Financial Firms

Barclays Capital Trader is Indicted in Massive Front Running Scam

Published on: January 17, 2018 | by Shepherd Smith Edwards & Kantas, LLP

A criminal indictment has been issued against Robert Bogucki, Barclays’ (BARC) ex-foreign exchange operation head in New York. Bogucki, who is a Barclay’s trader but has been on leave since late 2016, is accused of involvement in a scam to bilk one of the bank’s clients by engaging in front-running. This type of activity usually involves using advance knowledge about an upcoming order and trading in a way to profit from this information.

The criminal charges against Bogucki include multiple counts of wire fraud and a single count of conspiracy to commit wire fraud. His indictment alleges that in 2011, the ex-Barclays forex trader improperly used the information provided by Barclays’ client Hewlett-Packard Company prior to a significant trade. HP had retained the bank to execute the forex transaction, which involved $8.3B of forex options, and that was tied to plans to acquire another company.

Bogucki and others allegedly used the information given to them by HP to manipulate the “volatility’s” price so as to lower the price of the company’s options. The alleged fraud is said to have caused HP millions of dollars in losses.

“Volatility” is the metric that impacts forex options. Barclays is accused of making misrepresentations to Hewlett-Packard so as to benefit the bank.

FINRA Cases: Ex-Morgan Stanley Broker and Former Western International Securities Broker Are Barred, Questar Capital Ordered to Pay $797K Restitution Over Mutual Fund Sales, and Morgan Stanley Smith Barney is Accused of Not Sending Millions of Margin Disclosures

Published on: January 16, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Two Brokers Barred After Not Appearing at FINRA Hearings

Guillermo Valladolid, an ex-Morgan Stanley (MS) broker, has been barred by the Financial Industry Regulatory Authority. According to the regulator, Valladolid did not show up at a hearing into whether, according to InvestmentNews, he “sold investments away from his employer” and neglected to disclose certain outside business activities.

Morgan Stanley terminated Vallodolid’s employment. Previous to that he worked with Merrill Lynch.

In a different FINRA case, the regulator barred another broker, Bradley C. Mascho, also after he did not appear at his hearing. Some of Mascho’s activities while at Western International Securities had come under question. The firm fired him last month, which is also when the US Securities and Exchange Commission filed fraud charges against Mascho and Dawn Bennett of the Bennett Group Financial and DJP Holdings. Mascho was CFO of the latter.

Securities News: Meyers Associates Fined $75K for Sales Literature, Former Royal Bank of Scotland Trader is Banned For Rigging Libor, and Ex-Credit Union CEO is Sentenced in Bank Fraud Case

Published on: January 10, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Meyers Associates is Fined by FINRA Over Misleading Sales Literature
The Financial Industry Regulatory Authority is ordering Meyers Associates, now called Windsor Street Capital, to pay a $75K fine for a number of securities violations, including sending sales literature that was misleading via email and not supervising books and records preparations. The firm’s principal, Bruce Meyers, is now barred from working as a firm supervisor or principal.

According to the regulator’s National Adjudicatory Council, Meyers Association has been named in 16 disciplinary actions this century. It paid about $390K in sanctions for different issues, including issuing false statements, supervisory deficiencies, omissions related to a securities offering, improper review of emails, inadequate maintenance of books and records, and not reporting customer complaints in a timely manner. Last year, the US Securities and Exchange Commission turned down Meyers’ appeal of a FINRA securities ruling that prevented him from serving as firm CEO.

Ex-RBS Trader Banned and Fined £250,000 for Manipulating Libor
The UK’s Financial Conduct Authority has banned ex-Royal Bank of Scotland Group (RBS) trader Neil Danzinger from the securities industry and ordered him to pay a $338,000 over allegations that he rigged the London interbank offered rate (Libor). According to the regulator, Danziger, a former RBS interest rate derivatives trader, “routinely” asked RBS Libor submitters to modify the rate to benefit his trading positions. He also allegedly factored in certain trading positions when serving as a submitter and on more than one occasion got a broker to help him to rig other banks’ yen Libor submissions.

