Securities Fraud

SAC Capital Advisor’s $1.8B Criminal Securities Fraud Settlement with the DOJ is Accepted by a Federal Judge

Published on: April 12, 2014 | by Shepherd Smith Edwards & Kantas, LLP

U.S. District Judge Laura Taylor Swain has approved the criminal settlement reached between the US Department of Justice and SAC Capital Advisors LP. The hedge fund, which was founded by Steven A. Cohen, consented to pay a $1.8 billion penalty and plead guilty to insider trading charges that resulted in hundreds of millions of dollars in illegal profits.

According to an indictment issued last year, for over a decade, insider trading involving stock of over 20 publicly-traded companies occurred at SAC Capital. The hedge fund is pleading guilty to numerous counts of securities fraud and a single count of wire fraud.

Eight of its employees have either been convicted or pleaded guilty over their involvement, including former SAC Capital portfolio managers Mathew Martoma and Michael Steinberg, who were convicted in their trials but will likely appeal. Cohen, however, has not been criminally charged—although the Securities and Exchange Commission did file a civil case against him. The regulator also put forth an administrative action to get Cohen barred from the securities industry because he failed to properly supervise Steinberg and Martoma or prevent the insider trading from happening.

SEC Files Charges Over Securities Fraud Scams that Used YouTube, Facebook, Twitter, & Other Social Media

Published on: April 9, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed securities fraud charges against Joseph Signore, Paul L. Schumack II, and their respective companies for their Florida-based Ponzi scam that purportedly used YouTube videos to target hundreds of US investors to get them to invest in virtual concierge machines that were supposed to garner 300-500% returns in four years. The two companies are T.B.T.I. Inc. and JCS Enterprises Inc.

According to the SEC, the two men and their companies falsely promised investors that their money would go toward the purchase of these ATM-like machines, which businesses would then use to promote services and products via touch screen, coupons, or printable tickets. The machines were to be placed at airports, hotels, and stadiums.

Instead, contends the regulator, Schumack, Signore, and their companies used investors’ funds in Ponzi scam-fashion, taking new investors money to pay the “returns” of earlier investors and paying for their personal expenses (including credit card bills, restaurants, unrelated business ventures, and family spending).

Bank of America, Its Ex-CEO To Pay $25M to Settle Securities Case with NY Over Merrill Lynch Deal

Published on: March 31, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Bank of America Corp. (BAC) and its ex-CEO Kenneth Lewis have consented to pay $25 million to settle the remaining big securities fraud case accusing them of misleading investors about the financial state of Merrill Lynch & Co. during the 2008 financial crisis. The New York securities case accuses the bank of deceiving shareholders by not disclosing Merrill’s increasing losses before the acquisition deal was closed or letting them know that the deal let Merrill give its officials billions of dollars in awards.

As part of the settlement, the bank will pay the state of New York $15 million and it will enhance its oversight. Lewis, meantime, has consented to pay $10 million and he cannot work at or serve as a director of any public company for three years.

Also named as a defendant in the securities lawsuit but who refused to settle is ex-Bank of America CFO Joe Price. NY Attorney General Eric Schneiderman intends to pursue a summary judgment against him, as well as ask a judge to reach a decision without a trial. Schneiderman reportedly wants Price permanently banned from serving as a director or working at a public company.

Bank of America Settles Mortgage Bond Claims with FHFA for $9.3B

Published on: March 29, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Bank of America (BAC) will pay $9.3 billion to settle securities claims that it sold faulty mortgage bonds to Freddie Mac (FMCC) and Fannie Mae (FNMA). The deal, reached with the Federal Housing Finance Agency, includes $3.2 billion in securities that the bank will buy from the housing finance entities and a cash payment of $6.3 billion.

The mortgage bond settlement resolves securities lawsuits against the bank, Countrywide, and Merrill Lynch (MER). FHFA, which regulates both Freddie Mac and Fannie Mae, accused Bank of America of misrepresenting the quality of the loans behind residential mortgage-backed securities that the mortgage financing companies purchased between 2005 and 2007.

This is the 10th of 18 securities lawsuits reached by the FHFA over litigation involving around $200 billion in mortgage-backed securities. To date, it has gotten back over $10 billion over such claims.

SEC To Examine Exchange Traded-Fund Regulation Again

Published on: March 22, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is getting ready to revisit a 2008 rule proposal about exchange-traded funds. In the wake of new issues that have cropped up since then, changes to the original proposal are likely.

Speaking at the Investment Company Institute’s Mutual Fund and Investment Management Conference this week, SEC’s Division of Investment Management associate director Diane Blizzard said that a revised rule would likely address the differences between index and active funds, transparency of underlying and direct instruments, inverse leverage, and creative flexibility within the funds.

Currently, there is no specific timeline for a revised proposal roll out. Since no rule is in place at the moment, the Division of Investment Management is in charge of making individual choices about whether to approve new exchange-traded funds. This SEC division is also looking at enhancing disclosure requirements related to variable annuities, including whether senior investors and those seeking to build their retirement funds are being properly and thoroughly notified of the benefits, complexities and costs.

Will Castlight Health IPO Prove Too Costly for Investors?

