Articles Posted in Current Investigations


San Juan, Puerto Rico – October 3, 2013

Lawyers with the Securities Law Firm of Shepherd Smith Edwards & Kantas LLP,  are investigating claims involving Puerto Rico UBS bond funds.  UBS has been the most prominent broker-dealer operating in Puerto Rico for a number of years.  As a result, many, if not most, individuals in Puerto Rico with brokerage accounts use UBS, resulting in UBS managing roughly $10 billion of assets of Puerto Rico residents.

Unfortunately, UBS recommended that many of these clients make significant investments in proprietary UBS bond funds. These UBS bond funds, such as the Tax-Free Puerto Rico Fund II, invest primarily in Puerto Rico municipal bonds.

The attorneys with the law firm of Shepherd, Smith, Edwards & Kantas LLP are currently investigating claims involving Larry Dearman, Sr.  Larry Dearman moved to Bartlesville, Oklahoma in 2005, when he began working as a financial advisor in the area.  He was registered both with the Financial Industry Regulatory Authority (“FINRA”) as a broker, as well as being registered as an investment advisor representative, which is done through the Securities Exchange Commission (“SEC”).  Since 2005, Mr. Dearman has been registered with Cambridge Legacy Securities, LLC, Securities America, Inc., Brecek & Young Advisors, and The Focus Group Advisors.

Recently, Mr. Dearman was charged by the SEC, along with a woman named Marya Gray, of defrauding a number of his clients in a variety of ways.  According to the SEC complaint, Mr. Dearman solicited his clients to invest in an internet company and a real estate company, among others, telling those customers that these investments bore very little risk and were good investment opportunities.  Specifically, the complaint alleges that Mr. Dearman specifically solicited clients of his who had known him and his family for decades, members of his church, and people who know of him as a popular wedding singer.  All told, he collected almost $5 million from various clients for these investments.

The SEC alleges that, in reality, the money was being stolen by Mr. Dearman and his cohort, Marya Gray.  They were making Ponzi scheme style payments to earlier investors to keep those individuals complacent and to avoid arousing suspicion, all the while stealing the rest of the funds and spending it on themselves.  The SEC also claims that Ms. Gray has admitted that the real estate business had never actually conducted any business, which would add substantial credence to the fraudulent nature of these investments.

The attorneys at the law firm Shepherd, Smith, Edwards & Kantas LLP are currently investigating claims of institutional investors involving swaps or other ongoing, inappropriate investments.  Many companies, state municipalities, and other governments were talked into entering into swap transactions, either as a part of another securities transaction such as a new bond issuance, or on their own.  Typically, these swaps were sold as ways to hedge fluctuating liabilities that the customer already had, or in some other way to reduce financing expenses.

In a typical swap, the two parties are effectively exchanging a fixed rate and a variable rate.  The party that currently has a variable rate liability, oftentimes a bond, enters into the transaction to avoid the carrying costs associated with that bond’s benchmark rising.  In exchange, that party agrees to pay the other party a fixed, periodic payment.  If the swap is done correctly, it allows the party with the original variable rate to avoid the consequences of its bond, or other liability, rate increasing because, if the rate were to increase, that rate increase would actually end up being paid by the swap counterparty.  Conversely, if the rate on the bond decreased, the costs of that obligation would go down correspondingly to the increased cost of the swap, creating a wash.  The party has effectively transformed a variable obligation to a fixed one.

Unfortunately for many of those customers, many of these swaps have proven wholly ineffective in fulfilling their expressly stated purposes.  The reasons for these failures can vary significantly.  In some cases, the swaps are set up incorrectly, such as not taking into account various reasons that the underlying obligation could fluctuate, or not marking the swap to the same benchmark as the underlying obligation.  Whatever the reasons for their failure, many institutions have found themselves with hugely expensive carrying costs for these swaps and equally huge termination penalties to try to get out of them.

Date: June 17, 2013

The attorneys at Shepherd Smith Edward & Kantas are investigating the claims of investors who purchased positions in gold, silver, or other precious metals at the recommendation of their broker or financial adviser.  Recently, increasing numbers of brokers have been pushing their clients to invest in precious metals or securities based on precious metals for various reasons, including, representations that such investments are “hedges” against a falling market or simply speculating on the price of precious metals, such as gold.  Below is a chart showing the returns of many of the currently available investment options in gold and other precious metals.

