Stock Broker Fraud Blog

FINRA Orders LPL Financial to Pay $7.5M Over Allegedly Inadequate Supervision of E-Mails

Thu, 23 May 2013 16:44:19 -0600

In what is being called the SRO’s largest fine to date over e-mail violations, the Financial Industry Regulatory Authority announced that it is fining LPL Financial LLC $7.5 million over 35 key e-mail system failures. The financial firm also has to set up a $1.5 million fund to compensate customers that may have been impacted. That is a total of $9 million.

According to FINRA, the e-mail and retention issues took place between 2007 and 2013, with LPL’s systems failing a minimum of 35 times. The brokerage firm allegedly did not fulfill its duty to supervise representatives, capture email, and answer regulator requests.

For more than four years, LPL purportedly did not supervise 28 million business emails that involved thousands of independent contractor representatives. The broker-dealer also is accused of making misstatements to the SRO during the latter’s investigation into the matter (email systems failures made it impossible for the firm to give over certain documents).

By settling, LPL is not denying or admitting to the securities fraud allegations.

Under securities industry rules, broker-dealers must keep and review emails for a certain length of time to make sure that procedure compliance is happening and to prevent possible wrongdoing. In a statement, the financial firm said that it was the one that notified FINRA about the e-mail issues. LPL says that not only did it fully cooperate with the SRO’s probe but also, regretting what happened, it is redesigning email systems and related compliance procedures and policies and working with independent experts. The firm says it is training employees so that in the future these kinds of oversights are identified and dealt with more quickly. Meantime, Reuters is reporting that in the wake of recent fines LPL has agreed to pay over abusive securities sales practices allegations, it is redoing its procedures related to its supervision of 13,000 advisers.

If you believe that broker negligence or misconduct is a cause of your investment losses, do not hesitate to contact our securities fraud law firm right away. Your first case evaluation is free.

FINRA fines LPL Financial $9 million for email violations, Reuters, May 21, 2013

LPL to Pay $9 Million for Systemic Email Failures and for Making Misstatements to FINRA, FINRA, May 21, 2013

More Blog Posts:
LPL Financial Continues to Stay Under Regulators’ Radar, Stockbroker Fraud Blog, April 10, 2013

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients, Institutional Investors Securities Blog, April 14, 2012

Ameriprise Financial, Securities America, & Three Other Brokerage Firms Reach $9.6M Non-Traded REIT Securities Settlement with Massachusetts Financial Regulator

Wed, 22 May 2013 15:42:53 -0600

Secretary of the Commonwealth of Massachusetts William Galvin announced today that the state has reached a $9.6M securities settlement with five independent brokerage dealers—Ameriprise Financial Services Inc. (AMP), Commonwealth Financial Network, Lincoln Financial Advisors Corp., Royal Alliance Associates Inc., & Securities America Inc.—over the allegedly inappropriate sale of nontraded real estate investment trusts to investors. $8.6M of this is restitution to them.

Galvin says that the investigation, which was triggered by complaints from customers, led to the discovery of a “pattern of impropriety” in the sale of these securities by independent broker-dealers where supervision has been hard to “maintain.” As part of the nontraded REIT settlement, Ameriprise will pay $2.6 in restitution and a $400K fine, Securities America will pay $778K in restitution and a $150K fine, Royal Alliance will pay $59K in restitution and a $25K fine, Commonwealth Financial Network will pay a $2.1M restitution and a $300K fine, and Lincoln Financial will pay a $504K restitution and a $100K fine.

The non-traded REIT agreement with these independent brokerage firms comes just three months after Galvin settled a similar securities fraud case with LPL Financial Holdings Inc. accusing that financial firm of inadequately supervising their brokers tasked with selling the financial instruments. LPL Financial agreed to pay $2.5M in restitution and a $500K administrative fee over seven nontraded REITs that were sold.

The state of Massachusetts contends that some sales allegedly violated state regulations that don’t allow over 10% of an investor’s worth to be held in specific securities, while others purportedly violated the requirements for liquid net worth of investors that are established in prospectuses. Firm employees and brokers tasked with looking over the transactions were not only allegedly inadequately supervised, but also they lacked the necessary education about nontraded REIT transactions. This week, a spokesperson for Secretary Galvin announced that the financial firm has agreed to pay another $2.6 million in restitution.

Shepherd Smith Edwards and Kantas, LTD LLP’s REIT attorneys, represent individual and institutional investors throughout the United States.

