Investor Lawyers Blog

Shepherd Smith Edwards & Kantas LLP Investigating Claims Involving Puerto Rico UBS Bond Funds

Published on: August 21, 2018 | by Shepherd Smith Edwards & Kantas, LLP

San Juan, Puerto Rico – October 3, 2013

Lawyers with the Securities Law Firm of Shepherd Smith Edwards & Kantas LLP, are investigating claims involving Puerto Rico UBS bond funds. UBS has been the most prominent broker-dealer operating in Puerto Rico for a number of years. As a result, many, if not most, individuals in Puerto Rico with brokerage accounts use UBS, resulting in UBS managing roughly $10 billion of assets of Puerto Rico residents.

Unfortunately, UBS recommended that many of these clients make significant investments in proprietary UBS bond funds. These UBS bond funds, such as the Tax-Free Puerto Rico Fund II, invest primarily in Puerto Rico municipal bonds.

GPB Capital Holdings Stops Selling Private Placements in GPB Funds to Investors

Published on: August 20, 2018 | by Shepherd Smith Edwards & Kantas, LLP

With already $1.8B in investor funds, GPB Capital Holdings is now placing a pause on raising more funds while it concentrates on putting in order the accounting and financial statements of two of its biggest funds, the GPB Automotive Portfolio and the GPB Holdings II. Both, collectively have raised nearly $1.3B in investor money. To date, the two funds have paid brokers $100.1M in sales commissions.

The halt comes after GPB Capital, which is a top seller of risky private placements and concentrates on purchasing auto dealerships, missed its April deadline to file financial statements for the two funds with the US Securities and Exchange Commission. According to GPB Capital CEO David Gentile, in a letter that InvestmentNews was able to get a copy of, the delay in filing is a result of having to deal with accounting standards that mandate the two funds generate yearly audited financial statements that must be in compliance with SEC regulations, as well as with the Public Company Accounting Oversight Board’s standards.

Gentile, who headed up his own accounting and advisory firm before launching GPB in 2013, said that “best practices and efficient reporting are a top priority”— hence the temporary halt in accepting money from new investors. Meantime, fund redemptions have been suspended and reportedly will resume after the financial statements and public filings are submitted.

Alleged $135M Ponzi Scam Involving Equitybuild

Published on: August 18, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission is accusing Equitybuild Inc., a real estate investment firm that is based in Florida, and its owners of operating a $135M Ponzi scam that defrauded approximately 900 investors. The regulator contends that the company, its President/CEO Jerome Cohen, and Vice President Shaun Cohen, who are father and son, promised investors double-digit returns of 12-20%, even as their business was incurring massive losses. Meantime, investors were paid returns using earlier investors’ money in Ponzi-like fashion.

Equitybuild investors were mostly unsophisticated, non-accredited investors without much experience in investing in real estate. The Cohens allegedly touted a purportedly original strategy for identifying an undervalued property in Chicago, Illinois’ South Side that they claimed would render huge returns. Investors were promised promissory notes that named a specific property. Third parties were supposed to buy the properties with mortgages that the investors had funded and this would generate returns.

Unfortunately, there don’t appear to have been many third-party buyers. Equitybuild was the one that owned most of the properties and the real estate investment company purportedly stopped searching for third-party buyers a few years ago.

Securities Cases: Goldman Sachs Investors Can Proceed with $13B CDO Fraud Litigation, Deutsche Bank Resolves Self-Dealing Lawsuit for $21.9M, and Elkhorn Capital Group Founder is Accused in $2.5M ETF Fraud

Published on: August 17, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Shareholders Can Proceed with $13B CDO Fraud Case Against Goldman Sachs

A US district court judge has given Goldman Sachs (GS) shareholders the right to move forward with their $13B collateralized debt obligation fraud lawsuit accusing the bank of not disclosing certain conflicts of interest. Judge Paul A. Crotty granted the investors’ case class action certification.

The CDO fraud lawsuit revolves around investments that Goldman Sachs created and sold prior to the collapse of the housing market. According to the plaintiffs, the bank made false and misleading statements and acted counter to clients’ best interests.