Royal Bank of Scotland Settles Mortgage-Backed Securities Fraud Case Brought by Pension Funds for $125M

Published on: December 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to Reuters, Royal Bank of Scotland Group plc (RBS) has settled a mortgage-backed securities fraud case brought by the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) for $125M. The settlement resolves claims alleging that the bank made misrepresentations when selling MBSs to the pension funds, which contend that they sustained millions of dollars in losses as a result.

According to California Attorney General Xavier Becerra, a probe by his office determined that the descriptions the firm provided to investors “failed to accurately disclose the true characteristics” of many of the mortgages backing the securities, but that RBS, which knew about the alleged misrepresentations, did nothing to remedy them. The state AG’s investigation also found that RBS did not conduct the necessary due diligence to eliminate the loans that were of “poor quality.” Becerra contends that RBS purposely misled CalPERS and CalSTRS to enrich itself. He noted that the MBS fraud settlement gives back the money to the pension funds that the bank “wrongfully took” from them.

Already, The California AG’s office has gotten back more than $1B over securities that were sold to the state’s public pension funds, which sustained losses during the economic crisis of 2008. Last year, $150M was recovered from Moody’s, the credit rating agency. In 2015, $210M was recovered from another credit rating agency, Standard & Poor’s. Other banks to have settled include Citigroup (C) for $102M, Bank of America for $300M and J.P. Morgan Chase (JPM) for $300M.

FINRA Orders Citigroup to Pay $11.5M, Including at Least $6M to Investors, Over Inaccurate Stock Research Ratings

Published on: December 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is ordering Citigroup Global Markets Inc. (CGMI) to pay $11.5M in restitution and fines to resolve charges accusing the firm of displaying “inaccurate research ratings” on over 1800 stocks—that’s more than 38% of the stock that CGMI covers. According to the self-regulatory organization, the result of the inaccurate ratings was that a lot of customers ended up buying shares they wouldn’t have purchased otherwise if the right information had been provided.

Citigroup settled the case without denying or admitting to wrongdoing. The alleged inaccurate ratings would have been issued between 2011 and 2015.

According to the self-regulatory organization, CGMI showed the inaccurate ratings not just to retail customers, but also to its brokers and supervisors. These inaccuracies were caused by errors in the firm’s electronic ratings data feed that it provides to its clearing firm. As a result: the wrong rating was displayed for certain securities, ratings for securities that CGMI did not cover were provided, and/or the ratings for securities that the firm did rate were not displayed at all. The research ratings on CGMI’s actual research reports, to which brokers had access, were not impacted by these mistakes.

Regulators Fine Merrill Lynch $26M and J.P. Morgan Securities $2.8M, Respectively

Published on: December 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to Reuters, Bank of America Merrill Lynch (BAC) must pay FINRA and the SEC $13M in penalties each — $26M in total — because its anti-money-laundering procedures and policies were purportedly inaccurate. According to the regulators, from ’11 to ’15, these policies and procedures were “not reasonably designed” enough to account for the additional risks involved in certain services offered by some of its retail brokerage accounts.

The SEC’s cease-and-desist order states that Merrill Lynch did not do an adequate enough job of monitoring, identifying, and reporting certain suspect activity involving transaction patterns in customer accounts. Among the allegations is that when the firm provided traditional banking services, the software that was supposed to identify possibly suspect transactions did not screen for such activities.

The $26M fine comes just two months after the Financial Conduct Authority in the UK fined Merrill Lynch $45.5M for not reporting 68.5 million exchange-traded derivative transactions between ’14 and ’16. Because the firm’s wealth management division cooperated with the FCA’s probe, the original fine of $64.9M was reduced by 30%.

Financial Firm News: Raymond James Fined $2M Over Email Supervision, FinMa Finds JPMorgan Chase Responsible for Anti-Money Laundering Violations, and Bank of America, Wells Fargo, Citigroup, and Other Big Banks Get Federal Approval for Their Living Wills

Published on: December 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Raymond James Financial to Pay Fine to FINRA Over Email Communications

The Financial Industry Regulatory Authority has fined Raymond James Financial Services (RJF) $2M for not maintaining supervisory systems and procedures that were “reasonably designed” enough to oversee emails. The firm settled the case but without denying or admitting to the charges. It also agreed to a risk-based retrospective review of past emails for potential violations.

