Financial Firms

Bank of America Agrees to settle SEC Charges of Merrill Lynch Bonuses for $33 Million But Judge Blocks Settlement

Published on: August 6, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Although Bank of America has agreed to settle charges by the Securities and Exchange Commission that the broker-dealer misled investors about Merrill Lynch bonuses worth billions of dollars, a federal judge is withholding approval for the $33 million penalty. The U.S. District Court for the Southern District of New York Judge Jed S. Rakoff has scheduled a hearing for Monday to discuss the matter.

Without denying or admitting to the charges, Bank of America had consented to pay the amount. The SEC has accused Bank of America of failing to notify investors about plans to pay top Merrill executives $5.8 billion in bonuses for the 2008 fiscal year. Regulators say that instead, the brokerage firm told investors that year-end performance bonuses were not going to be given out.

It wasn’t until February when New York State Attorney Attorney General Andrew Cuomo accused Merrill Lynch of secretly issuing the rewards to its executives before its merger with Bank of America that news of the bonuses was revealed. Investigators also found out Merrill had bumped up the date of its end-of-year bonus payments and that Bank of America had let Merrill pay the bonuses to its executives.

Scott Silvestri, a Bank of America spokesperson, says the settlement is a “constructive conclusion” to the dispute. The SEC’s charges against Bank of America is the first case that the federal government has brought against a financial firm that has been closely linked to the ongoing financial crisis.

There are, however, critics who are not satisified with the settlement. The Washington Post quotes Rep. Dennis J. Kucinich (D-Ohio) of criticizing the settlement amount. The head of the House Oversight and Government Reform subcommittee noted that it pays in America to commit a corporate crime. Former SEC chief accountant Lynn Turner expressed disappointment that no executives were charged with any wrongdoing.

Bank of America has complained that federal regulators pressured the broker-dealer to make the deal with Merrill, which was in financial trouble at the time.

Related Web Resources:
Judge Blocks BoA Settlement, Washington Post, August 6, 2009
Judge raps $33m bank bonus fine, BBC, August 6, 2009
Bank of America Pays $33 Million to Settle Merrill Bonus Charges, Washington Post, August 4, 2009 Continue Reading ›

Next Financial Ordered to Pay One Million Dollars for Supervisory Deficiencies that Led to Texas Securities Fraud

Published on: August 4, 2009 | by Shepherd Smith Edwards & Kantas, LLP

FINRA says NEXT Financial Group Inc. has agreed to a one million dollar fine for its alleged failure to properly supervise a number of client accounts and over 100 office of supervisory jurisdiction (OSJ) branch managers. The managers are in charge of overseeing sales and trading activities for branches and brokers. As a result of the alleged inadequate supervision, FINRA says that broker misconduct was able to take place, resulting in Texas securities fraud.

FINRA charges that between 1/05 and 11/06, the broker-dealer allowed its OSJ branch managers supervise to themselves. Even when NEXT Financial Group implemented a new Regional Manager supervisory system, FINRA says that this too continued to prove unreasonable for at least another year. Each month, three regional managers who were unable to adequately access client suitability data were in charge of reviewing thousands of transactions.

FINRA mandates that firms appoint at least one principal to set up, maintain, supervise, and enforce “a system of supervisory control policies and procedures.” FINRA says that because of Next Financial’s inadequate procedures and policies, the broker-dealer failed to notice that excessive markdowns and markups on corporate bond trades and the churning of customer accounts were taking place. Investors ended up losing some $768,000, FINRA contends. The funds have been reimbursed.

NEXT Financial Group’s former chief operating officer and chief compliance officer Karen Eyster has agreed to sanctions for failing to fulfill her obligations as a supervisor. FINRA fined her $35,000. She also has to undergo 15 hours of supervisory training and serve a 2-month suspension as a principal.

Also, FINRA says that the broker-dealer’s systems and procedures regarding variable annuity exchanges were unreasonable and did not give enough guidance about what needed to be looked at when making variable annuity exchange recommendations to clients.

By agreeing to settle, the broker-dealer and Eyster are not admitting to or denying the charges that FINRA has made against them.

