Securities Fraud

SEC Cases: Biotech Company Accused of Misleading Investors & Accounting Fraud, Millennium Management Resolves Illegal Short Selling Charges, Day Trader Alleged Engaged in Unauthorized Trades in Over 100 Brokerage Accounts, and Multiple Traders Allegedly Insider Traded Based on One Tip

Published on: November 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Day Trader is Accused of Unauthorized Trades to Inflate Stock Prices and Make Illegal Profits
The US Securities and Exchange Commission has filed civil charges against Joseph P. Willner accusing him of accessing over 100 brokerage accounts and making unauthorized trades. Meantime, prosecutors in NY, as well as the US Justice Department, have filed criminal charges against him.

The SEC contends that Willner used the allegedly unauthorized trades to inflate a number of companies’ stock prices. He then traded in these same securities in his accounts and made at least $700K in illicit profits.

Willner is accused of fraud and market rigging. The Commission wants back ill-gotten gains in addition to interest, penalties, and a permanent injunction.

Credit Suisse Resolves NY Regulator’s Forex Rigging Probe for $135M

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

Credit Suisse AG (CS) has agreed to settle currency rigging charges brought by New York’s Department of Financial Services by paying $135M. According to the state regulator, from at least ’08 to ’15, the Zurich-based bank violated NY banking law and engaged in other “unlawful conduct” that “disadvantaged customers.”

The consent order states that Credit Suisse did not put into place controls over its FX business that were “effective.” Also, its traders are accused of the “inappropriate sharing” of information with other banks that could have resulted in exchange rate rigging, coordination of trades, and a rise in the “ bid/ask spreads” that were offered to the bank’s forex customers. The DFS probe said that these actions were geared toward creating more profit for Credit Suisse, while decreasing its losses and harming not just its own customers but the marketplace. Meantime, other banks that it may have colluded with also sought to profit.

Credit Suisse is one of several banks whose traders are accused of gathering in chat rooms to rig currency prices. According to Bloomberg, traders from Barclays PLC (BARC), JPMorgan Chase & Co. (JPM), and Citigroup (C) are waiting for their trials over allegations that they sought to manipulate currencies. To date, banks accused of currency rigging have paid $5.8M to the US Justice Department to settle charges.

SEC Orders 235 LLCs to Produce Documents Related to Its Woodbridge Fraud Probe

Published on: November 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In a subpoena enforcement action, the US Securities and Exchange Commission is ordering 235 LLCs in Colorado and Delaware to provide documents related to its probe into whether Woodbridge Group of Companies, LLC, a California-based real estate and investment company owned and run by its president Robert Shapiro, engaged in a $1B financial fraud. All of the entities, plus another LLC, are affiliated with Woodbridge. The regulator had subpoenaed the 236 of them for the documents in August. Only one LLC responded by the deadline.

Now, the Commission wants a federal district court to make the rest of the LLCs comply with the subpoenas. Meantime, Shapiro has invoked his Fifth Amendment right. However, he maintains that his company did not commit fraud.

SEC Has Been Probing Woodbridge Since 2016
For the past year, the regulator has been looking into looking into possible securities fraud by Woodbridge and others involving more than $1B that was provided by thousands of investors throughout the US. The alleged fraud may include unregistered securities sales, including securities sales by brokers who were not registered, and other fraud.

After Hurricane Maria, Mutual Fund Company Franklin Resources Sells Hundreds of Millions of Dollars of Puerto Rico Bonds

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

According to The Wall Street Journal, Franklin Resources Inc. (BEN), has sold hundreds of millions of dollars of Puerto Rico bonds in the wake of the devastation of Hurricane Maria. This includes Franklin Mutual Advisers LLC’s decision to sell its $294 million stake in the U.S. territory’s general obligation bonds.

Franklin, also known as Franklin Templeton, is the second largest holder of Puerto Rico bonds among mutual funds. OppenheimerFunds (OPY) is the largest.

The Wall Street Journal said that Franklin is not the only one trying to get rid of its Puerto Rico bonds. According to sources, a “swath of mutual funds and hedge funds” have finally given up on the island’s securities, too. For example, Merced Capital and Varde Funds sold their $172 million in Puerto Rico municipal bonds to other bondholders.

Deutsche Bank Agrees to Pay $220M to Resolve Libor Rigging Probe

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

Deutsche Bank AG (DB) has settled with 45 US states and will now pay $220M to resolve allegations that it engaged in rigging the London Interbank Offered (LIBOR) rate and other benchmark interest rates. According to the settlement, the bank admitted that its managers and traders took part in benchmark rigging from ’05 to ’09.

A press release issued by New York Attorney General Eric Schneiderman states that Deutsche Bank “acted unlawfully,” including that:

· The bank defrauded counterparties when it didn’t disclose that it was making LIBOR submissions that were “false or misleading.”

· Its traders tried to influence the LIBOR submissions of other banks so that Deutsche Bank would benefit.

· The bank knew that other banks were rigging LIBOR, too.

· Deutsche Bank didn’t disclose that the other banks’ LIBOR submissions were not accurate reflections of their borrowing rates or that the published rates were not accurate to the submitting banks’ real borrowing costs.

