Articles Posted in Financial Firms

Wells Fargo Advisors LLC Agrees to $1 Million FINRA Fine for Securities Charges Related to Mutual Fund Prospectus Delivery

Published on: May 12, 2011 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is fining Wells Fargo Advisors LLC $1 million over the allegations that the financial firm did not deliver mutual fund prospectuses within the three days (as required by federal securities laws) and delays in the updating of material information about former and current representatives. Wells Fargo has agreed to the fine.

Per FINRA, about 934,000 clients who bought mutual funds two years ago were affected when Wells Fargo did not deliver prospectuses within three days of the transactions. Prospectuses were given to clients anywhere from one to 153 days late. The SRO contends that even after a 3rd provider notified the broker-dealer about the delay, Wells Fargo allegedly did not take corrective action to remedy the problem.

FINRA also says that the financial firm did not abide by the SRO’s rules when it wasn’t prompt in reporting required information about its representatives, both past and present. Securities firms must make sure that the information on their representatives’ applications for registration on Forms U4 are current in FINRA’s CRD (Central Registration Depository). Termination notices, known as Forms U5, must also be updated. Financial firms have 30 days from finding out about a “significant event” to update the forms. Examples of such events are customer complaints, formal investigations, or an arbitration claim against a representative. FINRA says that Wells Fargo did not update 7.6% of its Forms U5 and about 8% of its Forms U4 between 7/1/08 and 6/30/09. This resulted in almost 190 late amendments.

By agreeing to settle, Wells Fargo is not denying or admitting to the securities charges. The broker-dealer has, however, consented to the entry of FINRA’s findings.

Related Web Resources:
FINRA Fines Wells Fargo Advisors $1 Million for Delays in Delivering Prospectuses to More Than 900,000 Customers, FINRA, May 5, 2011
FINRA fines Wells Fargo $1M for prospectus delays, Forbes/AP, May 5, 2011
CRD, Financial Industry Regulatory Authority

More Blog Posts:
AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Client, Stockbroker Fraud Blog, May 4, 2011
Wells Fargo Settles SEC Securities Fraud Allegations Over Sale of Complex Mortgage-Backed Securities by Wachovia for $11.2M, Institutional Investor Securities Blog, April 7, 2011
Wells Fargo to Pay $30M in Compensatory Damages to Four Nonprofits for Securities Fraud, Stockbroker Fraud Blog, June 30, 2010 Continue Reading ›

Whistleblower Lawsuit Claims Taxpayers Were Defrauded When Federal Government Bailed Out Houston-Based American International Group in 2008

Published on: May 5, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Last week, a whistleblower lawsuit claiming that taxpayers were defrauded when the federal government bailed out American International Group was unsealed. The complaint accuses the Houston-based AIG and two banks of taking part in speculative and fraudulent transactions that resulted in losses worth billions of dollars. They then allegedly convinced the Federal Reserve Bank of New York to bail them out with two rescue loans for AIG that were used to unwind hundreds of failed loans.

The complaint focuses on the two emergency loans of about $44 billion that AIG received in October 2008 (The remaining $138 that it got in bailout funds are not part of this case). The money went toward settling trades involving complex, mortgage-linked securities. Some of the AIG-guaranteed securities were underwritten by Goldman Sachs and Deutsche Bank. Both financial institutions join AIG as defendants in this case. The two loans were extended to buy the troubled securities and place them in Maiden Lane II and Maiden Lane III, both special-purpose vehicles, until AIG’s crisis subsided.

The plaintiffs, veteran political activists Nancy and Derek Casady, contend that the rescue loans were improper because the government made them without obtaining a pledge of high-quality collateral from AIG. They maintain that the Fed board does not have the authority to “cover losses of those engaged in fraudulent financial transactions.”

Their whistleblower lawsuit was filed under the False Claims Act. This federal law lets private citizens sue on behalf of government agencies if they know of a fraud that occurred. Plaintiffs are able to attempt to recover money for the government and its taxpayers. Plaintiffs usually receive a percentage if their claim succeeds.

According to the New York Times, senior fed officials have admitted to taking unusual actions in 2008 because the global financial system was on the verge of falling apart.

