Financial Firms

New Judge in Securities Fraud Case Involving Former Brokers Previously Affiliated with Capital Growth Financial, Wachovia Securities, and VSR Financial Services

Published on: December 22, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A new judge will preside over the case against two former brokers accused of defrauding over 130 Nebraska investors of over $20 million. Gage County District Judge Paul Korslund takes over for Sarpy County District Judge David Arterbur, who recused himself over possible conflicts.

Prosecutors are accusing Brian Schuster and Rebecca Engle, previously affiliated with Wachovia Securities LLC, Capital Growth Financial LLC, and VSR Financial Services Inc., of improperly selling risky investments to former clients when they worked together between 2000 and 2007. The two of them entered not guilty pleas to eight felony counts of securities fraud.

The investments under dispute were sold to investors while Capital Growth employed the two brokers. Investors say they bought securities in American Capital Corp. and Royal Palm. PrimEdge Inc. eventually bought both companies and Schuster became PrimEdge chief executive and president.

Over 200 investors will share a settlement of approximately $900,000 to be paid by the brokers’ ex-employers. Quanta Specialty Lines Insurance Co. will pay for most of it on behalf of Capital Growth. However this recovery is just a small portion of the over $20 million dollars in broker fraud losses that investors are claiming.

The majority of investors that have filed securities fraud lawsuits and arbitration claims were either nearing retirement or already retired when they were defrauded. They had wanted to make stable, low risk, conservative investments and they claim that the former brokers made investments for them in risky ventures without fully explaining what was involved. Engle and Schuster, however, say they shouldn’t be prosecuted for securities fraud because investors acknowledged the risks in writing.

Related Web Resources:
Judge appointed in fraud cases of ex Neb. Brokers, AP, December 22, 2009 Insurer to Pay Bulk of $900K Settlement in Nebraska Fraud Case, Insurance Journal, July 23, 2009 Continue Reading ›

Attention Schwab Yield Plus Investors: Deadline for Opting Out of Class Action So You Can File Your Own FINRA Arbitration Claim is December 28

Published on: December 21, 2009 | by Shepherd Smith Edwards & Kantas, LLP

One of the leading private advocacy groups in the country is urging investors who lost money in the Charles Schwab YieldPlus funds to opt out of the class action lawsuit so they can file individual arbitration claims. The Wall Street Fraud Watchdog sees no reason why you should accept up to 20 cents on the dollar when you can get back more with an individual claim filed with the Financial Industry Regulatory Authority. The deadline for opting out is Monday, December 28, 2009.

Investors that may qualify as class members acquired Schwab YieldPlus Fund shares between May 31, 2006 and March 17, 2008. In California, residents who held shares from this fund beginning September 1, 2006 also are part of this class action.

Like the Wall Street Fraud Watchdog, our stockbroker fraud lawyers believe it is unfair that investors should get so little back for so much investment. Shepherd Smith Edwards & Kantas LTD LLP represents investors throughout the US who suffered financial losses from investing in Schwab YieldPlus funds. Investors say they were deceived about the risks involved when the funds allegedly were marketed and sold as cash alternatives. Investors also have accused Schwab of leaving out key information in the YieldPlus funds disclosure and registration statements. Schwab denies the allegations.

Credit Suisse to Pay $536 Million Settlement For Violating US Sanctions With Secret Transactions from Iran, Libya, Cuba, Burma, and Sedan

Published on: December 19, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Justice Department says Credit Suisse will pay a $365 million settlement for violating US economic sanctions. According to US Attorney General and Manhattan District Attorney Robert Morgenthau, the bank carried out secret transactions from Cuba, Libya, Iran, Burma, and Sedan that allowed “rogue players access to US dollars.”

The Justice Department says Credit Suisse admits to violating the International Emergency Economic Powers Act. The probe has resulted in about $1 billion in fines for the banks involved in the case. Credit Suisse reportedly stopped doing this kind of business in 2005, cooperated with investigators, and took additional measures to prevent this type of activity from happening again.

Under Credit Suisse’s deferred prosecution deal, however, the investment bank could be subject to further prosecution if more problems arise.

Holder says Credit Suisse showed clients how to transfer payments without capturing the attention of US authorities. He also claims that Credit Suisse profited by disregarding the law. Among the illegal activities, according to the Manhattan’s district attorney’s office, Credit Suisse,

• Between 2002 and 2006, processed over $700 million in payments that were in violation of US sanctions.
• Processed $1.1 billion in payments while concealing their Iranian ties.
• Illegally invested $150 million for two banned state-affiliated banks, one in Sudan and another in Lebanon.

Several other banks are under investigation for disregarding US sanctions. Morgenthau promises these banks are facing harsh penalties. Earlier this year, Lloyds TBS agreed to pay $350 million for helping Sudan and Iran despite US sanctions. Last month, federal authorities confiscated about $500 million in real-estate and bank deposits from Alavi Foundation for allegedly facilitating intelligence and financial activities for Iran. In 2008, a Manhattan federal court froze $2 billion that Citigroup was allegedly holding for Iran.