Related Web Resources:
FINRA Fines NEXT Financial Group $1 Million for Supervisory Failures That Led to Churning of Customer Accounts, Excessive Commissions, FINRA, July 22, 2009
NEXT fined $1 million for churning accounts, Chron.com, July 22, 2009 Continue Reading ›

FINRA Permanently Bars Former Broker for Stifel, Nicolaus & Co. Inc and AXA Advisors For Ponzi Scheme

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

The Financial Industry Regulatory Authority has permanently barred a former Stifel, Nicolaus & Co. Inc. and AXA Advisors broker from operating. Kenneth George Neely has admitted to running a ponzi scheme involving clients of both broker-dealers, as well as friends, family members, and fellow church members.

According to federal regulators, Neely acted fraudulently when he induced at least 25 clients to take part in the “St. Louis Investment Club” and invest in “St Charles REIT. Both the investment club and the real estate investment trust are bogus.

To cover up the Ponzi scheme, Neely had investors issue payments to his wife in $2,000 and $3,000 increments so that banks wouldn’t get suspicious when funds were turned into cash. He also created bogus invoices that looked like official ownership certificates for REIT purchases. These certificates listed names of a “President” and a “Secretary” who were both fictitious. Neely promised investors that their investments would be taken care of.

For example, he promised one friend a high return rate on a bogus St. Charles REIT investment. The friend had invested $154,000. Neely would end up returning $10,000 to this person and using the rest of the funds to pay for some of his own personal expenses and debt.

He also persuaded a fellow church member to invest $35,000. He promised a 5% return rate. Small interest payments later dried up and Neely used the balance for his personal spending.

Neely improperly utilized over $600,000 of his investors’ assets. He converted over half the amount to his own use and returned about $300,000 to some investors.

It wasn’t until FINRA spoke with the St. Louis broker about his bogus real estate investment trust that he stopped collecting funds. AXA terminated his employment after he admitted what he’d done to FINRA.

FINRA enforcement chief Susan Merrill says that it is disturbing that in addition to taking advantage of clients at the brokerage firms where he’d worked, Neely also exploited relatives, friends, and acquaintances and took their “hard-earned savings.”

FINRA Permanently Bars Broker Operating Ponzi Scheme Involving Customers of Broker-Dealers, FINRA, July 27, 2009
Former AXA broker barred by FINRA for Ponzi scheme, Reuters, July 27, 2009 Continue Reading ›

Ex-Credit Suisse Broker Who Pleaded Guilty to Securities Fraud for Role in Auction-Rate Securities Scam Knew in Late 2007 that Clients’ Funds Were in Trouble

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

Julian T. Tzolov, a former Credit Suisse Securities (USA) LLC broker, has pleaded guilty to fraud charges over his involvement in an auction-rate securities scheme involving hundreds of millions of dollars. Tzolov, 36, is accused taking investor funds and placing them in high-risk ARS rather than government-backed conservative instruments.

In April, Tzolov was charged with wire fraud, conspiracy to commit securities fraud, and securities fraud. Tzolov and another man, Eric Butler, are accused of as early as November 2003 soliciting funds from companies to invest in ARS. Tzolov allegedly told potential clients that he would be investing their money in government-backed ARS. Instead, the former Credit Suisse broker placed the investors’ money in ARS that were connected to riskier, collateralized debt obligations. He is also accused of falsifying the names of products that investors bought to make it look as if they were purchasing conservative instruments, rather than CDO-ARS.

When the CDO-ARS market fell in late 2007, Tzolov was unable to sell the securities and repay clients who were demanding their returns. This incident is further evidence that broker-dealers and brokers knew before February 2008 that investors and their money were in trouble.

Tzlolov’s conviction is the first one connected to the ARS market. His sentencing is scheduled for October. Tzolov was captured earlier this month after he fled the US in May while under house arrest. He could end up serving 20 years in prison for each fraud count.

Ex-Broker Pleads in Auction-Rate Case, WSJ, July 23, 2009
Julian Tzolov, Ex-Credit Suisse Broker, Target Of International Manhunt, The Huffington Post, June 5, 2009 Continue Reading ›

Morgan Stanley to Pay $500,000 to Resolve SEC Charges that it Recommended Unapproved Money Managers to Clients

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

Morgan Stanley & Co. Inc. has consented to pay half a million dollars to settle Securities and Exchange Commission charges that it recommended unapproved money managers to clients. The SEC claims the broker-dealer breached its fiduciary duty to Nashville advisory clients when it made material misstatements about a program designed to help clients choose money managers who were “properly vetted,” as well as assist them in developing investment goals.

