Florida Securities Fraud Lawyer Blog

Before You Invest: Pre-IPO Stock Investments

Wed, 16 May 2012 09:45:23 -0500

Due to the media hype of the upcoming IPO of Facebook and other private companies, there is an increased interest in investing in these companies. Access to a private company's stock prior to its IPO is very limited. Fraudsters are exploiting this limited supply and tremendous demand by offering "pre-IPO" shares of these companies, particularly Facebook, which is expected to go public at the end of May.

Investors are drawn to the prospect of buying pre-IPO shares at a lower price per share than the initial public offering price, with the expectation that they will be able to cash out at a higher price shortly after the IPO, when public demand drives up the price per share. Investors seeking to make a quick profit are likely targets for fraud.

Oftentimes, it is difficult to determine if a pre-IPO investment is a legitimate private placement or a fraudulent offering. Legitimate private placements may not be registered with state or federal securities regulators because they are exempted from registration due to certain restrictions on who can invest in the private offerings.

There are risks involved with the purchase of pre-IPO shares, even legitimate offerings. If the company decides not to go public, investors may be unable to sell their shares. Also, the pre-IPO shares may have been offered at an unreasonable price. There have been instances where an IPO price was much lower than what was predicted. At worst, the pre-IPO shares being offered could be outright scams, where the promoter offering the shares never owned any shares in the first place.

In a recent case, the Securities and Exchange Commission ("SEC") filed a Complaint against two Florida residents and others, alleging that they defrauded investors across the country out of at least $12 million by offering pre-IPO shares of Facebook, Twitter, and Groupon, through their company Praetorian Global when, in fact, Praetorian never owned the pre-IPO shares.

Possible red flags to look for:

• Unsolicited offers - ask yourself why a stranger would be making you an exclusive offer.
• Anonymity - be especially careful when dealing with an entity or individual exclusively over the internet or by telephone, or when dealing with a company that you have never heard of.
• Requests to wire money or make checks payable to an individual - be very careful when asked to wire money, as these financial transactions can be very difficult to track. In addition, never make a check payable to an individual, as it could be deposited in a personal bank account.

Before making any investment, investors should:

• Research the individual(s) and companies offering the securities. State and federal securities regulators can verify licenses and provide background information, such as disciplinary history.
• Consult with an attorney or licensed securities professional about the potential investment.
• File a complaint with state or federal securities regulators if fraud is suspected.
• Always remember that if it sounds too good to be true, it usually is.

The Florida securities lawyers at McCabe Rabin, P.A. represent investors nationwide in FINRA arbitration matters. Investors nationwide who have incurred recoverable investment losses due to specific failures by stockbrokers and brokerage firms, and who may have a FINRA arbitration claim, may contact the Florida securities lawyers at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or by e-mail to kelly@mccaberabin.com.

Center for Diagnostic Imaging Settles Whistleblower Suit

Tue, 15 May 2012 09:45:14 -0500

Center for Diagnostic Imaging, Inc. ("CDI") has resolved a whistleblower suit brought by two whistleblowers under the qui tam provisions of the False Claims Act for a total of $2.8 million. CDI, one of the country's first freestanding diagnostic imaging centers, is based in Minnesota with locations in Florida, Illinois, Indiana, Minnesota, Washington state, Missouri, Ohio and Wisconsin.

The whistleblowers, Patricia West, former Vice-President of Operations and Business Development for CDI in Washington state, and Dr. Alexander Serra, a radiologist and founding partner of Sound Medical Imaging, a servicer of CDI outpatient centers in the Puget Sound area, filed their qui tam suit in 2005 in Washington state.

The complaint alleged that CDI violated the False Claims Act by submitting bills to federal health care programs reflecting higher procedure codes than the procedures that were actually performed, an improper practice known as upcoding; billing for services without a written order from the treating physician, as required by federal law; and paying illegal kickbacks to treating physicians.

In 2011, the federal government intervened in the portion of the whistleblowers' complaint relating to upcoding, but declined to intervene in the remaining claims. The upcoding claims were settled in 2011 for $1.3 million, with the whistleblowers receiving 22 percent as their reward. The whistleblowers recently settled the remaining claims for an additional $1.5 million payment by CDI. The whistleblowers will receive 30% of the supplemental settlement amount as their reward.

