Securities Fraud

Charles Schwab & Co. Defendant in Class-Action Securities Fraud Lawsuit Filed on Behalf of Schwab Total Bond Market Fund Investors Over CMOs and Mortgage-Backed Securities

Published on: September 7, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A class-action securities complaint has been filed against Charles Schwab & Co. on behalf of investors that own Schwab Total Bond Market Fund (Nasdaq: SWBLX) shares that were purchased after May 31, 2007. The securities fraud lawsuit accuses Charles Schwab of causing the fund to deviate from its fundamental business objective, which was to track the Lehman Brothers U.S. Aggregate Bond Index, and of violating the California Business & Professions Code.

According to the plaintiffs’ legal representation, the defendant caused investors to suffer financial losses when it started investing in high-risk mortgage backed securities without letting shareholders know. Per the fund’s prospectus, Charles Schwab is supposed to obtain shareholder approval through a vote.

The plaintiffs contend that by investing 25% of the fund’s portfolio assets in high-risk, non-agency collateralized mortgage obligations (CMO’s) and mortgage-backed securities that were not part of Lehman’s US Aggregate Bond Index, Charles Schwab failed to stay true to its stated fundamental investment objective. They claim that this deviation led to tens of millions of dollars in shareholder losses because of the decline in the non-agency mortgage-backed securities value. According to their lawyers, the investors ended up experiencing a negative 12.64% in differential in total return for the fund compared to the Lehman Bros. U.S. Aggregate Bond Index from August 31, 2007 to February 27, 2009.

The investor plaintiffs are seeking restitution for all class members and for the return of management and other associated fees collected after the fund’s alleged deviation from its fundamental business objective.

Related Web Resources:
Class Action Lawsuit Filed Against Charles Schwab & Co., Star Global Tribune, September 7, 2010
Plaintiffs charge Total Bond Market Fund deviated from stated investment strategy, Investment News, September 7, 2010

Related Blog Stories Resources:
Schwab Must Pay SSEK Client $604,094 Over California Yield Plus Fund Investments, Says FINRA Arbitration Panel, https://www.stockbrokerfraudblog.com, April 22, 2010
Securities Law Firm Shepherd Smith Edwards & Kantas LTD LLP Investigates Investor Claims Related to Short Term Bond Funds, https://www.stockbrokerfraudblog.com, August 9, 2008 Continue Reading ›

Eaton Vance and Closed-End Trusts Sued for Breach of Fiduciary Duty Related to Redemption of Auction Preferred Securities

Published on: September 3, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Eaton Vance Management says that five of the closed-end management investment companies that it advises have each received a demand letter on behalf of a putative common shareholder of the “Trusts” alleging breach of fiduciary duty related to the redemption of auction preferred securities after the auction markets failed in February 2008.

The “Trusts”:
• Eaton Vance Floating-Rate Income Trust (NYSE:EFR – News)
• Eaton Vance Tax-Advantaged Global Dividend Income Fund (NYSE:ETG – News)
• Eaton Vance Limited Duration Income Fund (NYSE Amex: EVV)
• Eaton Vance Insured Municipal Bond Fund (NYSE Amex: EIM)
• Eaton Vance New Jersey Municipal Income Trust (NYSE Amex: EVJ)

The letters seeks to have the Trusts’ Board of Trustees take certain steps to remedy the alleged breaches of duty. Eaton Vance Management is an Eaton Vance Corp. subsidiary.

Also, purported class action complaints have been filed against ETG and EVV on behalf of a putative common shareholder of each Trust. The securities lawsuits are claiming breach of fiduciary duty related to the redemption of auction preferred securities. Eaton Vance Management, Eaton Vance Corp., and the Trustees of the Trusts also are defendants. Eaton Vance provides institutional and individual investors with a wide range of wealth management solutions and investment strategies.

Our securities fraud lawyers represent institutional investors throughout the US. We are here to help you recoup your investment losses.

Related Web Resources:

Institutional Investors, Eaton Vance

Closed-End Management Company, Investopedia

Read our Stockbroker Fraud Blog

Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute

Published on: September 1, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel says that Raymond James and financial advisor Larry Milton must pay Sherese and Rex Glendenning $925,000 over an auction-rate securities dispute. This is the third time this summer that Raymond James Financial Inc. (NYSE: RFJ) subsidiaries have been involved in an ARS dispute that was decided in FINRA arbitration. Since July 1, independent broker-dealer Raymond James Financial Services Inc. and brokerage firm Raymond James & Associates have been ordered to repurchase $3.5 million in ARS from clients.

