Financial Advisers

Ex-Credit Suisse Investment Banker Appeals Insider Trading Charges Conviction

Published on: February 24, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Former Credit Suisse Securities USA LLC investment banker Hafiz Naseem says he will appeal his conviction for insider trading charges, which include 1 count of conspiracy and 28 counts of securities fraud involving stolen nonpublic data allegedly used for insider trading that generated at least $7.5 million. He faces a maximum 5-year prison sentence and fines two times the gross loss or gain of the violation.

The Justice Department says that the ex-Credit Suisse Securities investment banker told Ajaz Rahim, a Pakistan resident and the former head of Faysal Bank, about nine upcoming merger and acquisition deals from April 2006 to February 2007 including:

– Apollo Management LP’s Jacuzzi Brands acquisition – NorthWestern Corp.’s acquisition by Babcock & Brown Infrastructure – Veritas DGC Inc.’s acquisition by Compagnie Generale de Geophysique SA

SEC-Commissioned Report Finds that Investors Have A Hard Time Telling the Difference Between the Roles of Broker-Dealers and Investment Advisers

Published on: February 4, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Investors have a hard time understanding the differences between investment advisers and broker-dealers, as well as distinguishing between the different services and protections that each group offer. This finding was reported last month in an SEC-commissioned study conducted by Nonprofit policy group Rand Corp.

Rand gathered its findings from data that came from six investor focus groups and a survey it conducted of 654 U.S. households.

Included among the findings:

Commodity Futures Trading Commission Charges Argentine Investment Adviser With Defrauding Investors in $43.8 Million International Scam

Published on: January 28, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission (CFTC) is charging Diego Mariano Rolando, an Argentine investment adviser, for his role in a $43.8 scheme that defrauded some 400 investors in the United States, South America, and Europe. Earlier this month, the U.S. District Court for the District of Connecticut issued a restraining order to freeze his assets.

According to the CFTC, Rolando allegedly engaged in the following activities:

• Fraudulent trading of customer funds in options contracts and commodity futures.

$600 Million Set Aside by State Street May Be Tip of Mortgage Litigation Iceburg

Published on: January 8, 2008 | by Shepherd Smith Edwards & Kantas, LLP

State Street Corp. announced it established a pre-tax reserve of $618 million billion “to address legal exposure and other costs associated with the under-performance of fixed-income strategies managed by the company’s investment management arm,” blaming exposure to subprime mortgages. The company referenced “customer concerns as to whether the execution of the strategies was consistent with the customers’ investment intent” without identifying any specific litigation.

However, the New York Times published an article stating that State Street created the reserve “after five clients sued it, claiming they had lost tens of millions of dollars in State Street funds they were told would be invested in risk-free debt like Treasuries.” The article added that State Street’s reserve “highlight the legal challenges that lie ahead for financial firms.”

The first of the five lawsuits referenced by the Times article was filed October 1, 2007, by Prudential Retirement Insurance and Annuity Co. The action “seeks, among other relief, restitution of certain losses attributable to certain investment funds” sold by State Street’s investment management arm, and alleges State Street “failed to exercise prudent investment management,” in violation of the Employee Retirement Income Security Act of 1974 (ERISA).

Guardian Wealth Management – Where Stockbrokers Go to Stop Working but Keep Earning

Published on: October 23, 2007 | by Shepherd Smith Edwards & Kantas, LLP

In the Galleria area of Houston is Guardian Wealth Management LLC, a Registered Investment Advisory Firm with an interesting business model: To provide a home for stockbrokers who want to retire or pursue another career – and continue to get paid!

Securities regulators report over 660,000 registered representatives, with about 15% (almost 100,000) annually retiring or leaving the securities industry to pursue other careers. Since 1970, Guardian’s partners say they have watched scores of co-workers leave their firms which then dealt out their clients to other brokers, often the newest kids on the block.

“Brokers can work for years developing relationships with investors but are then helpless to protect even their family and friends from those assigned to their accounts,” says Guardian’s Founder Jerrod Summers, adding that “Guardian was built as a ‘safe harbor’ for investors – free of widely publicized conflicts at brokerage firms such as tainted research, commission churning and high-load funds, annuities and other products.”