Related Web Resources:
Credit Suisse fine bigger w/o cooperation- US, Forbes/Reuters, December 16, 2009
Credit Suisse’s Secret Deals, The Wall Street Journal, December 17, 2009
International Emergency Economic Powers Act
Continue Reading ›

Citigroup, J.P Morgan Chase, Morgan Stanley and Other Firms Added to Investigation of Goldman Sachs over “Front-Running” of Research

Published on: December 18, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority ( FINRA) has launched an investigation into improper trading in advance of stock research and ratings at Citigroup, J.P. Morgan Chase, Morgan Stanley and ten other financial firms, it was reported today by the Wall Street Journal and Reuters News Service.

FINRA – formerly the National Association of Securities Dealers (NASD) – has since August examined weekly meetings at Goldman Sachs where research analysts offer tips to traders and then to big clients. According to the Wall Street Journal, this examination has now been expanded to include ten other firms and FINRA is now seeking information concerning any meetings where unpublished research opinions or trading ideas were disclosed to non-research employees or clients.

“FINRA does not reveal names of firms that have received sweep letters,” said its spokesman Herb Perone to Reuters. Citigroup, JPMorgan and Morgan Stanley could reportedly not be reached immediately for comment.
Continue Reading ›

Lehman Brothers Sues Barclays for Billions Over Windfall Profit From Asset Sale Transaction

Published on: December 14, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Lehman Brothers Holdings Inc. has filed an adversary complaint against Barclays Capital Inc. requesting the return of billions of dollars in extra profit that it says the latter made when buying Lehman’s North American brokerage business last year. Lehman says that Barclays failed to disclose that it received an illegal payment of at least $5 billion as part of the asset sale transaction. Barclays says that the asset sale terms were delineated in documents that Lehman executives signed.

Lehman is alleging breach of contract, aiding and abetting breach of fiduciary duty, and several violations of the US bankruptcy code. Lehman is seeking punitive damages, compensatory damages, post-judgment interest, return of excess assets, avoidance of excess asset transfers, disgorgement of ill-gotten gains, and, pursuant to Bankruptcy Code Section 502(d), disallowance of Barclays claims against Lehman Brothers Holdings Inc.

According to the adversary complaint, Lehman and Barclays executives made an agreement that Barclays would buy Lehman’s US brokerage business, key real estate pieces, and related support systems. A bankruptcy court approved the deal.

Now, however, Lehman claims that the Sale Transaction were secretly put together in a manner that gave Barclays a huge, immediate windfall profit: Specifically, an undisclosed $5 billion off the book value of assets that were moved to Barclays and later, the undisclosed transfers of billions of dollars in ‘additional value.’

Barclays, however, says that the $5 billion “discount” is in fact the difference between the $45 billion it paid and the $49.7 billion nominal value of Lehman collateral that Barclays assumed and paid for the Lehman assets.

Related Web Resource:
Read the Lehman Brothers Lawsuit
Continue Reading ›

Edward Jones and Merrill Lynch Brokers Like Where They Work, While UBS Representatives are the Least Happy

Published on: December 11, 2009 | by Shepherd Smith Edwards & Kantas, LLP

According to Registered Rep magazine’s latest Broker Report Card, 98% of Edward Jones brokers say their securities firm is the best place to work. 78% of Merrill Lynch brokers ranked their investment firm as the number the one workplace.

Findings were compiled from Internet surveys taken by 898 captive brokers last October. Other results:

• 73% of Morgan Stanley Smith Barney representatives gave their firm the top spot.

UBS Loses Lehman Arbitration Note Claim by Small Investor

Published on: December 9, 2009 | by Shepherd Smith Edwards & Kantas, LLP

In an arbitration case that could affect numerous cases that are still pending, a Financial Industry Regulation Authority panel awarded a small investor $200,000 after finding that a UBS Financial Services broker acted inappropriately when he sold high-risk Lehman Brothers Holdings Inc. principal-protected notes to the claimant.

The case involving Lehman notes is one of the first to be decided by a FINRA panel. While the ruling won’t establish a precedent, it could be an indication of how similar rulings may go in the future. “There are many cases pending against UBS and other firms that sold Lehman notes shortly before Lehman failed,” said stockbroker fraud attorney William Shepherd, whose firm, securities fraud firm Shepherd Smith Edwards & Kantas LTD LLP, is handling a number of such cases. “These cases often involve misrepresentations and omissions as well as unsuitability, since the investments were sold to clients who sought safety and income,” he added.

The claimant filed the arbitration claim accusing UBS of recommending structured products that are not suitable for “unsophisticated investors.” The broker purchased for the client a $75,000 return optimization note and a $225,000 guaranteed principal protection note. The FINRA panel determined that the claimant should be compensated for the principal protected note, in addition to legal fees and interest.

