Securities Fraud

Senate Bill 1551 Allows Securities Fraud Lawsuits Against Those Accused of Aiding and Abetting Primary Violators

Published on: March 23, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Our stockbroker fraud law firm is hoping that Senate Bill 1551, introduced last July by Senator Arlen Specter, will resurface in the upcoming regulatory reform bill. If passed into law, the “Liability for Aiding and Abetting Securities Violations Act of 2009” would allow secondary actors that aided and abetted the primary violators of securities laws to also be sued for securities fraud.

The bill is trying to overturn the US Supreme Court rulings Stoneridge Investment Partners v. Scientific-Atlanta and Central Bank of Denver v. First Interstate Bank. Both decisions held that a private plaintiff cannot file a securities fraud claim against secondary actors. Under current law, only the US Congress has the sole authority to bring such claims with the US Securities and Exchange Commission.

With Senate Bill 1551, the Securities Exchange Act of 1934’s Section 20 would be amended so that anyone that recklessly or knowingly gave substantial help to a party that violated securities law could be held liable through a civil lawsuit to the same extent as the primary actor. Accountants, securities analysts, investment banks, law firms, credit rating agencies, and private companies are some of the possible secondary actors that could be sued as securities fraud defendants.

Related Web Resources:
Liability for Aiding and Abetting Securities Violations Act of 2009, Govtrack.us
Securities Exchange Act of 1934 (PDF)

Stoneridge Investment Partners v. Scientific-Atlanta, Oyez.org
Central Bank of Denver v. First Interstate Bank
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LC Wegard Clients that Purchased Relevant Securities May Be Entitled to Distribution from Litigation Estate

Published on: March 18, 2010 | by Shepherd Smith Edwards & Kantas, LLP

If you are a LC Wegard & Co, Inc. customer who bought any of the securities listed below from the firm between October 1, 1991 and September 30, 1994, you may be entitled to distribution from the Litigation Estate.

Relevant Securities (includes Common Stock, Zero Coupon Subordinated Debentures, Warrants, Subordinated Pay in Kind Debentures, Subordinated Convertible Debentures):

• Chefs International Inc.
• AGP & Co.
• Diamond Entertainment Corp.
• Consolidated Technology Group, Ltd.
• Futurebiotics, Inc.
• Great American Recreation, Inc.
• Gates/FA Distributing Inc.
• Gentner Communications Corp.
• Immunotherapies Corp.
• Linkon Corp.
• Lafayette Industries Inc.
• Metalclad Corp.
• Primedex Health Systems Inc.
• Nacoma Cosolidated Industries, Inc.
• Officeland Inc.
• Non-Invasive Monitoring Systems Inc.
• PDK Lambs, Inc.
• Process Equipment, Inc.
• US Transportation Systems, Inc.
• Sanyo Industries, Inc.
• Site Holdings, Inc.

All LC Wegard clients that bought any of these securities during the Relevant Period have to submit the original, signed proof of claim and any supporting or accompanying documents to:

Claims Administration C/O Donald F. Conway Receiver PO Box 8329 Princeton, New Jersey 08543-8329
Deadline: The Claims administration must receive your claim by 5pm EST on May 4, 2010. Failure to meet this deadline will result in a perpetual bar from receiving any distribution.

Our stockbroker fraud attorneys represent investment fraud victims throughout the US.

Related Web Resource:
Proof of Claim Form (PDF)
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Citigroup Ordered to Defend Against Securities Fraud Allegations by Terra Securities of Norway and Several Norwegian Municipalities

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

A district court judge has denied Citigroup‘s motion that the securities fraud lawsuit filed against it by Terra Securities of Norway and seven Norwegian municipalities be dismissed. The plaintiffs claim that Citi misrepresented the risk involved in the $115 million in securities they bought in May and June 2007. They are seeking over $200 million in compensatory damages.

Judge Victor Morrero rejected Citibank’s claim that the U.S. District Court for the Southern District of New York lacked jurisdiction over the case because the financial losses happened in Norway. The plaintiffs had argued that their securities fraud claims are a result of Citigroup’s conduct in New York.