Department of Defense Continues Crack Down on Crooked Financial Advisers Targeting Military Personnel

Published on: September 25, 2007 | by Shepherd Smith Edwards & Kantas, LLP

In the past year, the Department of Defense has kept up its “war” against bogus financial advisers in an effort to protect military members that are wanting to invest. Last September, state insurance regulators were given one year to cooperate with the Secretary of Defense in developing strategies to protect armed forces members from “dishonest and predatory insurance sales practices while on a military installation of the United States.”

The yearlong deadline was part of a new federal law created to protect soldiers and other members of the armed forces from shady financial advisers. To date, 14 states have been in compliance with the legislation. 16 more states are expected to follow by the end of 2007.

The law is called the Military Personnel Financial Services Protection Act. It also requires the Secretary of Defense to maintain a list of advisers (along with their contact information) that have been banned, barred, or restricted from military bases because they engaged in the dishonest selling of investment products at these sites. The first listing of agents was published last May.

Money Manager Sentinel Management Group is Missing $505 Million from Accounts

Published on: September 12, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Sentinel Management Group, the Chicago-based money manager that the Securities and Exchange Commission has accused of misappropriating client assets and defrauding clients, is reportedly missing $505 million in its accounts. The National Futures Association found the shortfall during a recent investigation.

The missing funds could bring up questions regarding a settlement that Sentinel made to creditors and Citadel Investment Group.

According to the SEC, the money manager allegedly mixed up funds from clients with its own funds. The Financial Times says that creditors from one account were given their money back after Citadel bought a number of assets. The SEC was opposed to the transfer, however, saying that the refunded assets likely belonged to creditors from a different account.

What’s in a Title? Washington State Securities Regulators Want to Know

Published on: July 20, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Ever notice how impressive titles are thrown around in the field of investments? Just what, if anything, to these mean. The Washington State Securities Division has proposed that that anyone who uses a professional designation that connotes some type financial planning expertise should fulfill the requirements and register as an investment adviser.

The Washington Department of Financial Instututions “notes the growth in the use of professional designations which state or imply that a person has special expertise, certification or training in financial planning,” as quoted in a release by the North American Securities Administrators Association Inc. (NAASA).

The state therefore plans to clarify its rules to consider a person who uses such a professional designation as holding himself out as a financial planner. It would also prohibit the misleading use of other professional designations. Washington and other states have expressed the need to limit designations regarding advisors to senior citizens. Washington has now expanded its efforts to control the use of designations to protect investors of all ages.

Wrap fees? Beware of “investment professionals” who say they only charge a percent or two!

Published on: June 23, 2007 | by Shepherd Smith Edwards & Kantas, LLP

In a letter to his Berkshire Hathaway shareholders entitled “How to Minimize Investment Returns,” Warren Buffett points out that between December 31, 1899 and December 31, 1999, the Dow rose from 66 to 11,497. That’s a 17,400% gain! Thus, a hundred dollars invested into a Dow portfolio during the 20th century would have grown to $17,500!

Yet, that’s an annual compound return over 100 years of only 5.3%, said Buffet while adding that, if only 1% per year is paid in management fees, nearly 20% of the profits would go to the money manager.

Building on Mr. Buffets warning: If a $100 investment was made the last day of 1899 and managed for 1%, it would COMPOUND at a net rate of only 4.3%. Thus, the portfolio would have grown to only $6,736 during the century that followed. The fee would have cost great-gramps over $10,000, leaving him with a little over one-third what he would have without “professional help”.

Wall Street Wars: When Investment Advisors Sued the SEC and Won Did They ‘Tug on Superman’s Cape?’

Published on: June 21, 2007 | by Shepherd Smith Edwards & Kantas, LLP

As discussed in earlier stories on this blog, the SEC was challanged by an investment advisors association in court for exempting Wall Street brokerage firms from liability under laws governing investment advisors, despite the fact that the brokerage firms were performing identical services.

The investment advisors won their suit a few months ago, ending the “Merrill Rule”, which had strangely been championed by the SEC, a 75 year old govenment agency created to protect investors. The SEC Chairman then personally, and not on behalf of the SEC, asked Congress to end “soft dollar” arrangements for investment advisors which he said were being abused.

It its latest ComplianceAlert letter to chief compliance officers of registered firms, the SEC has highlighted numerous areas of noncompliance, including performance advertising deficiencies “discovered” during a SEC review of several registered investment advisers.