in stocks and options. The complaint also alleged that Thomas instead misappropriated the funds and, among other things, used the funds to support his own private business ventures, including a limousine company and a title company, and for his own personal use. The complaint alleged violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act").

On February 23, 2009, the Court entered a judgment against Thomas and Strictly Stocks. The Order permanently enjoined Thomas and Strictly Stocks from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act. The Order further required Thomas and Strictly Stocks to pay disgorgement in the amount of $621,000, plus prejudgment interest of $95,406.67. Thomas and Strictly Stocks were also each ordered to pay a civil penalty in the amount of $130,000 and $650,000, respectively. Subsequently, on June 10, 2009, the SEC issued an administrative order barring Thomas from association with any investment adviser.

Downey man charged with running alleged Ponzi scheme

2010-10-02T16:01:00.000-07:00

A Downey man has been charged with running a Ponzi scheme and related mortgage scam that took in more than $20 million.

Juan Rangel, who used Spanish-language TV, radio and newspaper ads to advertise his businesses, was already in custody — he was convicted last year of bribing a Bank of America bank manager. In addition to Rangel, two other men were arrested in connection with the alleged mortgage scam.

Rangel, 46, faces a maximum of 95 years in federal prison from last year's conviction and up to 232 years in prison if convicted of running the alleged Ponzi and mortgage scams. He did not have a lawyer as of Thursday evening to represent him on the new charges.

A federal grand jury indictment alleges that Rangel and his company, Financial Plus Investments, promised investors annual returns of 60%, and in some cases 100%, from the profits from real estate and lending deals.

FINRA Proposes to Permanently Give Investors the Option of All-Public Arbitration Panels

2010-10-01T09:48:00.000-07:00

The Financial Industry Regulatory Authority (FINRA) will file a rule proposal next month that would allow all investors filing arbitration claims the option of having an all-public panel, greatly increasing investor choice in the FINRA arbitration program. The rule proposal, which will be filed for approval with the Securities and Exchange Commission (SEC), would expand to all investor claims a two-year-old FINRA pilot program that gives investors filing an arbitration claim against certain firms the option of choosing an all-public panel.

"Giving each individual investor the option of an all-public panel will enhance confidence in and increase the perception of fairness in the FINRA arbitration process," said Richard Ketchum, FINRA Chairman and Chief Executive Officer. "All investors will have greater freedom in choosing arbitration panels, and any investor will have the power to have his or her case heard by a panel with no industry participants."

If approved by the SEC, the rule would give investors the option of choosing an arbitration panel that has two public arbitrators and one non-public arbitrator, as is now the case, or choosing to have their case heard by an all-public panel. The current pilot program involves 14 firms that agreed voluntarily to a set number of investor cases that did not involve individual brokers. The proposed rule would apply to all investor disputes against any firm and any individual broker. It would not apply to arbitration disputes involving only industry parties.

Since the Public Arbitrator Pilot Program began in October 2008, slightly more than 60 percent of investors eligible to participate have opted in, resulting in almost 560 cases to date. Investors opting into the pilot, given the power to eliminate all non-public arbitrators, still chose to have one non-public arbitrator on their panel about 50 percent of the time. The pilot program was originally set to conclude after two years. However, the participating firms agreed recently to extend the pilot program for an additional year while the rule making process goes forward.

FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing and enforcing rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and registered firms. Currently, there are roughly 6,200 FINRA arbitrators – 2,700 are non-public and 3,500 public. For more information, please visit www.finra.org.

FINRA Arbitration Online Claim Filing

2010-09-30T09:48:00.000-07:00

FINRA Dispute Resolution has recently improved its Online Arbitration Claim Filing system. Any party may submit an arbitration claim using the online system. The online arbitration claim filing system is a fast, convenient, and efficient way to file an arbitration claim.

Note: As of September 25, 2010, claimants using the new Arbitration Online Claim Filing System form can pay the filing fees online by credit card. If you have a claim form already in progress prior to this date, you will NOT be able to use the new credit card payment feature. To be able to pay the filing fees by credit card, you would need to begin a new claim form that includes the new credit card feature.

With this enhancement, all parts of the initial claim (Statement of Claim, signed Submission Agreement, exhibits, and filing fees) can now be filed electronically. This will expedite the claim submission process and will set the date of filing to the date that the claim was submitted online.

