Financial Firms

Former Delphi Executive’s Motion for Summary Judgment in SEC Securities Fraud Case is Denied

Published on: April 14, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A district court judge has denied James Blahnik’s motion for summary judgment in the United States Securities and Exchange Commission’s securities fraud cause against Delphi Corporation, a number of its senior officers, other employees, and an individual who worked for a third party.

The SEC had accused the defendants of misstating its operating results and financial condition in its offering documents and SEC filings. A number of the defendants have already settled with the SEC, leaving Blahnik, Paul Free, Paul Free, Catherine Rozanski, and Milan Belans to request summary judgment.

During a February 3 hearing, Blahnik’s lawyer said his client, who formerly served as a Delphi Treasurer before being promoted to Vice President of Treasury, Mergers and Acquisitions, intended to depend on the argument that he could not be held primarily liable for violating § 10(b) of the Securities and Exchange Act or Rule 10b-5 because he did not directly issue false statements to the investing public. The Court told Blahnik to make his case in a letter. Yet even after letters were exchanged Blahnik and the SEC, his motion for summary judgment was denied.

The SEC has accused the former Delphi executive of being involved in the following schemes: European Factoring, the PGM Transaction with Bank One, and the Cores and Batteries Transaction with BBK. The SEC contends that a number of Blahnik’s activities resulted in false statements made in the company’s 2001 and 2003 offering documents, 2000 Form 10-K, 2002-2004 Forms 8-K, and the incorporation of the 2000 Form 10K.

The Court noted that Blahnik, in his letters, failed to persuade that he can’t be held primarily liable under the law for the theory put forth by the SEC. The matter must therefore be resolved during trial.

Linsco Private Ledger Clients File FINRA Arbitration Claims Accusing Former Financial Adviser Raymond Londo of Running Multi-Million Dollar Ponzi Scam

Published on: April 13, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A number of FINRA arbitration claims have been filed accusing former Linsco Private Ledger (LPL) financial advisor Raymond Londo of running a multi-million dollar Ponzi scheme to defraud investors. The claims allege fraud, conversion, misrepresentation and omissions, and negligence. LPL is accused of failing to supervise, discover, and stop the investment fraud scheme within a reasonable amount of time even though there were numerous signs, such as red flags and customer complaints, to indicate that Londo should have been more closely supervised or even fired.

Per the FINRA statement of claim, for nearly 10 years Londo accepted funds from LPL clients. He told them that he was investing their money in an LPL account where he could help them avail of exclusive investment opportunities. The former LPL financial adviser would then take the money he was supposed to invest and used it to support his lavish lifestyle and gambling addiction.

Linsco finally fired Londo in March 2008, but by then funds belonging to 95% of the victims had been stolen. Londo’s victims, located in different parts of the US, included his own neighbours, family members, and fellow country club members.

Soon after the Ponzi scam was discovered, Londo died.

LPL is one of the largest brokerage firms in the US. The alleged Ponzi scam surrounding Londo is not the first time the broker-dealer has been linked to securities fraud allegedly committed by one of its employees. In 2002, FINRA awarded more than $500,000 to an investor who claimed investment losses because LPL did not properly supervise one of its independent brokers.

In 2008, LPL Financial and Michael McClellan, one of its ex-brokers, lost a $1.8 million arbitration claim accusing them of securities fraud, violation of securities laws, unauthorized tradings, breach of fiduciary duties, and other violations.

Stockbroker Fraud?: Extent of Main Street Natural Gas Bonds’ Tie to Lehman Brothers May Not Have Been Disclosed to Investors

Published on: April 10, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Investors of Main Street Natural Gas Bonds are claiming that not only did brokers fail to disclose the risks associated with investing in them, but they also failed to inform their clients that the bonds could be affected by the financial health of Lehman Brothers. Wall Street firms had marketed and sold Main Street Natural Gas Bonds as conservative, safe municipal bonds when, in fact, they were Lehman Brothers-backed complex derivative securities. As a result, when the investment bank filed for bankruptcy in 2008 the bonds’ trading value dropped.

If you were an investor who lost money because you invested in Main Street Natural Gas Bonds that you were told were safe, conservative investments, please contact our stockbroker fraud lawyers immediately to request your free case evaluation. You may have grounds for a securities fraud claim.

Main Street Natural Gas

Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC

Published on: April 8, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed claims against Morgan Keegan & Co, Morgan Asset Management and employees James C. Kelsoe, Jr. and Joseph Thomas Weller for securities fraud that allegedly involved inflating the value of subprime mortgage-backed securities.