Fund Name Ticker Share Price 1 month 6 month 1 yr return
ETFS Phsical Asian Gold Shares ETF AGOL 136.52 -2.30% -18.84% -14.46%
FactorShares 2x Gold Bull/S&P Bear ETF FSG 9.71 -4.33% -54.84% -59.20%
the Market Vectors Gold Miners ETF GDX 28.36 -1.22% -38.98% -39.56%
Market Vectors Gold Miners Junior ETF GDXJ 11.32 -4.47% -46.85% -45.34%
Global X Pure Gold Miners ETF GGGG 12.11 -5.98% -41.67% -45.94%
StreetTracks Gold Shares ETF GLD 134.15 -2.66% -18.27% -15.01%
Global X Gold Explorers ETF GLDX 15.82 0.89% -47.82% -50.56%
the UltraShort Gold ProShares ETF GLL 85.61 4.05% 39.86% 24.36%
iShares COMEX Gold Trust ETF IAU 13.48 -2.67% -18.40% -14.85%
Direxion Daily Gold Miners Bull 3x Shares ETF NUGT 9.77 -9.54% -81.87% -84.78%
ETFS Physical Swiss Gold Shares ETF SGOL 136.79 -2.65% -18.42% -14.91%
RBS Gold Trendpilot ETN TBAR 28.07 0.11% -5.49% -3.04%
the ProShares Ultra Gold ETF UGL 56.9 -5.69% -35.10% -31.15%
iShares MSCI Global Gold Miners Fund RING 11.63 -4.83% -39.74% -43.24%
PowerShares DB Base Metals Fund ETF DBB 16.76 -0.59% -13.79% -8.37%
Powershares DB Precious Metals Fund ETF DBP 45.63 -51.40% -72.87% -17.87%
ETFS Physical Precious Metal Basket Shares GLTR 74.9 -3.73% -21.71% -15.96%
the PowerShares Global Gold & Precious Metals ETF PSAU 22.81 -3.63% -37.56% -36.09%
the SPDR S&P Metals & Mining ETF XME 35.71 -5.15% -19.88% -9.43%
the ProShares Ultra Silver ETF AGQ 21.78 -11.68% -56.34% -47.99%
PowerShares DB Silver Fund ETF DBS 37.21 -6.41% -33.22% -24.96%
Global X Silver Miners ETF SIL 13.65 -1.66% -41.04% -31.51%
iShares MSCI Global Silver Miners Fund SLVP 13.24 -2.58% -40.84% -31.33%
ETFS Physical Silver Shares ETF SIVR 21.81 -5.71% -31.61% -23.26%
iShares Silver Trust ETF SLV 21.3 -5.63% -31.67% -23.44%
Global X Copper Miners ETF COPX 9.94 -6.84% -25.88% -10.13%
First Trust ISE Global Copper Index Fund CU 22.91 -5.80% -24.21% -9.87%
the ETFS Platinum Physical Shares ETF PPLT 141.82 -3.79% -10.81% -3.10%
First Trust ISE Global Platinum Index ETF PLTM 11.74 -2.41% -17.38% -22.66%

The results that these investments have seen over the last year vary tremendously for a number of different reasons. First, while most of the precious metals securities are designed to increase in value as the price of its target precious metal increases, some of them do the exact reverse and increase in value as the price of its target precious metal falls (“inverse funds”). As a result, many of the inverse funds have achieved positive returns over the last year as the price of many precious metals have plummeted. However, if prices rise, these funds could quickly lose value.

Second, some of these investments are “leveraged,” meaning the investment borrows money or uses another strategy to let it get returns greater than the change in the underlying value of the precious metal it is tracking. For example, the UltraShort Gold ProShares ETF is designed to return three times the amount that the value of gold falls. So if the price of gold fell 10%, an investment in this fund would increase approximately 30%.

However, on a more basic level, these investments have fared differently because they invest in fundamentally different assets. Some of these investments gain exposure to gold or some other precious metal by actually purchasing the metal and storing it in vaults. This is the most obvious and simple way for a fund to invest in these assets. Others are investing not in gold, but in mining companies that mine gold. These funds theorize that those types of companies should increase or decrease in value with the changes in value of the product they produce; namely gold, silver, or copper. However, there are some flaws in this analysis, as most experts agree that on a long time line, the share price of these companies will not keep up with the value of the metal they produce.