In their securities fraud complaint, the plaintiffs are claiming that Citigroup sold fund-linked securities as if they were conservative, safe investments. In fact, the notes, which were tied to the Citi Tender Option Bond Fund, are very high risk.
The municipalities bought the derivatives through Terra.

In the months following their purchase, the notes would go on to significantly drop in value. Terra went bankrupt and the municipalities had to reduce funding that was intended for hospitals, libraries, schools, and social services. One of the plaintiffs, the municipality of Narvik, was forced to turn off street and road lights at night. This is an area experiences limited daylight hours during the winter. The other municipalities that are plaintiffs of this securities fraud lawsuit are Bremanger, Hemnes, Hattfjelldal, Rana, Kvinesdal, and Vik.

The plaintiffs’ securities fraud lawyer says that the judge’s ruling affirms foreign plaintiffs’ right to sue Citigroup for alleged fraud that occurred in NY over notes that were marketed abroad. Citigroup, which had pushed to have the case heard in Norway or England, denies any wrongdoing. The investment bank says it will vigorously defend against the charges.

Related Web Resources:
Citigroup Must Defend Norwegians’ Lawsuit Over Notes, BusinessWeek, February 17, 2010

Citigroup Must Defend Suit Over Derivatives Sales In Norway, Wall Street Journal, February 17, 2010 Continue Reading ›

Morgan Keegan Ordered by FINRA Panel to Pay Investor $2.5 Million for Bond Fund Losses

Published on: February 23, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority panel has ordered Morgan Keegan & Co. to pay investor Andrew Stein $2.5 million because the bond funds that he invested in had bet poorly on mortgage-related holdings. Panel members found Morgan Keegan liable for failure to supervise, negligence, and for selling investments that were unsuitable for Stein and his companies. The claimants, who sustained financial losses, had initially sought $12 million.

Stein’s arbitration claim is just one of over 400 securities claims that have been filed against Morgan Keegan over its bond funds that had invested in subprime-related securities, such as CDO’s (collateralized debt obligations). When the US housing market collapsed, the funds went down in value by up to 82%.

Stein contends that Morgan Keegan did not reveal the kinds of risks involved in investing in the bond funds. He and his companies claim that Morgan Keegan artificially increased the fund assets’ value so that the funds would appear more stable and investors wouldn’t be able to see the actual risks involved.

Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million

Published on: February 15, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Bank of America Corp. (BAC) has agreed to pay $150 million, in addition to $1 million in disgorgement, to settle the Securities and Exchange Commission’s charges over the investment bank’s proxy-related disclosures regarding the Merrill Lynch acquisition. U.S. District Judge Jed S. Rakoff said he hopes to decide by February 19 on whether to approve the settlement. He also said he has more questions regarding the deal.

If approved, the settlement would conclude two SEC securities lawsuits against Bank of America over the Merrill Lynch merger. One complaint involves the investment bank’s alleged failure to reveal, prior to a 2008 shareholder meeting to vote on the acquisition, that financial losses were in the billions and rising at Merrill. The second lawsuit is over what the bank did and did not disclose about the billions of dollars in bonuses paid to Merrill Lynch employees right before the $50 billion merger was completed.

Under the proposed SEC settlement, the $150 million would go to Bank of America shareholders who suffered financial losses because of the investment bank’s alleged disclosure violations. Also, for three years BofA would have to maintain and implement a number of remedial measures, including hiring an independent auditor to look at its internal disclosure controls, hiring a disclosure counsel to work on bank disclosures, making sure that BofA’s chief financial officers and chief executive certify yearly and merger proxy statements, and allowing shareholders to have an advisory say-on-pay vote regarding executive compensation.

Earlier this month, New York Attorney General Andrew Cuomo filed a separate securities fraud lawsuit against Kenneth D. Lewis, who formerly served as BofA’s chief executive, Joe Price, the bank’s former chief financial officer, and Bank of America for allegedly concealing Merrill Lynch’s losses. The complaint alleges that BofA general counsel Timothy Mayopoulos was let go because he wanted to disclose the losses at Merrill Lynch before the deal was finalized.