According to investors and a number of state regulators, RMK Funds (RMK Advantage Income Fund, RMK High Income Fund, RMK Multi-Sector High Income Fund, RMK Select High Income Fund, RMK Strategic Income Fund, and the RMK Select Intermediate Fund) were marketed and recommended as funds that would provide a consistent income level while the actual risks involved were misrepresented and the funds’ net asset value pricing was manipulated.

The SEC’s enforcement division is accusing Morgan Keegan of failing to put into place reasonable procedures to internally price the portfolio securities in five funds, and as a result, being unable to accurately calculate the funds’ “net asset values.” These inaccurate daily NAVs were published while investors bought shares at inflated prices.

The enforcement division is also accusing fund portfolio manager Kelsoe of acting arbitrarily when he told Morgan Keegan’s Fund Accounting department to adjust prices in a manner that would make certain portfolio securities’ fair value go up. He had his assistant send about 262 “price adjustments” to Fund Accounting between at least January and July 2007.

On numerous occasions, adjustments were arbitrary, disregarded lower values that other dealers had quoted for the same securities, and neglected to reflect fair value. They were entered into a spreadsheet to determine the funds’ NAVs-even though there were no supporting documents. Kelsoe also is accused of regularly telling Fund Accounting to disregard broker-dealers’ month-end quotes that should have been used to validate the prices Morgan Keegan had assigned to the securities in the funds, as well as manipulated pricing quotes he received from at least one broker-dealer.

The Division of Enforcement is accusing Weller, a CPA who belonged to the Valuation Committee and served as the Fund Accounting Department head, of failing to fix the deficiencies in the valuation procedures, as well as not ensuring that fair-valued securities were accurately priced or that NAVs were correctly calculated.

Related Web Resources:
SEC Charges Morgan Keegan and Two Employees With Fraud Related to Subprime Mortgages, SEC.gov, April 7, 2010
SEC Order (PDF)

Morgan Keegan, 2 Employees Face SEC Fraud Charges, The Wall Street Journal, April 7, 2010 Continue Reading ›

Credit Suisse Group AG Must Pay ST Microelectronics NV $431 Million Auction-Rate Securities Arbitration Award

Published on: April 5, 2010 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Deborah Batts says that Credit Suisse Group AG must pay STMicroelectronics NV the rest of the $431 million arbitration award owed for unauthorized auction-rate securities-related investments. FINRA had issued the securities fraud award last year.

STMicroelectronics NV says that Credit Suisse invested in high risk securities, including ARS with collateralized debt obligations, for the company when the investment bank was only supposed to invest in student loans backed by the US government. The European-based semiconductor maker sued Credit Suisse when the ARS’ value dropped. STMicro accused the broker-dealer of securities fraud, unjust enrichment, breach of contract, failure to supervise, and breach of fiduciary duty.

A FINRA panel ruled in favor of STMicro, awarding the company $400 million in compensatory damages, $3 million in expert witness and legal fees, and $1.5 million in financing fees, while directing Credit Suisse to pay 4.64% on the illiquid ARS in STMicro’s account until the fees and damages were paid.

Credit Suisse sought to vacate the FINRA award and argued that a panel arbitrator had been prejudicial toward the investment bank. The broker-dealer also accused the panel of disregarding the law. The court, however, decided that Credit Suisse’s claims were meritless. The remaining balance owed to STMicroelectronics is approximately $354 million, including $23 million in interest.

Earlier this year, Credit Suisse broker Eric Butler received a 5-year prison sentence for selling subprime securities to investors. His fraudulent actions cost them over $1.1 billion.

Since the ARS market meltdown in February 2008, at least 19 broker-dealers and underwriters have been sued. Regulators forced some of them to repurchase billions of dollars worth of auction-rate securities.

Our Shepherd Smith Edwards and Kantas founder and Stockbroker fraud lawyer William Shepherd says, “One issue which investors face when they are required to arbitrate is that they have little hope of appealing the arbitrators’ award if he/she lose. However, this works both ways: It is also very difficult for the brokerage firm to appeal as well, and few even try. Thus, an investor can finish a case, win, and get paid in about a year. In court, the process can drag out for 5 years or more.”

STMicroelectronics Sues Credit Suisse Over Securities, NY Times, August 7, 2008
FINRA Awards STMicroelectronics $406 Million Against Credit Suisse Securities (USA) LLC, STMicroelectronics, February 16, 2009 Continue Reading ›

UBS, JP Morgan, Lehman, Bank of America, and Other Banks Included on List of Co-Conspirators in CDR Bid-Rigging Scam

Published on: March 31, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Over two dozen bankers at Wall Street investment firms have been listed as co-conspirators in a bid-rigging scheme to pay lower than market interest rates to the federal and state governments over guaranteed investment contracts. The banks named as co-conspirators include JP Morgan Chase & Co, UBS AG, Lehman Brothers Holdings Inc., Bear Stearns Cos., Bank of America Corp, Societe General, Wachovia Corp (bought by Wells Fargo), former Citigroup Inc. unit Salomon Smith Barney, and two General Electric financial businesses.