Five IBDs in $7M settlement over nontraded-REIT sales, Investment News, May 22, 2013

LPL to pay up to $2.5 million to settle Massachusetts REIT charges, Reuters, February 6, 2013

More Blog Posts:
SEC Submits Request for Data on Whether to Make Brokers & Investment Advisers Abide by Uniform Fiduciary Standard, Stockbroker Fraud Blog, April 4, 2013

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012

Ex-NY Governors Pataki and Cuomo Tell AG Schneiderman to Ease Off On Former AIG Head

Sat, 18 May 2013 19:16:39 -0600

In a joint op-ed, ex-New York governors George Pataki and Mario Cuomo are asking NY Attorney General Eric Schneiderman to reconsider his efforts to seek remedies, including injunctive relief, against Maurice “Hank Greenberg,” the former American International Group (AIG) chief. The former governors believe that not only will such a pursuit waste “time and money,” but also, they say that it is “morally wrong.”

It was just last month that Schneiderman told the New York State Court of Appeals that the state was dropping its claim seeking possibly billion of dollars in financial fraud damages in an eight-year-old case against Greenberg and another ex-executive but that he would continue to hold the defendants responsible by pursuing other remedies, including bans on serving as a public company director/officer and involvement in the securities industry. Greenberg, who ran AIG for almost 40 years, resigned in 2005 in the wake of an investigation into the insurer’s accounting practices. He denies wrongdoing.

Last year, a federal judge approved a $115 million settlement with shareholders over the accounting issues that were at the heart of the state’s lawsuit. (Meantime, investors have also filed related securities fraud against Greenberg and other former AIG executives.) However, despite dropping the claim for fraud damages, Schneiderman has remained adamant about proceeding with a trial against Greenberg. He believes that individuals who commit fraud must be held publicly accountable. Replying to the former NY governors, a spokesperson for the attorney general said as much, all the while noting Schneiderman’s respect for the two men and their “longstanding ties” to Greenberg.

If you are an investor who sustained losses from securities fraud, do not hesitate to stockbroker fraud lawyers today.

Read the Op-Ed, The Wall Street Journal, May 12, 2013

More Blog Posts:
Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification, Institutional Investor Securities Blog, March 19, 2013

AIG Wants to Stop Former CEO Greenberg From Naming It as a Defendant in Derivatives Lawsuit Against the US, Stockbroker Fraud Blog, April 13, 2013

New York Fed Bailed Out Bank of America Over Mortgage-Backed Securities Sold to AIG, Institutional Investor Securities Blog, February 20, 2013

California AG Files Lawsuit Against JP Morgan Chase Alleging Debt Collection Abuse Over 100,000 Credit Card Cases

Sat, 18 May 2013 19:01:54 -0600

According to California Attorney General Kamala Harris, JP Morgan Chase (JPM) filed about 100,000 credit card debt collection lawsuits between 2008 and 2011 without conducting sufficient research to properly assess the cases’ merits. The bank reportedly submitted 200 lawsuits over 15 weeks in 2011, including 32 lawsuits on January 5, 2011. Now, Harris is suing the banking giant, accusing it of “debt collection abuse” while victimizing tens of thousands of state residents.

Per the complaint, Chase prioritized saving money and speed, even “robo-signing” legal documents without sufficiently evaluating the evidence and engaging in other “unlawful practices.” The state points to questionable documents and incomplete records that were purportedly used to back up the cases. Harris, who contends that JPMorgan’s “debt collection mill” abused the state’s judicial process, wants damages for borrowers.

Meantime, JPMorgan is cooperating regulators, including the Office of the Comptroller of the Currency, which is getting ready to file an enforcement action against it ,also over its handling of credit card debt collection. The firm reviewed its debt collection procedures in 2011 and it is no longer filing credit card lawsuits.

After spending the last few years focusing on the way lenders went after homeowners who couldn’t pay their mortgages on time—in 2012, five banks settled for $26 billion with 49 state attorneys general over the way homes were wrongfully seized—regulators are now focusing on the former’s handling of credit card debt.

Shepherd Smith Edwards and Kantas LTD LLP is a securities fraud law firm that has helped thousands of investors get back their investment losses.

Attorney General Kamala D. Harris Announces Suit Against JPMorgan Chase for Fraudulent and Unlawful Debt-Collection Practices, Ca.gov, May 9, 2013

More Blog Posts:
JPMorgan, Goldman Sachs, Bank of New York Mellon, Charles Schwab Disclose Market-Based NAVs of Money Market Mutual Funds, Stockbroker Fraud Blog, February 7, 2013

Police Retirement System of St. Louis Also Suing JPMorgan Chase Executives Over “London Whale” Scandal, Institutional Investor Securities Blog, April 25, 2013

Number of Banks At Risk of Failing Goes Down

Fri, 17 May 2013 10:32:30 -0600

According to The Dealmaker’s Journal, the list of banks in danger of failing has gotten smaller. Bank observers are speculating whether the failures have decreased because of election year politics, the industry is becoming more robust, regulatory agencies have changed leadership, or other factors.