Related Web Resources:
Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies, The New York Times, May 4, 2011
False Claims Act, Cornell University Law School

Related Web Resources:
Texas Commodity Trading Advisor FIN FX LLC Now Subject to NFA Emergency Enforcement Action, Stockbroker Fraud Blog, April 27, 2011
Texas Securities Fraud: FINRA Suspends Pinnacle Partners Over Failure to Comply with Temporary Cease and Desist Order Involving “Boiler Room” Operation, Stockbroker Fraud Blog, April 19, 2011
SEC is Finalizing Its Whistleblower Rules, Says Chairman Schapiro, Stockbroker Fraud Blog, April 28, 2011 Continue Reading ›

AG Edwards & Sons (Wells Fargo Advisors) to Settle Securities Charges it Sold Variable Annuities that Lacked Proper Documentation to Elderly Clients

Published on: May 4, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Missouri Secretary of State Robin Carnahan says that A.G. Edwards & Sons LLC will pay $755,000 to settle charges over improper annuity sales. The financial firm allegedly sold variable annuities without the necessary documentation to elderly clients. The Missouri’s Securities Division, AG began its investigation because an 18-year-old Missouri resident reported noticing irregularities after the liquidation of a variable annuity.

Per the investigation’s findings, AG Edwards, now known as Wells Fargo Advisors after Wachovia Corp. acquired it and the latter was later acquired by Wells Fargo & Co. (WFC), sold the annuities to elderly clients but failed to maintain proper records of transactions. This lack of proper documentation prevented the annuity sales, which occurred between July 2006 and June 2007, from being in compliance with company policy and state law.

At least 31 Missouri investors were affected by this oversight. They will receive $381,993. The Missouri Investor Education and Protection Fund will get $375,000. The Missouri’s Securities Division will be reimbursed the $50,000 it cost to probe the investor complaint.

In a release issued last month, Carnahan said that she appreciated AG Edwards’s willingness “to work with my office.” She also reminded investors that if they believe their investment is at risk, they can always contact her office for help. Meantime, Wells Fargo Advisors says it is pleased that these “legacy issues” have been resolved.

More Blog Posts:
Protect Yourself from Texas Securities Fraud by Making Sure that the Company or Agent that Sells You Annuities Has a Valid Insurance License, Stockbroker Fraud Blog, March 13, 2010
Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC, Stockbroker Fraud Blog, October 17, 2009 Continue Reading ›

Morgan Stanley & Co. and TD Ameritrade Inc. to Repurchase Over $338M in Auction Rate Securities from New Jersey Investors

Published on: May 4, 2011 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley & Co. Inc. (MS) and TD Ameritrade Inc. (AMTD) will buy back over $338 million in auction rate securities from New Jersey investors. The repurchase is to settle securities allegations by the state’s attorney general that the financial firms did not adequately disclose the risks involved with investing in ARS.

Per the settlement, Morgan Stanley (the ARS underwriters) will repurchase $322.27 in ARS that it sold to retail investors and pay civil penalties of $1.56 million. The New Jersey Bureau of Securities claims that not only did the financial firm fail to tell investors of the risks involved in the financial instruments—even after knowing the ARS market was in trouble—but Morgan Stanley also failed to adequately train financial advisers and brokers about the possible illiquidity that could impact ARS.

TD Ameritrade (the ARS distributor) will buy back $16.1 million in ARS. The bureau claims that the broker-dealer’s registered representatives failed to inform clients of the risks involving ARS.

In a release issued late last month, Thomas R. Calcagni, Acting Director of the Division of Consumer Affairs, said that efforts have led to financial firms either buying back or offering to repurchase over $2.7 billion in ARS. The settlements with Morgan Stanley and TD Ameritrade are the ninth and tenth ones that the Division has reached with firms that sold ARS to investors. Earlier this year, UBS agreed to buy back $1.5 billion in ARS from New Jersey investors.

