Financial Firms

Wachovia Securities LLC Sued For Alleged Fraud Involving the Sale of Le Nature’s Senior Subordinated Notes

Published on: May 9, 2008 | by Shepherd Smith Edwards & Kantas, LLP

In Los Angeles Superior Court, a number of life insurance companies, mutual funds, retirement systems, and other investors are suing Wachovia Securities LLC for alleged fraud related to the sale of senior subordinated notes for beverage maker Le Nature’s Inc. The Pennsylvania-based company filed for bankruptcy in 2006.

Causes of action include fraud, negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement. California Public Employees’ Retirement System (CalPERS) and the Nature Conservancy are among the scores of plaintiffs.

The plaintiffs are accusing Wachovia of knowing about the fraud and financial problems at Le Nature’s but keeping this information from investors so that the beverage company would keep paying the firm substantial fees. They say the lack of disclosure also helped Wachovia’s high-yield debt business.

Ex-Southwest Brokers Found Liable for Concealing Market Timing Trades

Published on: April 30, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Northern District of Texas says that two ex-Southwest Securities Inc. brokers acted fraudulently when they purposely tried to circumvent policies designed to prevent market timing trades. The Securities and Exchange Commission had brought the case against the two men.

The brokers were aleged to have violated Act’s Section 10(b) and Rule 10b-5.

The court also found one culpable under the act’s antifraud provisions and ordered him to disgorge $56,640.67 in commissions. The court also ordered a $50,000 civil penalty and granted the SEC’s request for injunctive relief.

AARP Financial Inc. Survey Says Investors Find Financial Lingo “Technical and Confusing”

Published on: April 28, 2008 | by Shepherd Smith Edwards & Kantas, LLP

An AARP Financial Inc. survey says that many U.S. investors make investment errors and miss out on opportunities to invest because they find financial jargon confusing, technical, and hard to understand. GfK Custom Research North America of New York interviewed 1,203 adults by phone for the survey.

Findings included:

*Over 52% of respondents said they made an investment mistake because they did not understand or were confused about the investment.

Schwab YieldPlus Fund Investors File Securities Class Action Lawsuit Alleging Marketing Misrepresentation in Funds’ Offering Documents

Published on: April 15, 2008 | by Shepherd Smith Edwards & Kantas, LLP

A class action law suit has been filed on behalf of those who bought Schwab YieldPlus Investor Funds Investor Shares and Schwab YieldPlus Funds Select Shares against the Schwab Corporation, the underwriter and investment adviser connected to the funds, and several Schwab officers and directors. However, many smart investors are instead seeking greater recovery by filing their own cases.

The investor plaintiffs in the class action claim the defendants misled them when they provided false statements about the funds’ lack of diversification and the degree to which the funds were exposed to subprime-backed securities. The plaintiffs say that the funds-marketed as a safe alternative to money market funds-actually had more than half of its fund assets invested in the mortgage industry.

The funds are down significantly. Through March 26, The Schwab YieldPlus Investor Fund (SWYPX) has fallen 17% , while the Schwab California Tax-Free YieldPlus Fund (SWYCX) has dropped by 9% . Investors say that the defendants were in violation of Section 11 of the Securities Act of 1933 when they misrepresented the funds to investors, marketing them with the goal of looking for high current income coupled with minimum share price changes.

Wachovia Securities Analyst Comments on Bear Stearns’ Sale and Calls Merrill Lynch the “Riskiest” Investment Bank

Published on: March 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

In a note to investors, Wachovia Securities Analyst Doug Sipkin commented on the state of the leading Wall Street securities firms in light of the worsening global credit crisis.

Sipkin blamed the “The failure of Bear Stearns” on a “management issue” rather than a “market issue.” JP Morgan Chase & Co. recently purchased Bear Stearns, the fifth largest securities company, for $236 million-that’s $2/share-a 90% market drop in just two days. The securities firm ran out of money after clients took away funds.

Sipkin, however, reassured investors that the action taken by the Federal Reserve to reduce emergency lending rates will keep the other four big securities firms in business.