Finally, some, if not most of, these funds gain their exposure to the target metal by buying futures contracts on them. That means that the fund buys the right to purchase gold or some other metal at a fixed price at a fixed time in the future. However, instead of ever collecting the gold, these funds sell their right to purchase the gold before it comes due and instead purchase a new future, or right to buy. In doing so, the fund avoids the expense of ever actually having to process and handle gold, while still being affected in value by changes in the price of gold.

Recently, the funds which are based upon gold mining companies have fared the poorest. Not only have they lose value as the price of gold has plummeted, but the share price of those companies also suffered because equity markets worldwide have been weak. However, none of these funds, other than the inverse funds, have performed well. One of the funds, Direxion Daily Gold Miners Bull 3x Shares ETF, lost almost 85% of its value over the last twelve months. Many others lost half their value or more.

The moral of the story is that many brokers have been pushing their clients into investing in these or similar securities, without the clients being aware of the fact that these investments can be, and have been, very high risk investments which can end up wiping out an investor’s life savings in a matter of months. If you have invested in these or other investments in precious metals based upon your broker’s recommendation, contact the law firm Shepherd, Smith, Edwards & Kantas LLP for a free evaluation of a potential claim to recover some or all of the investment that you lost. All communications will be kept strictly confidential and you will not be billed in any way for a consultation.

The securities lawyers with Shepherd, Smith, Edwards, & Kantas LLP (“SSEK”) are investigating claims of investors and clients of Jeffrey Randolph Wilson (“Wilson”) who works with Wells Fargo Clearing Services, LLC (“Wells Fargo”) in Las Cruces, New Mexico. In the last 18 months, at least three of Mr. Wilson’s clients have filed arbitration claims against Wells Fargo claiming that Wilson and/or Wells Fargo acted improperly regarding those clients’ accounts. These customer claims include allegations that Mr. Wilson excessively traded customer accounts, made unsuitable investment recommendations, and exposed the clients to excessive risk.

All brokers are required to make only suitable recommendations to their clients and manage their clients’ investments appropriately. That means that the brokers, like Mr. Wilson, are supposed to consider a client individually and consider that client’s willingness to take risks, age, and other factors – like whether the client is retired – into account when deciding what investments to recommend. Similarly, some investments which might have been appropriate for a client can become inappropriate, or unsuitable, if they are bought and sold too often in a client’s account. Generally, the more frequent the trading in an account, the higher risk the investment strategy.

In the case with Mr. Wilson’s clients, more than one has complained that Mr. Wilson improperly advised them to invest in energy related investments which led to substantial losses. Recently, a FINRA arbitration panel agreed with that allegation, ordering Wells Fargo Advisors to pay a client $357,000 for losses suffered in unsuitable energy and housing based investments, as well as use of margin trading.

The attorneys at Shepherd Smith Edward & Kantas are investigating the claims of investors who purchased Strategic Return Notes (“SRNs”). Bank of America and Merrill Lynch created Strategic Return Notes, which are an unsecured promissory note issued by Bank of America. Bank of America has no obligation to and will not make any interest payments throughout the duration of the notes, which go through 2016 if held until maturity. Investors also have no guarantee of getting back the original purchase price of the note at maturity. Instead, investors are paid back a variable amount based upon the performance of an underlying index, the Investable Volatility Index (“VOL”).

The VOL is a complicated index which measures the volatility of the S&P 500, essentially attempting to calculate how volatile the stock market as a whole is and predict how volatile it will be in the coming months. If the computation indicates that the market will be less volatile, or that the market will fluctuate less in the time period, then the index falls. Conversely, if the computation indicates that the market will be more volatile in the coming months, then the index rises. The result is that investors in these SRNs achieve returns or losses based not upon how high the market rises or how low it falls, but rather on how wildly the market was swinging on the way there.

These products are very complicated, and are only suitable for certain types of investors. It is believed that many investors who were sold these products were not told the risks that were involved, or were promised that this product could be used as a hedge to reduce overall portfolio risk when that was not true. Many investors have suffered substantial losses in these products.

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