Securities Fraud

JP Morgan Chase to Pay $75 Million in Penalties and Forfeit $647 Million to Settle SEC Charges Over Alleged Municipal Bond Payment Scam

Published on: November 16, 2009 | by Shepherd Smith Edwards & Kantas, LLP

JP Morgan Chase has settled Securities and Exchange Commission charges that the securities firm was allegedly involved in an illegal payment scam to get municipal securities business from Jefferson County, Alabama. As part of its settlement with the SEC, JP Morgan Chase agreed to pay penalties of $75 million and forfeit $647 million in termination fees that it says the county owes. JP Morgan Securities will also pay Jefferson County $50 million, as well as a $25 million penalty. By agreeing to settle, the securities firm is not admitting to or denying the commission’s charges.

The SEC had accused JP Morgan Securities and former managing directors Douglas MacFaddin and Charles LeCroy of making over $8 million in undisclosed payments to friends of certain Jefferson County commissioners. These friends either worked for or owned broker-dealers in the area. The SEC says that these payments led to the commissioners voting for JP Morgan Securities as its managing underwriter of bond offerings. They also voted for JP Morgan Securities’s affiliated bank as the transactions’ swap provider.

The SEC claims JP Morgan Securities charged Jefferson County higher interest rates on swap transactions. This allowed it to pass on the unlawful payments’ costs. According to Robert Khuzami, SEC Enforcement Director, senior bankers with JP Morgan made illegal payments to earn fees and garner business.

The SEC has filed a civil lawsuit against LeCroy and Macfaddin. The SEC is accusing the two men of committing securities fraud for allegedly directing the illegal payments to the Jefferson County commissioners’ associates.

The commission claims the two men knew that the transactions, which occurred between October 2002 and November 2003, were “sham transactions.” The SEC says the men’s failure to disclose these payments or related “conflicts of interest” to either Jefferson County or bond offering investors or the county in the challenged swap agreements deprived those involved of swap agreement negotiations and bond underwriting processes that were impartial and objective. The SEC is seeking disgorgement plus prejudgment interest and permanent injunctions against the two men.

Related Web Resources:
JPMorgan to Pay $75 Million in Alabama Case, NY Times, November 4, 2009
Read the civil complaint (PDF)

Read the administrative complaint (PDF)
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SEC to Probe Whether Former Ferris, Baker Watts Inc. General Counsel Failed to Properly Supervise Broker Convicted of Securities Fraud

Published on: November 2, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission says it will investigate allegations that former Ferris, Baker Watts Inc. general counsel Theodore W. Urban did not properly supervise Stephen Glantz. In 2007, Glantz, who was employed by Ferris for almost thee years, pleaded guilty to lying to law enforcement officials and securities fraud.

The SEC says Urban ignored a number of warnings he received connecting Glantz to questionable activities and unauthorized trades. Urban also allegedly knew that numerous complaints had already been made against Glantz even before he came to work at Ferris. Not only did Glantz’s Form U-4 registration application show 10 customer complaints, but others had warned about his questionable reputation. Yet Urban still gave the broker more freedom than he did other brokers at the firm.

Urban is a former SEC staffer who was an Assistant Director in the Division of Market Regulation. In 2004, he recommended that Ferris, Baker Watts fire Glantz over unsuitable trades involving customer accounts. Urban later backed down from his stance. Instead, he and vice chairman Louis Akers were in agreement that Glantz be put under “special supervision.”

Glantz, another registered representative at another broker-dealer, and Glantz’ client David Dadante, were accused of manipulating the market for Innotrac Corp. Glantz also made unsuitable and unauthorized trades in a number of securities in his customers’ accounts.

Urban, according to his attorney, will contest the allegations.

Royal Bank of Canada subsidiary RBC Wealth Management acquired Ferris for $230 million in 2008.

While financial losses do occur when investing in the market, investor losses that are a result of broker fraud are unacceptable. You shouldn’t have to suffer because a broker or broker-dealer was negligent or engaged in misconduct.

Morgan Keegan Again Ordered by Arbitrators to Pay Bond Fund Losses to Investors

Published on: October 27, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Keegan & Co. has been ordered to pay $51,000 to Larry and Diane Papasan. Larry Papasan is Memphis Light, Gas and Water Division’s former president.

