Financial Firms

Elder Financial Fraud: Ex-K.C. Ward Financial Rep. Barred Over $15M in Unsuitable Investments

Published on: February 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Bars Registered Rep For $15M In Unauthorized Trades

The Financial Industry Regulatory Authority has barred Craig David Dima, a former registered representative with KC Ward Financial, for making about $15M in unsuitable and unauthorized trades in the account of a 73-year-old retiree. According to the self-regulatory organization, there were 11 times when Dima sold nearly all of the customer’s stock in Colgate-Palmolive that she’d accrued from working with the company for nearly thirty years and he did that without permission.

After the elderly client told Dima not to sell the stock, he proceeded to sell them anyways. When the customer confronted Dima, he purportedly misrepresented that a computer or technical mistake had caused the sale. Meantime, the client was “deprived” of the “substantial dividends” from the Colgate shares she used to own. Dima charged the customer over $375K in fees, mark-downs, and mark-ups.

By settling, Dima is not denying or admitting to FINRA’s charges of elder financial fraud.

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Oceanografía Sues Citigroup, Claims Alleged Multi-Million Dollar Fraud at Banamex

Published on: February 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Oceanografía, formerly the biggest oil and gas company in Latin America, is accusing Citigroup (C) of using it to detract from probes into the fraud involving Banamex, which is Citibank’s Mexican subsidiary. Oceanografía collapsed in 2014.

Citigroup is accused of granting a $585M credit line to Oceanografía so that the latter could get hundreds of millions of dollars in cash advances for work by Pemex, an oil company owned by Mexico. However in February 2014, Pemex notified Citigroup that about $400M in Oceanografía invoices, which were supposed to secure the cash advances, had been forged, possibly by a Banamex employee. Because of this, Citibank cancelled Oceanografía’s credit line and the oil and gas company collapsed.

Oceanografía maintains that it never forged the invoices nor did it have cause for such illegal action.

Criminal Securities Fraud: Ex- CEO Extradited From Namibia is Sentenced to 30-Months, Long Island “Mini Madoff’s Associate Goes to Prison Over $400M Scheme, and the Trial of Two Ex-Barclays Traders is Underway in the UK

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

Libor Trial Of Two-Ex Barclays Traders Begins
Ryan Reich and Stylianos Contogoulas are on trial in London on criminal charges accusing them of rigging the US dollar Libor. According to prosecutors, from ’05-’07, the two ex-Barclays Plc (BARC) traders conspired to manipulate the interest-rate benchmark in order to profit illegally.

Contogoulas and Reich have pleaded not guilty to the criminal charges. Two other ex-Barclays employees, Jonathan Mathew and Peter Johnson, were previously convicted for rigging Libor. They were tasked with submitting Libor rates.

16 banks are responsible for determining the Libor dollar rate every day. They do this by estimating how much it would cost to borrow from one another over different periods. The Libor dollar rate is linked to mortgages and loans and other financial products. Already, a number of big banks have collectively paid several billion dollars for their role in Libor manipulation.

Securities Cases: LPL Financial Fined $900K for Record-Keeping Issues, NY-Based Broker Deal to Pay $100K for Trading Surveillance and Compliance Failures, and Private Equity Adviser is Barred Over Improper Fund Withdrawals

Published on: February 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines LPL Financial $900K

The Financial Industry Regulatory Authority has fined LPL Financial (LPLA) for either not sending or failing to create records showing that it had sent over 1.6 million mandatory account notices to customers over a 36-month period. Under industry rules, account notices have to be sent to customers at three-year intervals which is when a determination of suitability is evaluated. FINRA said that LPL did not send more than 25% of such written notices over a period of seven years.

The financial firm accepted the self-regulatory organization’s settlement but is not denying or admitting to the findings. However, an LPL Financial spokesperson said in an email that the firm had self-reported the matter and was committed to “enhancing” structures for compliance and risk management.

Morgan Stanley to Pay $8M To Settle Exchange Traded-Fund Investment Charges

Published on: February 14, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Smith Barney (MS) has consented to pay a penalty of $8M to resolve Securities and Exchange Commission charges accusing the firm of wrongdoing involving single inverse exchange-traded fund investments. Morgan Stanley admitted wrongdoing as part of the settlement.

According to the SEC’s order, Morgan Stanley failed to adequately put into place procedures an policies to make sure that clients comprehended the risks involved in buying inverse ETFs and did not procure signatures from several hundred clients on a client disclosure notice that stated that these ETFs are usually not suitable for investors intending to keep them longer than a trading session unless the securities are part of a hedging or trading strategy.

Morgan Stanley persuaded investors to buy single inverse ETFs in accounts, including retirement accounts. Securities were held-long term. As a result, many of these advisory clients suffered losses.