Securities News: Ex- HSBC Executive Found Guilty of Fraud Involving $3.5B Currency Trading & Hedge Fund Sues Barclays For Copper Market Rigging

Published on: October 24, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury in New York has found Mark Johnson guilty on criminal charges accusing him of front-running involving a $3.5B currency trade. HSBC’s ex-foreign-exchange cash trading global head is the first banker that the US Justice Department charged over forex rate rigging.

Johnson was convicted on eight counts of wire fraud and one count of wire fraud conspiracy, and he reportedly will appeal the verdict. Johnson maintains that he was acting in the best interest of the client involved and he did not do anything wrong or irregular.

According to acting US Attorney in Brooklyn Bridget M. Rohde, Johnson used confidential information given to him by an HSBC client to make trades in an attempt to earn millions of dollars for the bank and himself while costing the client money. He and ex-HSBC European currency trading head Stuart Scott allegedly engaged in front running, which involves making trades based on advanced information about a big market order, with the advanced trades rendering huge profits once the bigger transaction has upped the price. Scott is currently in the UK battling extradition efforts to bring him back to the US.

Massachusetts Accuses Investment Adviser of Venture Capital Fraud

Published on: October 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Secretary of the Commonwealth of Massachusetts William Galvin has filed civil fraud charges against Moser Capital Management and investment adviser Nicklaus J. Moser. Galvin’s office is accusing Moser and his firm of fraud involving two venture capital funds: the Moser Capital Fund, LLC and the Moser Capital Fund II, LLC.

The state regulator claims that the respondents engaged in fraudulent conduct and breached their fiduciary duties. The breaches alleged include making misrepresentations and omissions to investors and prospective investors by providing misleading information, not getting “valid investor signatures” when receiving more capital contributions, and charging a performance fee to the non-qualified account of an advisory client.

According to Galvin’s office, Moser set up the funds to raise cash for start-up companies. The investment adviser was allegedly a sales representative at a company that sold products to startup ventures, but he did not tell investors that he had financial reasons for making sure that the start-ups in operation.

Oppenheimer Funds and Other Mainland Funds Take Financial Hit in the Wake Up of Hurricanes

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

The financial fallout caused by Hurricanes Irma and Maria is being felt not just on the island of Puerto Rico, but in the U.S. mainland as well. Puerto Rico bonds, which were already in trouble prior to the storms because of the island’s faltering economy and bankruptcy, are expected to take even more of a hit. Moody’s Investors Service assesses the future of the bonds, which were already at a Caa3 rating, as negative. The ratings agency said that the “disruption of commerce” caused by hurricanes will drain Puerto Rico’s “already weak economy” further. All of this is expected to impact not just the Puerto Rico bonds but also the mutual funds based on the U.S. mainland that hold them, which means that investors will be impacted.

According to InvestmentNews, Morningstar stated that 15 municipal bond funds, “14 of them from Oppenheimer Funds (OPY),” have at least 10 % of their portfolios in the island’s bonds. The 15th fund is from Mainstay. Morningstar reported that through September 28, the funds lost a 1.57% average for the month. The Oppenheimer Rochester Maryland Municipal Bond (ORMDX), which has 26% of its portfolio in Puerto Rico bonds, was considered the worst performer. In addition to Oppenheimer and Mainstay, other U.S.-based funds that are losing money from Puerto Rico bonds, include, as reported by The New York Times:

· Paulson & Co., which has invested billions of dollars in Puerto Rico securities. The Wall Street firm is run by hedge fund manager John A. Paulson.

SEC Charges Investment Adviser With Defrauding Seniors Who Were His Friends

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

The US Securities and Exchange Commission has filed charges against investment adviser Tarek D. Bahgat for allegedly stealing $378K from clients. Bahgat is accused of misappropriating funds from seven investment advisory clients, most of whom were elderly investors.

According to the regulator, from December 2014 through September 2016, Bahgat, using the alias Terry Dean Bahgat, misappropriated the clients’ funds online and transferred the money to his own account and that of WealthCFO, which was the payroll and accounting company that he controlled. FINRA’s BrokerCheck database shows that Bahgat was working for two brokerage firms: Cambridge Investment Research and Gradient Securities. After exiting Gradient, he was a state-registered advisor and used the name WealthCFO Partners.

The SEC’s complaint claims that Bahgat would sometimes obtain the internet bill-paying privileges in some client accounts by pretending to be the client or having his assistant, Lauramarie Colangelo, pose as the client during phone calls with the brokerage firms that held the accounts. Colangelo was the operations manager of WealthCFO.

Deutsche Bank Resolves US Currency Rigging Case for $190M

Published on: October 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Deutsche Bank AG (DB) has consented to pay $190M to resolve an investor fraud lawsuit accusing the German lender of manipulating prices in the foreign exchange market. Despite settling, however, the bank maintains that it did not engage in wrongdoing.

Investors accused Deutsche bank and 15 other banks of conspiring to rig key currency benchmark rates by coordinating strategies and sharing confidential trade information and orders. The bank’s traders are accused of meeting in chat rooms to engage in numerous tactics to make more profits regardless of whether or not this meant losses for investors.

Regulator probes into currency rigging have led to $10B in fines imposed against a number of big banks, including the most recent one by the Federal Reserve, which ordered HSBC to pay a $175M fine for not properly monitoring its currency traders. With the investor lawsuits, Credit Suisse Group AG (CS) is the only one of the banks sued by investors that has not settled.