Financial Firms

Oppenheimer Fined $1 Million for Abuse of Widow – Later Told She “Only Had Herself to Blame”

Published on: July 10, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts securities regulators fined Oppenheimer & Company, Inc. a million dollars for failing to supervise its representatives and ordered the company to also pay $135,000 to the victim, the difference between the losses she sustained and the amount Oppenheimer earlier paid her.

Oppenheimer was charged with failing to supervise a broker as he allegedly engaged in acts including theft, fraud, churning and unauthorized trading in the account of an elderly couple. The firm consented to the order without admitting or denying the claims. The broker is currently under indictment for securities fraud.

After her husband died, personnel at the elderly woman’s bank raised concerns over the activity which had occurred in the couple’s brokerage account. The widow approached Oppenheimer and claims were ultimately filed in arbitration. Oppenheimer then responded by saying she “only has herself to blame for any losses or other injury she may have suffered.” The arbitration claims were later resolved with Oppenheimer paying less than was lost.

Some Brookstreet Brokers Become Wedbush Morgan Brokers

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

As we reported in June: Brookstreet Securities Corp. reported severe problems with CMO securities and soon announced its closing. Scott Brooks (son of Stan Brooks, founder of Brookstreet) left for Wedbush Morgan Securities Inc. of Los Angeles, inviting Brookstreet’s representatives to join him.

Brookstreet operated using independent contractors almost exclusively and Wedbush reportedly plans to sign the Brookstreet representatives to similar agreements. Wedbush Morgan had about 40 independent contractor reps of 260 total brokers, said Ed Wedbush, that firm’s CEO. About 100 of the 650 Brookstreet brokers have so-far followed Scott Brooks, according to Ed Wedbush. “We’re recruiting, like other firms, some of their brokers and bond traders,” he said.

Many Brookstreet reps don’t know much about Wedbush, said Larry Papike, a San Diego-based recruiter, “So I think brokers really started looking around for other solutions,” he said. Securities America Inc. and J.P. Turner & Co. have picked up a number of Brookstreet reps, Mr. Papike said.

While Former Merrill Lynch & Co. Stockbroker is Found Guilty of Witness Tampering, Seven Other Defendants are Acquitted in “Squawk Box” Securities Fraud Case Involving A.B. Watley Employees

Published on: July 7, 2007 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Eastern District of New York, a jury issued its verdict in the “squawk box” front running case. Seven people were acquitted of securities fraud, while Timothy O’Connell, a former Merrill Lynch & Co. stockbroker was found guilty of making false statements and of witness tampering. The judge, however, declared a mistrial for the one remaining conspiracy count to commit securities fraud against O’Connell. He faces up to 15 years in prison for the convictions, and prosecutors have announced that they will retry the conspiracy charge.

According to prosecutors, O’Connell, and the two other broker defendants, David Ghysels-a former Lehman Brothers broker-and Kenneth Mahaffy-a former Merrill Lynch & Co. brokers, purposely placed off-the-hook phones that were active next to internal speaker systems at their firms.

The purpose of doing this was to let a number of former A.B. Watley employees, including ex-president Robert Malin, former proprietary trading supervisor Keevan Leonard, former compliance director Linus Nwaigwe, and former CEO Michael Picone, listen in while large orders about to be made by institutional clients were broadcast over the boxes.

Wells Fargo and its Former Research Director Fined Over Undisclosed Conflict

Published on: July 3, 2007 | by Shepherd Smith Edwards & Kantas, LLP

NASD levied a fine of $250,000 against Wells Fargo Securities LLC and $40,000 against its former research director, plus other sanctions, for failing to disclose that the lead analyst on reports issued on a company had accepted a position with that company.

The research reports concerned Cadence Design Systems, which designs semi-conductors for use in the global electronics market. According to the NASD, the analyst had applied for a job with that company prior to issuance of a report in 2005, and had two job interviews prior to issuance of others, none of which was disclosed in the reports.

The NASD’s sanctioning order states that the analyst was then offered a position at Cadence to earn over $300,000, plus Cadence stock and options, which she disclosed to the Wells Fargo and its head of research. Yet, weeks later Wells Fargo published a third research report favorable to Cadence, without disclosure of the hiring.

H&R Block Earnings are Sunk by Subprime Mortgage Unit

Published on: June 30, 2007 | by Shepherd Smith Edwards & Kantas, LLP

H&R Block reported a loss of $433.7 million for its fiscal year 2007, compared to a gain of $490.4 million a year ago, and it lost $85.6 million in the fourth quarter vs. a gain of $587.5 in the year earlier period. The losses can mostly be attributed to Option One, its subprime mortgage unit, which the company hopes to soon sell.

The nation’s largest tax preparer was started in Kansas City by Henry and Roger “Bloch” brothers when the IRS stopped preparing tax returns free in 1955. The firm has been hugely successful in that business – for a few months out of the year. Yet the firm has been mostly unsuccessful in other ventures seeking to earn revenues the rest of the year.

