Financial Firms

Retirement Accounts : Ameriprise Settles SEC Allegations That It Overcharged for Mutual Funds & Fidelity Undergoes Customer Exodus from Flagship Funds

Published on: March 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against Ameriprise Financial Services (AMP). The regulator is accusing the brokerage firm and investment adviser of recommending to retail retirement account customers that they purchase mutual fund shares that charged higher fees. Ameriprise purportedly failed to employ sales charge waivers when applicable.

The Commission’s order contends that the broker-dealer neglected to determine when certain retirement account customers qualified for mutual fund share classes that were not as costly.

Instead, the firm would recommend and sell the more costly mutual fund shares even when the less pricey options were available. Ameriprise is accused of not letting these customers know that the firm would make more from the costly mutual fund shares even as their overall investment returns were harmed.

The SEC said that about 1,971 customer accounts paid nearly $1.8M in up-front sales fees that were not warranted, costlier ongoing fees, “contingent deferred sales charges,” and other expenses because of the way that Ameriprise handled the recommendation and sale of mutual funds to retirement account clients.

The firm is cooperating with the regulator and has paid back customers that were affected with interest. Retirement account customers eligible for the less expensive mutual fund share classes have been moved to those classes free of charge.

Ex-Wells Fargo Broker Barred for Alleged $180K Elder Financial Fraud

Published on: February 26, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred Jeffrey Palish, an ex-Wells Fargo (WFC) broker in the wake of allegations of senior investor fraud. The regulator is accusing him of stealing over $180K from an elderly client with no plans or means of paying her back.

Palish was let go by the firm last year after an internal probe found that he had made misstatements about these transactions. He was arrested last week in New Jersey and charged with theft by deception involving over $75K.

According to prosecutors, Palish may have stolen at least $600K from elderly clients and failed to pay back a $100K loan from two clients. NorthJersey.com reports that Palish took clients’ money by selling their stock holdings and putting the funds from those sales into a bank account in which he deposited checks from clients. He also is accused of making more than three dozen unauthorized wire transfers of about $300K in total to pay his credit card bills.

Deutsche Bank Settles Libor Manipulation Lawsuit for $240M

Published on: February 25, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In a preliminary settled reach in a private US antitrust lawsuit, Deutsche Bank AG (DB) will pay $240M to settle allegations that it conspired with other banks to rig the London interbank offered rate (Libor) benchmark. The plaintiffs in the Libor manipulation lawsuit are “over-the-counter” investors that engaged directly in transactions with banks belonging to the panel tasked with determining the key benchmark.

Banks use Libor to establish rates on mortgage, credit card, student loan, and other transactions, as well as to figure out how much it would cost to borrow from one another. Libor is expected to be phased out before 2022.

Despite settling, the German lender denied any wrongdoing. The settlement must still be approved by a court before it is final.

Securities Cases: Massachusetts Accuses Scottrade of Running Sales Contests and Targeting Retirees, Wife of Investment Adviser Must Pay $500K in Fraud Case, and Hedge Fund Manager and His Firms Are Ordered to Pay Almost $30M for Diverting Investor Money

Published on: February 21, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Scottrade is Accused of Improper Sales Practices Involving Retirement Accounts

Massachusetts Secretary of the Commonwealth William Galvin has filed a complaint against Scottrade accusing the brokerage firm of engaging in improper sales practices that it knew violated the US Department of Labor’s fiduciary rule regarding impartial conduct standards. Under the rule, advisors and their firms are obligated to act in a fiduciary capacity when making investment recommendations, as well as act in their clients’ best interests.

In his complaint, Galvin is contending that Scottrade employed a culture that includes “aggressive sales patterns,” and that the firm and its agents failed to abide by its duty to Massachusetts retirees between 12/2015 and 6/2016 when it ran a number of national call nights that included the incentive of raffle tickets for those who cold called customers. Scottrade also conducted quarterly sales contests offering at least $490K in prizes. This included the “Q3 Win and Retain Sales Contest “that offered $285K and paid out $2500/agent to the top 25 branches according to percentage increase in new net assets brought in.

CFTC to Pay $30M to Whistleblower in $367M Asset Management Case Against JPMorgan

Published on: February 20, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The Commodity Futures Trading Commission will pay $30M to one whistleblower who provided information that brought about the $367M asset management settlement in a case against JPMorgan Chase & Co. (JPM). Federal regulators alleged that the bank didn’t tell wealth management clients about conflicts of interests that may have affected how the financial institution managed their money between 2008 and 2013. The two JPMorgan units involved were its nationally chartered bank and its securities subsidy.

JPMorgan, which is the biggest bank in the US according to assets, neglected to tell customers that it made money when it placed their money in hedge funds and mutual funds that earned the firm fees. Both high net worth customers and retail mutual fund customers were purportedly affected.

The bank was also accused of not telling investors that it’s wealth business preferenced its own proprietary products over others’ products when deciding where to invest clients ‘funds. JPMorgan was accused of violating its fiduciary duty when it failed to notify customers that more costly share classes of proprietary mutual funds were chosen for them. Although JPMorgan acknowledged its failure to properly disclose the information, the bank maintained that such omissions were not done on purpose, and it has since remedied the matter.

Barclays Faces New Criminal Fraud Charge Over $3B Qatar Loan

Published on: February 15, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In the UK, the Serious Fraud Office is charging Barclays Bank (BARC) with engaging in illegal financial assistance when it gave Qatar Holdings LLC a $3B loan in 2008 so that the latter could acquire shares in Barclays Plc. British prosecutors had previously charged Barclays Plc. and four bank executives with conspiring to commit fraud and providing unlawful financial assistance.