The Papasans filed their arbitration claim against Morgan Keegan last year after they lost about $80,000 in the account they had with the investment firm. The Papasans’ claim is one of many arbitration cases and securities fraud lawsuits filed by Morgan Keegan investors who sustained RMK fund losses. The general accusation is that the broker-dealer misrepresented the volatility of the bond funds, which they allegedly were not managing conservatively.

Larry Papasan, who is retired, opened his account because he knew John Wilfong, a former Morgan Keegan financial adviser. Wilfong felt so confident about the bond funds that he even sold them to his mother, Joyce Wilfong, who also went on to suffer financial losses from her investment. Her friend Maxine Street also suffered bond fund losses.

The two women filed a joint arbitration claim against Morgan Keegan. Joyce was awarded $68,000, while Street settled for an undisclosed sum.

According to the Papasans, John Wilfong spoke with Jim Kelsoe, the RMK funds’ manager, prior to leaving Morgan Keegan for UBS. Kelsoe allegedly told Wilfong not to liquidate because the funds were safe. The Morgan Keegan fund manager is named in other cases for allegedly failing to disclose the risks associated with the mutual fund investments.

Related Web Resources:
Latest RMK Award Goes to Ex- MLGW Head, Memphis Daily News, October 27, 2009
Two Morgan Keegan Funds Crash and Burn, Kiplinger, December 2007 Continue Reading ›

Elder Securities Fraud: FINRA Bars Former Broker From Industry

Published on: October 20, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has barred former broker Sergio M. Del Toro from the industry for allegedly defrauding an elderly investor, age 90, of over half a million dollars. Del Toro has agreed to the bar but is not admitting to or denying wrongdoing.

FINRA says that between 2004 and 2006, Del Toro recommended that the elderly investor, who died in 2006, invest $511,000 in 3rd Dimensions Inc, a speculative, development-stage company. FINRA is accusing Del Toro of promising to buy back at $400,000 the securities that the senior investor had bought for $351,000 if the latter was dissatisfied. The elderly client bought additional stock at Del Toro’s suggestion. The former broker received about $76,650 in commissions.

FINRA claims that not only did the client pay $3-$4 for 3rd Dimension stock, which was not appropriate given the investor’s financial situation and age, but also, Del Toro allegedly did not have any reasonable grounds for valuing the stock at those prices when he sold them to his client.

FINRA claims Del Toro knew 3rd Dimension was making little if no revenue at the time and did not notify the two broker-dealers that he was registered with about his activities.

Elder Financial Fraud
Unfortunately, elderly senior investors can be easy prey for brokers that are willing to take advantage of them. It can be devastating to have your life savings (that you worked so hard for and hoped could cover your retirement or be passed on to your children and grandchildren) stolen from you by a financial professional.

Elder investment fraud is a crime. It is also a form of elder abuse when the victim is an older senior investor. Continue Reading ›

Market Timing Violations Against AG Edwards & Sons Inc. Supervisors and Broker Upheld by the SEC

Published on: October 17, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is upholding the market timing violations against two AG Edwards and Sons Inc. supervisors and one of its stockbrokers. Billions of dollars were involved in the mutual fund market timing transactions.

While market timing, which involves the buying and selling of mutual fund shares in a manner that takes advantage of price inefficiencies, is not illegal, a violation of 1934 Securities Exchange Act Section 10(b) and Rule 10b-5. can arise when there is intent to deceive.

Last year, the ALJ found that AG Edwards and Sons brokers Charles Sacco and Thomas Bridge intentionally violated antifraud provisions when they engaged in market timing activities even though they had been restricted from doing so. The ALJ also found that supervisors Jeffrey Robles and James Edge failed to properly supervise the stockbrokers.

The antifraud charges filed against Bridge by the SEC Enforcement Division involved 1,352 trades (representing $1.126 billion) he executed over a two-year period for companies belonging to client Martin Oliner. The Enforcement Division accused Sacco of entering 25,533 market timing trades (representing $4.036 billion) for two hedge fund clients between 5/02 – 9/03.

The SEC determined that Edge, who was Bridge’s supervisor, knew and was complicit in the latter’s actions. Although Robles was not considered to have been complicit in Sacco’s alleged broker fraud, the commission said he should have noticed there were problems.

The SEC ordered Bridge to cease and desist from future violations. He is also barred from associating with any dealers or brokers for five years. Sacco has already settled his broker-fraud case.

Edge is barred from acting in a supervisory role over any dealer or broker for five years. Robles received a similar bar lasting three years. All three men were ordered to pay penalties, while Bridge was ordered to disgorge almost $39,000 plus $16,665.57 in prejudgment interest.

