Investor Lawyers Blog

Puerto Rico Retiree Plan Accuses UBS and Others of Bond Price Rigging

Published on: April 29, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The Puerto Rico Government Employees and Judiciary Retirement Systems Administration, a pension plan for retirees of the U.S. territory’s government, has filed a proposed securities class action in federal court against Bank of America (BAC), Goldman Sachs (GS), Citigroup (C), Barclays Capital, Inc. (BARC), BNP Paribas Securities Corp., Bank of America Securities, Credit Suisse Securities, FTN Financial Securities, Deutsche Bank Securities, JP Morgan Securities, Morgan Stanley (MS), Merrill Lynch, Pierce, Fenner & Smith, and UBS Securities. The retirement fund is accusing the defendants of rigging bond prices to keep the prices up on Freddie Mac and Fannie Mae bonds.

Freddie and Fannie, both U.S. government-sponsored entities (GSEs), offer bonds to raise money for loans. According to the Puerto Rico pension plan’s bond fraud case, the trading desks of the various banks worked together to artificially raise the prices of the GSE bonds when the market took a hit after the 2008 financial crisis and Fannie and Freddie started reducing the number of bonds issued for sale. This decrease led to a loss in profits for those underwriting and trading in Fannie Mae and Freddie Mac bonds. The plaintiff contends that instead of the banks opting to lower the difference between their purchasing and selling prices and competing for clients, they worked together to fix the bond prices so they could “maximize” their profits at the expense of customers.

The Puerto Rico retirement plan’s complaint comes weeks after another proposed class action was brought by two other pension funds also accusing banks of rigging the price of GSE bonds. The pension fund plaintiffs in that fraud case are the Trust and Sheet Metal Workers’ Local 19 Pension Fund and the Dallas Area Rapid Transit Employees’ Defined Benefit Retirement Plan. The defendants are Bank of America NA, Barclays Capital, Wells Fargo Securities, LLC, Citigroup Global Markets, Inc., BNP Paribas Securities Corp., Deutsche Bank Securities, JPMorgan Securities, HSBS Bank Plc, HSBC Securities, JP Morgan Chase Bank, TD Securities, Nomura Securities International Inc., and Merrill Lynch, Pierce, Fenner & Smith.

Recent Fraud Cases Targeted Hedge Funds, Senior Investors, and Israeli-Americans

Published on: April 25, 2019 | by Shepherd Smith Edwards & Kantas, LLP

SEC Accuses Investment Adviser of Misappropriating Funds from Hedge Funds

The US Securities and Exchange Commission (SEC) has secured an emergency asset freeze, as well as a temporary restraining order, to stop an ongoing allegedly fraudulent securities offering that was purportedly conducted to conceal the misappropriation of about $570K from hedge fund clients. The regulator contends that investment adviser Eric D. Lyons and his investment advisory businesses, Synchronicity Capital GP, LLC, Synchronicity Capital Group, and Synchronicity Group, LLC, used the money to pay for Lyons’ personal spending, including Broadway shows, concert tickets, sailing expenses, rent, and other costs.

According to the regulator’s complaint, the allegedly fraudulent securities offering involved securing about $300K from one investor who thought other large investors would be potentially involved and that there was a $100M business valuation. The SEC alleges that, in total, the Synchronicity entities and Lyons raised about $700K through both the misappropriation of funds and the allegedly fraudulent offering.

Hundreds of Retail Investors Harmed in Two Separate Fraud Cases

Published on: April 24, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) has filed civil fraud charges accusing 15 people of either “acting as unregistered brokers” or “aiding-and-abetting” this kind of activity related to the solicitation of microcap issuer Intertech Solution’s “unregistered and fraudulent securities offerings.” Already, 11 of the defendants have consented to the entry of final judgments but without denying or admitting to wrongdoing.

The 15 individuals are:

- Daniel Broyles

Ex-Aegis Capital Broker is Barred Over Churning Allegations

Published on: April 22, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory (FINRA) announced that it is barring former Aegis Capital broker James Schwartz for allegedly churning four clients’ accounts. The self-regulatory authority (SRO) contends that Schwartz, who is no longer employed in the securities industry, made 256 trades in these accounts without first getting the customers’ permission to execute the transactions. Along with other trades he made in these accounts—535 trades in total—the customers ended up collectively losing over $660K.

FINRA’s BrokerCheck record on its case against Schwartz said that he engaged in about $10M worth of unauthorized trades. Some trades were also allegedly excessive.

The SRO said that Schwartz earned commissions and gross sales credits of $277,705 from these fraudulent transactions, more than $194,000 of which was paid to the former Aegis Capital broker.

LPL Financial To Pay $450K Fine to Texas Investors

Published on: April 21, 2019 | by Shepherd Smith Edwards & Kantas, LLP

According to the Texas State Securities Board, target=”_blank” rel=”noopener noreferrer”>LPL Financial (LPLA) will pay a $450K fine and buy back unregistered securities. The Consent Order noted that the settlement is part of the wider $26M one reached between the brokerage firm and state securities regulators in 2018.

In its deal with Texas, LPL agreed to buy back unregistered securities that it sold to investors in the state going as far back as Oct 1, 2006. LPL will pay “3% interest per year on the value of the securities either in damages if they were sold or by repurchasing the investments.” Similar terms were part of the wider agreement offered to all US states and territories regarding how to compensate investors who were sold unregistered stocks and fixed-income securities.

In January, Maryland Attorney General Brian Frosh announced his state’s settlement with LPL, which involved buying back these same types of securities, along with 3% simple interest annually, from investors. Aside from its restitution and rescission offers to Maryland investors, the brokerage firm agreed to pay a $499K civil penalty.