Instead, the SEC claims that Morgan Stanley suggested money managers who were not approved to take part in the broker-dealer’s advisory programs and did not undergo the firm’s due diligence process. The SEC says that it was specifically William Phillips, a former Morgan Stanley broker based in Tennessee, who guided clients to three managers who were “unapproved.”

The clients were not told that the managers gave Morgan Stanley and Phillips significant fees or commissions of at least $3.3 million. The alleged incidents took place from 2000 to through early 2006.

Meantime, Phillips is contesting the charges against him and Is denying that he engaged in any impropriety. Phillips’s attorney claims the SEC is not alleging antifraud violations and that the allegations did not stem from any client complaints.

By agreeing to settle, Morgan Stanley is not admitting to or denying the allegations. The broker-dealer, however, did agree to cease and desist from violations in the future.

Scott Friestad, the SEC’s Associate Enforcement Director, recently noted that it is the job of investment advisers to put investors’ interests before their own and to give clients accurate and complete information at all times.

Related Web Resources:
Morgan Stanley paying $500,000 to settle SEC charges of misleading clients in Nashville, Newser.com, July 27, 2009
SEC Charges Morgan Stanley and Former Adviser with Misleading Clients, SEC, July 20, 2009

Related Web Resources:
Read the SEC’s Order against Morgan Stanley (PDF)

Read the SEC’s Order Against Phillips (PDF)
Continue Reading ›

Provident Royalties Faces $485 Million Texas Securities Fraud, Says SEC

Published on: July 26, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has charged Provident Royalties, LLC, Provident Asset Management LLC, and founders Brendan Coughlin, Paul Melbye, and Henry Harrison with Texas securities fraud over their alleged involvement in a $485 million investment scam. The SEC claims the defendants used the ponzi scheme to defraud thousands of natural gas and oil investors.

According to the SEC civil complaint, Provident allegedly made a series of fraudulent offerings of limited partnership interests and preferred stock from at least June 2006 through January 2009 and persuaded about 7,700 US investors to invest half a billion dollars. The Texas-based firm allegedly promised yearly returns of more than 18% and misrepresented the way the funds were going to be used. The SEC is also accusing broker-dealer Provident Asset Management, LLC of making direct retail securities sales, as well as soliciting unaffiliated retail broker-dealers to submit placement agreements for each offering.

The SEC contends that investors thought that 86% of the funds would be used in gas and oil investments, mineral rights, leases, exploration, and development. While less than 50% of the investors’ funds were actually used to acquire and develop gas and oil exploration, the SEC claims the other funds were used to pay previous investors of Provident Royalties.

Coughlin, Harrison, and Melbye have been charged with orchestrating the ponzi scam. Also named in the SEC complaint are the 21 entities that sold securities to investors.

The SEC is charging the defendants with violating the Securities Exchange Act of 1934, Rule 10b-5 thereunder, and the Securities Act of 1933. The SEC is seeking preliminary and permanent injunctions, a temporary restraining order, financial penalties, and disgorgement of ill-gotten gains in addition to prejudgment interest. An emergency freeze on the assets has been issued and a receiver has been appointed.

Related Web Resources:
SEC Obtains Asset Freeze in $485 Million Nationwide Offering Fraud, SEC, July 7, 2009
Read the SEC Complaint (PDF)
Continue Reading ›

SSEK Looks Into Securities Fraud Claims for Richard Buswell and Brookstone Securities Clients Over Private Placement Units Sales in Advanced Blast Protection

Published on: July 23, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Our securities fraud lawyers are investigating claims for clients of Richard Buswell and Brookstone Securities over private placement units sales in Advanced Blast Protection, as well as charges that clients received unsuitable recommendations.

The Financial Industry Regulatory Authority has made public records noting that Brookstone Securities terminated Buswell’s employment this year in the wake of investigations involving allegations of fraud, unsuitability, failure to disclose complaints, churning, and other “disclosable matters” that may be “outstanding.” Buswell’s employment termination was reportedly punitive.

Some investors say they lost their retirement because Buswell gave them the wrong advice and defrauded them. He is also accused of overstating potential earnings for clients, convincing some of them to invest in companies that would give him commissions, and in some cases was given higher commissions than expected. Buswell is also accused of making high risk investments for investors who would have been better off making more conservative to moderate moves.