Related Web Resources:
Bank of America Still Dealing With Fallout From Merrill Deal, Fox Business, February 5, 2010
Cuomo Sues Bank of America, Even as It Settles With S.E.C., NY Times, February 4, 2010
US judge has questions on $150 mln SEC-BofA accord, Reuters, February 16, 2010 Continue Reading ›

Dallas Securities Attorney and Former SEC Litigator Convicted of Fraud in Pump and Dump Stock Scam

Published on: February 11, 2010 | by Shepherd Smith Edwards & Kantas, LLP

A jury has convicted Phillip Windom Offill Jr. of Texas securities fraud. The Dallas lawyer and former SEC trial attorney was found guilty of nine counts of wire fraud and one count of conspiracy for his involvement in a “pump and dump” scam that sold nine companies’ unregistered securities to investors in order to make a profit.

Court filings had accused the Texas securities attorney of using bogus press releases and “blast” emails to get investors to buy certain companies’ shares. When stock prices would go up, those involved in the scam would dump stock to make money. 10 other defendants have pleaded guilty for their part in the securities fraud scheme.

The SEC’s civil complaint against Offill accused him of conspiring with others to create bogus investment firms that obtained an offering of millions of unregistered AVL shares. Offill was one of the people who allegedly would transfer the shares to the company’s founder and associates, who would then promote the company’s potential as stock was being dumped.

According to U.S. Attorney Neil H. MacBride, Offill purposely broke the law, so that he and others could make millions off of innocent investors who ended up with worthless stock.

Prosecutors want $15 million in forfeiture. Offill’s sentencing is scheduled for April. He faces up to 20 years in prison for each wire fraud conviction and a maximum of five years in prison for conspiracy.

Related Web Resources:
Jury Convicts Former SEC Lawyer, The Wall Street Journal, January 28, 2010
Lawyer indicted in alleged pump-and-dump stock scheme, ITWorld, March 13, 2009 Continue Reading ›

Former JPMorgan Bankers Sued by SEC Over Swap Transactions Want Judge to Dismiss Securities Fraud Charges

Published on: February 6, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Two ex- JPMorgan Chase & Co. bankers that the Securities and Exchange Commission is suing over their alleged involvement in certain swap transactions are asking the U.S. District Court for the Northern District of Alabama to throw out most of the securities fraud charges that the regulator agency has filed against them. According to the SEC, Douglas MacFaddin and Charles LeCroy paid close friends of county commissions and broker-dealers over $8 million in undisclosed payments to make sure that JPMorgan would be chosen as the bond offerings underwriter and its affiliated bank would be selected as swap provider so that both entities could make $5 billion in underwriting and interest rate swap agreement business.

The swaps involve three Jefferson County bond transactions that took place in 2002 and 2003 and are at least partly linked to the Securities Industry and Financial Markets Association’s municipal swap index. The SEC says this index is securities-based because it is derived from variable-rate demand notes. MacFaddin and LeCroy’s lawyers, however, say that the SIFMA swap index is a rate index, which therefall places the swaps outside the agency’s antifraud jurisdiction. The defendants want the case dismissed.

The ex-JPMorgan bankers’ lawyers claim the undisclosed fees were connected to the swap transactions and that the investment bank was not obligated to disclose them. The defendants’ motions argue that the SEC’s failure to cite an instance in which the two men committed securities fraud is another reason the charges should be thrown out.

To resolve SEC administrative charges over its alleged part in the alleged securities scam, J.P. Morgan Securities Inc. consented to pay $75 M and forfeit $647 M in termination fees.

Related Web Resources:
Ex-JPM Bankers Seek End to Swap Charges, Onwallstreet.com, January 21, 2010
Read the SEC Complaint (PDF)
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Securities Class Actions are No Longer the Fad as Investors Hire Their Own Attorney to Recover Far More!

