Financial Firms

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.

JP Morgan Chase to Pay $75 Million in Penalties and Forfeit $647 Million to Settle SEC Charges Over Alleged Municipal Bond Payment Scam

Published on: November 16, 2009 | by Shepherd Smith Edwards & Kantas, LLP

JP Morgan Chase has settled Securities and Exchange Commission charges that the securities firm was allegedly involved in an illegal payment scam to get municipal securities business from Jefferson County, Alabama. As part of its settlement with the SEC, JP Morgan Chase agreed to pay penalties of $75 million and forfeit $647 million in termination fees that it says the county owes. JP Morgan Securities will also pay Jefferson County $50 million, as well as a $25 million penalty. By agreeing to settle, the securities firm is not admitting to or denying the commission’s charges.

The SEC had accused JP Morgan Securities and former managing directors Douglas MacFaddin and Charles LeCroy of making over $8 million in undisclosed payments to friends of certain Jefferson County commissioners. These friends either worked for or owned broker-dealers in the area. The SEC says that these payments led to the commissioners voting for JP Morgan Securities as its managing underwriter of bond offerings. They also voted for JP Morgan Securities’s affiliated bank as the transactions’ swap provider.

The SEC claims JP Morgan Securities charged Jefferson County higher interest rates on swap transactions. This allowed it to pass on the unlawful payments’ costs. According to Robert Khuzami, SEC Enforcement Director, senior bankers with JP Morgan made illegal payments to earn fees and garner business.

The SEC has filed a civil lawsuit against LeCroy and Macfaddin. The SEC is accusing the two men of committing securities fraud for allegedly directing the illegal payments to the Jefferson County commissioners’ associates.

The commission claims the two men knew that the transactions, which occurred between October 2002 and November 2003, were “sham transactions.” The SEC says the men’s failure to disclose these payments or related “conflicts of interest” to either Jefferson County or bond offering investors or the county in the challenged swap agreements deprived those involved of swap agreement negotiations and bond underwriting processes that were impartial and objective. The SEC is seeking disgorgement plus prejudgment interest and permanent injunctions against the two men.

Related Web Resources:
JPMorgan to Pay $75 Million in Alabama Case, NY Times, November 4, 2009
Read the civil complaint (PDF)

Read the administrative complaint (PDF)
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Stifel Financial Corp. Sees 73% 3rd Quarter Earnings Rise and Completes Purchase of 56 UBS Financial Services Inc. Branches

Published on: November 13, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Even as Stifel Financial Corp. continues to deal with securities fraud lawsuits and claims accusing the broker-dealer of misrepresenting the risks associated with investing in auction-rate securities, the company exhibited a 73% increase in 3rd quarter earnings due to a growth in transaction revenue.

Its profit posted at $22.1 million, an increase from earlier this year when it’s posted profit was $12.8 million. Net revenue hit $289.7 million-a 32% increase. Principal transaction revenue went up 81%, hitting $123.2 million. Commissions went up to $90.9 million-that’s a 2.5% increase.

Stifel has been working to turn its business into a full-service investment bank and its subsidiary, Stifel, Nicolaus, & Co., recently completed its buy of 56 UBS Financial Services Inc. branches, which it purchased for at least $46 million. Stifel says the deal should increase the company’s earnings within the first year.

Securities America & Ameriprise Financial Inc. Sued For Selling Allegedly Faulty Private Settlements

Published on: November 10, 2009 | by Shepherd Smith Edwards & Kantas, LLP

A securities fraud lawsuit filed in federal court is suing Securities America and parent company Ameriprise Financial Inc. for selling allegedly faulty private placement offerings even after W. Thomas Cross, a Securities America executive, expressed concerns that the sales could result in a “panicked run on the bank.” The lawsuit’s plaintiff, Florida resident Ilene Grossbard, invested $112,000 in Medical Capital’s fifth deal in March and April. The complaint may become a class action lawsuit.

According to the complaint, Securities America advisers was still selling Medical Capital securities in the form of notes worth hundreds of millions of dollars in October of last year. Securities America, however, is discounting the claim that the company’ advisers continued selling the Med Cap notes even after Cross voiced his concerns.

Last July, the SEC charged Medical Capital Holdings with securities fraud over the sale of $77 million in private securities as notes. Now, a court receiver is questioning the worth of the medical receivables’ holding company. The company has raised $2.2 billion from investors.

Stifel, Nicolaus & Co. and AXA Advisors Broker Charged in Ponzi Scheme Victimizing Church Members

Published on: November 5, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Former Stifel, Nicolaus & Co. and AXA Advisors broker Kenneth Neely has pled guilty to one count of mail fraud for setting up a Ponzi scheme that targeted at least 16 investors. Yesterday, Missouri Secretary of State Robin Carnahan announced that she has shut down the scam.

