Financial Firms

Stifel Reports 80% Earnings Increase During 1st Quarter Even After Disengaging From Broker Recruiting Wars

Published on: April 30, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Stifel Financial Corp. is reporting an 80% increase of earnings during its first quarter, which ended on March 31, compared to last year. Nearly 57% of its operating profit and 64% of revenue came from its global wealth management group. The profit increase came even as the financial firm slowed down its recruitment of new brokers. On its financial adviser roster, just 45 names were added, as Stifel made the decision not to engage in recruitment wars with larger firms that have enhanced their recruiting packages in an effort to bring in new people who can help the firms rehabilitate their reputations in the wake of the 2008 market collapse. Bank of America’s Merrill Lynch, Morgan Stanley Smith Barney LLC, and other investment banks are reportedly offering leading brokers up to 300% of the revenue they produced in the last 12 months.

While Stifel increased its adviser roster by over 500 in 2009, absorbing over 300 advisers from UBS Financial Services Inc.’s wealth management group and 56 retail branches, this year the financial firm seems to be focusing more energy on creating a more balanced revenue mix. By merging (a $300 M deal), with Thomas Weisel Partners Group Inc. Stifel’s retail and investment-banking/capital revenue will be brought into balance.

According to Investment News, Ron Kruszewski, Stifel chief executive and chairman, as saying that the ex-UBS brokers that are now working for Stifel are working at about 80% of their potential. Seeing as many of them started with the financial firm toward the end of last year, it may take a little longer for them to fully transfer their client assets and achieve complete operational efficiency.

Related Web Resources:
Stifel backs off recruiting wars — and profits soar, Investment News, April 29, 2010
Stifel Financial Corp. Announces First Quarter Results, Marketwatch, April 29, 2010 Continue Reading ›

$1 Billion Goldman Sachs Synthetic CDO Debacle a Reminder that Even Highly Sophisticated Investors Can Be Defrauded

Published on: April 30, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Although the Senate hearing over Goldman Sachs, & Co.’s role in structuring a collateralized loan obligation that caused investors to lose about $1 billion in losses has ended, the case against the investment bank is far from over. The SEC’s securities fraud lawsuit filed earlier this month makes numerous disturbing allegations against Goldman Sachs, and now lawmakers are calling on the Justice Department to begin a criminal probe into the CDO transaction that is a focus of the SEC case.

The SEC says Goldman Sachs and one of its vice presidents defrauded investors by structuring and marketing a synthetic collateralized debt obligation that was dependent on the performance of subprime residential mortgage-backed securities (RMBS), while at the same time failing to tell investors about certain key information, such as the role that a major hedge fund played in portfolio selection or that the hedge fund had taken a short position against the CDO.

The hedge fund, Paulson & Co, is one of the largest in the world. The SEC says that Paulson & Co. paid Goldman to allow it to set up a transaction that let it take these short positions. The SEC contends that Goldman acted wrongfully when it let a client that was betting against the mortgage market heavily influence which securities should be part of an investment portfolio, while at the same time telling other investors that ACA Management LLCS (ACA), an objective, independent third party was choosing the securities. Investors, therefore, did not know about Paulson & Co’s role in choosing the RMBS or that the hedge fund would benefit if the RMBS defaulted.

SEC alleges that Paulson & Co. shorted the RMBS portfolio it helped choose by taking part in credit default swaps (CDS) with Goldman Sachs to purchase protection on specific layers of the ABACUS capital structure. Because of its financial short interest, Paulson & Co had reason to choose RMBS that it thought would undergo credit events in the near future. In the term sheet offering memorandum, flip book, or marketing materials that it gave investors, Goldman did not reveal Paulson & Co’s short position or the part the hedge fund played in the collateral selection process.

The SEC is also accusing Goldman Sachs Vice President Fabrice Tourre of being principally responsible for ABACUS. He structured the transaction, prepared the marketing materials, and dealt directly with investors. The SEC claims that Tourre knew about Paulson & Co’s role and misled ACA into thinking that the hedge fund invested about $200 million in the equity of ABACUS, while indicating that Paulson & Co’s interests in the collateralized selection process were closely in line with ACA’s interests.