Morgan Stanley Consent Order (PDF)

TD Ameritrade Consent Order (PDF)

More Blog Posts:
Anschutz Corp.’s Securities Fraud Lawsuit Against Deutsche Bank and Credit Rating Agencies Over Their Alleged Mishandling of Auction-Rate Securities Can Proceed, Says District Court, Institutional Investor Securities Blog, April 21, 2011

Class Auction-Rate Securities Lawsuit Against Raymond James Financial Survives Dismissal, Stockbroker Fraud Blog, September 27, 2010

Lincoln Financial Advisors Corp. Ordered by FINRA to Pay Wright Family Trust $1.6M

Published on: April 29, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel says that Lincoln Financial Advisors Corporation must pay the Wright Family Trust $1.6M over securities claims related to investments that were made in a number of funds. Andrew and Blenda Wright, the claimants, alleged fraud, negligent misrepresentation, intentional misrepresentation, breach of fiduciary duty, failure to supervise, elder abuse, unauthorized and unsuitable transactions, and breach of contract. Other respondents named in the claim are Rollance Vekennis and John Marshall.

The claims are related to the investments made in:
• Rye Select Broad Market Fund, which is a Bernard L. Madoff Investment Services LLC feeder fund
• Johnston Asset Management International Equity Fund
• Mount Yale Large Cap Growth Fund
• Mount Yale Mid Cap Growth Qualified Fund
• Mount Yale Large Cap Value Qualified Fund
• Mount Yale Small Cap Qualified Fund
• Kinetics Advisers Institutional Partners Fund

The claimants had sought $1.5 million in compensatory damages.

The FINRA panel has ordered the respondents to pay $1.17 million in compensatory damages, including 10% annual interest between the date of the award and the time it is paid. Lincoln Financial must also pay another $590,000 in compensatory damages (also with 10% yearly interest until paid), the $600 initial filing fee, $22,800 in hearing session fees, and $8,550 in member fees.

Related Web Resources:

FINRA

More Blog Posts:
SEC Approves FINRA’s Proposal to Give Investors an All-Public Arbitration Panel Option, Stockbroker Fraud Blog, February 12, 2011

Linsco Private Ledger Clients File FINRA Arbitration Claims Accusing Former Financial Adviser Raymond Londo of Running Multi-Million Dollar Ponzi Scam, Stockbroker Fraud Blog, April 13, 2010

Ameriprise to Sell Securities America Even as it Finalizes Securities Settlement with Investors of Medical Capital Holdings and Provident Royalties Private Placements

Published on: April 26, 2011 | by Shepherd Smith Edwards & Kantas, LLP

In its first quarter earnings report, Ameriprise Financial (NYSE: AMP) says it intends to sell Securities America. The news comes while the financial firm is still in the process of finalizing its securities fraud settlement with investors accusing the brokerage unit of selling allegedly fraudulent private placements of Medical Capital Holdings and Provident Royalties.

Investors sustained about $400 million in losses after taking part in Medical Capital Holdings-sponsored debt sales and shale gas investments with Provident Royalties. Although originally Securities America had about $400 million in outstanding obligations, the proposed settlement is worth $150 million. The independent broker-dealer unit is accused of failing to do proper due diligence on millions of dollars in investments that it sold, which later proved to be worthless.

Investors who filed securities arbitration cases against Securities America will receive $70 million. Those who are seeking to get back their losses through a class action securities lawsuit will get $80 million. The financial firm could be facing over $300 million more in arbitration claims over the fraudulent placements.

There is speculation over why Ameriprise’s decision to sell comes now. Does this mean that the financial firm has other issues of concern, beside the securities allegations, with Securities America? The sale may also mean that Ameriprise has decided to focus on its core business.

Per the earnings report, Securities America entered into the settlement agreements last month. This has resulted in a $118 million pre-tax charge for Ameriprise during 2011’s first quarter, as well as the $40 million pretax charge it incurred during last year’s fourth quarter.

Related Web Resources:
Securities America Agrees To Settlement With Investors-Sources, The Wall Street Journal, April 13, 2011
Ameriprise profit up, selling Securities America, AP/Bloomberg Businessweek, April 25, 2011
Ameriprise profit up, selling Securities America, Bloomberg Business Week, April 25, 2011

More Blog Posts:
Texas Securities Fraud: Three FINRA Cases Against Securities America Over Sale of Private Placements Halted, Stockbroker Fraud Blog, February 22, 2011
Securities America Inc. to Pay $1.2M in Compensatory and Punitive Damages Over Allegedly Fraudulent Medical Capital Notes, Stockbroker Fraud Blog, January 6, 2011
Securities America & Ameriprise Financial Inc. Sued For Selling Allegedly Faulty Private Settlements, Stockbroker Fraud Blog, November 10, 2009 Continue Reading ›

AIG Trying to Get More Investors to Buy Life Settlements

Published on: April 26, 2011 | by Shepherd Smith Edwards & Kantas, LLP

American International Group Inc. (AIG) is trying to get credit-ratings firms and investors to get behind the sale of life settlements, which are securities backed by the life insurance polices of older people. Per the insurer’s recent proposal, a subsidiary of AIG’s Chartis property casualty unit would collateralize notes valued at $900 million with 1,157 policies. AIG would like to sell $250 million to outside investors.