SEC Commissioner Questions New Trading Rules

2010-09-26T13:33:00.000-07:00

A commissioner at the U.S. Securities and Exchange Commission questioned on Friday the value of saddling high-frequency trading firms with tighter market-making rules, which has emerged as a key possible response to the May "flash crash."

Expanding the existing market-maker obligations to include the most active traders is seen as a way to ensure that these firms provide liquidity -- or the availability of buy and sell orders -- when markets plunge, helping to avoid a repetition of the May 6 breakdown.

Commissioner Troy Paredes, however, told a Security Traders Association conference that "the value of subjecting high-frequency traders to market-maker obligations is not self-evident" during times of stability.

"It would be unfortunate for investors if, as a result of burdening a wide swath of liquidity providers with new obligations, the quality of our markets actually deteriorated during the overwhelming majority of trading days when liquidity would be plentiful," Paredes said.

The commissioner, one of five at the SEC, also questioned whether high-frequency algorithmic trading firms would continue to trade in the rare times of market stress -- even if they were saddled with market-maker obligations that would in fact require them to participate.

Exchanges, under regulatory and public pressure, last week submitted proposals to the SEC that would force market makers to quote closer to the price of the stocks in which they are registered to supply buy and sell orders.

These rules could expand to include high-frequency firms, whose rapid-fire trading now accounts for about half of all U.S. equity volumes.

Federal Judge Accepts SEC Settlment with Citigroup

2010-09-25T13:31:00.000-07:00

A federal judge said Friday that she would accept the $75 million settlement between the Securities and Exchange Commission and Citigroup over the bank’s failure to adequately disclose its exposure to subprime mortgage debt in 2007, The New York Times’s Edward Wyatt reports from Washington.

But Judge Ellen Segal Huvelle of Federal District Court for the District of Columbia told lawyers for the government that she wanted the S.E.C. to certify that the remedies Citigroup claimed to have put in place to prevent a similar failure were adequate and would remain for a given period of time.

The judge also directed that the settlement agreement be reworded to make clear that the $75 million would be used to compensate shareholders who suffered losses because of Citigroup’s misstatements, and she told the S.E.C. and the bank to return in two weeks with new language that did that.

Securities and Exchange Commission v. M. Mark McAdams and R. Dane Freeman

2010-09-24T13:25:00.001-07:00

The Securities and Exchange Commission ("Commission") announced that the Honorable Terry L. Wooten, United States District Judge for the District of South Carolina, entered an order permanently enjoining M. Mark McAdams ("McAdams"). The order restrained and enjoined McAdams from future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. McAdams was also ordered to pay disgorgement, pre-judgment interest and a civil penalty in amounts to be resolved upon motion of the Commission at a later date, and directed that for purposes of that motion, the allegations of the Commission's Complaint shall be deemed true. McAdams consented to the entry of the order without admitting or denying the allegations of the Commission's Complaint.

The Complaint, filed on March 18, 2010, alleged fraud against McAdams and his co-defendant R. Dane Freeman ("Freeman") in connection with sales of securities interests in Global Holdings, a limited liability company organized by McAdams. Approximately $3.5 million was raised from investors during the first nine months of 2008. The Complaint alleged that McAdams and Freeman told investors orally and in writing that Global Holdings was "in the business of locating and securing high return investment opportunities for investors on international trading platforms." Most of the Global Holdings' investors executed a joint venture agreement that was prepared by McAdams and signed by either McAdams or Freeman. These joint venture agreements represented that Global Holdings would utilize those funds "for the purpose of buying and selling Standard and Poor's AAA or AA rated bonds and/or Medium Term Notes" on an "overseas trading platform." Some of the joint venture agreements stated that investors who invested $20,000 would receive $1,000,000 after 60 days, a return of 4,900%. At least one joint venture agreement stated that an investor's $500,000 would grow to $1,500,000 after 60 days, for a 200% rate of return. Most investors, if not all of them, never received either profits or a return of their principal. Instead, over $500,000 in investor funds were transferred to accounts controlled by Freeman and his family. McAdams received many questions about the high yield investment program from the outset, from investors and his own family members, to whom McAdams vouched for the existence and legality of the global trading platforms that supposedly would generate such outlandish returns. McAdams also misrepresented the success of the program. McAdams falsely misrepresented to a potential investor that Global Holdings had participated in hundreds of similar transactions that had already produced hundreds of millions of dollars for dozens of investors.