Six months after the deal closed on April 26, 2007 and Paulson & Co had paid Goldman Sachs about $15 million for structuring and marketing Abacus, 83% of the RMBS in the ABACUS portfolio was downgraded and 17% was on negative watch. By Jan 29, 2008, 99% of the portfolio had been downgraded.

“Synthetic derivative investments are so highly complex that even highly sophisticated investors can be defrauded,” says Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Attorney William Shepherd. ” Any other investor being sold these is simply “fair game” for Wall Street. Our securities fraud law firm represents five school districts that lost over $200 million in what they were told were very low-risk investments into bonds. Not only were these not “bonds” but the risk to them was enormous.”

Goldman CEO says has board’s support: report, Reuters, April 27, 2010
Blankfein Says He Was ‘Humbled’ By Senate Hearing, NPR, April 29, 2010
What’s Next for Goldman Sachs?, New York Times, April 29, 2010
SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages, SEC.gov, April 16, 2010
Read the SEC Complaint (PDF)
Continue Reading ›

UBS Agrees to Settle HealthSouth Corp Accounting Fraud Litigation for $217 M

Published on: April 27, 2010 | by Shepherd Smith Edwards & Kantas, LLP

UBS AG will pay $217 million to settle an accounting fraud lawsuit filed by HealthSouth Corp. bondholders and shareholders. Under the settlements, bondholders will receive $100 million and shareholders will get $117 million. UBS is HealthSouth’s investment bank. Meantime, Ernst & Young LLP, the. health-care services provider’s accounting firm, had settled with shareholders for $109 million and will now settle with bondholders for $33.5 million.

The settlements are a result of litigation filed over a $2.7 billion fraud at HealthSouth. The accounting scheme occurred between 1996 and 2002. After the fraud was discovered in March 2003, nearly $6 billion in market value was lost when the company’s share price dropped. 15 executives pleaded guilty over their involvement in the scam.

By agreeing to settle, UBS & Earnst & Young are not admitting to or denying wrongdoing. UBS maintains that HealthSouth lied to UBS bankers numerous times. In 2008, UBS consented to pay $100 million to HealthSouth over claims the investment bank failed to discover the fraud.

Shareholders also settled the accounting fraud with HealthSouth in 2006 for $355 million and received another $20 million from UBS in an Alabama court case. Meantime, bondholders received $90 million in their settlement with HealthSouth and $5 million from UBS in state court case. Bondholders and shareholders will also receive compensation from a $2.88 billion judgment against Richard Scrushy. HealthSouth’s founder was acquitted of criminal charges related to the fraud but in 2006 was convicted over a different bribery case.

Related Web Resources:
UBS to Pay $217 Million to Settle HealthSouth Case, BusinessWeek, April 23, 2010
UBS, Ernst Settle HealthSouth Cases for $250.5 Million, ABC News, April 24, 2010 Continue Reading ›

Schwab Must Pay SSEK Client $604,094 Over California Yield Plus Fund Investments, Says FINRA Arbitration Panel

Published on: April 22, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Our stockbroker fraud law firm is happy to announce that a Financial Industry Regulatory Authority panel has awarded one of our clients her entire principal loss of $604,094 for her securities fraud claim related to the Schwab California Tax-Free Yield Plus Fund. The award is not part of Schwab’s $200 million class action settlement.

Like Schwab’s Yield Plus fund, SWYCX was marketed as an ultra short-term bond fund and an alterative to money market holdings or cash. In fact, not only were the securities illiquid, hard to value, untested, thinly traded, and highly vulnerable to market changes, but the fund was exposed to variable-rate bonds that were pegged to the London Interbank Offering Rate.

Phone conversations recorded by Schwab with our client confirm the investor’s desire for safety of principal for her assets. During such exchanges, Schwab represented SWYCX as a better investment to Treasuries and Money Market and told the client that instead of holding such a large position in money market or cash for an extended time period it was better to place “cash” investments in the Yield Plus fund. Our securities fraud lawyers have other Schwab clients that were offered similar representations.

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 ›