Securities Fraud

LPL Financial Should Pay $3.6M in Fines, Repayments for REIT Sales to Older Investors, Says NH Regulator

Published on: April 7, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The New Hampshire Bureau of Securities Regulation wants LPL Financial (LPLA) to pay clients $2.4 million in buybacks and restitution for 48 sales of nontraded real estate investment trusts that were purportedly unsuitable for elderly investors. The regulator, which says the firm did not properly supervise its agents, is also fining LPL $1 million plus $200,000 in investigative expenses.

The securities case springs from transactions involving an 81-year-old state resident that purchased a nontraded REIT from the firm in 2008. The investor, whose liquid net worth was $2.5 million and invested $253,000 in the financial instrument, would go on to lose a significant amount of money. A probe ensued.

The state regulator contends that the 48 REIT sales, totaling $2.4 million lead to concentration that went beyond LPL guidelines and that the firm sold hundreds of nontraded REITs to clients in New Hampshire on the basis of “clearly erroneous “client financial data, while frequently violating its own policies. LPL has reportedly admitted that 10 of the 48 transactions deemed unlawful by the state were unsuitable according to its own guidelines. The Securities Bureau wants to take away the firm’s license to sell securities in New Hampshire.

Investor Fraud News: NFL Free Agent Sues Bank of America For $20M, FINRA Arbitration Panel Awards $1.3M to Investor in Case Involving Ex-Stifel Broker, and Tony Thompson and His Brokerage Firm are Barred from Industry

Published on: March 31, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Former Colts Football Player Sues Bank of America for $20M

Dwight Freeney, formerly with the Indianapolis Colts and currently an NFL free agent, is suing Bank of America (BAC) for securities fraud. He and his Roof Group LLC say they were bilked of over $20 million.

In his securities fraud case, Freeney contends that the bank’s wealth management division is to blame for taking part, aiding, and abetting in the scam that cost him money. He noted that Bank of America went after him in 2010 to become one of its high net worth and affluent clients.

Financier Lynn Tilton Sues the SEC After She is Charged with Securities Fraud

Published on: March 31, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Lynn Tilton, the owner of the financial firm Patriarch Partners LLC, is suing the U.S. Securities and Exchange Commission. She wants the regulator to stop going after her for alleged financial fraud. Tilton claims that the agency did not abide by the U.S. Constitution when it chose to pursue its case against her via its own administrative proceeding rather than federal court.

The SEC is charging Tilton and her firm with securities fraud. The Commission contends that she concealed the poor performance of the assets that were underlying three CLO (collateralized loan obligation) funds, known as the Zohar Funds. The agency has been probing the Zohar I, II, and III funds for years. They contain securities put together by Patriarch and are made up mostly of loans to companies that the financial firm controlled.

Tilton and Patriarch had raised over $2.5 billion for the funds. The regulator said that because they concealed the low performances, the firm and Tilton were able to collect close to $200 million of fees they shouldn’t have received. The SEC said that “major conflict of interest” was a factor.

Ex-F-Squared CEO Still Battling SEC, Firm Dealing With Fallout from Securities Fraud Charges

Published on: March 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

F-Squared Investments Inc. has laid off 40 workers-that’s one-fourth of its staff-as it continues to deal with the ongoing asset losses in the wake of the securities fraud charges filed against it by the U.S. Securities and Exchange Commission last year. During a routine examination, the regulator discovered that the asset management company allegedly had deceived investors by claiming its performance history was based on a real trading record going as far back as 2001 when F-Squared had just back-tested its algorithm. F-Squared is the biggest marketer of index products using ETFs (exchange-traded funds).

The SEC accused the firm of falsely promoting its AlphaSector investment strategy and its supposed excellent track record as based on its investment performance for real clients instead of the backtesting. Due to a calculation error, the results were inflated by 350%.

F-Squared settled the SEC charges for $35 million and the firm’s new CEO, Laura P. Dagan, said that F-squared has been putting more effort into compliance and its main product line. However, in the last several months, investors have withdrawn billions of dollars from F-squared strategies while several brokerage firms refuse to let advisers put more funds into the strategies.

Financial Fraud Victims’ Suffering is More Than Just Monetary, Affirms FINRA Report

Published on: March 17, 2015 | by Shepherd Smith Edwards & Kantas, LLP

According to “Non-Traditional Costs of Financial Fraud,” which is a new research report by the FINRA Investor Education Foundation, almost two-thirds of financial fraud victims who reported that they’d been bilked experienced at least one non-financial consequence to a serious degree. The findings show other ways in which this type of crime takes a toll on its targets.

Some 600 fraud victims took the survey online. Respondents were at least 25 years of age. Among the findings:

• The most commonly named non-financial fraud costs included serious stress, anxiety, sleeping problems, and depression.