If you have any firsthand knowledge, information, or evidence related to any federal, state, county or city government fraud, you should speak with an experienced qui tam lawyer who can help you understand your legal rights and help you obtain the compensation you deserve.

If you have a claim, contact the Florida whistleblower attorneys at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or e-mail kelly@mccaberabin.com.

JP Morgan to Pay $1.9 Million in Auction Rate Securities Case

Mon, 14 May 2012 13:25:03 -0500

A Financial Industry Regulatory Authority ("FINRA") arbitration panel has awarded Ashley Furniture Industries, Inc. ("Ashley") $1.9 million against JP Morgan Securities, LLC ("Morgan") for losses in auction rate securities ("ARS"). In its claim filed in August 2010, Wisconsin-based Ashley had sought actual damages of over $26 million.

Ashley alleged that Morgan misrepresented ARS as safe, liquid, short-term investments. In addition, Ashley claimed that Morgan failed to disclose its own involvement in the ARS market.

ARS are floating rate debts or preferred securities with long maturities (often twenty or more years) issued by municipalities or corporations. The interest rates for ARS are periodically reset through Dutch auctions, typically held every 7, 14, 28, or 35 days. When brokerage firms stopped supporting the auctions, the entire ARS market failed en masse in February 2008.

Like most FINRA Awards, the Award does not reflect any rationale for the decision or basis for the amount of damages awarded.

SEC Charges A.L. Waters Capital With Creating Phony Private Placements

Wed, 09 May 2012 09:13:25 -0500

Arnett L. Waters, a Massachusetts resident, and his broker-dealer, A.L. Waters Capital LLC ("Waters Capital"), have been charged by the Securities and Exchange Commission ("SEC") with creating bogus private placements - Port Huron Partners LP and Port Huron Partners II LP (collectively "Port Huron Funds") - and bilking investors out of at least $780,000. Mr. Waters' wife, Janet Lee Waters, the compliance officer of Waters Capital, has also been named as a relief defendant in the case.

The Complaint filed by the SEC last week alleges that that Waters offered investors a chance to participate in the phony private placements through Waters Capital's website. The SEC claims that investors received conflicting marketing materials and offering memoranda. The Complaint states that some marketing materials depict the Port Huron Funds as dealing in precious metals and coins or securities focused on precious metals, while others describe the Port Huron Funds as hedge funds trading in global, preferred stocks and corporate and government bonds.

In addition, the SEC alleged that Waters Capital claimed the Port Huron Funds had $180 million in assets under management as of January 2010, but the Port Huron Funds' account was closed in March 2009 and never held more than $52,000.

In response to the SEC, Waters allegedly told the SEC that no one had invested in the Port Huron Funds, but the SEC claims that at least 8 clients invested more than $780,000, including one church. The SEC alleges that investors' funds were used to pay the Waters' personal and business expenses, including payments on a horse farm, the bills of an equine veterinarian, and restaurants.

Investors nationwide who have been the victim of financial fraud, may contact the Florida securities arbitration attorneys at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or by e-mail to kelly@mccaberabin.com.

Former Medical Capital Exec Pleads Guilty

Wed, 09 May 2012 08:43:58 -0500

Joseph J. Lampariello, former president of Medical Capital Holdings, Inc. ("Med Cap"), pleaded guilty on Monday to wire fraud and failure to file a tax return. Lampariello, who earned $6.2 million from the sales of Med Cap notes, faces up to 21 years in federal prison, and an order to pay $49 million in restitution, when he is sentenced.

Between 2003 and 2009, Med Cap raised almost $2 billion from investors, supposedly for the purchase of discounted medical receivables, such as unpaid healthcare bills, that Med Cap would then collect at full price. A court-appointed receiver, appointed in 2009, alleged that Med Cap had actually been operating a Ponzi-like scheme that had bilked $1 billion from more than 11,000 investors.