Investors have also filed complaints against Buswell over the sale and marketing of private placement units in Advanced Blast Protection. ABP is based in South Florida. The company’s clients were supposed to receive principal payments this year but ABP defaulted. As a result, investors were left with illiquid investments.

Please contact Shepherd Smith Edwards & Kantas LTD LLP if you bought ABP private placement or were an investor client of Brookstone and Buswell.

Related Web Resources:
Investors sue advisers, 2TheAdvocate.com, May 15, 2009
FINRA
Continue Reading ›

Stockbroker Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP Files Claims Against Morgan Keegan Following SEC Wells Notice

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

Last week, the Staff of the Atlanta Regional Office of the US Securities and Exchange Commission sent Morgan Keegan & Co, Inc., Morgan Asset Management, Inc., and three employees a “Wells” notice. The notice stated the Staff’s intention to recommend that the Commission bring enforcement actions over possible federal securities laws violations. Morgan Keegan, is a subsidiary of Regions Financial Corporation.

The Staff had been investigating a number of mutual funds that Morgan Asset Management had previously managed. In light of the Wells notice, the securities fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP is continuing to file arbitration claims against Morgan Keegan for covering up the risks associated with their bond funds.

Our investor clients are accusing Morgan Keegan of selling specific funds that it promoted as relatively conservative investments when in fact, the funds were exposed to subprime mortgage securities, collateral debt obligations, and other high risk debt instruments. Investors are alleging that Morgan Keegan took part in a scam that defrauded investors of certain bond funds while misrepresenting their degree of involvement in more high risk investments. As a result, our investor clients suffered major financial losses after the subprime mortgage market collapsed.

Ameriprise Must Pay $17 Million for REIT Fraud

Published on: July 12, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission says Ameriprise Financial Services has consented to pay $17.3 million to settle allegations that it received millions of dollars in undisclosed compensation in exchange for selling certain REITs (real estate investment trusts) to its brokerage customers.

The SEC says Ameriprise demanded and got “revenue sharing” payments to sell the REITs but neglected to disclose it was receiving the payments. The SEC is also accusing Ameriprise of violating a number of federal securities laws when it sold over $100 million in unregistered shares involving one specific REIT.

SEC Enforcement Director Robert Khumazi says the broker-dealer’s clients were not told that brokers had incentives to sell the REITs. He stressed the importance of investors being able to rely on unbiased advice from financial advisers.

The SEC charges come from REITs sales that took place between 2000 and May 2004. CNL Holdings Group, Inc. and W.P. Carey & Co. LLC created, advised, and managed the REITs named in the proceedings.

By agreeing to settle, Ameriprise is not admitting to or denying wrongdoing.

Shepherd Smith Edwards & Kantas LTD LLP represents Ameriprise investors with securities fraud cases against the broker-dealer. Stockbroker fraud attorney and firm founder William Shepherd says “Our law firm handles claims of all types for investors nationwide who lost in accounts at Ameriprise and other financial firms. Over 90% of our clients recover all or part of their losses. It is sad that many investors choose not to seek recovery from investment firms that commit fraud or and other wrongdoing. We offer a free consultation and most of our clients advance no fees or costs but instead pay these out of their recovery.”

Related Web Resources:
Ameriprise Pays $17.3M To Settle SEC Charges, Wall Street Journal, July 10, 2009
REITs, Investopedia Continue Reading ›

Morgan Stanley Plan to Repackage Low-Grade Debt Obligations Then Sell These as Low-risk AAA Bonds is “Preposturous,” Says Stockbroker Fraud Lawyer Bill Shepherd

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

Morgan Stanley is taking low grade collateralized debt obligations, repackaging these in into new pooled securities and obtaining questionable AAA ratings. The broker-dealer plans to sell $130 million CDO’s this way in a manner similar to the way banks have been dealing with commercial mortgage-backed securities. The repackaged CDO is to a great expent a copy of a CDO put together by Goldman Sachs Group in 2007 using bonds from Greywolf CLO I Ltd.

$87.1 million of securities are expected to receive the AAA rating-the offering is 89 cents on the dollar-the second portion is $42.9 million of securities that Moody’s Investors Service have rated Baa2.

According to Sylvain Raynes, an R&R Consulting principal, many insurers and banks can only buy AAA. She says that by making AAA out of not AAA, people with AAA “on their forehead” can purchase.