The 56-year-old St. Peters, Missouri broker got his clients to invest in a bogus St. Charles real estate investment trust. He promised high return rates and “no risk,” raising over $640,000 in investor funds. Federal prosecutors say clients paid about $3,000/share or unit.

At the time Neely was committing securities fraud (from 2001 – July 2009) he worked for broker dealers AXA Advisors and Stifel, Nicolaus & Co. He told clients to make checks payable to him and his wife.

Missouri Securities Law makes it illegal for a broker to “sell away,” which involves selling investments off a firm’s books.

Neely has 30 days to respond to Missouri’s cease-and-desist order. Federal brokers have barred him from working as a broker. Investor victims that lost some $400,000 included people that belonged to his church, friends, relatives, and acquaintances. Some people lost their savings because of the Ponzi scheme. Nealy used some of the money to pay for his personal expenses and debt.

Neely’s sentencing is scheduled for January 2010. He faces up to 20 years in prison, restitution, and up to $250,000 in fines.

Related Web Resources:
Carnahan Uncovers Ponzi Scheme in Saint Charles, SOS.Mo.Gov, November 4, 2009
St. Peters broker admits Ponzi scheme, St. Louis Business Journal, November 4, 2009
FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme, Stockbroker Fraud Blog, August 3, 2009 Continue Reading ›

Scottrade Fined $600,000 by FINRA for Inadequate Anti-Money Laundering Program

Published on: October 30, 2009 | by Shepherd Smith Edwards & Kantas, LLP

This week, the Financial Industry Regulatory Authority announced that it is fining Scottrade $600,000 for failing to put into place and work with an adequate anti-money laundering program that would have allowed it to identify and report suspect transactions. FINRA says that by failing to meet this requirement, Scottrade violated the Bank Secrecy Act and FINRA rules.

According to FINRA, each broker-dealer must have its own anti-money laundering procedures, policies, and controls that are customized to its business model. FINRA says that between April 2003 and April 2008, Scottrade neglected to implement an AML program that did this. Scottrade’s business model is primarily online.

Scottrade was handling about 49,000 trades daily in 2003. By 2007, the brokerage firm was handling some 150,000 trades a day.

FINRA says that the brokerage firm’s online business model and growing trade volume increased the chances of hacking, identity theft, money laundering, and securities law violations. Yet, according to FINRA Enforcement chief and executive vice president Susan Merrill, Scottrade did not even have an automatic or systematic surveillance system in place until January 2005-and she says the new system proved inadequate. Before then, Scottrade used a manual system for monitoring accounts and relied on cashiering, branch, and margin employees to identify and report possibly suspect activity.

FINRA also says that the brokerage firm’s AML procedures did not provide adequate written guidelines for employees on how to identify when a transaction was suspicious. Its AML analysts also allegedly did not receive sufficient written guidelines on detecting and probing possibly suspect trade activity.

Scottrade is not agreeing to or denying the allegations. However, the brokerage firm has agreed to an entry of FINRA’s findings. A Scottrade spokesperson says enhancements to the broker-dealer’s anti-money laundering program have now been made.

Related Web Resources:
Scottrade Fined $600,000 for Inadequate Anti-Money Laundering Program, FINRA, October 26, 2009
Anti-Money Laundering (AML) Source Tool for Broker-Dealers, SEC
The Bank Secrecy Act, IRS.gov Continue Reading ›

Citigroup, AK Capital, National Financial Services, and Tradestation Fined and Censured by NYSER Over Trade Violations

Published on: October 29, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The New York Stock Exchange Regulation Inc. has censured and fined four firms for trade violations. The four investment firms, Citigroup, AK Capital, National Financial Services, and Tradestation, agreed to the censures and fines but did not admit to or deny wrongdoing.

According to NYSER:

• Citigroup Global Markets Inc. allegedly cancelled 365 market-on-close (MOC) orders after the cutoff time at 3:40 ET on four 2007 trade dates and submitted, between December 9 2008 and January 5, 2009, 12,480 limited-on-close (LOC) orders after the cutoff time on 18 trade dates. Citigroup was ordered to pay a $150,000 fine.

• National Financial Services, LLC employees allegedly engaged in wrongdoing related to LOC and MOC orders it made on eight trade dates between 2006 and 2008. NFS also allegedly neglected to properly supervise these employees. The firm agreed to a $75,000 fine.

• Tradestation allegedly failed to oversee and put into place adequate internal compliance controls, took part in conduct not in line with the fair and equitable trade principals involving odd-lot orders, and neglected to find out necessary facts about certain orders and clients. Tradestation agreed to a $100,000 fine.

• AK Capital allegedly failed to use background checks on employees, failed to set up written policies designed to prevent the misuse of material nonpublic data, and failed to review trade confirmations and certain clients’ monthly account statements. The NYSE Arca options-trader registrant also allegedly neglected to keep records and books that accurately showed all liabilities, assets, capital accounts, and income expenses. The firm agreed to a $20,000 fine.