Although the amount awarded is less than what the investor hoped to recover, a UBS spokesman said the securities firm was disappointed that the claimant was awarded any damages and maintains the investor’s financial losses were a result of the collapse of Lehman Brothers.

Investor Wins Lehman Note Arbitration, Wall Street Journal, December 5, 2009
FINRA awards US investor in Lehman notes $200,000, Reuters, December 5, 2009 Continue Reading ›

SEC Submits Amended Complaint Against Bank of America Over Merrill Lynch Merger and Executive Bonuses

Published on: December 3, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission’s amended complaint regarding the acquisition of Merrill Lynch by Bank of America Corp. last January includes one new assertion. In addition to the SEC’s original allegations against Bank of America, the agency now says that the investment bank was in violation of proxy regulations when it did not provide a merger agreement schedule, as well as a list identifying what would have been included in the schedule.

At the center of the SEC lawsuit is Bank of America’s proxy disclosure to shareholders that it wouldn’t pay year-end bonuses to Merrill executives. Yet, even as Merrill posted a record $27.8 billion loss last year, its executives were paid $3.6 billion.

BofA and the SEC initially attempted to settle the allegations for $33 million. Federal Judge Rakoff, however, wouldn’t sign off on what he considered both a swift resolution to an embarrassing situation for the bank and an attempt to make it appear as if the SEC was engaged in enforcement.

Rakoff accused SEC of not being hard enough on Bank of America, which it is supposed to regulate, even as shareholders suffered. He also accused the defendant of neglecting to take responsibility for its actions, which forced taxpayers to bail out the investment bank. A trial is scheduled to begin on March 1.

The US Congress and New York Attorney General Andrew Cuomo are also investigating the merger between Bank of America and Merrill Lynch.

Throughout the US, our securities fraud law firm represents investors who have suffered financial losses because of broker-dealer misconduct.

Related Web Resources:
SEC’s Amended BofA Complaint: New Claims, but No New Defendants, Law.com, October 23, 2009
Judge Rejects Settlement Over Merrill Bonuses, NY Times, September 15, 2009
SEC Fines Bank Of America $33 Million Over Bonuses, Consumer Affairs, August 3, 2009 Continue Reading ›

Braintree Appeals to Keep Auction-Rate Securities Lawsuit Against Citigroup in Court

Published on: November 28, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Braintree Laboratories Inc. is asking the U.S. Court of Appeals for the First Circuit to keep its auction-rate securities lawsuit against the brokerage division of Citigroup Inc. in court. A federal court had ordered the proceedings into arbitration.

Last April, the pharmaceutical company sued Citigroup for securities fraud, accusing the investment bank of misrepresenting $33.2 million in ARS as “liquid,” government-supported “money market” investments that could be sold following seven days notice when Citigroup allegedly knew that the investments were auction-rate securities that were illiquid, subject to failed auctions, and not redeemable until 2030.

Braintree also contends that Citigroup used misleading and false descriptions to prevent clients and regulators from finding out that it was still selling these “toxic instruments.” The pharmaceutical company is accusing Citigroup of destroying key evidence related to the alleged fraud.

Braintree purchased the ARS from Citigroup between June and August ’08. The ARS market froze in early 2008.

Citigroup has agreed to give back $7.5 billion to individual clients, charities, and small businesses that suffered ARS losses when the market collapsed. The broker-dealer is also promising to put its best efforts toward liquidating some $12 million in ARS that were purchased by institutional investors, including retirement plans, by the end of 2009.

As Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Lawyer William Shepherd points out, “Most securities firms have agreed to repurchase Auction Rate Securities from smaller investors, but our firm is representing many large investors who remain in ‘ARS limbo.’ It is very important for these investors to hire skilled attorneys to protect their rights before time limits expire to take action! We have found many firms are dragging out discussions with investors but only paying those who take legal action.”

Related Web Resources:
ARS Investor Fights To Keep Citigroup In Court, Law 360, November 11, 2009
Citi sued over auction-rate securities, Reuters, April 17, 2009 Continue Reading ›

FINRA Bars Former Piper Jaffray & Co. Broker from Industry for Insider Trading

Published on: November 25, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring a former Piper Jaffray & Co. broker from the securities industry. The broker was accused of insider trading. He has agreed to the ban and has settled the FINRA charges without denying or admitting wrongdoing.

From 2007 until this July, the broker worked in Piper Jaffray & Co.’s investment banking department. Piper Jaffray was the confidential adviser of SoftBrands while the company considered potential buyers. Those at the advisory firm with access to information about the acquision were not allowed to buy SoftBrands shares. Yet on June 4 and 5, this broker bought 27,161 SoftBrands shares. On June 12, when SoftBrands announced its acquisition by Golden Gate Capital and Infor Global Solutions-an $80 million transaction. SoftBrands’s stock price almost doubled.

The shares at issue, previously bought at $.42 and.$.45 per share, were then sold at $.89 per share resulting in a profit of $11,955 on the transactions.