Published on: January 23, 2010 | by Shepherd Smith Edwards & Kantas, LLP

According to Advisen Ltd, 910 securities lawsuits were filed in 2009 in the wake of the economic crisis-a 13% increase from the 804 complaints filed in 2008. 239 securities fraud class action lawsuits were filed in 2009-the same number filed in 2008. Advisen reported a 22% increase in the number of regulator-filed securities fraud complaints last year compared to the year before.

The author of Advisen’s report, John W. Molka III, says lawsuits over the Madoff ponzi scam and the credit crisis kept regulators and litigators busy during the first half of last year. Plaintiffs’ lawyers then had a backlog of other complaints to work on during the second half of the year.

Molka says that even though there wasn’t a change in the number of securities class action complaints filed, overall they made up a smaller percentage (about 25%) of the total number of lawsuits submitted. This decline in securities class action lawsuits has been going on since 2005, when they comprised about 50% of all securities complaints.

Advisen says that meantime, regulators continue to increase their enforcement efforts with lawsuits and actions. Securities actions filed in state courts and breach of fiduciary complaints are also growing in number.

To obtain the maximum recovery for your securities case, you should speak with a securities fraud law firm about your legal options. Our securities fraud lawyers represent clients with arbitration claims and securities lawsuits against negligent financial firms and other liable entities.

Related Web Resources:
Advisen, Ltd.

Read the Report, Advisen Continue Reading ›

Court Stops Results One Financial LLC Adviser’s Alleged Investment Fraud Scam

Published on: January 21, 2010 | by Shepherd Smith Edwards & Kantas, LLP

Per the Security and Exchange Commission’s request for emergency relief, the U.S. District Court for the Northern District of Illinois has halted an alleged investment fraud scam involving Results One Financial LLC adviser Steve W. Salutric. He is co-founder of the financial firm. Hon. William J. Hibbler ordered that all assets under Salutric’s control be frozen and he issued a temporary restraining order against him. Hibbler is also granting other emergency relief.

The SEC complaint accuses Salutric of making unauthorized withdrawals from clients’ accounts that were located in another financial institution that was the custodian of Results One Financial’s client assets, forging client signatures on withdrawal request forms, and submitting the signed forms to the account custodian.

The SEC is charging the investment advisor with misappropriating several million dollars of his clients’s finds. Beginning in 2007, Salutric allegedly misappropriated more than $2 million from at least 17 clients to support entities and businesses that are linked to him. Funds that were allegedly misdirected include $610,000 to a film distribution company, $259,000 to two restaurants, and $321,000 to the church where he is treasurer. The SEC is accusing Salutric of misappropriating over $400,000 from a 96-year-old nursing home resident who has dementia. He also allegedly made Ponzi-like payments to certain clients.

Courthouse News Service says that Salutric managed over $16 million through Results One. The SEC says that there may be more clients who were defrauded and additional funds may have been misappropriated.

The SEC is seeking penalties, disgorgement, and an injunction.

SEC Cannot Order Former Rauscher Pierce Broker to Compensate Investors for Losses, Says Court

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

According to the U.S. Court of Appeals for the District of Columbia Circuit, the Securities and Exchange Commission cannot order former Rauscher Pierce Refsnes Inc. broker Michael Siegel to uphold an award of restitution to investors who sustained financial losses as a result of his alleged broker misconduct. Siegel worked as a general securities representative for the financial firm from October 1997 to June 1999.

In 2002, NASD’s Department of Enforcement charged Siegel with “selling” away and making inappropriate recommendations to certain investors. Specifically, the investors that the alleged violations involved are Dorothy and Barry Landry and Linda and Huntington Downer, who invested in World Environmental Technologies Inc. The NASD has accused Siegel of recommending that they invest in World ET without reasonable cause for why doing so would be appropriate for them. To discipline him, NASD ordered Siegel to serve two six-month suspensions. They also fined him $30,000.

While the NASD disciplinary committee did not order restitution, an NASD appeals panel did. He was told to pay $100,000 to the Landers and $303,000 to the Downers. Siegel appealed but the SEC affirmed the appeals panel’s decision.