Lampariello and Med Cap's former chief executive, Sidney Field, were sued by the Securities and Exchange Commission ("SEC") for fraud, in connection with Med Cap's last offering, Medical Provider Funding Corp. VI ("MedCap VI"). According to the Justice Department, Lampariello defrauded the MedCap VI note holders from August 2008 to June 2009.

The Justice Department claims that Med Cap's investors were told their funds would be used to purchase account receivables and for general operating costs, when in fact, Lampariello and others, used investors' funds to make Ponzi-type payments to earlier investors, to pay personal expenses, and to invest in more exotic ventures, such as owning a medical nuclear reactor, producing a movie about a Mexican little league team and a 115-foot yacht.

As a result of a massive number of investor lawsuits seeking to recover Med Cap losses, dozens of the independent broker-dealers that sold Med Cap notes, went out of business.

Investors nationwide who have been the victims of a Ponzi scheme, may contact the Florida securities arbitration lawyers at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or by e-mail to kelly@mccaberabin.com.

Abbott Laboratories to Pay $1.5 Billion to Resolve Criminal and Civil Investigations

Tue, 08 May 2012 09:42:19 -0500

Abbott Laboratories, Inc. ("Abbott") has agreed to settle criminal and civil matters, including 4 separate whistleblower suits, related to the unlawful promotion of the drug Depakote for off-label uses. The settlement involves the payment of $700 million in criminal fines and forfeiture of assets, plus $800 million in payments to the federal government and several states to resolve False Claims Act allegations. It is the second highest payment by a pharmaceutical company.

Depakote was only approved by the Food and Drug Administration for use in treating epileptic seizures, bipolar mania and the prevention of migraines. Abbott pleaded guilty to promoting Depakote to control agitation and aggression in elderly dementia patients, and in fact, from 1998 to 2006, it maintained a specialized sales force trained to market Depakote in nursing homes for that off-label use. Abbott also admitted to marketing Depakote for use in combination with atypical antipsychotic drugs to treat schizophrenia, during the period from 2001 to 2006. In addition, Abbott admitted that it paid millions of dollars in unlawful rebates to pharmacy providers to encourage them to recommend the drug for these unapproved uses.

Four whistleblower suits were filed under the qui tam provisions of the False Claims Act. The whistleblowers alleged that Abbott's unlawful marketing and illegal payments to health care professionals and pharmacy providers caused false claims to be submitted to government health care programs such as Medicare, Medicaid and TRICARE.

According to the terms of the settlement of the qui tam cases, Abbott has agreed to pay $561 million to the federal government and $239 million to several states. As their reward, the whistleblowers will share $84 million of the settlement amount.

If you have a claim, contact the Florida whistleblower attorneys at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or e-mail kelly@mccaberabin.com.

Qwest Communications Fraud Victims to Receive $44 Million

Fri, 04 May 2012 11:34:32 -0500

The U.S. Department of Justice announced that it is returning approximately $44 million to 112,210 victims of the Qwest Communications International, Inc. ("Qwest") securities fraud. The funds were forfeited to the United States after Joseph Nacchio, Qwest's chief executive officer, was convicted of securities fraud in 2007.

Nacchio was found guilty of issuing false and misleading statements to the public about Qwest's financial condition between 1999 and 2002, in connection with a securities fraud scheme. After the irregularities about the company's finances were uncovered, the price of Qwest stock plummeted. Following his conviction, Nacchio was sentenced to 70 months in prison and ordered to forfeit $44 million, the net proceeds received from his fraud scheme.

The Department of Justice's Victim Asset Recovery Program is overseeing distribution of the funds. Individuals with questions about the distribution should contact the Remission Administrator at 1-877-268-3001.

107 Individuals Charged in $452 Million Medicare Fraud

Thu, 03 May 2012 09:14:38 -0500

The Department of Justice ("DOJ") and Health and Human Services ("HHS") announced that 107 individuals in 7 cities have been charged with various health care fraud-related crimes, including conspiracy, health care fraud, violations of the anti-kickback statutes and money laundering. At least 91 individuals, including doctors, nurses and other licensed medical professionals, were taken into custody following the nationwide operation by the joint DOJ and HHS Medicare Fraud Strike Force. The coordinated takedown involved the highest amount of money in a single operation in strike force history.