Larry Dearman, Sr. Ponzi Scheme Investigation

Published on: August 16, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The attorneys with the law firm of Shepherd, Smith, Edwards & Kantas LLP are currently investigating claims involving Larry Dearman, Sr. Larry Dearman moved to Bartlesville, Oklahoma in 2005, when he began working as a financial advisor in the area. He was registered both with the Financial Industry Regulatory Authority (“FINRA”) as a broker, as well as being registered as an investment advisor representative, which is done through the Securities Exchange Commission (“SEC”). Since 2005, Mr. Dearman has been registered with Cambridge Legacy Securities, LLC, Securities America, Inc., Brecek & Young Advisors, and The Focus Group Advisors.

Recently, Mr. Dearman was charged by the SEC, along with a woman named Marya Gray, of defrauding a number of his clients in a variety of ways. According to the SEC complaint, Mr. Dearman solicited his clients to invest in an internet company and a real estate company, among others, telling those customers that these investments bore very little risk and were good investment opportunities. Specifically, the complaint alleges that Mr. Dearman specifically solicited clients of his who had known him and his family for decades, members of his church, and people who know of him as a popular wedding singer. All told, he collected almost $5 million from various clients for these investments.

The SEC alleges that, in reality, the money was being stolen by Mr. Dearman and his cohort, Marya Gray. They were making Ponzi scheme style payments to earlier investors to keep those individuals complacent and to avoid arousing suspicion, all the while stealing the rest of the funds and spending it on themselves. The SEC also claims that Ms. Gray has admitted that the real estate business had never actually conducted any business, which would add substantial credence to the fraudulent nature of these investments.

Ameriprise Financial to Pay $4.5M Over Alleged Failure to Protect Investors

Published on: August 15, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In a settlement reached with the US Securities and Exchange Commission, Ameriprise Financial Services (AMP) will pay $4.5M over allegations that it did not protect retail investors from five of their financial representatives, who stole over $1.5M. Three of these individuals had previously pleaded guilty to criminal charges involving investor fraud.

The Commission charged Ameriprise, a registered investment adviser and brokerage firm, with inadequate supervision of the representatives and for not having policies and procedures that were “reasonably designed” enough to stop them from misappropriating clients’ monies.

Ameriprise, despite setting, is not denying or admitting to the regulator’s findings. However, it consented to a censure.

Securities Fraud Allegations Against Former Merrill Lynch/RBC Financial Adviser Could Lead to More Unauthorized Trading and Failure to Supervise Claims

Published on: August 14, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Earlier this year, the US Securities and Exchange Commission barred ex-RBC broker Thomas Buck from the industry. The action came less than four months after the regulator filed a civil case accusing Buck of investor fraud. He allegedly made material misrepresentations and omissions to investment advisory clients and certain customers while he was a Merrill Lynch financial adviser in order to get get paid excess fees and commissions.

As a result, more than 50 customers and clients under Buck ended up paying over $2.5M unnecessarily.

Buck also allegedly did not tell clients that they could have saved money if only they’d opted for a fee-based payment structure instead of the commission model. Meantime, he’d told Merrill Lynch compliance staff on several occasions that the clients knew about the less costly options.

Defective Security Swaps

Published on: August 14, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The attorneys at the law firm Shepherd, Smith, Edwards & Kantas LLP are currently investigating claims of institutional investors involving swaps or other ongoing, inappropriate investments. Many companies, state municipalities, and other governments were talked into entering into swap transactions, either as a part of another securities transaction such as a new bond issuance, or on their own. Typically, these swaps were sold as ways to hedge fluctuating liabilities that the customer already had, or in some other way to reduce financing expenses.

In a typical swap, the two parties are effectively exchanging a fixed rate and a variable rate. The party that currently has a variable rate liability, oftentimes a bond, enters into the transaction to avoid the carrying costs associated with that bond’s benchmark rising. In exchange, that party agrees to pay the other party a fixed, periodic payment. If the swap is done correctly, it allows the party with the original variable rate to avoid the consequences of its bond, or other liability, rate increasing because, if the rate were to increase, that rate increase would actually end up being paid by the swap counterparty. Conversely, if the rate on the bond decreased, the costs of that obligation would go down correspondingly to the increased cost of the swap, creating a wash. The party has effectively transformed a variable obligation to a fixed one.