The Glendennings set up their account with Raymond James in January 2008 before the market meltdown. Milton placed the couple’s $1.4 million in an ARS that contained sewer revenue bonds while failing to tell them about the risk involved.

The couple contends that Milton’s behavior wrongly gave them the impression that their investment was highly liquid and could be easily sold. However, Raymond James turned down their request to buy the ARS back at full value.

According to the Glendennings’ securities fraud attorney, the timing of the purchase was key to winning the award. The securities that they bought came up for auction for the first time thirty five days after they made the purchase. The auction failed and the couple were never able “ to go to auction.”

At the time of the ARS market crash in February 2008, Raymond James Financial clients held $1.9 billion in auction rate debt—now down to $600 million. To date, none of the securities regulators have sued the firm over ARS sales. Other financial firms, including Oppenheimer & Co. Inc. and Charles Schwab & Co. haven’t been as lucky.

Related Web Resources:
Raymond James pays more auction rate claims, Investment News, August 26, 2010

FINRA rules against Raymond James in auction rate securities case, Tampa Bay Business Journal, August 26, 2010

Stockbroker-Fraud Blog

John Gardner Black Responds to Stories Recently Published Concerning His Role in an SEC Securities Fraud Action.

Published on: August 24, 2010 | by Shepherd Smith Edwards & Kantas, LLP

On August 19, 2010, along with other news sources, we published a story regarding investment fraud victims of John Gardner Black. Mr. Black subsequently protested that ours and other stories published concerning him were inaccurate.

Below are the inaccuracies he reports, verbatim, regarding ours and apparently other publications which concern him. We do not purport to have confirmed the accuracy of Mr. Black’s response at this time, but felt it fair to publish the corrections he claims should be made.

1.) I did not plead guilty to securities fraud. If I had, do you really think the SEC would have reinstated me? My guilty plea was to not informing my customers of the liquidation value of securities they did not own.

Investment Fraud Victims of John Gardner Black May Be Due Tax Refunds

Published on: August 19, 2010 | by Shepherd Smith Edwards & Kantas, LLP

John Gardner Black, who spent three years in prison after pleading guilty to 21 counts of securities fraud, two counts of false documents, and three counts of mail fraud in 2001, says he doesn’t think that he should have to pay $61.3 million in restitution.

Prosecutors had accused Black of investing approximately $233 million for about 48 school districts while using a risky investment that Pennsylvania law doesn’t allow for school districts. Black hid from his clients both the transfers to the high risk investments and the $71 million loss when the investments’ value declined.

Black is now contending that he was prosecuted based on a Securities and Exchange Commission determination that he “materially” overstated the assets’ value by providing the school districts’ investments’ security. Last year, however, the SEC and the Financial Accounting Standard Board ended up adopting the same valuation method that he’d applied during the 90’s. Black is arguing that because he was sanctioned for “unethical” business practices that are now sanctioned, the court order that he pay $61.3 million for ill-gotten gains should be set aside.

Black applied a similar argument when he went to the SEC asking that it lift the lifetime ban preventing him from taking part in the investment industry. Although Black is still not allowed to associate with investment companies or investment advisers, he can once again associate with dealers, brokers, and municipal-securities dealers. He has, however, lost his appeals to have the criminal conviction against him overturned.

As a victim of investment fraud, you may be entitled to tax refunds.

Related Web Resources:
Fraud says he shouldn’t have to pay restitution to his victims, Pittsburgh Live, August 18, 2010
Related Court Document (PDF)
Continue Reading ›

UBS Ordered to Pay Auction-Rate Securities Investor Kajeet Inc. $81 Million

Published on: August 10, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel has ordered UBS Financial Services Inc. to pay investor Kajeet Inc. $80.8 million for failed auction-rate securities. The brokerage firm disagrees with the decision and intends to file a motion to have the claim vacated.

Although Kajeet had only invested $8 million in ARS through UBS, the company, which markets cell phones for kids, contends that because its securities were frozen, a “domino effect” resulted and it ultimately lost $110 million. Also, Kajeet was forced to significantly cut its 60-person work team and it lost a key distribution deal with a national retail chain.