Ex-Nomura, RBS Trader Enters Guilty Plea to Bond Fraud

Published on: March 11, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Matthew Katke, formerly of Royal Bank of Scotland Group Plc (RBS) and Nomura Holdings (NMR) has pleaded guilty to conspiracy to commit securities fraud for his involvement in a multi-million dollar bond scam to bilk customers. As part of his deal he will cooperate with prosecutors into its investigation of mortgage-linked bonds and collateralized debt obligations.

Katke traded securities that were backed collateralized loan obligations, which are high-yield corporate debt. The charge is related to activities he engaged in while at RBS. Prosecutors say that Katke and co-conspirators made misrepresentations to get customers to pay prices that were inflated and sellers to say yes to deflated bond prices. The scam took place from around 2008 to June 2014.

Court documents say that Katke and co-conspirators sought to profits on bond trades through the false statements they gave customers. They misrepresented the prices that RBS had paid to get a bond or what it was asking to sell it. They also misled clients about whether a bond was from RBS’s inventory or a third party. RBS is cooperating with the probe.

Bill Seeks to Eliminate Mandatory Arbitration Clause From Brokerage Contracts, While SEC Approves New Public Arbitrator Limits

Published on: February 27, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Investor Choice Act in Congress, A U.S. House bill written by Keith Ellison, D-Minn., is looking to stop investment advisers and brokers from obligating investors to pursue their claims in arbitration instead of going to court. The proposed legislation would bar pre-dispute mandatory arbitration clauses in contracts between clients and their representatives.

As of now, almost all brokerage agreements, and an increasing number of investment adviser ones, come with provisions mandating that investors take their disputes to the arbitration system, which is run by the Financial Industry Regulatory Authority. There are those that believe that the forum favors brokers and advisers. Meantime, others say that the arbitration system is much more efficient for investors than going to court.

This is not the first time that Ellison has pushed for ending mandatory arbitration. He unveiled a similar bill in 2013 but it did not become law. The Public Investors Arbitration Bar Association has put out a statement voicing its support for Ellison’s latest bill, which it says gives investors back their right to choose whether they want to take their dispute to court or arbitration.

SEC Cases: Brothers-In-Law Charged in Louisiana Insider Trading Scam, NY-Based Broker-Dealer Accused of CDO Liquidation-Related Fraud, & Colorado Ponzi Scam is Halted

Published on: February 20, 2015 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is charging former VP of The Shaw Group’s construction operations Scott Zeringue and his brother-in-law Jesse Roberts III with insider trading. Zeringue has already agreed to settle the regulator’s charges by consenting to pay disgorgement of ill-gotten gains plus a penalty.

The SEC says that the insider trading took place in 2012 when Zeringue, while working at The Shaw Group, became privy to confidential data about the company’s upcoming acquisition by Chicago Bridge & Iron Company. Prior to the announcement of the deal, he bought 125 shares of Shaw stock and asked Roberts to buy for him, too. Roberts went on to tip others and they collectively made close to $1 million in illicit profits.

Meantime, parallel criminal charges have been filed against Roberts. Zeringue has already pleaded guilty to the criminal charges against him.

U.S. Bank National Association Must Pay $18M to Peregrine Customers, Says Court

Published on: February 18, 2015 | by Shepherd Smith Edwards & Kantas, LLP

A district court issued a Consent Order placing a permanent injunction against the U.S. Bank National Association and mandating that the bank return $18 million to customers of Peregrine Financial Group, Inc. customers.

US Bank has offices in Iowa where Peregrine, a non-bank, nonclearing FCM (Futures Commission Merchant), and its owner Russell Wasendorf were based. Peregrine was also The bank was the depository for the non-bank and it held an account for customer-segregated funds that Wasendorf accessed when bilking over 24,000 clients. Some $215M was misappropriated.

In July 2012, the Commodity Futures Trading Commission put out a civil action against Peregrine and Wasendorf. The latter has pled guilty to criminal charges and received a 50-year sentence. He also has to pay over $215M in restitution.

SEC Cases: Insider Trading Charges Filed Against Georgia Resident, Mutual Fund Adviser Accused of Improper Asset Handling, & Two-Ex CFOs Agree to Give Back Bonuses Because of Accounting Fraud

Published on: February 14, 2015 | by Shepherd Smith Edwards & Kantas, LLP

Atlanta, GA Man Accused of Making $740,000 for Insider Trading

The Securities and Exchange Commission is filing charges against a Georgia man who is accused of insider trading and making about $740,000 in illicit profits. Charles L. Hill allegedly traded in Radiant Systems stock based on the confidential insider data a friend gave him about an upcoming tender offer to purchase the company. The friend was a friend of a Radiant Systems executive.

In 2011, Hill bought about 100,000 shares valued at close to $2.2 million on the final day of trading prior to the public announcement of the acquisition. That was his first time buying stock of Radiant Systems, and before that it had been years since he’d purchased equity securities.