Unfortunately for many of those customers, many of these swaps have proven wholly ineffective in fulfilling their expressly stated purposes. The reasons for these failures can vary significantly. In some cases, the swaps are set up incorrectly, such as not taking into account various reasons that the underlying obligation could fluctuate, or not marking the swap to the same benchmark as the underlying obligation. Whatever the reasons for their failure, many institutions have found themselves with hugely expensive carrying costs for these swaps and equally huge termination penalties to try to get out of them.

Precious Metal Investments

Published on: July 31, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Date: June 17, 2013

The attorneys at Shepherd Smith Edward & Kantas are investigating the claims of investors who purchased positions in gold, silver, or other precious metals at the recommendation of their broker or financial adviser. Recently, increasing numbers of brokers have been pushing their clients to invest in precious metals or securities based on precious metals for various reasons, including, representations that such investments are “hedges” against a falling market or simply speculating on the price of precious metals, such as gold. Below is a chart showing the returns of many of the currently available investment options in gold and other precious metals.

Fund Name	Ticker	Share Price	1 month	6 month	1 yr return
ETFS Phsical Asian Gold Shares ETF	AGOL	136.52	-2.30%	-18.84%	-14.46%
FactorShares 2x Gold Bull/S&P Bear ETF	FSG	9.71	-4.33%	-54.84%	-59.20%
the Market Vectors Gold Miners ETF	GDX	28.36	-1.22%	-38.98%	-39.56%
Market Vectors Gold Miners Junior ETF	GDXJ	11.32	-4.47%	-46.85%	-45.34%
Global X Pure Gold Miners ETF	GGGG	12.11	-5.98%	-41.67%	-45.94%
StreetTracks Gold Shares ETF	GLD	134.15	-2.66%	-18.27%	-15.01%
Global X Gold Explorers ETF	GLDX	15.82	0.89%	-47.82%	-50.56%
the UltraShort Gold ProShares ETF	GLL	85.61	4.05%	39.86%	24.36%
iShares COMEX Gold Trust ETF	IAU	13.48	-2.67%	-18.40%	-14.85%
Direxion Daily Gold Miners Bull 3x Shares ETF	NUGT	9.77	-9.54%	-81.87%	-84.78%
ETFS Physical Swiss Gold Shares ETF	SGOL	136.79	-2.65%	-18.42%	-14.91%
RBS Gold Trendpilot ETN	TBAR	28.07	0.11%	-5.49%	-3.04%
the ProShares Ultra Gold ETF	UGL	56.9	-5.69%	-35.10%	-31.15%
iShares MSCI Global Gold Miners Fund	RING	11.63	-4.83%	-39.74%	-43.24%
PowerShares DB Base Metals Fund ETF	DBB	16.76	-0.59%	-13.79%	-8.37%
Powershares DB Precious Metals Fund ETF	DBP	45.63	-51.40%	-72.87%	-17.87%
ETFS Physical Precious Metal Basket Shares	GLTR	74.9	-3.73%	-21.71%	-15.96%
the PowerShares Global Gold & Precious Metals ETF	PSAU	22.81	-3.63%	-37.56%	-36.09%
the SPDR S&P Metals & Mining ETF	XME	35.71	-5.15%	-19.88%	-9.43%
the ProShares Ultra Silver ETF	AGQ	21.78	-11.68%	-56.34%	-47.99%
PowerShares DB Silver Fund ETF	DBS	37.21	-6.41%	-33.22%	-24.96%
Global X Silver Miners ETF	SIL	13.65	-1.66%	-41.04%	-31.51%
iShares MSCI Global Silver Miners Fund	SLVP	13.24	-2.58%	-40.84%	-31.33%
ETFS Physical Silver Shares ETF	SIVR	21.81	-5.71%	-31.61%	-23.26%
iShares Silver Trust ETF	SLV	21.3	-5.63%	-31.67%	-23.44%
Global X Copper Miners ETF	COPX	9.94	-6.84%	-25.88%	-10.13%
First Trust ISE Global Copper Index Fund	CU	22.91	-5.80%	-24.21%	-9.87%
the ETFS Platinum Physical Shares ETF	PPLT	141.82	-3.79%	-10.81%	-3.10%
First Trust ISE Global Platinum Index ETF	PLTM	11.74	-2.41%	-17.38%	-22.66%

The results that these investments have seen over the last year vary tremendously for a number of different reasons. First, while most of the precious metals securities are designed to increase in value as the price of its target precious metal increases, some of them do the exact reverse and increase in value as the price of its target precious metal falls (“inverse funds”). As a result, many of the inverse funds have achieved positive returns over the last year as the price of many precious metals have plummeted. However, if prices rise, these funds could quickly lose value.