SEC Charges Abraaj Investment Management With Defrauding Investors

Published on: April 19, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) is accusing Abraaj Investment Management Ltd., a Dubai-based investment advisory firm, with misappropriating money from the Abraaj Growth Markets Health Fund. The regulator said that the fraud has resulted in losses for US investors, including charitable organizations that invested over $100M in the Fund. Also facing civil fraud charges is Abraaj founder Arif Navqi. In total, the investment adviser and Navqi are accused of misappropriating more than $230M from the fund between at least 9/2016 and 6/2018.

According to the regulator’s civil complaint, investors were told that their money would go into businesses related to healthcare in emerging markets. Instead, Abraaj Investment Management allegedly used the money to pay for cash shortfalls at the firm and at parent company Abraaj Holdings, Ltd., both of which Navqi controlled. Meantime, investors were allegedly sent financial statements and quarterly reports that were materially misleading or false.

Registered in the Cayman Islands, the Abraaj Growth Markets Health Fund’s investors had committed $850M. Additionally, the SEC stated that one of the fund’s investors was a US government entity that had committed an additional $150M debt investment.

Investment Adviser is Accused of Defrauding More than $570K

Published on: April 18, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Gonzalo Ortiz, an investment adviser, is facing charges accusing him of defrauding one investor of more than $570K. According to the Securities and Exchange Commission (SEC), Ortiz appropriated about $224,500 of his client’s funds and lost about $290K through trades that he made.

In its complaint, the SEC said from 2015 to 2017, Ortiz persuaded an acquaintance to give him control of nearly $570K, much of which were retirement funds. The investment adviser allegedly did this by promising the investor a 50% yearly return and while falsely touting a successful track record in investing.

At first, said the Commission, the investor gave Ortiz $200K to invest. Although the investment adviser was not authorized to use the money for his own use, he allegedly spent about $56K on cars and other goods while losing the remainder of the funds through trading. Ortiz then gave the investor a bogus account statement showing an over 50% return on the investment, compelling his client to give him another $200K to invest.

Former Woodbridge CEO Now Faces Criminal Charges

Published on: April 17, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Woodbridge Group of Companies CEO and owner Robert Shapiro and former Woodbridge directors Ivan Acevedo and Dane R. Roseman are now facing criminal charges over their alleged involvement in operating a $1.2B Ponzi scam that went on from ’12 to ’17. All three men were arrested and appeared in federal court last week.

Woodbridge and its 281 related companies are accused of defrauding over 8,400 retail investors, including many senior investors who lost retirement money as a result. According to the US Securities and Exchange Commission’s (SEC) 2017 complaint against Shapiro, Woodbridge, and the related companies, investors were promised yearly returns of up to 5 to 8%. Payments were supposedly from the interest paid to an affiliate on loans issued to third party borrowers. However, contends the SEC, there were not enough third-party borrowers to pay the thousands of investors involved, resulting in just under $14M in interest income. Newer investors’ funds were allegedly used to pay earlier investors.

Woodbridge and the companies settled the regulator’s case last year by agreeing to pay over $1B, including disgorging $892M in ill-gotten gains. Shapiro’s settlement involved a $100M penalty and disgorgement of $18.5M plus $2.1M in prejudgment interest. Now, with the criminal case, Shapiro is charged with tax evasion and conspiracy to commit money laundering.

“Pastors” Accused of $25M Ponzi Scam

Published on: April 15, 2019 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission (SEC) has filed fraud charges against two men claiming to be pastors of a church at a strip mall in Orange County, California. Kent R.E. Whitney and David Lee Parrish are accused of targeting members of their local Vietnamese community and defrauding investors of millions of dollars. The regulator has obtained an asset freeze in what it is calling a $25M Ponzi scam.

Whitney, who has a criminal fraud record, is the founder of The Church for the Healthy Self. The Commission said that he established the church three months after getting out of federal prison where he had been serving time for a different investment scam that had defrauded 10 investors of over $600K.

The regulator contends in its complaint that The Church for the Healthy Self’s investment program, called the CHS Trust, touted:

Direct Lending Investments Face SEC $11M Fraud Charges

Published on: April 12, 2019 | by Shepherd Smith Edwards & Kantas, LLP

Just weeks after Direct Lending Investments (DLI) announced to private fund investors that it was suspending redemptions and withdrawals after one borrower defaulted on a $191.3M loan, the US Securities and Exchange Commission (SEC) filed civil charges against the registered investment adviser (RIA). The regulator contends that Direct Lending engaged in a multi-year, $11M fraud that allegedly involved overcharging clients for both performance and management fees related to private funds, as well as for inflating fund returns.

The RIA advises private funds, which includes a private fund structure made up of the feeder funds Direct Lending Income Feeder Fund, Ltd. and the Direct Lending Income Fund, LP. The funds invest in different lending platforms, including the online small business lender QuarterSpot.

The SEC, in its complaint, is accusing Direct Lending owner Brendan Ross of making a deal that allowed QuarterSpot to “falsify borrower payment information” for its loans and “falsely report” to the RIA that borrowers had submitted hundreds of monthly payments when this was not true at all. The regulator contends that a significant number of these loans should have been given a zero valuation rather than their “full value.” Because of this, the SEC alleges, between 2014 and 2017 the valuation of QuarterSpot’s position was “cumulatively overstated” by about $53M, which caused the Funds’ performance to be misrepresented by about 3% yearly. Meantime, Direct Lending allegedly collected about $11M in excess fees from the Funds.