In Miami, Florida, 59 individuals, including 3 nurses and 2 therapists, were charged with submitting $137 million in false billing for home health care, mental health services, occupational and physical therapy, and durable medical equipment. Court documents reflect that 10 of the individuals, employed at Health Care Solutions Network, are charged with submitting $63 million in false billing for mental health services for Medicare and Medicaid beneficiaries who did not need the services.

In Baton Rouge, Louisiana, 7 individuals were charged with participating in the submission of $225 million in false claims for community mental health services. The government alleges that the individuals recruited beneficiaries from nursing homes and homeless shelters and provided them with no services or medically inappropriate services.

In Houston, Texas, 9 individuals, including a doctor and a nurse, were charged with submitting $16.4 million in false claims for home health services and ambulance rides that were medically unnecessary.

In Los Angeles, California, 8 individuals, including 2 doctors, were charged with submitting $14 million in false claims to federal health programs.

In Detroit, Michigan, 33 individuals, including 4 licensed social workers, were charged with submitting $58 million in false claims for medically unnecessary services including home health care and psychotherapy.

In Tampa, Florida, a pharmacist was charged with illegally diverting controlled substances.

In Chicago, one individual was charged with submitting $1 million in false claims to Medicare for psychotherapy services.

If you have any firsthand knowledge, information, or evidence related to any federal, state, county or city government fraud, you should speak with an experienced qui tam lawyer who can help you understand your legal rights and help you obtain the compensation you deserve.

If you have a claim, contact the Florida whistleblower attorneys at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or e-mail kelly@mccaberabin.com.

McKesson Corporation Settles Federal Whistleblower Claim for $190 Million

Wed, 02 May 2012 13:26:28 -0500

McKesson Corporation ("McKesson"), a large drug wholesaler, has agreed to settle the federal-portion only of a whistleblower lawsuit for $190 million.

The whistleblower, David Morgan, a licensed Pennsylvania pharmacist, filed a claim under the qui tam provisions of the False Claims Act. The whistleblower alleged that McKesson fraudulently reported inflated pricing information for a large number of brand-name, self-administered drugs to First DataBank ("FDB"), during the period from 2001 to 2009.

FDB, a publisher of drug prices used by most state Medicaid programs to set pharmaceutical payment rates, used the pricing information to determine the Average Wholesale Prices ("AWP") for those drugs. AWP is the benchmark used by Medicaid to determine the payment rates for pharmaceuticals.

The government alleged that McKesson's inflated pricing information caused FDB to publish inflated AWPs. According to the Complaint, the falsely inflated AWPs caused Medicaid to overpay for those drugs by millions of dollars.

The $190 million settlement resolves the claims based on the federal share of the Medicaid overpayments allegedly caused by McKesson's conduct. State governments are free to pursue claims based on the states' shares of the Medicaid overpayments.

If you have a claim, contact the Florida whistleblower attorneys at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or e-mail kelly@mccaberabin.com.

FINRA Fines Citigroup, Morgan Stanley, UBS and Wells Fargo $9.1 Million

Wed, 02 May 2012 08:14:27 -0500

The Financial Industry Regulatory Authority ("FINRA") has fined Citigroup Global Markets, Inc. ("Citigroup"), Morgan Stanley, UBS Financial Services, Inc. ("UBS") and Wells Fargo Advisors, LLC ("Wells Fargo") a total of $9.1 million for selling more than $27 billion of complex, non-traditional exchange traded funds ("ETFs") to investors for whom the exotic ETFs were unsuitable. In addition, FINRA cited the four firms for supervisory failures.

An ETF is a basket of investments such as stocks, bonds, commodities, currencies, options, swaps, futures contracts or other derivative instruments that tracks the performance of an underlying index or sector. Synthetic ETFs, such as leveraged and inverse ETFs, are generally not appropriate for "buy and hold" investors.

Leveraged ETFs use financial derivatives and debt to multiply the returns of an underlying index. Leveraged ETFs aim to keep a constant amount of leverage during the investment period, such as a 2:1 or 3:1 ratio.