SEC Investigates Vision Capital

2010-09-24T13:17:00.001-07:00

In a wide-ranging investigation, the Securities and Exchange Commission issued subpoenas in the summer to several investment firms that have done business with New York-based Vision Capital, said people familiar with the inquiry.

The hedge fund invests mainly in private placements by small cash-strapped public companies.

The subpoenas sent out by the SEC's New York office seek emails, transaction documents and other communications between Vision Capital and the investment firms going back to early 2005 -- the hedge fund's first year in business. Reuters reviewed a copy of one of the subpoenas.

The focus of the SEC investigation is not clear. But people familiar with Vision, including investors and former employees, said regulators might be examining the methodology the hedge fund has used to put valuations on the equity stakes it has taken in hundreds of struggling small-cap companies.

Vision is led by Adam Benowitz and Randolph "Randy" Cohen, who have been friends since childhood. The pair picked the name Vision Capital because they each suffer from a significant visual impairment: Benowitz is blind in one eye, and Cohen has a degenerative eye disease.

Cohen, currently a visiting professor at the Massachusetts Institute of Technology's Sloan School of Management, was an associate professor of finance at Harvard Business School for nearly nine years.

Benowitz and Cohen caused a bit of a stir on Wall Street in fall 2008 when they considered offering a job to Stanley O'Neal, the former Merrill Lynch chief executive officer who was ousted from the investment firm at the beginning of the financial crisis.

The managers burst on the scene in 2005, when Vision posted a 105 percent gain. They followed that up with an even better 188 percent return in 2006.

But returns fell sharply in more recent years. And since last year, investors have been unable to pull money out of most Vision funds. The managers have told investors that it may be many years before they can redeem their money due to the illiquid nature of Vision's investments in all those small-cap companies, said people familiar with the firm.

Since opening for business, Vision Capital has invested some $266 million in 104 financing deals with small-cap companies, according to Sagient Research, a private placement tracking service.

These so-called PIPE deals, or private investments in public equity, are popular with hedge funds because buyers usually get preferred stock or bonds that convert into shares at discounted prices. The deals often include sweeteners, such as warrants, that permit the investors to buy additional shares at prices well below what ordinary investors would pay on a public market.

Many of the PIPE deals Vision invested were rich in warrants. Over the years, some in the hedge fund industry have criticized Vision's managers for putting too high a valuation on the warrants obtained in these financing transactions, given that many small companies doing PIPEs often falter.

SEC Charges Minneapolis Attorney And San Francisco Real Estate Lending Fund Promoters With Misleading Investors

2010-09-22T11:32:00.001-07:00

The Securities and Exchange Commission announced that on September 21, 2010, it charged a Minneapolis attorney and two San Francisco-area real estate lending fund promoters with defrauding investors in a Minneapolis-based real estate lending fund by concealing the collapse of the fund's sole business partner.

The SEC's complaint, filed in federal court in Minneapolis, alleges that Todd A. Duckson, of Prior Lake, Minnesota, Michael W. Bozora, of Belvedere, California, and Timothy R. Redpath, of Mill Valley, California, raised more than $21 million from investors in the Capital Solutions Monthly Income Fund after the fund's sole business partner defaulted on its obligations to the fund. The SEC alleges that after this May 2008 default, the fund — whose sole business was to make real estate loans to a single borrower — had no meaningful income and was using new investor funds to pay existing investors.

According to the SEC's complaint, Bozora and Redpath launched the fund in 2004 and, through August 2009, raised approximately $74 million from approximately 450 investors from across the U.S. After the May 2008 default by the fund's sole borrower, the fund foreclosed on the borrower's real estate projects. The SEC alleges that in late 2008, Bozora and Redpath asked Duckson, who was acting as the fund's outside counsel, to take over managing the fund. The SEC alleges that Duckson then began managing the fund while Bozora and Redpath continued to raise money from new investors. The SEC alleges that Bozora, Redpath, and Duckson failed to disclose the default and foreclosure to investors for several months. The SEC alleges that Bozora, Redpath, and Duckson eventually made some disclosure of the default and foreclosure, but they minimized the impact of these events and misleadingly promoted the fund's ability to make new loans.