UBS had previously resolved ARS-related charges with an agreement that it would pay a $150 million fine and buy back $18.6 billion of the securities. The brokerage firm was one of a number of broker-dealers that agreed to repurchase over $60 billion in ARS from investors because they had allegedly misrepresented the securities as safe investments. When the $330 million ARS market froze in February 2008, UBS had over $35 billion in ARS that were held by some 40,000 customers.

Citigroup Settles Subprime Mortgage Securities Fraud Claims for $75 Million

Published on: August 3, 2010 | by Shepherd Smith Edwards & Kantas, LLP

For $75 million, Citigroup will settle federal allegations that it failed to disclose that its subprime mortgage investments were failing while the market was collapsing. This is the first securities fraud case centered on whether investment banks fairly disclosed their own financial woes to shareholders.

Unlike the Goldman Sachs case, which resulted in a $550 settlement and involved allegations that the investment bank misled investors, Citigroup is accused of misleading its shareholders. This also marks the first time the SEC has filed securities fraud charges against very senior bank executives for their alleged roles in subprime mortgage bonds.

The SEC contends that Citigroup failed to reveal the true nature of its financial state until November 2007. Just that summer the investment bank told investors that it had about $13 billion of exposure to subprime mortgage related-assets that were declining in worth. However, Citigroup left out about $43 billion of exposure to similar assets that bank officials thought were very safe.

Key evidence against Citigroup centers on an announcement that it prepared for investors that cautioned that the quarter was likely going to be one of lower earnings in the fall of 2007. However, the investment bank did not reveal its full subprime exposure. Former Citigroup investor relations head Arthur Arthur Tildesley Jr., who has agreed to pay an $80,000 fine over allegations he omitted key information in the shareholder disclosures, is accused of preparing the statement. Former chief financial officer Gary L. Crittenden, who has settled the SEC case against him for $100,000, recorded the audio message to investors.

The government was eventually forced to bail out the investment bank. Citigroup is not admitting to or denying the charges by consenting to settle. Now, however, the investment bank has to defend itself from private shareholder complaints.

Related Web Resources:
SEC Charges Citigroup and Two Executives for Misleading Investors About Exposure to Subprime Mortgage Assets, SEC, July 29, 2010
Citigroup Pays $75 Million to Settle Subprime Claims, NY Times, July 29, 2010
Citigroup agrees $75m fraud fine, BBC News, July 29, 2010 Continue Reading ›

Dallas Billionaire Brothers Charged with Texas Securities Fraud

Published on: July 31, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Following a six-month probe, US Securities and Exchange Commission has charged two Dallas billionaires with Texas securities fraud. Brothers Charles and Samuel Wyly are accused of taking part in a financial fraud scheme that garnered them over $550 million in illicit gains.

The two men are accused of trading stock in four companies that they were the directors of and devising a securities scheme involving bogus subsidiaries and trusts in the Cayman Islands and the Isle of Man to cover up over $750 million of stock sales in Sterling Commerce Inc., Michaels Stores Inc, Scottish Annuity & Life Holdings Ltd., and Sterling Software Inc.

The SEC is also accusing the Wylys of making an insider trading gain of $31.7 million when they made a bet in Sterling Software, which they own, that was “massive and bullish” in 1999 after deciding to sell the company. Computer Associates bought the firm for $4 billion in stock in March 2000.

Also charged with Dallas securities fraud is the Wylys’ attorney Michael French and broker Louis Schaufele.The SEC claims that the Wylys and French either should have known or knew that they had disclosure obligations because of their roles as owners and directors of over 5% of company stock. The defendants are accused of issuing hundreds of misleading statements that allowed the brothers to conduct trades without detection, including large block trades involving of over 14 million shares.

The SEC contends the two brothers used the proceeds from the alleged Texas securities fraud to acquire real estate, art, and jewelry. They also are accused of using the money to donate to charitable causes.

The SEC wants to get back ill-gotten gains, impose civil fines, prevent the two men from serving as director or officer of a public company, and other remedies. An attorney for the brothers says that the securities charges are without merit.

“This is a situation in which wealthy investors may find that they can seek tax refunds by characterizing the loss on their investment as a “theft lost” rather than as a capital loss carry-forward. In total, our clients have received millions of dollars in refunds using this technique,” says Dallas Securities Lawyer William Shepherd.