Regulators tend to shut down banks with low capital, and last month alone, data analysis firm Trepp reported a rise in bank failures. That said, the rate of failures has gone down in the last few years. Last year 51 banks failed. By April for this year, 10 banks had failed. However, 651 institutions are still on the Federal Deposit Insurance Corp’s list of problem banks.

Over just the course of a quarter following exams and credit writedowns, there have been banks that have gone from appearing well capitalized to seized. This was especially true 2009 and 2010 when certain bankers were reluctant to admit that credit quality had gone down until regulators forced them to lower the value of their portfolios.

During times when there aren’t many banks with capital ratios at levels that are critically low, the risk of failures become less likely. Granted, this might pose a for healthy banks wanting to buy inexpensive franchises, but also it makes it easier for them to buy a bank that, although beleaguered, is also somewhat stable and may be able to enhance their business.

Our securities fraud lawyers recover the lost funds of individual and institutional investors. Your initial case evaluation with us is free. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Bucket of Likely Bank Failures Nearly Empty, American Banker, May 10, 2013

Federal Deposit Insurance Corp.

More Blog Posts:
Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

Standard & Poor’s Seeks Dismissal of DOJ Securities Fraud Lawsuit Over RMBS and CDO Ratings Issued During the Financial Crisis, Institutional Investor Securities Blog, May 9, 2013

FINRA Securities Activities: SRO Withdraws Proposal to Make Financial Firms Link to BrokerCheck, Gets Request from SIFMA to Modify ‘Inability to Pay’ Rule, and Says Broker-Dealers Can Give Investors PIP Data About ETPs

Wed, 15 May 2013 10:11:26 -0600

SRO Says Brokerage Can Institutional Customers PIP Data About ETPs Under Certain Conditions
Financial Industry Regulatory Authority staff have determined that under certain conditions, broker-dealers are permitted to include pre-inception performance information in communications with institutional investors about exchange-traded products, also known as ETPs. Staffers said that FINRA Rule 2210, which governs institutional communications, allows for the use of this data in the way that a fund company is proposing. ALPA Distributors is proposing using the PIP information just in institutional communications, per FINRA Rule 2210 and subject to certain criteria.

However, in “applying the suitability standards” for recommendations to institutional customers,” the SRO said brokerage firms should be cautious about putting too much “weight” on PIP information, while taking into consideration the correlation between performance of other, similar ETPs managed by the investment adviser, sponsor, or index provider and the PIP data. The staff’s letter was in response to a letter written by the fund company, which sees value in giving institutional investors the information for ETPs analysis.

FINRA Withdraws Proposed Rule Change Mandating That Firms Add BrokerCheck Web Link
FINRA has temporarily withdrawn its proposed rule change to Rule 2267 that would have upped investor use of information from BrokerCheck and mandated that member firms include a link and reference to the free online database on their respective websites. This resource, found on the SRO’s website, provides information about brokerage firms, brokers, investment adviser firms, and investment advisers. FINRA said it took back the filing to have more time to look at the comments it received regarding proposed rule change but that it intends to refile.

Although North American Securities Administrators Association, the Public Investor Arbitration Bar Association, and certain lawyers commented with their support of the proposal, the Investment Company Institute, the Securities Industry and Financial Markets Association, and a number of financial firms found the proposal “vague” and “unworkable.” They believe that the proposed rule change should be modified.

SIFMA Wants ‘Inability-to-Pay’ Rule Modified
The Securities Industry and Financial Markets Association wants FINRA to amend its Rule 9554 so that respondents would be precluded from making an “inability-to-pay defense” against a claimant. SIFMA says that should a respondent successfully bring up the defense, this should be reported to the public for the good of retail customers, regulators, and prospective employees.

Brokerage firms/a financial adviser can invoke the “inability to pay” defense when they are told to pay an arbitration award in expedited proceedings involving industry and customer claimants. While the SEC did approve FINRA’s proposal to preclude a respondent from raising this defense against a customer claimant., now SIFMA wants FINRA to amend the rule so respondents also are barred from raising this defense against industry claimants.

At Shepherd Smith Edwards and Kantas, LTD LLP, our securities fraud lawyers represent investors with claims against financial advisers and brokerage firms.

