Articles Posted in Securities Law and Regulations

What Can You Expect When You Hire Our Seasoned Securities Litigation Lawyers?

With over 30 years representing investors, Shepherd Smith Edwards and Kantas (investorlawyers.com) offer unparalleled experience in securities litigation while providing personalized attention to each of our clients. We work with retail investors, retirees, accredited investors, wealthy investors, and institutional investors that have suffered significant investment losses due to broker negligence or misconduct in pursuing damages from their broker-dealers. Our SEC fraud attorneys have gone up against the largest brokerage firms on Wall Street to secure settlements and win arbitration awards for our clients.

When you retain our services, you gain the insight, skills, and experience of not just one attorney, but of an entire team of knowledgeable securities arbitration lawyers along with skilled staff, including paralegals, legal secretaries, consultants, and assistants. Many of us have previous experience working in other areas of the securities industry, including as account managers and brokers at large Wall Street firms. It is because of what we witnessed in terms of unsavory broker-dealer misconduct and negligence, and how these behaviors harmed investors, that we are now fighting on the side of clients like you. Not only that, but unlike many other securities fraud law firms for which representing investors is just one area of their business, this is our sole area of practice and we’ve been here doing this for a very long time.

What Are High-Yield Bonds? 

Our Skilled Securities Fraud Law Firm Can Help If You Have Suffered Junk Bond Losses

High-yield bonds, also known as junk bonds, are non-investment grade bonds. They are usually put out by issuers that have been given a low rating by credit rating agencies and are considered at risk of not paying interest or giving back an investor’s principal upon maturity. Examples of potential issuers are former investment-grade companies that are in financial trouble or are too highly leveraged and emerging companies looking for working capital to help with expansion.


$300M Stock Scam Allegations Lead to Guilty Verdict

A Brooklyn jury has convicted ex-OmniView Capital Advisors LLC CEO Abraxas J. Discala of conspiracy, wire fraud, and securities fraud in a $300M market rigging scam/ pump-and dump fraud.  A second defendant, lawyer Kyleen Cane, was acquitted after initially being charged with conspiracy and securities fraud.

According to prosecutors, the stock fraud occurred from 10/2012 through 7/2014. Trades in four publicly traded companies were reportedly involved.

Altaba is Fined $35M For Not Disclosing World’s Largest Data Breach

Altaba, formerly Yahoo! Inc., will pay a $35M penalty in a data breach settlement to resolve US Securities and Exchange Commission charges accusing the entity of misleading investors because it did not disclose a major cyber-security data breach. Despite settling, Yahoo is not denying or admitting to the findings.

The data breach, one of the largest in the world to date, involved Russian hackers stealing personal information involving hundreds of millions of user accounts in 2014. The information that was taken included usernames, birth dates, email addresses, passwords that were encrypted, phone numbers, and both security questions and answers. Yahoo’s information security team found out about the breach soon after it happened.

The SEC has adopted final rules  to modernize the way companies are allowed to raise funds for their businesses via small and intrastate offerings, all the while keeping investor protections in place.  The final rules include amendment to Securities Act Rule 147 and a new Securities Act Rule 147A for out-of-state residents and companies organized or incorporated outside the state.
 
Under the Rule 147A  and Securities Act Rule 147 amendments, the current intrastate offering framework, which allows companies to raise funds from investors in their state without having to federally register the sales and offerings,  would be modernized.  New Rule 147A would differ from Rule 147 in that it would  permit out-of-state residents  and companies outside the state, or companies that were incorporated outside the state, to access these  securities offerings. 
 
There are also now amendments to Regulation D’s Rule 504 that would grant registration exemption for offers and sales as high as $1M of securities within a one-year period, as long as the issuer does not qualify as an Exchange Act reporting company, blank check company, or investment company. The aggregate quantity of securities that could be offered and sold under Rule 504 within any yearlong period would go up from $1M to $5M. Meantime, the new final rules would repeal Rule 505, which  allowed for offerings of up to $5M yearly that were sold only to accredited investors or 35 non-accredited investors maximum.

Wine merchant Peter Deutsch has filed a FINRA arbitration claim seeking $400 – $500M from Fidelity. He claims that he might have earned that amount of money if only the financial firm had not stopped him from obtaining a 66% share of a company in which he had already invested $40M. Meantime, Fidelity is contending that it kept Deutsch from trading because of worries that he was attempting to illegally manipulate the company’s shares.

The dispute began when Deutsch sought to purchase at least another 50 million shares of stock in China Medical Technologies in 2012. His investment efforts, however, were barred by Fidelity, which said it was “uncomfortable” with the transaction. It was in 2011 that a sales team from Fidelity Family Office Services (FFOS) had sought Deutsche out to join its group of wealthy clients.