Related Web Resources:
SEC Charges Corporate Insider Brothers With Fraud, SEC, July 29, 2010
SEC Charges Wyly Brothers With $550 Million Fraud, ABC News, July 29, 2010 Continue Reading ›

Securities Class Action Against Morgan Stanley by Xerox and Kodak Retirees Dismissed by Appeals Court

Published on: July 20, 2010 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. Second Circuit Court of Appeals in New York has upheld a lower court’s ruling to dismiss that the securities class action filed by Eastman Kodak Co. and Xerox Corp. against Morgan Stanley. The plaintiffs, retirees from both companies, are accusing the broker-dealer of advising them that if they retired early their investments would be enough to support them during retirement. They also claim that the investment bank persuaded them to open accounts that cost them the bulk of their wealth. According to the plaintiffs’ attorney, the retirees gave up job security and employment rights after they were told that if they retired early they could avail of a 10% withdrawal rate from their individual retirement accounts.

However, upon retiring, the retirees that invested lump-sum retirement benefits with Morgan Stanley experienced “disastrous” value declines. Also, they had invested with two Morgan Stanley broker, Michael Kazacos and David Isabella, that were later barred from the securities industry. Last year the broker-dealer settled FINRA charges over the two men’s activities by paying over $7.2 million.

The appeals court says that because of the 1998 Securities Litigation Uniform Standards Act, the plaintiffs are precluded from pursuing class state law claims, including misrepresentation claims. While the statute lets plaintiffs file lawsuits in state court to get around 1995 Private Securities Litigation Reform Act’s securities fraud pleading requirements, federal preemption of class actions claiming “misrepresentations in connection with the purchase or sale of a covered security” are allowed. The three-judge panel also said that because the retirees waited too long to file their securities fraud lawsuit, they cannot raise other federal securities law claims.

Related Web Resources:
Xerox, Kodak retirees lose Morgan Stanley appeal, Reuters, June 29, 2010
Morgan Stanley to Pay More than $7 Million to Resolve FINRA Charges Relating to Misconduct in Early Retirement Investment Promotion, FINRA, March 25, 2009
1998 Securities Litigation Uniform Standards Act, The Library of Congress Continue Reading ›

Refusal to Grant Prevailing Party of Securities Fraud Case Attorneys’ Fees and Costs is Affirmed by Appeals Court

Published on: July 9, 2010 | by Shepherd Smith Edwards & Kantas, LLP

In Kelter v. Associated Financial Group Inc., The U.S. Court of Appeals for the Ninth Circuit affirmed a lower court’s decision to refuse to grant attorney fees and costs under the Private Securities Litigation Reform Act to the prevailing parties, which in this case are the defendants. In its unpublished ruling, the court determined that the plaintiff did not take part in any “egregious conduct” that would warrant that the district court’s denial be reversed.

The securities fraud case was filed by Richard Kelter and involved his failed APEX Equity Options Fund LP investments. The plaintiff accused Jeffrey Forrest of fraudulent misrepresentation regarding the risks and nature of the equity fund. He claimed that as Forrest’s principals, Associated Securities Corp., Associated Financial Group Inc., and Associated Planners Investment Advisory Inc. should be held liable.

On January 14, The district court granted the Associated defendants’ summary judgment. Two weeks later, the defendants moved for attorneys’ fees and costs under PSLRA. They claimed that Kelter did not have enough legal basis and factual evidence when he named them as defendants in his first amended complaint. The district court denied their motion.

The appeals court says that the district court had found that the Associated Defendants did not timely serve its motion for fees on Respondent before filing and, as a result, did not give the Respondent twenty-one days to withdraw the challenged paper. The lower court also said that it did not see any indication that the plaintiff’s actions were unreasonable, frivolous, filed for improper purpose, or objectively baseless.

The appeals court not only affirmed the district court’s decision, noting that it did not find Kelter’s arguments of the objectively baseless nature that have in past cases resulted in such fee awards, but also it declined to “reach the question of whether the district court improperly applied Rule 11’s safe harbor provision.”

Related Web Resources:
Kelter v. Associated Financial Group Inc., 9th Circuit

Private Securities Litigation Reform Act
Continue Reading ›