SEC Charges California lawyer for role in investment scheme

2010-09-21T11:27:00.000-07:00

The Securities and Exchange Commission ("Commission") announced that it charged a California lawyer, George Gustav Bujkovsky, age 67, of Escondido, California, for his role in perpetrating a phony investment pool scheme directed by his clients.

The Commission's complaint, filed September 21, in federal court in San Diego, alleges that while Bujkovsky represented MAK 1 Enterprises Group, LLC ("MAK 1") and its principals, Mohit A. Khanna and Sharanjit K. Khanna, he personally defrauded certain MAK 1 investors, aided and abetted the fraud of MAK 1 and the Khannas, and offered and sold MAK 1's unregistered securities. Investors in the $35 million MAK 1 scheme were promised exorbitantly high returns through guaranteed investments such as foreign currency trading. MAK 1 was in fact a Ponzi scheme and was halted by an emergency action filed by the Commission in federal court in San Diego in August 2009. In that action, SEC v. Mohit A. Khanna, et al., Case No. 09CV1784BEN (filed Aug.17, 2009, the Commission charged MAK 1 and the Khannas with violations of the federal securities laws, Bujkovsky represented MAK 1 and the Khannas as clients between April and August 2009.

SEC Obtains Emergency Asset Freeze to Halt Multimillion Dollar Entertainment Investment Fraud

2010-09-18T11:36:00.000-07:00

On September 14, 2010, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Atlanta -based LADP Acquisition, Inc. (LADP Acquisition) and its principals, Atlanta residents William A. Goldstein and Marc E. Bercoon. The SEC alleges that LADP Acquisition, Goldstein and Bercoon are perpetrating an ongoing $3.2 million entertainment investment fraud. The court entered an order halting the alleged fraud and freezing the assets of LADP Acquisition, Goldstein and Bercoon.

The SEC charged LADP Acquisition, Goldstein and Bercoon for allegedly misappropriating investor funds in a “bait-and-switch” scheme. The SEC’s complaint alleges that LADP Acquisition, Goldstein and Bercoon misrepresented that investors would be investing in L.A. Digital Post, Inc. (L.A. Digital), a television and film post-production company with offices in Los Angeles and New York. The SEC’s complaint alleges that prospective investors were provided offering materials listing prominent motion picture studios and television networks that had been clients of L.A. Digital and a “client list” setting forth well-known television shows and movies for which L.A. Digital provided post-production services.

In reality, according to the SEC’s complaint, investors received worthless certificates representing “shares” in LADP Acquisition, an entity with no business operations. The SEC’s complaint further alleges that the defendants represented to potential investors that L.A. Digital is “going public” or going to be the subject of an initial public offering (IPO) within a short period of time, such as 60 or 90 days, and that its shares will be traded on the American Stock Exchange, or some other public exchange such as the New York Stock Exchange or NASDAQ. However, no public offering of L.A. Digital stock has occurred.

SEC Settles Claims Involving Scheme to Pay Off Bonds

2010-09-15T10:47:00.000-07:00

The Commission announced that on August 26, 2010, Federal District Judge Paul Gardephe of the United States District Court for the Southern District of New York entered final judgments approving settlements between the Commission and the defendants in the pending case against FTC Capital Markets, Inc. ("FTC"), FTC Emerging Markets ("Emerging Markets"), Guillermo David Clamens, and Lina Lopez. The judgments against Clamens, FTC and Emerging Markets order those defendants to pay over $20 million in disgorgement and penalties but provide for full satisfaction of their monetary obligations by defendants' release of their assets frozen at the start of the case and any other assets in the United States. The final judgments, to which the defendants consented without admitting or denying allegations in the Commission's complaint, also permanently enjoin all the defendants from future violations of the relevant provisions of the federal securities laws.