Related Web Resources:
Read the SEC’s Opinion regarding this matter

Commission Sanctions Thomas C. Bridge for Violations of the Antifraud Provisions of the Securities Laws and James D. Edge and Jeffrey K. Robles for Failing to Supervise Reasonably, Trading Markets, September 29, 2009 Continue Reading ›

Regions Bank Settles SEC Charges Over Latin American Investment Fraud Scam

Published on: September 24, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Regions Bank has agreed to a $1 million fine to settle SEC allegations that it helped defraud some 14,000 investors. Most of the affected investors are based in Latin America.

According to the SEC, Regions Bank helped two unregistered broker-dealers, U.S. College Trust Corp. and U.S. Pension Trust Corp., commit securities fraud against Latin American investors.

Beginning October 2001, Regions Bank played the role of “trustee” to the broker-dealers’ investment plans. It continued to accept USPT clients until January 2008. The SEC contends that this affiliation with a US bank gave the securities fraud scheme an aura of “legitimacy” and became a big draw for Latin American investors.

The SEC says that by taking on the role of trustee, Regions Bank formed individual trust relationships with investors, processed client contributions, and bought mutual funds on their behalf.

Investor had the option of paying one lump sum or making yearly contributions. Investors were not notified until March 2006 that USPT deducted substantial chunks of investors’ contributions-up to 85% of initial contributions made by investors who took part in an annual plan and up to 18% of single contributions-and used the money to pay for commissions and other fees.

The SEC says that Regions Bank either knew or should have known about USPT’s deceptive sales practices. The Commission is accusing Regions Bank of dispatching representatives to Latin America to meet prospective investors and allowing USPT to use the bank’s name in marketing and promotional materials.

The $1 million penalty will be placed in a Fair Fund to compensate investment fraud victims. Regions bank has also agreed to a cease-and-desist order.

SEC charges Regions Bank for role in Latin American fraud scheme, Investment News, September 21, 2009
Read the SEC Complaint (PDF)
Continue Reading ›

Securities Fraud Lawsuit Against UBS AG Gets Added Steam with Employee Email Calling Collateralized Debt Obligations “Vomit”

Published on: September 16, 2009 | by Shepherd Smith Edwards & Kantas, LLP

UBS AG must post a $35.6 million bond, says Superior Court Judge John Blawie. Blawie says that hedge fund Pursuit Partners, LLC has sufficient evidence to pursue its securities fraud case claiming that the investment bank knew it was selling collateralized debt obligations that were toxic to institutional investors but did nothing to inform clients about the risks.

Blawie cited an e-mail written by a UBS employee that called the asset-backed securities “vomit.” Another e-mail noted that UBS was selling Pursuit CDOs that were “crap.”

The judge is letting the securities fraud complaint go forward without ruling on the case’s merits. Between July and October 2007, UBS sold the hedge fund CDOs valued at $40.5 million. Following the global credit crisis, there has been $1.7 trillion in losses and writedowns.

SSEK Looks Into Securities Fraud Claims for Richard Buswell and Brookstone Securities Clients Over Private Placement Units Sales in Advanced Blast Protection

Published on: July 23, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Our securities fraud lawyers are investigating claims for clients of Richard Buswell and Brookstone Securities over private placement units sales in Advanced Blast Protection, as well as charges that clients received unsuitable recommendations.

The Financial Industry Regulatory Authority has made public records noting that Brookstone Securities terminated Buswell’s employment this year in the wake of investigations involving allegations of fraud, unsuitability, failure to disclose complaints, churning, and other “disclosable matters” that may be “outstanding.” Buswell’s employment termination was reportedly punitive.

Some investors say they lost their retirement because Buswell gave them the wrong advice and defrauded them. He is also accused of overstating potential earnings for clients, convincing some of them to invest in companies that would give him commissions, and in some cases was given higher commissions than expected. Buswell is also accused of making high risk investments for investors who would have been better off making more conservative to moderate moves.

Investors have also filed complaints against Buswell over the sale and marketing of private placement units in Advanced Blast Protection. ABP is based in South Florida. The company’s clients were supposed to receive principal payments this year but ABP defaulted. As a result, investors were left with illiquid investments.

Please contact Shepherd Smith Edwards & Kantas LTD LLP if you bought ABP private placement or were an investor client of Brookstone and Buswell.