So far, AIG’s efforts have been met with resistance. It doesn’t help that Standard & Poor’s won’t rate the securities, which could help rally investors. In fact, S & P’s March report emphasizes the securities “unique risks.” It doesn’t help that some critics call these securities “collateralized death obligations,” “blood pools,” or “death bonds” because they pay off upon the insured’s death.

Investors who buy life settlements are betting that the benefits they get upon the insured’s death will be greater than the cash they’ve paid for both the policy and its premiums. However, due to the 2008 credit crisis or because some of the insured ended up living longer than expected, many life settlement investors have lost money on these securities. Securities lawsuits have followed and the market has stayed depressed. AIG says that as of the end of 2010, it has paid over $177.8 million to settle 479 claims. In exchange, it received the policies. Per AIG’s financial filings, the insurer has about $18 billion in anticipated death benefits. That’s more than 1/3rd of the approximately $45 billion in these benefits that have changed hands in the last decade.

The Wall Street Journal reports that generally, life insurers consider investor ownership of policies—especially involving those betting on someone’s death—as not good for the industry. There are even some insurance companies that have gone to court claiming that they were misled buy buyers who said they wanted policies for estate planning when, in fact, they actually wanted to flip them for investors.

Our institutional investment fraud law firm are dedicated to helping investors recoup their losses.

AIG Tries to Sell Death-Bet Securities, The Wall Street Journal, April 22, 2011

Seniors Beware: What you should know about life settlements, FINRA

Life Settlement Securitizations Present Unique Risks, Standard and Poor’s

More Blog Posts:
Texas Lawyer Pleads Guilty to Involvement in Alleged $100M Life Settlement Scheme, Stockbroker Fraud Blog, December 7, 2010

Life Settlements or Viaticals should be Considered “Securities,” Recommends the SEC to Congress , Stockbroker Fraud Blog, August 5, 2010

Securitization of Life Insurance Settlements Might Lead to Next Financial Crisis, Say Lawmakers, Stockbroker Fraud Blog, September 27, 2009

Morgan Keegan Ordered by FINRA to Pay RMK Fund Investors $881,000

Published on: April 24, 2011 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel is ordering Morgan Keegan to pay a group of investors $881,000 for losses they sustained in Morgan Keegan’s proprietary funds that were concentrated in high-risk subprime mortgage assets. Customers lost about $2 billion.

The Morgan Keegan funds that investors had placed their money in included the:
• RMK High Income Fund
• RMK Multi-Sector High Income Fund
• RMK Advantage Income Fund
• RMK Select Intermediate Bond Fund
• RMK Strategic Income Fund

The claimants alleged misrepresentations and omissions, unsuitable investments, breach of fiduciary duty, failure to supervise, negligence, vicarious liability, breach of contract, FINRA rule violations, and Securities and Exchange Act violations. The FINRA panel found Morgan Keegan liable to the claimants on a number of the claims and ordered the financial firm to pay the following in compensatory damages:

• $33,382 to Palmer and Kathy Albertine • $105,844 to Jon Albright • $254,642 to Susan and Sam Davis • $458,625 to Kendall and Peter Tashie
FINRA also ordered Morgan Keegan to pay $26,850 for all of the forum fees for the arbitration against the financial firm, $28,500 for the Claimaints’ expert witness fee, and $600 for the portion of the filing fee that is non-refundable. Morgan Keegan is a Regions Financial Corporation subsidiary.