FINRA examined Raymond James’ email system “during a nine-year review period.” According to the self-regulatory organization, the system had significant flaws that allowed email communications to not undergo “meaningful review.” As a result, “unreasonable risk” was created that could have allowed for “certain misconduct” to go undetected. Also, the firm did not assign enough resources or staff to the team tasked with evaluating emails that had been flagged by the system, even as the number of flagged correspondence grew in volume.

FINRA said that Raymond James “unreasonably excluded” certain personnel who worked on customer brokerage accounts from “email surveillance.” The SRO claims that the emails of 300 registered representatives who were employed in branches with their own email servers were not subject to the “lexicon” of phrases and words for detecting emails that might merit review for potentially suspect conduct.

UBS Did Not Fully Disclose the Risks Involved in Puerto Rico Bond Funds to Investors and Brokers, Reports CNBC

Published on: December 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to a recent CNBC investigation, not only did UBS Puerto Rico (UBS-PR) fail to disclose to investors the risks involved in the bond funds UBS pushed on the island’s residents, but also the brokerage firm neglected to fully apprise its own brokers of the incredible risks. While these findings are not new, the CNBC probe digs deeper into the matter.

The majority of these investors were island locals, who have now also been further devastated as a result of Hurricane Maria. Already, UBS has come under fire and paid hundreds of millions of dollars in securities settlements and awards from FINRA arbitration panels over losses investors sustained when these investments failed dramatically more than four years ago. UBS also has settled with regulators, including the U.S. Securities and Exchange Commission and FINRA, and paid over $60 million for its wrongful conduct and abuse of investors. The firm did not, however, deny or admit to wrongdoing.

UBS Executives Purportedly Knew Puerto Rico Bonds Would Fail
CNBC’s investigative team obtained approximately “2,000 pages of confidential documents” that display conversations and the “inner workings” between UBS executives in Puerto Rico and the U.S. mainland prior to the funds’ collapse. According to the documents, as far back as a year before the Puerto Rico funds failed, UBS management already knew that problems were brewing and they discussed what could happen if the firm did not deal with these issues immediately.

FINRA Cases: Ex-LPL Broker is Barred for Not Disclosing Role in Private Securities Transactions, Merrill Lynch is Fined $1.4M For Extended Settlement Transactions, and Noble Capital Markets Agrees to Pay $225K for Failing to Disclose Conflicts to Investors

Published on: December 19, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former LPL Broker is Barred For Not Disclosing Private Securities Sales

The Financial Industry Regulatory Authority announced a bar against Leslie Koonce, an ex-LPL(LPLA) broker. According to the self-regulatory organization, Koonce lied when he failed to disclose that he had engaged in private securities sales. Koonce allegedly pitched a private company’s convertible promissory notes to at least 30 potential investors.

The FINRA case contends that not only did Koonce help facilitate the transfer of $175K to at least three LPL customers so they could invest in the private securities, but also, he invested $50K of his own funds. All the while, said the SRO, Koonce failed to notify LPL in writing of his involvement in these transactions. When he filed out compliance questionnaires twice in 2012, Koonce denied any involvement in these types of transactions.

LPL fired Koonce in 2015. He later went to work with Cetera and then EK Riley Investments. The ex-broker no longer works in the securities industry.

Securities Fraud: FINRA Bars Two Ex-Wells Fargo Brokers Over Unsuitable Securities Sales, Pennsylvania-Registered Representative is Accused of $2.35M Ponzi Scam, and Digital Display Ad Company Allegedly Stole Over $2M from Retail Investors

Published on: December 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Wells Fargo Brokers Barred Over Unsuitable Energy Securities Sales
The Financial Industry Regulatory Authority has barred brokers Charles Lynch and Charles Frieda for making unsuitable recommendations to investors, resulting in substantial financial losses to the latter. Lynch and Frieda are former Wells Fargo (WFC) representatives who were based in Southern California. Both Lynch and Frida were fired from the firm. Previous to working at Wells Fargo, both men worked at Citigroup (C) and Morgan Stanley (MS).

According to the self-regulatory organization, between 11/12 and 10/15, the former brokers recommended an investment strategy revolving around certain speculative energy stocks to over 50 customers. These securities were volatile. Because investors became very concentrated in these energy securities, they were placed at risk of substantial losses.

FINRA contends that the two brokers did not do a proper job of making sure these investments were suitable for the customers to whom they were recommending these securities.