Published on: March 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Castlight Health (CLST) saw its share price soar from $16/share to close to $40/share on the first day of its IPO last week. Despite bringing in just $13 million in revenue yearly thus far, its market cap still managed to hit $3 billion. Now some are wondering if this is an indicator that the IPO market may be approaching bubble territory. (Morgan Stanley (MS), Goldman Sachs (GS), and other top underwriters had priced the shares at $16, just over the raised and expected range of $13 to $15 per share)

Motley Fool analyst Ron Gross observed on Friday’s Investor Beat that this is the ninth IPO to double during its first trading day in the last nine months. Previous to that only five IPOs had done the same in the last 12 years. So yes, he says this is bubble area. Gross expressed concern that investors might be getting into stocks with super high valuations in light of the momentum yet later find that they are framing themselves for failure because they didn’t purchase the stocks at the right price.

However, reports USA Today, Castlight EO Giovanni Cilella is saying that the company sold its shares at the right time and financing is being done to keep up with customer demands. The company makes software to help employers and companies control the costs of healthcare.

1 in 5 Seniors Fall Prey to Financial Fraud

Published on: March 14, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to the Investor Protection Trust, out of every five senior citizens over age 65, one of them will fall victim to a financial scheme in 2012. The Federal Trade Commission says that citizens over age 60 made up the largest group of people to report elder financial fraud to the Federal Trade Commission in 2013-that’s 27% of those who made such reports. That figure was just 22% in 2011.

At Shepherd Smith Edwards and Kantas, LTD LLP, please contact our senior investor fraud lawyers today if you feel that your losses may be a result of financial fraud or some other elder exploitation case. We work with elderly investors to get their money back.

The reason for the increase in elderly victims can in part be attributed to people living longer lives and the baby boom generation getting older. The Street reports that according to a survey conducted by the Metropolitan Life Foundation in 2010, elder financial abuse victims lost a minimum of $2.9 billion in 2010, which was a 12% increase from the number of senior financial fraud victims in 2008. Aside from negligent financial representatives, other fraudsters can include caregivers, relatives, immediate family, and strangers.

Jefferies LLC Settles SEC Charges for $25 Million

Published on: March 12, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Broker-dealer and investment bank Jefferies LLC (JEF) has consented to pay $25 million to settle Securities and Exchange Commission charges that it did not properly supervise traders at its mortgage-backed securities desk. These same staffers purportedly lied to investors about pricing.

The regulator contends that Jefferies did not give its supervisors what they needed to properly oversee trading activity on the MBS desk and that these managers neglected to find out what bond traders were telling customers about pricing information in terms of what the bank paid for certain securities. This inaccurate information was misleading to investors, who were not made aware of exactly how much the firm profited from in the trading.

While Jefferies’ policy makes supervisors look at electronic conversations of salespeople and traders so any misleading or false information given to customers would be detected, the SEC says that the policy was not effected in a manner that price misrepresentations were identified. The supervisory failures are said to have taken place between 2009 and 2011.

SEC Investigates Whether Currency Traders Distorted ETF and Options Prices, Manipulated Currency Markets

Published on: March 12, 2014 | by Shepherd Smith Edwards & Kantas, LLP

InvestmentNews is reporting that according to sources in the know, the Securities and Exchange Commission is trying to figure out whether currency traders at the biggest banks fixed benchmark foreign-exchange rates and distorted the process for exchange-traded funds and options. The regulator, which oversees the options and ETFs involved with the rates, joins the ongoing US and European regulatory investigations into possible currency market manipulation. Also probing the matter is the Commodity Futures Trading Commission, the Federal Reserve, the US Justice Department, New York’s lead banking regulator, and the Office of the Comptroller of the Currency.

European and US authorities have talked to at least 12 banks as they look into allegations reported by Bloomberg News last year accusing dealers of saying they shared data about client orders to manipulate currency benchmark spot rates. Options and other derivatives comprise over 50% of the $5.3 trillion/day foreign exchange market, with the remaining consisting of spot transactions.

In London today, with the Bank of England’s governor, Mark J. Carney talked to lawmakers about concerns that banking officials might have known about and tolerated currency market manipulation. Independent directors are currently conducting a review. Carney testified in front of the Treasury Select Committee.

SEC Stops Pyramid Scam That Targeted Investors Via Twitter, Facebook, Skype, and YouTube

Published on: March 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has put out an emergency enforcement action to stop a pyramid scam that has already taken $300,000 from about 150 investors in the US. The scheme involves bogus companies pretending to be an international investment firm. Customers were solicited via Twitter, Skype, Facebook, and YouTube.

Now, the SEC has gotten a federal court order freezing the holding the funds that purportedly were stolen from investors by MWF Financial and Fleet Mutual Wealth Limited, known together as Mutual Wealth. The regulator claims that the company used social networking and its website to target investors, making false promises of returns of 2 to 3% a week if they opened accounts with the firm.

According to the Commission, Mutual Wealth made its fraudulent pitches via social media. Misrepresentations were published on the company’s Facebook page, including data about income yields of up to 8% weekly and HFT portfolios with ROI of a maximum of 25%/annum. Mutual Wealth purportedly touted its use of a high-frequency trading strategy that lets capital be put into securities for just minutes at a time. The company offered a commission or referral fee if investors became “accredited” and brought in new investors.