Related Web Resources:
Investors sue advisers, 2TheAdvocate.com, May 15, 2009
FINRA
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SEC Securities Fraud Lawsuit Accuses Beverly Hills Money Manager Stanley Chais of Leading Investors Into Madoff Ponzi Scam

Published on: June 24, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is suing Beverly Hills money manager Stanley Chais for securities fraud related to his alleged involvement in the Bernard Madoff Ponzi scam. The SEC alleges that Chais and four others worked collectively to raise billions of dollars from investors to fund the $65 billion scheme-the largest Ponzi scam in US history.

Chais investors’ accounts were worth almost $1 billion when the Ponzi scam finally collapsed. Chais, 82, is accused of collecting almost $270 million in investor fees. The Beverly Hills money manager, his family members, and associated entities are also accused of withdrawing almost $546 million in ill-gotten profits. The SEC is seeking financial penalties and the return of ill-gotten gains to investors.

The SEC complaint contends that Chais portrayed himself to his clients as an “investing wizard” and did not let them know that Madoff was actually in charge. The SEC says that Chais either knew that Madoff was running a Ponzi scam or was reckless for not knowing about the scheme. For example, Madoff never reported even one loss on thousands of “purported” stock trades on Chase’ accounts from 1999 to 2008. This alone should have been an indicator that Madoff’s reports were bogus.

Many of Chais’s investors have suffered as a result of the money manager’s alleged misconduct. For instance, the Los Angeles Times reports that Mark Peel, who is part owner and executive chef of Campanile, claims he lost $6 million from investments that Chais is accused of secretly making with Madoff. Peel had to sell his Hancock Park home because of the investment losses he sustained and almost all of his children lost their college funds.

Chais’s attorney denies that his client did anything wrong, did not know that Madoff was bilking investors, and was also a victim of the Madoff scam. Chais, 82, had over 40 accounts with Madoff for himself, family members, and other entities.

In another Madoff-related securities fraud case, the SEC has also filed a lawsuit against Cohmad Securities Corp, Chairman Maurice J. Cohn, executive Robert M. Jaffe, and COO Marcia B. Cohn over allegations that they ignored evidence that Madoff was engaged in a Ponzi scam and actively marketing opportunities with him.

Related Web Resources:
Beverly Hills money manager Stanley Chais accused of fraud, Los Angeles Times, June 23, 2009
Stanley Chais Accused Of Fraud – Raised Billions For The Bernie Madoff Ponzi Scheme, The Post Chronicle, June 22, 2009
Read the SEC Complaint (PDF)
Continue Reading ›

Texas Securities Fraud: A Houston Attorney and a Texas A & M Professor Charged with Investment Fraud

Published on: June 14, 2009 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission and the Commodity Futures Trading Commission are accusing Houston attorney and accountant Daniel Petroski and Texas A & M Professor Robert Watson of using forged bank records to engage in investor fraud. On May 21, the US District Court for the Southern District of Texas froze the assets of the two men and of two firms associated with the alleged misconduct.

According to the two agencies, Petroski and Watson raised over $19 million from about 65 investors, while claiming they would use a foreign-currency trading software, “Alpha One,” that they said belonged to their company, Private FX Global One Ltd. Watson’s “deal clearing company, “36 Holdings,” was also to participate in the investing.

The SEC and the CFTC contend that the two men engaged in misrepresentation when they made it appear as if their foreign exchange trading business never had a losing month, achieved a yearly return of over 23%, and that their venture had millions of dollars in Swiss and US bank accounts. The two agencies are also accusing the two men of generating bogus records for investigators, including records indicating that 36 Holdings had an account with Deutsche Bank where Global One earned over $2 million this year by trading foreign currencies. In fact, 36 Holdings does not have a Deutsche Bank account.

In addition, the SEC’s complaint accuses the two men of putting, at maximum, 33% of their proceeds in a Swiss bank before transferring some $5 million to a Houston bank-even though they told investors that the amount of foreign currency and other assets was closer to 80%. The defendants are also accused of giving their own employees bogus Swiss bank statements and making false claims that 36 Holdings had nearly $70 million deposited there.

The SEC accuses the defendants of violating the Securities and Exchange Act of 1934’s Section 10(b), Rule 10b-5 thereunder, and the Securities and Exchange Commission Act of 1933’s Section 17(a). The CFTC and the SEC are seeking a preliminary injunction, final judgment from permanent enjoinment of future violations, disgorgement with interest, and fines.