Read the FUND company letter

BrokerCheck, FINRA

SIFMA's letter (PDF)

More Blog Posts:
Medical Capital Fraud Lawsuit Against Wells Fargo Must Proceed, Institutional Investor Securities Blog, April 10, 2013

Previous Dissent by Arbitrator is Not Reason to Vacate Award Morgan Keegan Was Ordered to Pay Investors, Says District Court, Stockbroker Fraud Blog, April 8, 2013

Goldman Sachs Execution and Clearing Must Pay $20.5M Arbitration Award in Bayou Ponzi Scam, Upholds 2nd Circuit, Institutional Investor Securities Blog, July 14, 2012

Two Men Sentenced in Texas Securities Case Involving $30 Million Promissory Note Fraud that Bilked Investors Via Ponzi Scam

Tue, 14 May 2013 16:46:22 -0600

In Harris County state District Court, two men have received prison terms of a decade each for running a Texas Ponzi scam that involved life insurance policy death benefits. Gregory F. Jablonski and Howard Glen Judah are accused of orchestrating a nearly $30M scam involving their National Life Settlements LLC, which sold securities that weren’t registered and which they falsely claimed were benefits-backed. Both of them pleaded guilty to selling an unregistered security and securities fraud.

Investors with National Life Settlements were paid using the money of new investors. The company made false promises, causing customers that they would get an 8-10% yearly return through the promissory notes. Active and retired state employees were among those targeted, and millions of dollars were taken from retirement plans and invested through the firm.

The National Life Settlements used insurance agents, many of whom did not have securities dealer licenses, as it sellers. The agents would go on to make $4M commissions.

The state says that Judah and Jablonski did not get the life insurance policies they needed so they could investors. They two of them also falsely told investors that the Federal Reserve had given their firm billions of dollars. After an undercover probe led to the placing of National Life Settlements into receivership, investors got 69% of their money back.

Texas Securities Fraud
Our Houston securities lawyers represent investors that have been the victims of Texas financial fraud. Contact Shepherd Smith Edwards and Kantas, LTD LLP today. Your no obligation, initial case assessment is free.

PROMOTERS OF DEATH BENEFITS FRAUD SENTENCED TO 10 YEARS IN PRISON, Texas State Securities Board, February 20, 2013

More Blog Posts:
Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

Wells Fargo Settles Securities Lawsuit Over Medical Capital Holdings Ponzi Scam for $105M

Sat, 11 May 2013 12:54:00 -0600

Wells Fargo & Co. (WFC) has consented to pay $105M to investors of the now failed Medical Capital Holdings Inc. The bank had served as trustee for Medical Capital securities.

The medical receivables financing company got about $2.2 billion from thousands of investors between 2001 and 2009 via the private placement offerings that were promissory notes. The private placement was a high commission financial instrument that promised annual returns of 8.5% to 10.5%. Per court filings, investors paid Medical Capital nearly $325 million in administrative fees. Dozens of independent brokerage firms sold the notes.

It was in 2009 that the SEC accused affiliates of Medical Capital of committing securities fraud against investors. The financial scam was quickly shut down and the company soon entered receivership but investors got back just half their money. Many of them would go on to file a securities lawsuit against trustees Bank of New York Mellon Corp. (BK) and Wells Fargo accusing the financial firms of failing to fulfill their role as trustees by neglecting to detect the fraud. Meantime, many of the brokerage firms that sold the MedCap notes are no longer in business because they sank from the securities arbitration payments and legal costs that followed as a result.

Even as Wells Fargo is settling this MedCapital securities case, the bank maintains that it did nothing wrong and that the one to blame is Medical Capital. This settlement comes a few months after Bank of New York Mellon resolved similar claims against it for $114M.

In that class action securities case, investors are sharing a $90.68M payment, with $13.6M going to legal fees and another $1.8M to expenses. Bank of New York Mellon also denied any wrongdoing.

Wells Fargo Settles Medical Capital Investor Suit for $105 Million, Wall Street Journal, April 30, 2013

Wells Fargo agrees to pay $105M to end MedCap suit, Investment News, May 1, 2013

Bank of NY Mellon to pay $114 million in Medical Capital accord, Reuters, February 22, 2013

More Blog Posts:
Medical Capital Fraud Lawsuit Against Wells Fargo Must Proceed, Institutional Investor Securities Blog, April 10, 2013

FINRA Bars Former Wells Fargo Advisors Broker that Bilked Child with Cerebral Palsy, Stockbroker Fraud Blog, April 26, 2012

$500M MBS Settlement Reached Between Countrywide and Investors

Fri, 10 May 2013 20:16:57 -0600

Class action securities plaintiffs, led by the Iowa Public Employees' Retirement System, have settled their mortgage-backed securities lawsuit against Countrywide for $500 million. This is the largest federal class action MBS securities case in the US that has been resolved to date, even exceeding the $315 million settlement reached with Bank of America’s (BAC) Merrill Lynch (MER) last year.