Inverse ETFs, also called "short" funds, use various financial derivatives to profit from a decline in the value of an underlying index. Investing in an inverse ETF is similar to holding various short positions in order to profit from falling prices. An inverse ETF that tracks a particular index seeks to deliver the inverse of the performance of that index.

Leveraged inverse ETFs, also called "ultra short" funds, seek to deliver a return that is a multiple of the inverse performance of the underlying index. Because most leveraged and inverse ETFs are designed to achieve their stated objectives on a daily basis, they are not meant to be held for longer periods of time. If held for more than one day, their performance can differ significantly from their stated performance objectives.

FINRA alleges that during the period from January 2008 to June 2009, Citigroup, Morgan Stanley, UBS and Wells Fargo had inadequate supervisory systems in place for monitoring the sales of synthetic ETFs and did not perform adequate due diligence, resulting in a lack of understanding by the firms' brokers about synthetic ETFs' risks and features. As such, FINRA claims the four firms did not have a reasonable basis to recommend the investments to their retail clients, and in some instances, the firms recommended the complex synthetic ETFs to risk-averse investors for whom the investments were unsuitable.

Of the $9.1 million total: Wells Fargo was fined $2.1 million and will pay $641,489 in restitution; Citigroup was fined $2 million and will pay $146,431 in restitution; Morgan Stanley was fined $1.75 million and will pay $605,584 in restitution; and UBS was fined $1.5 million and will pay $431,488 in restitution.

Costa Rican Citizen Convicted in a Half-Billion Dollar Fraud Scheme

Tue, 01 May 2012 08:33:03 -0500

Minor Vargas Calvo ("Calvo"), a citizen of Costa Rica and president and majority owner of Provident Capital Indemnity, Ltd. ("PCI"), was convicted for carrying out a half-billion dollar fraud scheme, with more than 2,000 victims in the United States and abroad, during the period from 2004 to 2010. Calvo was convicted by a federal jury in Virginia of charges related to mail and wire fraud and money laundering.

According to evidence at his trial, PCI sold financial guarantee bonds to companies that sold life settlements, or securities backed life settlements, to investors. PCI marketed the bonds to its clients as a way to alleviate the risk of the insured individuals living beyond their life expectancy. The clients then told their investors that the bonds were a way to ensure the investors received their expected return on their investment, irrespective of whether the insured lived beyond his or her life expectancy.

Testimony at trial showed that Calvo and PCI misled PCI's clients and investors regarding the company's ability to pay claims when due on the financial guarantee bonds. The evidence further revealed that Calvo had an auditor prepare false financial statements that reflected PCI had entered into reinsurance contracts with major reinsurance companies.

According to the government, PCI sold at least $485 million of the financial guarantee bonds to life settlement investment companies, who in turn sold investments purportedly backed by PCI's bonds. Clients who purchased PCI's bonds were required to pay 6-11% of the underlying settlement in premium payments before PCI would issue the bonds. Evidence at trial showed that Calvo spent more than $23 million of his ill-gotten gains to fund a professional soccer team in Costa Rica and to fund lavish lifestyles for his family and himself.

Calvo is set to be sentenced on October 23, 2012. He faces up to 20 years in prison for each fraud count and up to 10 years in prison for each money-laundering count.

Contractor Settles Whistleblower Suit for $6.4 Million

Tue, 01 May 2012 08:02:29 -0500

Walsh Construction ("Walsh"), a large general contracting company founded in 1898, has agreed to settle a whistleblower lawsuit related to multiple construction projects it completed in Chicago. The whistleblower, Gregory Hudalla ("Hudalla"), filed the lawsuit under the qui tam provisions of the False Claims Act nearly 7 years ago.

Hudalla, a former construction manager for Walsh, alleged that the company had overbilled the federal government more than $6 million while serving as the general contractor on 11 different federally funded housing projects in Chicago. According to the qui tam complaint, Walsh submitted falsely inflated bills from subcontractors to the federal government and pocketed the difference. Hudalla cited an example of Walsh padding a bill from a plumbing subcontractor by $257,210. The whistleblower claimed that Walsh also submitted exaggerated bills for roofing, excavation and electrical work.