The investment banks were named in papers filed by the lawyers of a former CDR Financial Products Inc. employee. The attorneys for the advisory firm say that they “inadvertedly” included the list of bankers and individuals and asked the court to strike the exhibit that contains the list. The firms and individuals on the co-conspirators list are not charged with any wrongdoing. However, over a dozen financial firms are contending with securities fraud complaints filed by municipalities claiming conspiracy was involved.

The government says that CDR, a local-government adviser, ran auctions that were scams. This let banks pay lower interests to the local governments. In October, CDR, and executives David Rubin, Evan Zarefsky, and Zevi Wolmark were indicted. They denied any wrongdoing. This year, three other former DCR employees pleaded guilty.

While the original indictments didn’t identify any investment contract sellers that took part in the alleged conspiracy, Providers A and B were accused of paying kickbacks to CDR after winning investment deals that the firm had brokered. The firms were able to do this by allegedly paying sham fees connected to financial transactions involving other companies.

Per the court documents filed in March, the kickbacks were paid out of fees that came out of transactions entered into with Royal Bank of Canada and UBS. The US Justice Department says the kickbacks ranged from $4,500 to $475,000. Financial Security Assurance Holdings Ltd divisions and GE units created the investment contracts that were involved.

Approximately $400 billion in municipal bonds are issued annually. Schools, cities, and states use money they get from the sale of these bonds to buy guaranteed investment contracts. Localities use the contracts to earn a return on some of the funds until they are needed for certain projects. The IRS, which sometimes makes money on the investments, requires that they are awarded on the basis of competitive bidding to make sure that the government gets a fair return.

Related Web Resources:
JPMorgan, Lehman, UBS Named in Bid-Rigging Conspiracy, Business Week, March 26, 2010
U.S. Probe Lays Out Bid Fixing, Bond Buyer, March 29, 2010
Read the letter to District Judge Marrero (PDF)
Continue Reading ›

More on YieldPlus Mutual Fund: Charles Schwab Corp. Tries to Dissuade SEC From Filing Securities Claims

Published on: March 24, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Charles Schwab Corp. doesn’t want the Securities and Exchange Commission to file securities claims over the YieldPlus mutual fund. Schwab contends that it never misrepresented the fund when it compared it to money market funds. The brokerage firm also says that it did not mislead investors, give certain ones more information than others, or let other Schwab funds cause financial harm to Charles Schwab YieldPlus Funds investors.

While the SEC has yet to file YieldPlus-related claims against Schwab, it did send the brokerage firm a Wells notice last year notifying that it may sue. Schwab had switched about half of its assets in the YieldPlus fund into mortgage-backed securities without shareholder approval. Following the housing market collapse, what was once the largest short-term bond fund in the world fund, with $13.5 million in assets in 2007, lost 35% before dividends. As of February 28, Bloomberg data shows that the mutual fund had $184 million in assets.

Even though the Investment Company Act of 1940, Section 13(a) states that a shareholder vote must take place before a company can do other than what its policies allow when it comes to which industries investments can be concentrated in, Schwab says it didn’t need approval because although the fund changed how mortgage-backed securities were categorized, it did not change its fundamental concentration policy.

Claims for Losses at Lehman Brothers and in Investments into Lehman Brothers Financial Instruments Gain New Life as Court Uncovers Stunning New Evidence

Published on: March 21, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Lehman Brothers filed for bankruptcy protection in 2008. Now, a report by a court-appointed examiner provides 2,200 pages of details on the investment firms demise, as well as more leads into further inquiries that may need to be made. (The US Justice Department assigns examiners to bankruptcy cases to probe allegations of misconduct and wrongdoing. The examiners are there to help determine whether creditors can recover more funds and if additional regulatory action needs to occur.) Already, a number of top Lehman officials have been named defendants in securities fraud lawsuits over their alleged misconduct.

For example, examiner Anton R. Valukas appears to have found evidence of “actionable balance sheet manipulation, including use of Repo 105, an aggressive accounting practice that allowed Lehman to conceal the full extent of its financial problems. While no US law firm would sign off on this practice, Linklaters, a British law firm, did.

According to Valukas, as long as the repos took place in London through the bank’s European arm and the firm did what was necessary to make the transactions look as if they were sales, then regulatory disapproval was unlikely. Also, even after a whistleblower warned that accounting improprieties were occurring at at Lehman, Valukas says that Ernst & Young continued to certify Lehman’s financial statements.