Per the investors, Countryside, which was acquired by BofA, sold them billions of dollars in MBS certificates that were backed by defective loans. Toward the end of 2008, nearly all of the certificates were relegated to junk bond status.

The plaintiffs allege that offering documents for the mortgage-backed bonds failed to disclose that Countrywide was ignoring its own guidelines regarding home loan originating. In their consolidated class action securities case, investors sought over $351 billion of the Countrywide MBS that had been downgraded after the subprime collapse in 2007. (A district judge would go on to narrow the mortgage-backed securities lawsuit to $2.6 billion in bonds and Bank of America was dismissed as a defendant.)

According to Bank of America, this securities settlement resolves approximately 80% of the principal balance of RMBS that were issued by Countrywide and has not yet been paid. However, now there is news that American International Group can go ahead and file its RMBS lawsuit against Countywide. A judge said that the insurer could pursue claims accusing the latter of making false representations in offering documents that it had abided by underwriting guidelines. It was just earlier this week that Bank of America settled with bond insurance company MBIA Inc. over Countrywide for $1.6 billion.

BofA’s Countrywide Agrees to $500 Million MBS Settlement, Bloomberg, April 17, 2013

AIG may pursue fraud case versus BofA over Countrywide, Chicago Tribune, May 7, 2013

Merrill Lynch $315 Million Settlement Approved by U.S. Judge, Bloomberg, May 8, 2012

More Blog Posts:
Bank of America and Countrywide Financial Sued by Allstate over $700M in Bad Mortgaged-Backed Securities, Stockbroker Fraud Blog, December 29, 2010

Bank of New York Mellon Corp. Must Contend with Pension Fund Claims Over Countrywide Mortgage-Backed Securities, Institutional Investor Securities Blog, April 10, 2012

Merrill Lynch Settles New Jersey Securities Fraud Lawsuit over State’s Stock Purchase for $45 Million

Thu, 09 May 2013 18:28:32 -0600

Bank of America Corp's (BAC) Merrill Lynch & Co. (MER) will pay the state of New Jersey $45 million to settle securities charges that it committed misconduct related to a stock purchase that the latter made in 2008. The investment bank is accused of breaching a contract provision that determined how the state was to exchange Merrill Lynch preferred stock for common stock.

New Jersey’s Division of Investments had purchased $300 million in preferred Merrill Lynch stock (Merrill Series 1 9% Mandatory Convertible Preferred Shares) in 2008. In 2009, the state’s attorney general at that time filed a NJ securities case against the financial firm contending that it had given “better terms” to at least another investor over the conversion of shares and issued misleading information about its financial state. By settling, Merrill Lynch is not denying or admitting to committing any wrongdoing.

If you think you may have been the victim of securities fraud, contact our Shepherd Smith Edwards and Kantas, LTD, LLP right right away. SSEK represents both individuals and institutions with arbitration claims and lawsuits against financial firms, brokers, investment advisers, and others.

Division of Investment, New Jersey

Attorney General Chiesa: Merrill Lynch Will Pay $45 Million to Resolve State Lawsuit Over Pension Fund Investment Losses, NJ.gov, April 19, 2013

Merrill Lynch to pay N.J. $45 million over pension fund losses, New Jersey.com, April 19, 2013

More Blog Posts:
Former Merrill Lynch, Oppenheimer, Deutsche Bank Broker is Ordered by FINRA To Pay Investor $11M Over Alleged Securities Fraud, Stockbroker Fraud Blog, April 19, 2013

2nd Circuit Affirms Dismissal of $18.5M Auction-Rate Securities Lawsuit Against Merrill Lynch Filed by Anschutz Corp., Institutional Investor Securities Blog, August 23, 2012

Gemstar Capital Group Owner Sued for Texas Securities Fraud in $40 Ponzi Scam He Ran with Ex-Dallas Cowboy Football Player Gets 10-Year Prison Sentence

Wed, 08 May 2013 19:25:43 -0600

Gemstar Capital Group owner Jeffrey J. Sykes has been handed a 10-year federal prison sentence for the $40 million Ponzi scam he ran with ex-Dallas Cowboy Michael Kiselak. Although the former NFL player has not been criminal charged, he was found liable for more than $20 million in 2009 over his involvement in the Texas securities fraud portion of the scheme. Now, the federal government is confirming that Kiselak defrauded investors of at least $24 million dollars in the financial scam run by Sykes.

In 2007, Sykes and Kiselak set up Kiselak Capital Group to pursue investors. According to the US Attorney’s Office, Kiselak used information given to him by Sykes to get investors to put in over $20 million. The ex-pro football player took out fees for himself and then gave the money to Sykes even though both Gemstar and Kiselak didn’t engage in Treasury note trading, which is what they told investors they were doing.