A.G. Edwards & Sons Stockbrokers Ordered to Pay $750,000 Fine for Market-Timing Scam

Published on: March 16, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Three A.G. Edwards & Sons Inc. brokers are being ordered to pay $750,000 in fines for their participation in a market-timing scam that involved mutual funds that benefited certain customers.

The brokers, Thomas Bridge, James Edge, and Jeffrey Robles, were also ordered to serve suspensions from the securities industries. Bridge, a former registered representative in the firm’s Boca Raton, Florida office, must also disgorge $39,808.53. Edge was the branch manager at the same office. Robles worked as a branch manager at Edwards’ Back Bay office.

Securities and Exchange Commission Chief Administrative Law Judge Brenda Murray ordered the sanctions. The market-timing scam occurred from the Edwards’ branch offices in Lake Worth, Boca Raton, and Boston.

Countrywide Financial, Merrill Lynch, and Citigroup Executives Defend Their Hefty Compensations Following Subprime Mortgage Crisis

Published on: March 12, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Appearing before the U.S. Congress last week, Countrywide Financial CEO and founder Angelo Mozilo, Ex-Citigroup CEO Charles Prince, and Ex-Merrill Lynch Chairman and CEO Stanley O’Neil gave their testimonies to the House Committee on Government and Oversight Reform.

The three men say that reports about their compensation are “grossly exaggerated” and that they too have lost millions of dollars from the mortgage debacle. On Thursday, the Congressional issued a report stating that the three men earned $460 million between 2002 and 2006.

All three men say their income from the firms are tied to the profits that the companies made in the years prior to the mortgage crisis and that their company stock has dropped dramatically since then.

Fidelity To Pay $8 Million Fine To Settle SEC Charges Regarding Traders’ Improper Gift Taking

Published on: March 6, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Fidelity Investments has agreed to pay an $8 million fine to settle Securities and Exchange Commission charges that the company failed to properly supervise its stock traders that had improperly received gifts. 13 current and ex-Fidelity employees are targeted in the SEC investigation.

The gifts were given to traders by outside brokers who were soliciting Fidelity’s business. Fidelity has had a policy that prohibits employees from engaging in business transactions influenced by gifts received. Employees are also not allowed to receive gifts valued at more $100 over a one-year period.

The SEC alleges that accepting the gifts affected the Fidelity traders’ ability to obtain the best stock trades for Fidelity’s mutual fund customers.

Oppenheimer & Co. Agrees to Settle FINRA Market Timing Charges for $4.5 Million

Published on: March 5, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Oppenheimer & Co. has settled Financial Industry Regulatory Association charges regarding the market timing of mutual funds. The company has agreed to pay $4.25 million as restitution to five dozen mutual fund companies, as well as a $250,000 fine.

FINRA says that Oppenheimer failed to stop five traders’ engagement in improper, short-term mutual fund trading. The self-regulatory organization noted Oppenheimer’s failure to set up, manage, and enforce systems of supervision to detect and prevent market timing activities.

As a result, FINRA says that Oppenheimer disregarded hundreds of warnings and requests from mutual funds and life insurance companies that they stop making the improper trades. Some 65 mutual funds even warned Oppenheimer that short-term trades were not in the best interests of long-term shareholders.

Questar Executive Fired For Failure to Disclose Private Securities Transactions

Published on: February 26, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Questar Capital Corp. has fired Jason Kavanaugh, its senior vice president of mergers and acquisitions, because he failed to disclose outside business activities and private securities transactions.

Kavanaugh recently came under fire when it was discovered that he paid E-M Management Co. LLC $57,000 for fake, unregistered securities. Kavanaugh also set up JASTAR, LLC, which acted as the official subscriber to the deals.

E-M Management Co. LLC, which is owned by Edward May. The Securities and Exchange Commission has charged May with masterminding an investment scam involving fake Las Vegas casino and resort telecommunications contracts. Some 1200 investors became victims of May’s $250 million scam.