The Commission filed the action on May 19, 2009, charging Clamens, FTC, a registered broker-dealer controlled by Clamens, and Lopez, an FTC employee, with a fraudulent scheme to engage in tens of millions of dollars of unauthorized securities trading through the accounts of two FTC customers. According to the Commission's complaint, Clamens and Lopez defrauded the two FTC customers in part to conceal their prior fraudulent sale of $50 million in non-existent notes to a Venezuelan bank through defendant Emerging Markets, another Clamens-controlled entity. When the fictitious notes held by the Venezuelan bank purportedly came due in August 2008, Clamens allegedly misappropriated $50 million from the two FTC customers to fund the redemption. In addition, the Complaint alleged that Emerging Markets illegally acted as an unregistered broker-dealer. As a result of the alleged misconduct, the Complaint charged that defendants FTC, Emerging Markets, Clamens and Lopez violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; defendant FTC violated Section 15(c) of the Exchange Act; defendant Emerging Markets violated Section 15(a) of the Exchange Act; and defendants Clamens and Lopez aided and abetted FTC's violations of Exchange Act Section 15(c) and Emerging Markets' violations of Exchange Act Section 15(a).

The final judgment against Lopez holds her liable for a civil penalty of $130,000 but does not order her to pay the penalty in light of her conviction in a separate criminal proceeding, United States v. Nazly Cucunuba Lopez a/k/a Lina Lopez, 09 Cr. 985 (RPP)(S.D.N.Y.), and her sworn representations of financial condition. Separately, Clamens and Lopez both agreed to settle related administrative proceedings by the Commission by consenting to be barred from association with any broker or dealer.

FINRA Sanctions Trillium Brokerage Services, LLC, Director of Trading, Chief Compliance Officer, and Nine Traders $2.26 Million for Illicit Equities Trading Strategy

2010-09-14T10:46:00.001-07:00

The Financial Industry Regulatory Authority (FINRA) today announced that it has censured and fined New York-based Trillium Brokerage Services, LLC, $1 million for using an illicit high frequency trading strategy and related supervisory failures. Trillium, through nine proprietary traders, entered numerous layered, non-bona fide market moving orders to generate selling or buying interest in specific stocks. By entering the non-bona fide orders, often in substantial size relative to a stock's overall legitimate pending order volume, Trillium traders created a false appearance of buy- or sell-side pressure.

This trading strategy induced other market participants to enter orders to execute against limit orders previously entered by the Trillium traders. Once their orders were filled, the Trillium traders would then immediately cancel orders that had only been designed to create the false appearance of market activity. As a result of this improper high frequency trading strategy, Trillium's traders obtained advantageous prices that otherwise would not have been available to them on 46,000 occasions. Other market participants were unaware that they were acting on the layered, illegitimate orders entered by Trillium traders.

In addition to the nine traders, FINRA also took action against Trillium's Director of Trading and its Chief Compliance Officer. The 11 individuals were suspended from the securities industry or as principals for periods ranging from six months to two years. FINRA levied a total of $802,500 in fines against the individuals, ranging from $12,500 to $220,000, and required the traders to pay out disgorgements totaling about $292,000.

FINRA's investigation found that nine Trillium proprietary traders intentionally created the appearance of substantial selling or buying interest in the NASDAQ Stock Market and NYSE Arca exchange. Trillium's traders bought and sold NASDAQ securities in this manner in over 46,000 instances, resulting in total profits of approximately $575,000, of which the firm retained over $173,000 and subsequently was required to disgorge.

SEC Charges NJ Investment Advisor In Offering Fraud Case

2010-09-02T10:48:00.000-07:00

The Securities and Exchange Commission announced that is has filed a complaint in the District of New Jersey against Sandra Venetis, a Branchburg, N.J.-based investment adviser and three of her firms, Systematic Financial Services, Inc., Systematic Financial Associates, Inc., and Systematic Financial Services, LLC, with operating a multi-million dollar offering fraud involving the sale of phony promissory notes to investors, many of whom are retired or unsophisticated in investments.

The Commission's complaint alleges that Venetis and the three entities that she founded, owned, or controlled have obtained at least $11 million from investors since approximately 1997. Systematic Financial Associates Inc. is an investment adviser, Systematic Financial Services LLC is an accounting and tax preparation firm, and Systematic Financial Services Inc. is an entity Venetis created to conduct the fraudulent offerings. Venetis, acting on behalf of the three entities, solicited and obtained funds from clients and others to invest in promissory notes, fixed income investments, or other side investments.