Instead, contend prosecutors, the two men used some of the funds for personal spending and in ventures that investors didn’t know about. While some of the funds did go back to investors, in certain instances, Sykes made false claims that the money was profit from T-Bill trading programs or their capital returned.

In the SEC’s securities fraud case against Kiselak, Sykes, and Gemstar, the regulator claimed that Kiselak promised 2.25% monthly returns to investors, falsified documents, dumped 95% of their funds in Gemstar, and failed to disclose that a 35% performance fee was levied on Gemstar profits.

Since Sykes put most of investors’ money in money market accounts, the latter were able to get back some of the funds, which they invested between 2007 and 2009. However, they lost approximately $12.9 million.

"Our firm has represented a number of high-profile athletes with securities fraud claims and we have also taken action against former athletes and the financial firms they represent,” said Shepherd Smith Edwards and Kantas founder and Texas securities fraud attorney William Shepherd. “I have been asked whether an unusually high number of former athletes become involved in such scandals. It is true that when an athlete's career ends their income can fall precipitously. It is also true that many enter sales, including securities sales because of their ability to reach high net worth clients. But I do not believe former athletes are more likely than others to commit harmful acts. I do believe that when they become involved in problem situations these are far more heavily publicized."

Owner of California private equity company pleads guilty in more than $40 million Ponzi scheme involving Texas investors, Dallas News, January 11, 2013

Securities Fraudster Gets 10 Years in Prison, Courthouse News, May 6, 2013

More Blog Posts:
Texas Senator’s Bill Would Make Plaintiffs’ Attorneys in Private Securities Cases Disclose Possible Conflicts Of Interest That Might Have Affected Client Retention, Stockbroker Fraud Blog, April 5, 2013

Texas Securities Criminal Case Against Oil and Gas Company Executive Can Proceed, Rules Fifth Circuit, Stockbroker Fraud Blog, February 6, 2013

Investor Files Securities Case Against Fidelity Over Float Income Investments Involving 401(K)s, Institutional Investor Securities Blog, May 6, 2013

FINRA Notifies Brokerage Firms About Non-traded REIT Information that Can Mislead Investors

Mon, 06 May 2013 16:54:17 -0600

The Financial Industry Regulatory Authority is alerting broker-dealers that the way they market certain non-traded real estate investment trusts could be misleading investors. The regulator said its recent reviews of brokerage firm communications with the public about these investments showed “deficiencies.” The SRO has been trying to improve the sales practices related to illiquid REITs and increase their transparency.

Among the identified information shortcomings:
• Inaccurate and misleading statements about the benefits of investing
• Failure to adequately explain the risks involved
• Describing a real estate security as a “yield,” which can incorrectly suggest that it is a bond

FINRA said it is necessary for brokerage firms to provide “fair and balanced” distribution rates, while explaining that distribution payments are not a given. The regulator observed that some broker-dealers are prone to highlight these payments, which are given to investors as soon as the nontraded REITs are sold, but fails to inform that some distributions are the return of their principal or borrowed money. FINRA reminded broker-dealers that they have to wait until an REIT has paid distributions for six months before it can make claims about the instrument’s yearly return rate.

The SRO noted that data about related or affiliated REITs should be as prominently visible as other information, and past performance information about REITs involving the current investment being promoted cannot be cherry picked.

REITs and Non-traded REITs
REITs invest in commercial real estate, which gives investors a chance to benefit from the increase in property values, and they are publicly traded. Non-traded REITs, which don’t trade on securities exchange, can be tough to sell in secondary markets or illiquid. Investors usually have to pay higher fees for them.

FINRA has been targeting the improper-sale of non-traded REITs for some time now. This latest notification to brokerage firms doesn’t mention how many broker-dealers it looked at (or which ones) to reach its conclusions.

Our REIT lawyers represent investors throughout the US. For over two decades, Shepherd Smith Edwards and Kantas, LTD LLP has helped thousands of investors recoup their investment losses by going through arbitration via FINRA, NYSE, NASD, and AAA, as well as through the state and federal courts.