Related Web Resource:
Monthly Disciplinary Actions – October 2009, NYSE Regulation Continue Reading ›

Morgan Keegan Again Ordered by Arbitrators to Pay Bond Fund Losses to Investors

Published on: October 27, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Keegan & Co. has been ordered to pay $51,000 to Larry and Diane Papasan. Larry Papasan is Memphis Light, Gas and Water Division’s former president.

The Papasans filed their arbitration claim against Morgan Keegan last year after they lost about $80,000 in the account they had with the investment firm. The Papasans’ claim is one of many arbitration cases and securities fraud lawsuits filed by Morgan Keegan investors who sustained RMK fund losses. The general accusation is that the broker-dealer misrepresented the volatility of the bond funds, which they allegedly were not managing conservatively.

Larry Papasan, who is retired, opened his account because he knew John Wilfong, a former Morgan Keegan financial adviser. Wilfong felt so confident about the bond funds that he even sold them to his mother, Joyce Wilfong, who also went on to suffer financial losses from her investment. Her friend Maxine Street also suffered bond fund losses.

The two women filed a joint arbitration claim against Morgan Keegan. Joyce was awarded $68,000, while Street settled for an undisclosed sum.

According to the Papasans, John Wilfong spoke with Jim Kelsoe, the RMK funds’ manager, prior to leaving Morgan Keegan for UBS. Kelsoe allegedly told Wilfong not to liquidate because the funds were safe. The Morgan Keegan fund manager is named in other cases for allegedly failing to disclose the risks associated with the mutual fund investments.

Related Web Resources:
Latest RMK Award Goes to Ex- MLGW Head, Memphis Daily News, October 27, 2009
Two Morgan Keegan Funds Crash and Burn, Kiplinger, December 2007 Continue Reading ›

JP Morgan to Repurchase $480 Million in ARS from Michigan Investors

Published on: October 24, 2009 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Chase & Co. is offering to repurchase $480 million in auction-rate securities from investors in Michigan. The full buybacks are for investors who bought ARS between 2006 and early 2008. JPMorgan’s offer is part of a settlement that it reached with the Michigan Office of Financial and Insurance Regulation.

The broker-dealer is also paying the state of Michigan $664,000 to settle allegations that it misled clients into thinking that the ARS they were buying were liquid like cash. 90% of the settlement went to the state’s general fund, while 10% was deposited in the OFIR’s Michigan Investor Protection Trust.

OFIR also reached similar agreements with Citigroup, Banc of America Securities, Merrill Lynch, Comerica, and Wachovia. The state of Michigan has negotiated over $3.5 billion in payments for investors and received over $6.5 million.

Many investors were caught off guard when their ARS accounts froze after the market collapsed. Many broker-dealers were accused of misleading clients and making it seem as if auction-rate securities were as liquid as cash.

Michigan is not the first state that JPMorgan Chase & Co. has settled with over allegations that it misled clients about ARS. In August 2008, JP Morgan Chase, along with Morgan Stanley, agreed to give back more than $7 billion to ARS investors as part of the settlement they reached with New York State Attorney General Andrew M. Cuomo.

Related Web Resources:
OFIR Announces $480 Million Auction Rate Securities Settlement with JPMorgan Chase, MichNews.org, October 8, 2009
Cuomo Settles JP Morgan, Morgan Stanley ARS Claims, CFO, August 14, 2008
Michigan Office of Financial and Insurance Regulation
Continue Reading ›

Two Dresdner Kleinwort Traders Censured for Market Abuse by UK’s FSA

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

Two Dresdner Kleinwort traders were censured for market abuse by the United Kingdom’s Financial Services Authority. According to the FSA, Darren Morton had access to inside information about a possible new issue of Barclays floating-rate bonds in March 2007 that would offer more favorable terms than the last issue.

The FSA says that Morton shared what he knew with trader Christopher Perry and the two men sold the whole holding of the previous issue held by K2, a Dresdner investment vehicle with a portfolio containing $65 million of Barclay’s FRNs. That same day, a new issue was announced, and counterparties that bought the bonds from K2 lost some $66,000.

Rather than accept the FSA’s offer to settle and receive a fine and/or penalty at a lower amount, the two men took their case to the FSA’s tribunal authority. The regulatory committee found that the two men did not realize that they were engaging in market abuse.

While the two men were censured, they were not fined and their right to work was not challenged. The FSA cited a number of factors to explain the sanction chosen:

• The two did not make money personally from the trade.
• They have undergone market abuse training.
• No one gave them proper guidance.
• Their compliance and disciplinary records are clean.

FSA enforcement director Margaret Cole, however, noted that insider dealing is cheating regardless of the market. She promised that future offenders will be slapped with harsher sanctions.

Related Web Resources:
The FSA and the intriguing case of Dresdner Kleinwort bond managers, Guardian.co.UK, October 7, 2009
SA censures Dresdner traders over market abuse, MarketWatch, October 7, 2009
Financial Services Authority
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