The Commission's complaint alleges that Venetis told some investors that the promissory notes were guaranteed by the Federal Deposit Insurance Corporation and would earn interest of approximately 6 to 11 percent per year that would be tax-free due to a loophole in the tax code. She also told investors that she would use their money to fund loans to doctors that would be backed by Medicare reimbursement payments to those doctors. Instead of making investments, Venetis looted investor funds to pay business debts and personal expenses accrued from international travel, gambling, and home mortgages and property taxes. She also funneled cash to her relatives.

Final Judgment Enterest Against Thompson Consulting, Inc.

2010-09-01T10:50:00.000-07:00

On August 17, 2010, the Honorable Bruce S. Jenkins, United States District Court Judge for the District of Utah, entered final judgments of permanent injunction and other relief against Defendants Thompson Consulting, Inc. (Thompson Consulting), Kyle J. Thompson (Thompson), David C. Condie (Condie) and E. Sherman Warner (Warner). The final judgments against Thompson, Condie and Warner enjoin them from violating Sections 17(a)(2) and (3) of the Securities Exchange Act of 1933 (Securities Act).

The final judgment against Thompson Consulting enjoins Thompson Consulting from violations of Sections 17(a)(2) and (3) of the Securities Act and Section 206(2) of the Investment Advisers Act of 1940. In addition to the injunctive relief, Thompson Consulting is liable for disgorgement of $400,000. Thompson Consulting, Thompson, Condie and Warner consented to the entry of the final judgments without admitting or denying the allegations of the complaint.

The Commission commenced this action on March 4, 2008, alleging Thompson Consulting, a hedge fund adviser, and its principals Thompson, Condie and Warner violated the antifraud provisions of the securities laws by making undisclosed subprime and other high-risk investments which resulted in the near total asset losses of two hedge funds managed by the adviser. The Commission's complaint also alleged that Thompson Consulting's deviations from its stated investment policy resulted in substantial losses to the hedge funds.

Montana Files Against Securities America for Medical Capital Blow Up

2010-08-26T08:59:00.000-07:00

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.

FINRA Fines HSBC For CMO Sales to Retail Customers

2010-08-19T13:34:00.000-07:00

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 Fines Merrill Lynch Over UIT Abuse

2010-08-18T17:22:00.001-07:00

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.

Names of Rothstein Ponzi Scheme Victims to Remain Private

2010-08-18T12:03:00.000-07:00

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.

8 Charged In California Real Estate Scheme

2010-08-17T12:00:00.000-07:00

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.

Leveraged Municipal Arbitrage Funds Under Investigation

2010-08-16T10:38:00.000-07:00

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.

Lakewood New Jersey Real Estate Devloper Charged

2010-08-16T08:05:00.000-07:00

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.

Illinois Money Manager William A. Huber Pleads Guilty To Criminal Charges In Connection With Securities Fraud

2010-08-15T15:35:00.000-07:00

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.

Morgan Stanley Fined By FINRA Over Failure to Disclose

2010-08-14T12:11:00.000-07:00

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.

Northamerican Energy - SEC Seeks Receiever

2010-08-13T15:33:00.000-07:00

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.

ASTA and Mat Municipal Arbitrage Claims Continue to Be Investigated by Aidikoff, Uhl & Bakhtiari

2010-08-12T04:05:00.000-07:00

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.

1861 Capital Investigation Continues...

2010-08-11T16:04:00.000-07:00

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.

FINRA Seeks Extension of Discovery Guide Comment Period

2010-08-11T13:19:00.000-07:00

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.

Medical Capital - Update

2010-08-10T15:42:00.000-07:00

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.

Virgin Island Financier Accused of Ponzi Scheme Fraud

2010-08-08T16:34:00.000-07:00

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.

Former Deloitte and Touche Partner and Son Charged With Insider Trading

2010-08-07T09:27:00.000-07:00

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.

SEC Charges Boiler Room Operators

2010-08-06T09:26:00.000-07:00

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.

Madoff Settlement on Hold

2010-08-05T15:30:00.000-07:00

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.

UBS Hit With $81 Million Auction Rate Securities Award By FINRA Arbitration Panel

2010-08-04T15:44:00.000-07:00

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.