FINRA Provides Guidance on Communications With the Public Concerning Unlisted Real Estate Investment Programs, FINRA.org (PDF)

FINRA warns about misleading investors in non-traded REITs, Reuters, May 3, 2013

Public Non-Traded REITs—Perform a Careful Review Before Investing, FINRA

More Blog Posts:
Majority of Non-Traded REITs Underperform Compared to Benchmarks, Reports New Study, Stockbroker Fraud Blog, August 25, 2012

Private REITs: The Need for Tougher Oversight?, Institutional Investor Securities Blog, June 28, 2011

Apple REIT Arbitration: FINRA Rules Against David Lerner Associates in First of Hundreds of Cases, Stockbroker Fraud Blog, May 26, 2012

Congress Regulates the Securities Regulators

Tue, 30 Apr 2013 12:40:24 -0600

At a hearing in the US House of Representatives about putting the Jumpstart Our Business Startups Act into effect, Rep. Patrick McHenry (R-N.C.) expressed worry that the Securities and Exchange Commission has lost the power to enforce the private offerings general solicitation ban because the rulemaking for the statutory deadline has come and gone. Per the JOBS Act’s Title II, the SEC could write rules to lift the ban for offerings that take place under Rule 144A and Regulation D Rule 506.

The SEC, which put out a proposal, has yet to make a final rule. SEC Chairman Elisse Walter defended the agency’s actions, noting that a comment period is normal. The Commission has been criticized by Republicans and industry members, who contend that its decision to vote on a proposal instead of interim final rules is a way of kowtowing to investor groups. Walter maintains that she has always favored notice and comment rulemaking to put a provision into effect (per the Administrative Procedure Act).

Meantime, Rep. Maxine Waters (D-Calif.), a ranking member of the House Financial Services Committee, once again introduced a bill that would use industry user fees to fund the SEC’s investment adviser examinations. HR 1627 would make advisers under the Commission’s oversight pay fees to cover the “funding gap” in the oversight program. A similar bill that she previously had presented did not move forward, in part because it was competing with former Committee Chairman Spencer Bachus (R-Ala.)’s legislation to place investment advisers under the oversight of a regulator. That bill, too, did not progress.

There has been a lot of disagreement over investment adviser oversight. Per a Dodd-Frank Wall Street Reform and Consumer Protection Act-mandated study in 2011, SEC staff made that recommendation that advisers either be brought under SRO oversight or the agency should be allowed to use user fees to improve its program. The North American Securities Administrators Association and The Investment Adviser Association have both expressed a preference for the user fee option. They oppose the SRO oversight alternative.

Although Walter isn’t pushing for one option or the other, in the interest of investors, she said a solution must be chosen. SEC Chairman Walter believes that Congress needs to take action to fund its investment adviser examination program so that the choice could be effective one. Currently, the SEC examines only about 8% of registered investment advisers each year, while the regulator or the Financial Industry Regulatory Authority examine about 50% of brokerage firms.

Walter is concerned that this will become a bigger problem unless something is done because more new entities, including municipal advisors, will also be subject to the SEC’s examination program. Speaking at the North American Securities Administrators Association Public Policy Conference on April 16, Walter said that unless significant modifications are made, the SEC cannot fulfill its mandate to examine investment advisers.

Shepherd Smith Edwards Kantas, LTD, LLP is a securities fraud law firm that represents investors throughout the US.

McHenry Questions SEC's Authority To Enforce General Solicitation Ban, Bloomberg/BNA, April 18, 2013

Examining Investment Advisers: The Challenge Continues, SEC, April 16, 2013

HR 1627 Investment Adviser Examination Improvement Act of 2013

More Blog Posts:
SEC Commissioner Aguilar Calls For the Abolishment of Mandatory Arbitration Agreements, Stockbroker Fraud Blog, April 21, 2013

Federal Reserve Board Establishes Key Rule That Will Let Regulator Identify Systemically Important Nonbank Financial Institutions, Institutional Investor Securities Fraud Blog, April 19, 2013

UBS Loses Appeal to Have FHFA’s $6.4 Billion MBS Fraud Lawsuit Dismissed, Institutional Investor Securities Blog, April 18, 2013

Controversial Democratic Appointee Pushes SEC for Less Talk About Investor and Securities Market Protections and More Action

Sun, 28 Apr 2013 16:04:45 -0600

According to Securities and Exchange Commissioner Luis Aguilar, the growing number of registered investment advisers, the increasing complexity of the financial instruments they use, and the recent trends in securities examinations show that there is a need for the regulator to up the vigorousness of its investment adviser examinations and enforcement activities. He noted that even as the SEC is working to give the regulated community best practices and guidance to enhance compliance, it also intends to increase its scrutiny of advisers, including more exams (especially for private fund advisers). Alternative investment managers will also get more attention.

Aguilar pointed out that with the number SEC registered investment advisers having gone up about 50% to over 10,000 last year, the value of the assets that they manage also increasing from about $22 trillion in 2002 to approximately $44 trillion in 2011, as well as a rise in the number of complex financial instruments that advisers use, there are more chances for “mischief” to happen. Hence, there is the need for more robust enforcement.