Walsh has gotten a range of government work over the years including the reconstruction of the Dan Ryan Expressway and has done major work on the runways at Chicago O'Hare International Airport.

Of the $6.4 million settlement amount, Hudalla will receive about $1 million as his reward under the qui tam provisions of the False Claims Act.

If you have a claim, contact the Florida whistleblower attorneys at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or e-mail kelly@mccaberabin.com.

FINRA Panel Awards $4.1 Million to Family Trusts for Losses in CMOs and CDOs

Thu, 26 Apr 2012 10:21:02 -0500

A Newark, New Jersey Financial Industry Regulatory Authority ("FINRA") Panel has awarded the Graham Jones Family Trust and the Graham Jones Charitable Remainder Trust a total of $4.1 million for losses sustained by the two trusts in bonds consisting largely of collateralized mortgage obligations ("CMOs") and collateralized debt obligations ("CDOs").

As typical of FINRA Awards, the Award did not include any rationale for the decision. The Statement of Claim alleged that the Respondents, Prestige Financial Center, Inc. ("Prestige"), Sloan Securities Corp. ("Sloan"), Harry Friedman ("Friedman") and Carl Samuel Bronstein ("Bronstein"), made unsuitable recommendations, breached their fiduciary duties, and failed to supervise. The Statement of Claim requested damages of at least $1.3 million.

The Panel Awarded compensatory damages of $1.7 million against Sloan, $569,000 against Bronstein, and $1.9, jointly and severally, against Prestige and Friedman. FINRA Awards are payable within thirty days.

FINRA Censures and Fines CapWest Securities

Thu, 26 Apr 2012 09:57:08 -0500

The Financial Industry Regulatory Authority ("FINRA") has censured and fined CapWest Securities, Inc. ("CapWest") $175,000 in connection with the firm's communications to the public regarding tenants-in-common interests ("TICs").

According to FINRA, it found that CapWest failed to disclose the risks involved with investments in TICs, such as the lack of liquidity and the potential loss of capital; the existence of Internal Revenue Code tax deferral restrictions; and the fact that the costs to maintain the property may erode the tax benefits.

FINRA also found the CapWest's written communications to the public about TICs failed to explain repeatedly used terms such as "Section 1031 Exchanges", "cap rates" and "cash-on-cash returns" as they should have.

In addition, FINRA stated that CapWest's use of cash-on-cash flow projections, describing TIC investments as "typical", and stating the returns that may be earned by a hypothetical investor, violated the prohibition against predicting or projecting performance.

FINRA also found that CapWest failed to implement an adequate supervisory system in connection with the review of the firm's advertising and sales literature, resulting in the approval, and dissemination to the public, of communications promoting TICs that did not meet the standards of FINRA's advertising rules.

The sanctions are not in effect pending review of the decision by the National Adjudicatory Council.

SEC Approves FINRA Rule Amendment Invalidating Predispute Arbitration Agreements for Whistleblower Disputes

Thu, 26 Apr 2012 09:06:51 -0500

The Securities and Exchange Commission ("SEC") has approved amendments to Rule 13201 of the Financial Industry Regulatory Authority ("FINRA") Code of Arbitration Procedure for Industry Disputes ("Industry Code").

Amended Rule 13201 states that parties are no longer required to arbitrate whistleblower claims arising under the Sarbanes-Oxley Act of 2002 ("SOX") or any other statute that prohibits the use of predispute arbitration agreements for whistleblower claims. The amendment came about because of a paragraph added to SOX by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). Dodd-Frank stated that no predispute arbitration agreement shall be valid or enforceable if it requires arbitration of a dispute arising under SOX.

Prior to the amendment, all employment disputes between associated persons and the FINRA member firms that employed them, other than statutory employment discrimination claims, were required to be arbitrated before FINRA under the Industry Code. Rule 13201 already exempted statutory employment discrimination claims from the mandatory arbitration provisions of the Form U4.

The new amended Rule 13201 indicates that disputes arising under a whistleblower statute that prohibits the use of predispute arbitration agreements may only be arbitrated if the parties agreed to arbitrate it after the dispute arose.

Amended Rule 13201 is effective on May 21, 2012.