Securities Fraud

Number of Federal Securities Fraud Cases Prosecuted Drop Significantly

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

A recent New York Times article reports that according to new data, federal officials are prosecuting far fewer cases involving fraudulent stock scams than they did in 2000 before the Bush Administration came into office. According to financial and legal experts, less strict enforcement polices, Securities and Exchange Commission staff cutbacks, and a greater focus on fighting terrorism have led to the federal government’s laxer policing efforts when it comes to pursuing securities fraud cases.

The new information, based on Justice Department information and put together by a Syracuse University research group, says that there haven’t been so few securities fraud prosecutions in a year since 1991. Also:

• During the first 11 months of the 2008 fiscal year, there were 133 securities fraud prosecutions-compare this to 2002 when there were 513 prosecutions, spurred by the WorldCom and Enron scandals, and 2000 when there were 437 prosecutions for this same time period.

Madoff Investors Who Were Victims of “Ponzi” Scam Contact Securities Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP to Explore Recovery Options

Published on: December 17, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Wall Street Icon Bernard Madoff’s $50 billion “Ponzi” scam may very well have bilked hundreds, even thousands, of investors of their money. Now, many of Madoff’s victims are contacting the securities fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP to find out how they can recover their investments.

According to SSEK Founder and Stockbroker Fraud Attorney William Shepherd, “a number of recovery options” exist, including pursuit of:

• Securities Industry Protection Corp: SIPC has a $500,000 maximum guarantee limit per account. Its reserves are also limited and it needs government infusion to be able to cover losses in the billions of dollars. To be able to recover claims, legal action against SIPC is usually necessary. On Monday, a judge ruled that investors who were Madoff’s direct clients are covered under SIPC.

Securities Fraud Class Action Lawsuit Against Hartford Financial Services Group Inc. is Reinstated in Appeals Court

Published on: November 25, 2008 | by Shepherd Smith Edwards & Kantas, LLP

This month, the U.S. Court of Appeals for the Second Circuit issued a decision granting class action plaintiffs another opportunity to make their securities fraud claims against Hartford Financial Services Group Inc. The district court had previously dismissed the class action lawsuit as untimely under the 1934 Securities Exchange Act.

That court had found that based on all media reports, regulatory filings, and information about several lawsuits available, the plaintiffs could have and should have filed their securities fraud lawsuit before the two-year statute of limitations had run out on July 25, 2001. Instead, the plaintiffs filed their complaint more than one year after the deadline had passed.

The securities fraud lawsuit, filed by Steve Staehr and a number of other plaintiffs who had acquired Hartford stock between August 6, 2003 and October 13, 2004, accuses the life and property/casualty insurer of acting fraudulently by concealing price manipulation and kickbacks involving insurers and commercial brokers. The plaintiffs also claim that because of the firm’s misrepresentations, omissions, and fraudulent concealments, they acquired Hartford stocks at artificially inflated prices. They filed their lawsuit soon after then-New York Attorney General Eliot Spitzer filed a lawsuit against Marsh, Inc., a Hartford broker.

Second Circuit Judge Colleen McMahon reversed the district court’s decision saying the information the plaintiffs had was not enough to place them on notice by July 2001 that Hartford was likely going to be investigated for “contingent” commissions. The appeals court also noted that Spitzer’s lawsuit connected Hartford to Marsh’s activities and that in 2003, Hartford revealed it paid brokers $145 million in kickbacks.

Related Web Resources:

Securities Fraud Class Action Lawsuit Against Hartford Financial Services Group Inc. is Reinstated in Appeals Court, Reuters, November 17, 2008
N.Y. Attorney General Spitzer Sues Marsh Over Contingent Commissions, Insurance Journal, October 25, 2004 Continue Reading ›

Former UBS AG Co-General Counsel David Aufhauser Agrees to Settle Insider Trading Charges for $6.5 Million

Published on: October 30, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The New York Attorney General’s Office says it has reached a $6.5 million settlement agreement with former UBS AG co-general counsel David Aufhauser over insider trading charges. Aufhauser is also a former general counsel for the Treasury Department.

In the complaint, Attorney General Andrew Cuomo accused Aufhauser of selling his personal auction-rate securities holdings because of inside information he received regarding UBS’s crumbling auction-rate securities market.