If your account at Lehman Brothers was mismanaged or if you invested into Lehman Brothers stocks, hedge funds, notes, or other Lehman financial products that were sold by other firms, please contact our stockbroker fraud law firm immediately. Shepherd Smith Edwards & Kantas, LLP is committed to helping investment fraud victims throughout the US recoup their financial losses.

Related Web Resources:
Findings on Lehman Take Even Experts by Surprise, NY Times, March 10, 2010
Read the Examiner Report (PDF)
Continue Reading ›

LC Wegard Clients that Purchased Relevant Securities May Be Entitled to Distribution from Litigation Estate

Published on: March 18, 2010 | by Shepherd Smith Edwards & Kantas, LLP

If you are a LC Wegard & Co, Inc. customer who bought any of the securities listed below from the firm between October 1, 1991 and September 30, 1994, you may be entitled to distribution from the Litigation Estate.

Relevant Securities (includes Common Stock, Zero Coupon Subordinated Debentures, Warrants, Subordinated Pay in Kind Debentures, Subordinated Convertible Debentures):

• Chefs International Inc.
• AGP & Co.
• Diamond Entertainment Corp.
• Consolidated Technology Group, Ltd.
• Futurebiotics, Inc.
• Great American Recreation, Inc.
• Gates/FA Distributing Inc.
• Gentner Communications Corp.
• Immunotherapies Corp.
• Linkon Corp.
• Lafayette Industries Inc.
• Metalclad Corp.
• Primedex Health Systems Inc.
• Nacoma Cosolidated Industries, Inc.
• Officeland Inc.
• Non-Invasive Monitoring Systems Inc.
• PDK Lambs, Inc.
• Process Equipment, Inc.
• US Transportation Systems, Inc.
• Sanyo Industries, Inc.
• Site Holdings, Inc.

All LC Wegard clients that bought any of these securities during the Relevant Period have to submit the original, signed proof of claim and any supporting or accompanying documents to:

Claims Administration C/O Donald F. Conway Receiver PO Box 8329 Princeton, New Jersey 08543-8329
Deadline: The Claims administration must receive your claim by 5pm EST on May 4, 2010. Failure to meet this deadline will result in a perpetual bar from receiving any distribution.

Our stockbroker fraud attorneys represent investment fraud victims throughout the US.

Related Web Resource:
Proof of Claim Form (PDF)
Continue Reading ›

Five Years Later Ex- Knight Securities Supervisors are Exonerated? Just Call it “Par for the Course.”

Published on: March 16, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority’s National Adjudicatory Council has dismissed the charges against former Knight Securities, L.P. CEO Ken Pasternak and John Leighton, the investment firm’s ex- Institutional Sales Desk head. The two men were accused of supervisory failures over allegedly fraudulent sales. Specifically, they allegedly inadequately supervised Leighton’s brother Joseph Leighton, who, at the time, was the firm’s top institutional sales trader. Regulators had accused Joseph of inflating the price of securities when selling them to institutional clients and keeping the extra profit.

The National Association of Securities Dealers found that the two former executives failed to take reasonable steps to make sure that Joseph was in compliance with industry standards. He settled with NASD and the Securities and Exchange Commission in 2005.

A lower FINRA panel had also ruled against two men. Pasternak was suspended from supervisory positions for two years and John was barred from supervisory roles. Both men were each ordered to pay $100,000.

Now, however, NAC is disagreeing with the lower panel, claiming that FINRA failed to establish that Joseph Leighton violated regulatory and market standards. The council also found that John Leighton did enforce Knight’s compliance procedures and that there was evidence that does not support allegations accusing Pasternak of not responding properly to “red flags” that surfaced over the way that Joseph handled his institutional client orders. However, institutional clients have come forward to testify that the pricing they received was fair. Also, in 2008, a federal judge threw out similar charges that the SEC filed against Pasternak and Joseph Leighton.

“This is another case at FINRA of the soldiers getting punished while the officers in charge ultimately get a walk,” said Shepherd Smith Edwards and Kantas founder and securities fraud lawyer William Shepherd. “The primary regulator of brokerage firms may have recently changed its name to the ‘Financial Industry Regulatory Authority’ but it remains a ‘National Association of Securities Dealers’ – a non-profit private corporation (similar to a country club) with a vested interest in seeing to it that favored members do not have to answer for misdeeds. After all, a precedent of fines or sanctions for the bosses might affect the treatment of other bosses in the future.”

Related Web Resources:
COMPLIANCE WATCH: Complying As Your Brother’s Keeper, The Wall Street Journal, March 5, 2010
National Adjudicatory Council, FINRA Continue Reading ›