In court papers, Deutsch alleges that while he was trying to gain control of China Medical Technologies, which is a cancer treatment device maker, FFOS was aggressively buying the stock in secret rather than helping him. He also claims that Fidelity used his shares to its benefit even though this was not what he wanted. He believes that the firm blocked him from trading to conceal its wrongdoing.

He is accusing Fidelity of inappropriate share lending. The firm, however, describes its practice of lending out shares belonging to its clients as fully paid lending. According to Bloomberg, sources said that Fidelity, which insists that the arbitration case is without merit, maintains that it didn’t lend out Deutsch’s shares under its lending program but that it used its authority to lend shares out of his margin account. Securities lending is something that Fidelity clients consent to when they set up a margin account.

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SEC to Propose Reforms to Improve Liquidity Management for Open-End Funds
The Securities and Exchange Commission voted to propose a package of rule reforms to improve effective liquidity risk management for open-end funds, including exchange-traded funds and mutual funds. If approved, both would have to put into place liquidity risk management programs and improve disclosure about liquidity and redemption practices. The hope is that investors will be more able to redeem shares and get assets back in a timely fashion.

The liquidity risk management program of a fund would have to include a number of elements, including classification of the fund portfolio assets liquidity according to how much time an asset could be converted to cash without affecting the market, the review, management, and evaluation of the liquidity risk of a fund, the set up of a fund’s liquidity asset minimum over three days, as well as board review and approval. The proposal also seeks to codify the 15% limit on illiquid assets that are found in SEC guidelines.

Commission Looks for Comment on Regulation S-X
The SEC announced last month that it is looking for public comment regarding the financial disclosure requirements in Regulation S-X and their effectiveness. The comments are to focus on form requirements and the content contained in financial disclosure that companies have to submit to the regulator about affiliated entities, businesses acquired, and issuers and guarantors of guaranteed securities.

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U.S. Sen. Jack Reed, D-R.I. has introduced a bill that would give the Securities and Exchange Commission a longer period of time to uncover and impose penalties for financial fraud. Under his proposal the statute of limitations for pursuing civil penalties would be extended from five years to ten years.

The bill comes in the wake of the Supreme Court’s decision in Gabelli v. SEC, in which the Court held that the current five-year statute to take action against wrongdoers begins when the fraud happened and not upon discovery. According to an announcement about the new legislation, which was published on the Senator’s website, the ruling in Gabelli has made it even harder for the Commission to take action against offenders by shortening how much time the regulator has to investigate and pursue violations of securities laws.

The Gabelli case involved allegations of fraud by Marc J. Gabelli, an investment adviser who managed the Gabelli Global Growth Fund, which is a mutual fund. The SEC said that the alleged fraud took place from 1999 and 2002.

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Ex-Commission Officials, Others Want DC Circuit to Grant Stanford Ponzi Scam Victims SIPC Protection

Former SEC Officials, law professors, and trade groups are among those pressing the U.S. Court of Appeals for the District of Columbia Circuit to reject the regulator’s bid to compel Securities Investor Protection Corporation coverage for the investors who were bilked in R. Allen Stanford’s $7 billion Ponzi scam. Inclusion under the Securities Investor Protection Act would allow the fraud victims to obtain reimbursement for losses.

However, SIPC, which is a federally mandated non-profit corporation, doesn’t believe that the Stanford investors, who purchased certificates of deposit from Stanford International Bank Ltd. in Antigua, fall under this protection. Following a failure to act on the SEC’s request to initiate liquidation proceedings for brokerage firm Stanford Group Co., the regulator asked the court for a novel order that would make the organization comply.

According to Securities and Exchange Commission Chairman Elisse Walter, the best way to regulate global over-the-counter derivatives regulation is via “substituted compliance.” Such an approach would let a market participant comply with domestic requirements in a certain area through compliance with comparable foreign regulation while also allowing the domestic regulator to keep applying specific policy requirements of local law when the foreign one fails to impose requirements or protections that compare.

Per its Dodd-Frank Wall Street Reform and Consumer Protection Act Title VII mandate, the SEC intends to put forth a proposal on how to tackle cross-boarder issues. Although the Commission hasn’t figure out how it will go forward with this proposal, Walter stressed that “substituted compliance” could act as a “a reasonable and necessary middle ground” between making foreign participants abide by domestic regulation and widely recognizing foreign swap regimes. She believes that while efforting to give the maximum substituted compliance possible, properly tailored cross-border regulation would take care of the potentially significant regulatory gaps that are likely to exist between jurisdictions.

Walter believes that regulators need to be participating in the world debate on how to cut down systemic risk. Also, noting that brokerage firms, investment advisers, and other market participants that the SEC oversees differs from traditional banking institutes, Walter cautioned that failure to identify these key differences ups the risk that there will be weaker financial institutions and less options for businesses looking for investment capital.

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