Among other allegations included in the complaint, which the New York Attorney General filed in New York State Supreme Court on July 24, 2008:

• A UBS executive received an e-mail on December 14, 2007 from the company’s chief risk officer discussing potential problems with ARS.
• This same UBS executive then sent an email to his financial advisor saying that he wanted to get out of the ARS market.
• AT this executive’s request, the financial advisor sold $250,000 of ARS.
• Cuomo’s complaint identifies Aufhauser as the executive and accuses him of violating New York’s Section 352-c of the General Business Law when he allegedly used insider information to commit securities fraud.
• The complaint also alleges that Aufhauser was in breach of a duty owed to the source of the insider information.

As part of his $6.5 million settlement with New York State, Aufhauser’s payments will include his $6 million UBS discretionary incentive compensation and another half a million dollars. The former UBS attorney is also barred from the industry for two years and cannot practice law or serve as an officer or a director of any public company in the state off New York for two years.

The New York Attorney General’s complaint against Aufhauser is part of Cuomo’s ongoing probe into the ARS market collapse.

Related Web Resources:
Ex-UBS Counsel to Pay $6.5 Million to Settle Auction-Rate Trading Case, NY Times, October 8, 2008
Ex-UBS general counsel settles insider trading case, Newsday, October 8, 2008
Continue Reading ›

Federal Judge Vacates Guilty Pleas Against Three NYSE Traders Charged With Securities Fraud

Published on: September 7, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Judge Sidney H. Stein of U.S. District Court for the Southern District of New York has dropped the securities fraud violation charges against three ex-traders. The nolle prosequi orders conclude the Justice Department’s probe, began in 2005, against 15 New York Stock Exchange specialists for securities fraud violations. Stein set aside the guilty pleas of Van der Moolen USA LLC specialists Patrick McGagh and Joseph Bongiorno, while prosecutors dropped criminal charges against former LaBranche & Co. LLC specialist Freddy DeBoer.

The government had indicted the specialists on claims that they engaged in certain stock-selling practices to defraud investors. In November 2006, however, U.S. Attorney Michael Garcia announced that five the specialists would not be prosecuted. Also in 2006, charges against two of the defendants were dropped while two others were acquitted.

Three specialists were convicted in district court. However, this year, the U.S. Court of Appeals for the Second Circuit reversed all three convictions. The latest decisions mean that the government was not able to sustain even one criminal action it had filed against the 15 defendants.

In the 2005 indictment, McGagh and Bongiorno were charged with federal securities violations. They were accused of using their positions to defraud investors, including 15,620 instances of interpositioning to generate illegal profits over $1.38 million, causing over 8,630 instances of trading ahead, and causing over $1.36 million in customer harm. McGagh was also accused of causing more than 21,290 instances of interpositioning that led to illegal profits of over $3.43 million, over 4,200 instances of trading ahead, and over $1.24 million in customer harm.

Specialists match sellers and buyers at the NYSE. When there is an imbalance on the floor, they sell and buy shares.

More Guilty Pleas Vacated In Probe of NYSE Trading, Wall Street Journal Continue Reading ›

Massachusetts Slaps Merrill Lynch with Auction-Rate Securities Fraud-Related Charges

Published on: August 4, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Massachusetts Secretary of the Commonwealth has filed securities fraud-related charges against Merrill Lynch for allegedly promoting the sale of auction rate securities while providing misleading information about market stability.

According to Secretary William Galvin, Merrill Lynch aggressively sold ARS to investors while telling research analysts to downplay market risks in its reports until the moment the company had to pull” the plug on its auctions.” The majority of auctions failed a day later. Galvin says that Merrill Lynch’s investors had no idea that potential trouble was brewing with their investments until it was too late for them to take action.

Galvin is also accusing Merrill Lynch of pressuring its research analysts, who are supposed to be neutral, into redacting or rewriting any reports that did not profile ARS positively. His complaint alleges that Merrill Lynch made approximately $90 million from the auction-rate securities market between 2006 and 2007. He wants Merrill Lynch to “make good” on the sales of the securities by making restitution to investors that sold their securities at below par.

Merrill Lynch issued a statement expressing disappointment that Massachusetts had filed its complaint. The company maintains that its advisers sold ARS because they thought that the securities would provide a higher return to investors.

Last week, Merrill Lynch said it would sell over $30 billion in toxic mortgage-related assets at a huge loss to help alleviate its own debt issues. A question to consider is whether Merrill Lynch, a large investment firm known for its powerhouse brand, can recoup its once solid reputation.