In Britain, public companies are usually not allowed to lend out funds to be used to buy their own shares. Barclays has come under fire for the way it handled investments made by Qatar’s sovereign wealth fund, as well as by a group of investors. The money lent to Barclays is believed to have helped the British Bank avoid getting a tax bailout during the global financial crisis. Such assistance would have likely lead to greater oversight over Barclays and closer examination of how much the bank’s executives were making at the time.

Barclays denies the charges against Barclays Plc. and Barclays Bank, which is its operating arm. Prosecutors, however, believe that the loan funds were put back into the bank to give it the capital it needed.

Deutsche Bank Securities Will Pay Back Customers Over $3.7M for Commercial Mortgage-Backed Backed Securities Sales

Published on: February 13, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In a civil settlement reached with the US Securities and Exchange Commission, Deutsche Bank Securities will repay commercial mortgage-backed securities customers more than $3.7M over allegedly false and misleading statements related to their purchase of these investments. The firm and its ex-CMBS trading desk head trader Benjamin Solomon agreed to resolve the charges against them but without denying or admitting to regulator’s findings.

According to the SEC’s probe, when selling the CMBSs, Deutsche Bank (DB)’s salespeople and traders made statements that were false and misleading. This caused customers to pay too much for the securities because they were not given accurate information about how much the firm had paid for them. Deutsche Bank also is accused of not having properly designed procedures for surveillance and compliance that could stop and identify the types of wrongful behaviors that would cause commercial mortgage-backed securities buyers financial harm while allowing the firm to profit.

To resolve the CMBS fraud charges, Deutsche Bank will pay customers back all profits on the securities’ trades in which a misrepresentation was made. That figure is over $3.7M, including $1.48M of disgorgement. The bank will also pay a $750K penalty.

Ex-Morgan Stanley Executive is Sentenced in Multimillion-Dollar Fraud That Targeted Widow

Published on: February 9, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Gregory Walsh, a former Morgan Stanley (MS) Assistant Vice President, is sentenced to two years in prison and three years’ supervised release. Last year, Walsh pleaded guilty to conspiracy to commit mail fraud and wire fraud that involved defrauding a firm client of $4.8M.

Court documents state that in 2011 Walsh and his brother, ex-Bank of Oswego VP Geoffrey Walsh, convinced a Morgan Stanley client who was newly widowe, to lend Geoffrey over $1.1M to buy three condos in Palm Springs that would be put in her name and then sold. Instead, Geoffrey made his business the title owner of the properties and did not give the widow the documentation for the title or loan. He then sold two of the properties without her consent or knowledge and used the money for his own expenses instead of giving her the funds. When Gregory Walsh discovered what his brother had done, he did not tell his client.

In 2013, the brothers sought $2M from her for a real estate development project. Gregory did not tell the widow that his brother was involved when she asked. He then withdrew funds from her Morgan Stanley account without her consent or knowledge. In 2013, $1.7M of that money was used to pay off a credit line at Bank of Oswego for Geoffrey, who spent the rest of her funds that had been withdrawn.

Deutsche Bank Securities Must Pay $70M for Trying to Rig the ISDAFIX Benchmark

Published on: February 7, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In a settlement reached with the CFTC, Deutsche Bank Securities (DBSI) will pay a $70M civil penalty to resolve allegations that it attempted to rig the ISDAFIX benchmark. The regulator contends that from 1/2007 through 5/2012, the firm had a number of its traders try to rig the USD ISDAFIX, which is the benchmark used globally for interest rate products.

According to the CFTC’s order, Deutsche bank Securities would make bids, offers, and execute transactions in certain interest rate products such as US Treasuries and swap spreads at the 11am fixing time– or, if not, then close to that hour– to impact the rates seen on the electronic interest rate swap screen. They purportedly did this to lower or raise the reference rates of the swaps broker and influence the USD ISDAFIX when it was published.

Recordings of phone conversations and electronic communications show firm traders talking about taking actions in order to benefit their employer. Also, some Deutsche Bank Securities employees are accused of turning in misleading or fake submissions, again in an attempt to influence the final USD ISDAFIX rates that were published. The CFTC said that such actions were more about the traders’ attempts to manipulate USD ISDAFIX to their benefit rather than an honest assessment of the actual costs associated with going into a certain interest rate swap.

Two Former Morgan Stanley Investment Advisers Accused of Fraud Plead Guilty

Published on: January 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In the criminal case brought against them, two ex-Morgan Stanley (MS) investment advisers, James S. Polese and Cornelius Peterson, have pleaded guilty to the criminal charges against them. Polese was charged with conspiracy, aggravated identity theft, investment adviser fraud, and multiple counts of bank fraud. Peterson is charged with conspiracy, investment adviser fraud, and bank fraud.

In a parallel civil case, the US Securities and Exchange Commission claims that beginning in 2014, the two men defrauded three clients of almost half a million dollars. The allegations include:

*Stealing almost $450K from one client and using the funds to make their own investments and pay for Polese’s credit card bills and the college tuition of his children.
*Using a client’s assets to obtain loan financing for an entity in which they were investors.
*Investing client monies in a venture in which they both had a financial stake without telling the client.
*Getting a loan with unfavorable terms for a client.
*Charging one client advisory fees that were 50% more than what he told her they would be.