Also, as our securities fraud law firm mentioned in a previous blog post, the SEC commissioner wants there to be an end to mandatory arbitration agreements. Per the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC now can prohibit or limit pre-dispute arbitration agreements, which have become standard fare for brokerage firms. Aguilar is concerned that they are also becoming routine for investment advisory firms. He wants the government to ponder the possibility of adopting rules that would stop or limit broker-dealers and investment advisers from mandating that customers sign clauses in their agreements with one another that prevents them from filing securities fraud lawsuits and instead only resolve their disputes via arbitration.

Regarding retail investors, Commissioner Aguilar doesn’t believe they are getting the same degree of protections in both the corporate bond and municipal securities markets. While corporate bonds that the investing public can buy have to be registered with the SEC, no statutory authority exists that requires the same of municipal securities. Also, before municipal securities offering documents are made available to the public, the SEC does not get or even look at these documents. Aguilar says investor protections in this arena are mainly through the regulation of municipal securities dealers and brokerage firms.

Further scrutinizing the SEC, Commissioner Aguilar recently said that the regulator is still missing the mark on certain important initiatives involving investor protection, including the lack of regard he says it exhibited for regulators and investor’ suggestions about the lifting of the ban on private offering-related general advertising. Per the Jumpstart Our Business Startups Act, the Commission has to amend the 1933 Securities Act’s Rule 506 to get rid of the existing ban on general advertising in specific situations. However, the ban’s removal has led to fear that offerings that are mass-marketed under the rule will place investors at even more risk of abuse and financial fraud.

Aguilar Says SEC Will Ramp Up Examinations To Deal With Increases in Violative Behavior, Bloomberg/BNA, April 19, 2013

Aguilar Speech: Outmanned and Outgunned: Fighting on Behalf of Investors Despite Efforts to Weaken Investor Protections, SEC, April 16, 2013

Aguilar Speech: Keeping a Retail Investor Focus in Overseeing the Fixed Income Market, SEC, April 16, 2013

More Blog Posts:
SEC Commissioner Aguilar Calls For the Abolishment of Mandatory Arbitration Agreements, Stockbroker Fraud Blog, April 21, 2013

Court Upholds Ex-NBA Star Horace Grant $1.46M FINRA Arbitration Award from Morgan Keegan & Co. Over Mortgage-Backed Bond Losses, Stockbroker Fraud Blog, October 30, 2012

US Supreme Court Once Again Upholds Enforcement of Arbitration Agreements, Institutional Investor Securities Blog, February 17, 2013

Investors Duped in $150M Investment Scam Offering US Citizenship Prospect To Recoup Funds, Says SEC

Thu, 25 Apr 2013 16:52:19 -0600

The SEC says that investors who were bilked in a $150 million financial scam that offered foreigners a possible path to becoming an American will get back their money from the bogus securities offering. This news comes after the SEC filed civil charges against Anshoo R. Sethi.

Sethi is accused of creating Intercontinental Regional Center Trust of Chicago and A Chicago Convention Center in an alleged scheme to sell over $147M in securities that were supposed to go toward financing the building of a conference center and hotel close to Chicago’s O’Hare airport. Instead, contends the SEC, Sethi and his companies deceived Chinese investors, who were made to believe investing could up their chances of obtaining legal residency in this country via the EB-5 Immigrant Investor Pilot Program, which gives foreign investors a way to obtain this through their involvement in projects in this country that will help preserve or create a certain amount of jobs for our workers. Foreign investors may be able to get a green card if they put in $1 million (or $500,000 if in a “Targeted Employment Area” that has an unemployment rate that is high).

The Commission says that although Sethi and the companies had promised that the over $11M administrative fees paid by investors would revert back to them if their applications for visas didn’t go through, the three of them have already actually spent over 90% of this money. Also, approximately $2.5M purportedly ended up in Sethi’s personal account.

If you are an investor that lost money in a securities scheme, contact our stockbroker fraud law firm right away.

Investors to Receive Their Entire Investments Back After SEC Halted Scheme Exploiting Immigration Program, SEC, April 23, 2013

Read the Court Order (PDF)

EB-5 Immigrant Investor Pilot Program (PDF)

More Blog Posts:
Three Cedar Brook Financial Partners Brokers’ Licenses Are Suspended Over Allegedly False & Misleading Statements About Subprime Mortgage-Backed Security IMH Fund and Medical Capital Holdings Inc., Stockbroker Fraud BLog, April 24, 2013

Police Retirement System of St. Louis Also Suing JPMorgan Chase Executives Over “London Whale” Scandal, Institutional Investor Securities Blog, April 25, 2013