Related Web Resources:
FINRA Rules

Securities and Exchange Act of 1934, Cornell University Law School
More Blog Posts:
Morgan Keegan & Co. Inc. Must Pay $250K to Couple that Lost Investments in Hedge Fund with Ties to Bernard L. Madoff Investment Securities, Stockbroker Fraud Blog, March 16, 2011
Morgan Keegan to Pay $9.2M to Investors in Texas Securities Fraud Case Involving Risky Bond Funds, Stockbroker Fraud Blog, October 6, 2010
Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC, Stockbroker Fraud Blog, April 8, 2010 Continue Reading ›

Citigroup Chair Says Bank’s Crisis is Over

Published on: April 22, 2011 | by Shepherd Smith Edwards & Kantas, LLP

At the financial firm’s annual shareholder meeting, Citigroup chairman Richard D. Parsons says that even though there will be challenges this year, the investment bank is “clearly through the crisis.” Parsons statement reflects a significant shift for Citibank from last April when the financial firm made its first profit since the 2007 financial collapse and the government was still in possession of a large ownership stake. Citigroup, which received three government bailouts, has since paid back the Treasury Department and reported profits for five quarters in a row. Most recently, the investment bank has just reported a $3 billion profit.

The New York Times says that unlike in recent years when Citigroup shareholders that attended the annual meeting would complain about board members or former US Treasury Secretary Robert E. Rubin, this year, the shareholders that did show up primarily complained that Citi’s stock price would have to hit almost $600 for them to break even on shares.

The bank’s shares, which used to trade at over $50 each, now trade at under $5 dollars. After the reverse share split, share prices will rise to approximately $45. Each investor’s total, however, will go down by 90%.

Over 95% of shareholders had approved the stock split. At the meeting, Citi’s chief executive Vikram S. Pandit explained that while the share count was changing the value of ownership position was not. He also spoke of the benefits of drawing in institutional investors who couldn’t buy shares of companies that had stock that traded under $10. Pandit said there was potential for short-sellers to beat down the stock.

Related Web Resources:
Citi’s Annual Meeting Ceases to Be a Battleground, New York Times, April 21, 2011
Citi CEO tries to shed bank’s “survivor” image, Reuters, April 21, 2011

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Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud In $3.25M Scam to Bilk Citibank and Firm Clients, Stockbroker Fraud Blog, December 13, 2010
Securities Fraud Lawsuit Against Citigroup Involving Mortgage-Related Risk Results in Mixed Ruling, Institutional Investor Securities Blog, November 30, 2010 Continue Reading ›

Anschutz Corp.’s Securities Fraud Lawsuit Against Deutsche Bank and Credit Rating Agencies Over Their Alleged Mishandling of Auction-Rate Securities Can Proceed, Says District Court

Published on: April 21, 2011 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Northern District of California says that the auction securities fraud lawsuit filed by Anschutz Corp. against Deutsche Bank Securities Inc. and a number of credit rating agencies can proceed. Anschutz bought DBSI ARS between July 206 and August 2007 through Credit Suisse. The plaintiff is seeking damages and other relief related to the ARS it bought that was underwritten by DBSI, which also served as its broker-dealer.

Anschutz contends that it bought the securities believing that they were liquid because of the DBSI’s deceptive and manipulative activities. The plaintiff claims that by serving as market maker, DBSI ensured that the auctions would be successful as long as it kept supporting the bids. To make the ARS appear liquid, DBSI also allegedly “manipulated the market” by putting in support bids for every auction that the securities were involved in as well as for other ARS for which it was the lead or sole broker-dealer. When DBSI stopped making bids in July 2007, the auctions failed the following month. Anschutz contends that not only did DBSI know this would happen, but also, by acting as the only broker-dealer that could take part in certain securities’ auctions, the financial firm made it seem as if there was enough third-party demand and was able to lower the auctions’ interest rates.

Regarding its claims against rating agencies, Anschutz says that the latter relaxed their rating system to get DBSI’s business. The plaintiff contends that the AAA ratings that the agencies issued were misleading and false but knew that was the way to get paid. Anschutz also says that the agencies should have known or knew that DBSI was creating an artificial market for the ARS.

More Blog Posts:
Akamai Technologies Inc’s ARS Lawsuit Against Deutsche Bank Can Proceed, Institutional Investor Securities Blog, March 4, 2011

Credit Suisse Broker Previously Convicted for Selling High Risk ARS is Barred from Future Securities Law Violations, Institutional Investor Securities Blog, February 12, 2011

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities, Stockbroker Fraud Blog, November 19, 2008