Second, some of these investments are “leveraged,” meaning the investment borrows money or uses another strategy to let it get returns greater than the change in the underlying value of the precious metal it is tracking. For example, the UltraShort Gold ProShares ETF is designed to return three times the amount that the value of gold falls. So if the price of gold fell 10%, an investment in this fund would increase approximately 30%.

However, on a more basic level, these investments have fared differently because they invest in fundamentally different assets. Some of these investments gain exposure to gold or some other precious metal by actually purchasing the metal and storing it in vaults. This is the most obvious and simple way for a fund to invest in these assets. Others are investing not in gold, but in mining companies that mine gold. These funds theorize that those types of companies should increase or decrease in value with the changes in value of the product they produce; namely gold, silver, or copper. However, there are some flaws in this analysis, as most experts agree that on a long time line, the share price of these companies will not keep up with the value of the metal they produce.

Finally, some, if not most of, these funds gain their exposure to the target metal by buying futures contracts on them. That means that the fund buys the right to purchase gold or some other metal at a fixed price at a fixed time in the future. However, instead of ever collecting the gold, these funds sell their right to purchase the gold before it comes due and instead purchase a new future, or right to buy. In doing so, the fund avoids the expense of ever actually having to process and handle gold, while still being affected in value by changes in the price of gold.

Recently, the funds which are based upon gold mining companies have fared the poorest. Not only have they lose value as the price of gold has plummeted, but the share price of those companies also suffered because equity markets worldwide have been weak. However, none of these funds, other than the inverse funds, have performed well. One of the funds, Direxion Daily Gold Miners Bull 3x Shares ETF, lost almost 85% of its value over the last twelve months. Many others lost half their value or more.

The moral of the story is that many brokers have been pushing their clients into investing in these or similar securities, without the clients being aware of the fact that these investments can be, and have been, very high risk investments which can end up wiping out an investor’s life savings in a matter of months. If you have invested in these or other investments in precious metals based upon your broker’s recommendation, contact the law firm Shepherd, Smith, Edwards & Kantas LLP for a free evaluation of a potential claim to recover some or all of the investment that you lost. All communications will be kept strictly confidential and you will not be billed in any way for a consultation.

SSEK Investigating Claims Involving Jeff Wilson and Wells Fargo

Published on: July 11, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The securities lawyers with Shepherd, Smith, Edwards, & Kantas LLP (“SSEK”) are investigating claims of investors and clients of Jeffrey Randolph Wilson (“Wilson”) who works with Wells Fargo Clearing Services, LLC (“Wells Fargo”) in Las Cruces, New Mexico. In the last 18 months, at least three of Mr. Wilson’s clients have filed arbitration claims against Wells Fargo claiming that Wilson and/or Wells Fargo acted improperly regarding those clients’ accounts. These customer claims include allegations that Mr. Wilson excessively traded customer accounts, made unsuitable investment recommendations, and exposed the clients to excessive risk.

All brokers are required to make only suitable recommendations to their clients and manage their clients’ investments appropriately. That means that the brokers, like Mr. Wilson, are supposed to consider a client individually and consider that client’s willingness to take risks, age, and other factors – like whether the client is retired – into account when deciding what investments to recommend. Similarly, some investments which might have been appropriate for a client can become inappropriate, or unsuitable, if they are bought and sold too often in a client’s account. Generally, the more frequent the trading in an account, the higher risk the investment strategy.

In the case with Mr. Wilson’s clients, more than one has complained that Mr. Wilson improperly advised them to invest in energy related investments which led to substantial losses. Recently, a FINRA arbitration panel agreed with that allegation, ordering Wells Fargo Advisors to pay a client $357,000 for losses suffered in unsuitable energy and housing based investments, as well as use of margin trading.