Related Web Resources:

Secretary Galvin Charges Merrill Lynch with Fraud in Auction Rate Securities Dealings (The Complaint)

Massachusetts sues Merrill Lynch over auction securities, USA Today, August 1, 2008
Merrill Lynch
Continue Reading ›

Scottrade Agrees to $950,000 Civil Penalty To Resolve SEC Charges of Fraudulent Misrepresentation Regarding Nasdaq Pre-Open Order Executions

Published on: July 16, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Scottrade Inc. agreed to pay a $950,000 civil penalty to settle Securities and Exchange Commission charges that it made fraudulent misrepresentations to clients related to the execution of Nasdaq pre-open orders. The brokerage firm is not admitting to or denying wrongdoing by settling the charges. Scottrade is, however, agreeing to cease and desist from committing future violations.

Pre-open orders are normally placed after the market closes for execution when the market opens next. The SEC alleges that Scottrade made fraudulent misrepresentations when Scottrade told customers it would direct their orders based on a number of factors, including liquidity at market opening.

The SEC says that when a broker-dealer accepts customer orders, the firm is impliedly representing that it will make sure to review the quality of execution on orders. SEC Enforcement Director Linda Thomsen says that Scottrade not only failed to regularly and properly review the execution process but it neglected to consider the way technological advances were impacting the orders.

Connecticut Brokerage Aide Must Pay $58,825 To Settle Charges He Made Unauthorized Securities Trades

Published on: June 27, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York has ordered a Connecticut man to pay $58,825 in civil penalties, prejudgment interest, and disgorgement to settle charges he engaged in a scheme to take part in unauthorized securities trades, which caused prices to rise dramatically.

The Securities and Exchange Commission says that Joshua Eudowe, who worked at a brokerage firm owned by his stepfather, Lawrence Goldstein, was not a registered representative but was brought in to help with marketing and research efforts.

In 2006, the SEC says that he made several unauthorized purchases of CreditRiskMonitor.com Inc. and FRMO Corp. stocks in client accounts of investment partnerships managed by his stepfather. Eudowe also is accused of hacking into the company Web site and using Goldstein’s password to engage in unauthorized securities trades without permission.

Another Lawsuit Against Former Merrill Lynch Research Analyst Henry Blodget is Dismissed Due to Loss Causation

Published on: June 23, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District has dismissed a securities fraud lawsuit filed by investor Nicholas Vale against ex-Merrill Lynch Internet Group head Henry Blodget on the grounds that Vale failed to factually show how the defendant’s fraud caused his investment losses.

In his lawsuit, Vale accused Blodget of issuing bogus positive reports about Internet Capital Group Inc. and B2B Internet HOLDRs, an exchange traded fund. He says that he depended on reports by Blodget and Merrill Lynch when he bought almost 3,000 ICGE stock shares for about $300,000 in 1999 and he would not have bought the shares if not for Blodget’s reputation as a research analyst.

In 2002, the New York State Attorney General’s Office accused Merrill Lynch, Pierce, Fenner & Smith Inc., Merrill Lynch & Co. Inc., and Blodget of regularly issuing false or misleading recommendations about Internet-based stocks to try and increase the firm’s underwriting business. Merrill Lynch settled the allegations with a $100 million fine. Vale, who says that he suffered major losses after selling the shares in 2000, is one of a large number of investors that have filed lawsuits accusing Merrill Lynch and Blodget of securities fraud.

Securities Fraud Lawsuit Against Ex-Merrill Lynch Analyst Accused of Issuing False Reports About CMGI Inc. is Dismissed

Published on: May 20, 2008 | by Shepherd Smith Edwards & Kantas, LLP

In New York, a judge has dismissed the securities fraud case against former Merrill Lynch research analyst Henry Blodget. The former lead Internet analyst of the company’s Internet Group is accused of allegedly issuing false reports regarding CMGI Inc. stock.

In 2007, investor Ronald Ventura had filed a securities fraud lawsuit against Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Inc., and Blodget. Ventura is one of a number of plaintiffs that have sued the defendants after the New York State Attorney General’s Office made allegations that they had published misleading or false recommendations about Internet-based stocks. Merrill Lynch agreed to a $100 million fine in 2002 as part of a settlement deal with the NYAG.

In The U.S. District Court for the Southern District of New York earlier this month, Judge John Keenan said that Ronald Ventura’s complaint “fails to plead that the alleged false statements made by the defendants were the cause of Ventura’s financial losses.”