CFTC Orders Citigroup to Pay $25M for Spoofing, Supervisory Failures

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

Citigroup Global Markets Inc. (C) has been ordered to pay $25M penalty by the U.S. Commodity Futures Trading Commission to settle charges alleging spoofing in US Treasury futures markets. The regulator is also accusing the firm of not doing a diligent enough job of supervising agents and employees that were involved with the spoofing orders, which purportedly took place between 7/16/2011 and 12/31/2012.

Spoofing

Spoofing involves a trader making an offer or bid but with the intention of calling off the bid or offer before it actually goes through. According to the CFTC’s order, through five traders, Citigroup took part in spoofing over 2500 times in different Chicago Mercantile Exchange (CME) U.S. Treasury futures products. The spoofing strategy purportedly applied involved making offers or bids of at least one thousand lots but with no intention of allowing them to be executed.

SEC Charges Connecticut RIA with $3.95M Fraud, Ex-Morgan Stanley Financial Adviser with $5M Securities Scam

Published on: February 8, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed fraud charges against Sentinel Growth Fund Management and its owner Mark J. Varacchi. The regulator is accusing the Connecticut-based investment advisory firm of stealing at least $3.95M from investors. Over $1M was allegedly used to resolve private litigation in which Varacchi was the defendant.

According to the Commission, Sentinel Growth Management Fund and Varacchi misrepresented to investors that their money would go to hedge fund managers to be invested. Instead, the investment advisor firm allegedly commingled investor money and manipulated account balances, activities, and investment returns as part of a securities fraud.

Now, the SEC wants disgorgement and penalties brought against Varacchi and his firm in this investment advisor fraud case.

Benchmark Fixing: Former Deutsche Bank & Barclays Traders Plead Not Guilty to Euribor Rigging and Royal Bank of Scotland Will Pay $85M Penalty to Settle US ISDAFIX Manipulation Allegations

Published on: February 7, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In London, six traders have pleaded not guilty to charges accusing them of trying to rig Euribor, which is the Brussels-based equivalent of the London Interbank Offered Rate (Libor). Euribor is key in establishing the rates on financial contracts, loans, and other financial products around the world.

The defendants include former Deutsche Bank (DB) trader Christian Bittar, current Deutsche trader Achim Kraemer, and former Barclays (BARC) traders Philippe Moryoussef, Colin Bermingham, Carlo Palombo, and Sisse Bohart. They are charged with one count of conspiracy to defraud through the making or obtaining of false or misleading Euribor rates in order allegedly enhance trading profits.

The criminal charges are related to a probe by the Serious Fraud Office. Five other traders from Deutsche Bank and Societe Generale were previously charged.

Connecticut Investment Bank Ordered to Pay Elderly Investors $1.25M & New Study Shows Older Investors With Mild Impairment May Be Vulnerable to Fraud

Published on: February 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Source Capital Group Inc. must pay three elderly investors their full investment of $810K plus $147K in interest, as well as $250K in legal fees, in a securities arbitration case accusing one of the investment bank’s brokers of selling them unsuitable investments. William Lashlee and Joyce and Keith McCrea filed their elder financial fraud claim with the Financial Industry Regulatory Authority.

According to the retirees, the broker sold them stock in a health care tech start-up in 2012. Lashlee invested $220K while the McCreas invested $590K. Unfortunately, the start-up, iPractice Group, shuttered its business in 2013.

The claimants claim that Source Capital was negligent in supervising the broker who sold them the securities. Although the broker was assigned to the firm’s Bowling Green, Kentucky branch, the manager there was purportedly never notified that this particular financial representative was under his supervision.

Puerto Rico Defaults on More Debt Payments

Published on: January 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Puerto Rico government has defaulted on more debt payments that were due to bondholders. The U.S. Territory did not meet the February 1, 2017 due date on $312 million in principal plus interest. The default includes Puerto Rico General Obligation bonds that are supposed to be constitutionally protected.

The Puerto Rican Government Development Bank owes $279 million of the defaulted debt. A spokesperson for Puerto Rico’s Aqueduct and Sewer Authority, however, said that the Commonwealth paid $295 million of interest, which was due on some of the debt.

Puerto Rico owes $70 billion of debt and the island has been embroiled in financial troubles for over three years. The territory has struggled to pay back the debt it owes, defaulting more than once on payments that were due. Last weekend, Puerto Rico’s federal oversight board voted to extend the stay placed on litigation against the island for debt payments that have been missed. The stay was supposed to lift on February 15, 2017. Now that date is May 1, 2017.

The island’s new governor, Ricardo Rosselló, was also granted an extension for when he has to turn in a fiscal blueprint, mapping out how Puerto Rico plans to restore its fiscal health. He now has until February 28, 2017.