Financial Firms

Ronin Capital, Goldman Sachs Execution & Clearing, Penn Mott Securities, and Pearson Capital Management Receive Censures and Fines from NYSE Regulation

Published on: December 19, 2007 | by Shepherd Smith Edwards & Kantas, LLP

New York Stock Regulation Inc. announced its enforcement actions against four trading companies. The regulator says that Ronin Capital, LLC mismarked over 8,300 short orders because of inadequate supervisory procedures and supervision. The company continued to mismark short orders even after the SEC brought the violation to its attention. Ronin Capital was censured by NYSE Arca and ordered to pay $200,000.

NYSE Arca fined Goldman Sachs Execution & Clearing LP (GSEC) $105,000 for failing to adequately supervise business operators and associated persons in a way that guaranteed compliance with odd lot trading order rules.

Pearson Capital Management LLC was censured and fined $5,000 because it failed to meet market maker requirements. Penn Mott Securities was fined $3,200 for similar violations.

Bear Stearns, Deutsche Bank, and Merrill Lynch Among the Wall Street Firms Subpoenaed by New York Prosecutors

Published on: December 12, 2007 | by Shepherd Smith Edwards & Kantas, LLP

New York Attorney General Andrew Cuomo is subpoenaing several Wall Street firms, including Deutsche Bank AG, Merrill Lynch & Co, and Bear Stearns, for information about packaging and selling debt connect to high-risk mortgages.

Prosecutors want to look at the way investment banks review the quality of mortgages before turning them into packaged products that can be sold to investors. They also want to find out how debt is being turned into securities and learn more about the credit-rating firm-bank relationship.

This past summer, mortgage-backed securities affected by growing default and delinquency rates had high debt ratings despite the backing of loans issued to lenders.

Cromwell Financial Services and Several Employees Will Pay Over $20 Million to Settle Fraudulent Solicitations Allegations

Published on: November 19, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Cromwell Financial Services Inc. and several of its employees says they will pay over $20 million to settle allegations by the state of New Hampshire and the Commodity Futures Trading Commission that they engaged in fraudulent solicitations.

The New Hampshire Bureau of Securities Regulation and the CFTC claim that Cromwell Financial Services and a number of its employees, from 2002 to 2003, engaged in sales presentations that were fraudulent and misleading in an attempt to convince some 900 people to trade options on commodity futures contracts. The options were from commodity futures contracts in accounts at two futures commission merchants.

According to the Consent Order of Permanent Injunction and Other Equitable Relief, Cromwell employees allegedly exaggerated the degree and possibility of profit, while minimizing the investment risks, and neglected to inform the public that over 75% of Cromwell investors have lost money.

Oppenheimer to Pay $1 Million to Settle FINRA Bogus Data Charges

Published on: November 13, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Oppenheimer & Co. says it will pay a $1 million fine to settle charges by the Financial Industry Regulatory Authority that it turned in false information regarding mutual fund breakpoints. The company also has agreed to submit to having an independent consultant conduct an audit regarding how Oppenheimer handles regulatory inquiries. By agreeing to the settlement terms, Oppenheimer is not agreeing to or denying FINRA’s allegations.

Background

FINRA says it initially asked Oppenheimer for the information in March 2003 when the self-regulatory organization (then the NASD) looked at over 2000 broker-dealers who had sold front-end loan funds over a two-year period.

HSBC Securities, Citigroup Global Markets Inc., UBS Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Inc., and Interactive Brokers LLC Among Firms Disciplined by NYSER

Published on: October 21, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The New York Stock Exchange Regulation Inc. is disciplining nine companies and eight people for numerous violation. The firms disciplined include:

Merrill Lynch, Pierce, Fenner & Smith: Fined $100,000 for violating rule 123c about 480 times when it cancelled or submitted securities orders after the mandatory cutoff period.

Citigroup Global markets Inc: Find $300,000-half of this to be payed to NASDAQ; the other half to be paid to NYSE. The firm made inaccurate reports about short interest positions in securities that were listed on the NYSE.

Fidelity Investments and The Vanguard Group Offer Retirees Managed-Payout Funds

Published on: October 17, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Fidelity Investments has launched 11 funds focused on generating steady income for retired seniors. The launch followed a similar launch by The Vanguard Group Inc., who will launch three similar funds in the next couple of months. Fidelity and Vanguard are the largest and second largest mutual funds in the country.

The move by both companies will likely force competitors to do the same. Industry experts say that they expect fund companies with a solid 401 (k) plan market to announce similar fund launches.