Its investment subsidiary, H&R Block Financial Advisors, arose from the Block’s purchase of Olde Financial Company in 1998 for $850 million. At the time Olde and its founder were in the midst of many regulatory and other woes, many of which Block inherited.

Wachovia Securities Settles NASD Supervision Charges and Agrees to $2 Million Fine

Published on: June 28, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Wachovia Securities LLC of Richmond, Virginia says that it will pay $2 million in restitution to settle charges that it did not properly supervise its fee-based brokerage business from 2001 to 2004. It also says that it will pay some 1,300 customers who were either allowed to continue the inappropriate fee-based accounts or were asked to pay account fees on Class A mutual fund shareholdings that had already been paid for.

In a settlement reached with NASD, Wachovia says it will work with an outside consultant to evaluate the way that it identifies and pays customers their restitution. 549 customers collectively paid Wachovia fees of about $1.9 million, although they did not conduct any trades for at least two years.

NASD says that firms are obligated to look at whether fee-based accounts are appropriate. Customers with fee-based accounts are generally asked to pay a yearly fee (either a set rate or a percentage fee) instead of a commission every time a transaction takes place.

Son of Brookstreet Founder Joins Wedbush Morgan and Invites Brookstreet Brokers to Join Him

Published on: June 25, 2007 | by Shepherd Smith Edwards & Kantas, LLP

First announced on this Blog last week was news of problems at Brookstreet Securities. Midweek, the firm then reported that “disaster” had struck because CMOs owned by the firm and its clients had been marked down in price and margin calls had caused the firm to reach the brink of failure. On Friday, Brookstreet closed for business.

Over the weekend we heard a rumor, not confirmed, that Scott Brooks, the son of Brookstreet founder Stanley Brooks, had joined Wedbush Morgan Securities of Los Angeles and invited the Brookstreet brokers to do the same. That rumor was confirmed today in news reports.

Brookstreet’s brokerage business was conducted through independent contractor brokers similar to giant Linsco Private Ledger and other firms. Before now, Wedbush Morgan did not have an independent contractor brokerage arm, as do other firms including Raymond James Financial, Inc.

Brookstreet Liquidates Portfolio after Margin Calls by Fidelity Unit

Published on: June 24, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Brookstreet Securities Corp. has liquidated securities following margin calls by National Fidelity Securities (NFS), a division of Fidelity Investments.

Earlier in the week, it was reported on this blog that Brookstreet informed its agents in an E-mail that “disaster” had struck the firm. NFS had marked down the value of collateralized mortgage obligations (CMOs) that the firm and its clients held and that the firm would likely fail without an infusion of capital. A copy of that E-mail can be found in an earlier Blog story.

Because of the markdowns of the CMOs, margin calls were issued leading to a liquidity crunch, according to a Brookstreet trader. When the margin calls were not satisfied, the securities were liquidated. On Friday, the firm announced that it had closed for business.

Do Wall Street Powerhouses Earn Billions Through Fraudulent Fund Sweeps?

Published on: June 24, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, Morgan Stanley, Smith Barney and Charles Schwab are being sued for claims they improperly directed their clients’s funds into lower paying deposit accounts at affiliate banks, enabling those banks to reap billions in extra profits. Attorneys for investors seek permission to add Wachovia, based on “sweep” accounts it will receive from AG Edwards in an impending merger.

Details of the suit, filed in January but amended last month, had not previously been reported. Bank deposit sweep programs “put the broker in a very conflicted position” said an attorney for the investors recently, adding “this is not what they should be doing as financial advisers.”

The claim states that the firms are positioning themselves as objective financial advisers, but send their customers’ funds into bank deposits paying far less than market rates, adding that the firms disclose to clients that more profitable accounts are available, but bury the disclosures in documents while failing to mention the magnitude of their profits.

News Flash: Brookstreet Securities Closes its Doors

Published on: June 22, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Today was “Black Friday” for Brookstreet Securities, as it closed for business. The firm’s 650 independent contractor brokers have been terminated, says Stanley Brooks, President of the firm. Brookstreet clients are left in limbo, many with huge losses in their accounts.

As reported earlier this week, Brookstreet Securities Corp, based in Irvine, California, told its agents that “disaster” had struck and it was in eminent danger of folding. The e-mail communication (previously posted on this site) claimed this was as a result of mark-downs on collateralized mortgage obligation securities (CMOs) by Fidelity’s National Financial Services (NFS), which cleared trades and maintained accounts for Brookstreet.

Some of Brookstreet’s clients report that their accounts continued to fall in value this week. Yet, if they attempted to do anything NFS told them they must to talk to their (Brookstreet) broker, but their broker was not answering the phone. Meanwhile, Some of these clients’ margin accounts slipped into the “red”, meaning not only have these investors’ funds disappeared but NFS now claims the investors owe it money!