However, a number of major fund companies have only admitted to closely monitoring open-end managed-payout funds. This type of fund has been part of a number of closed-end funds for awhile. However, closed-end funds only appeal to a small section of investors.

Interactive Brokers LLC Sanctioned for Failing to Supervise Its Compliance Staff

Published on: October 15, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Commodity Futures Trading Commission (CFTC) ordered Interactive Brokers LLC (IBL) to relinquish $175,000 in commissions, for failing to properly supervise its compliance employees while handling a commodity futures trading account. The National Futures Association (NFA) recently fined IBL $125,000 regarding the same matter and for failing to maintain adequate books and records.

IBL is a discount direct access brokerage firm and registered futures commission merchant (FCM) headquartered in Greenwich, Connecticut. According to the order, an account was maintained at IBL in the name of Kevin Steele, a Canadian who used the account to defraud more than 200 Canadian, German, and US citizens of over $8 million in a commodity pool fraud that was the subject of an earlier CFTC enforcement action.

The CFTC found that, from February 2003 through May 2005, IBL accepted 135 third-party deposits in the form of wire transfers and checks totaling $7.7 million into Steele’s personal account, but did not have procedures reasonably designed to detect the deposit of third-party funds in an individual trading account. The frequency and magnitude of deposits and withdrawals to Steele’s account, relative to his stated liquid net worth, and the pattern of deposits followed by withdrawals suggested that Steele might be operating as an unregistered commodity pool operator.

MetLife Securities Broker Charged with Stealing from 9/11 Victim’s Widow

Published on: October 15, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission and U.S. Attorney for the Eastern District of New York have filed cases accusing a former MetLife employee of what is perhaps a new low in securities fraud: Misappropriation of funds from the widow of a victim of the September 11 terrorist attack on the World Trade Center.

The SEC said that defendant Kevin James Dunn Jr., then an employee of MetLife Securities Inc., was friends with the widow and convinced her to invest her terror-attack compensation funds with him and MetLife. The SEC said Dunn “then proceeded to betray the customer’s trust” by engaging in a “series of material misrepresentations” about the purchase and sale of securities in her account. That and other fraudulent actions were “aimed at swindling [the client] out of a substantial portion” of her 9/11 widow’s compensation.

Dunn allegedly misappropriated $248,000 from the client by creating a joint account in both their names, forging her signature on transaction documents, and “telling her outrageous lies” concerning the status of the account. He also deceived her into providing him with blank checks which he used to deposit funds into his own bank account.

Oppenheimer, Morgan Stanley, Nomura Securities, and A.G. Edwards Traders Face SEC Charges of Stealing Stock Loan Kickbacks Worth $12 Million Plus

Published on: October 12, 2007 | by Shepherd Smith Edwards & Kantas, LLP

38 stock loan traders from A.G. Edwards, Morgan Stanley, Oppenheimer, and Nomura Securities are accused of stealing over $12 Million in stock loan kickbacks from their Wall Street firms. The Securities and Exchange Commission has charged the employees with the more than $12 million theft.

The SEC says that from 1998-2006, the traders worked with fake stock loan finders to skim profits from their employers through finder fees as well as cash kickbacks from finders. The stock loan traders conducted actual, legal stock loans but logged that the transactions involved finders so there would be finder’s fees.

The finders were usually friends or relatives of the traders who were in charge of illegitimate “shell companies” that were not even a part of the stock loan business. The “finder” would then pay traders with stock loan kickbacks. The more sophisticated scams involved traders using their kickbacks to pay the other traders who had pushed through the loan transactions.

Citigroup, Lehman Brothers, DeutscheBank and other Firms Fined for Failing to Deliver Trade Confirmations.

Published on: October 9, 2007 | by Shepherd Smith Edwards & Kantas, LLP

NYSE Regulation fined 14 of its member firms a total of $10.4 million in fines for failing to deliver trade confirmations to their clients and other violations.

Citigroup Global Markets received the heaviest fine of $2.25 million for failing to deliver trade confirmation documents in more than a million consumer transactions. Lehman Brothers and DeutscheBank were each fined $1.25 million.

Other firms sanctioned included UBS Securities; Bear Stearns & Co.; Credit Suisse Securities (USA) LLC ; Banc of America Securities LLC; Goldman Sachs & Co.; JP Morgan Securities; Wachovia Capital Markets LLC; and Keefe, Bruyette & Woods Inc. Fines levied against these firms ranged from $375,000 to $800,000.