Investor Lawyers Blog

Ex-Equifax Trader is Accused of Insider Trading Before Data Breach News Was Disclosed to the Public

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

The US Securities and Exchange Commission has filed insider trading charges against Jun Ying, the ex-chief information officer of an Equifax US business unit. The regulator contends that Ying engaged in insider trading in 2007 before the consumer credit reporting agency announced that there had been a major data breach exposing personal information of approximately 148 million customers in the US. Among the information that was disclosed were social security numbers, names, addresses, and birth dates.

The Commission’s complaint accuses Yin of using confidential information to determine that Equifax had experienced a major breach. The SEC said that before the company disclosed the information breach, Ying exercised all the Equifax stock options he had vested and made almost $1M when he sold the shares. The regulator claims that Ying was able to avoid losing over $117K by selling the shares when he did.

Now, the SEC, which has filed charges against Ying accusing him of violating federal securities laws’ antifraud provisions, is pursuing ill-gotten gains, interest, injunctive relief, and penalties against him. Ying resigned from Equifax after the company found out about his trades and reportedly made plans to let him go. US prosecutors have filed a parallel criminal case against Ying.

Securities Industry Headlines: Convicted Hedge Fund Manager Martin Shkreli Gets Seven Years, Zohar Investment Funds File for Bankruptcy Protection, and Ex-Morgan Stanley Investment Adviser Named in $34M Securities Arbitration Loss Lands at Pinnacle

Published on: March 13, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Martin Shkreli to Go to Prison for Seven Years

A federal judge has sentenced former hedge fund manager Martin Shkreli to seven years behind bars. Shkreli was found guilty of defrauding investors of his MSMB Capital Management hedge fund while manipulating the stock of his drug company Retrophin.

His defense team had fought for a lower sentence—12 to 18 months. They pointed out that ultimately none of the investors that Shkreli bilked lost money and he didn’t profit from his fraud. Prosecutors countered that, in fact, Shkreli had caused anywhere from $9M to $20M in losses.

A few days before his criminal sentence was issued, Judge Kiyo Matsumoto ordered that about $7.36M of the ex-hedge fund manager’s assets be surrendered, including a rare Wu-Tang Clan album that he purchased for $2M. Shkreli’s legal team plans to appeal the sentence.

Voya Holdings Subsidiaries to Repay Mutual Funds Over $2M

Published on: March 12, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Direct Services LLC and Voya Investment LLC, two Voya Holdings Inc. investment adviser subsidiaries, will pay about $3.6M to settle Securities and Exchange Commission charges accusing them of failing to make certain disclosures related to securities lending. Of that amount, over $2M will go straight to mutual funds that were impacted.

The two investment advisers worked with a number of “insurance-dedicated mutual funds” that insurers affiliated with Voya Holdings and Direct Services offer to life insurance and annuity customers. The two advisers lent fund-held securities to certain parties. They then called back the securities so that the insurer affiliates would get a tax benefit. These same affiliates were record shareholders for the funds’ shares. Meantime, this led to the funds and their investors losing income while not getting to avail of the tax benefit.

According to SEC Enforcement Division Asset Management Co-Chief Anthony S. Kelly, the mutual funds and its investors were not notified that they would be losing money in order for the affiliates to get this tax benefit. The regulator said that Voya advisors did not disclose that this conflict of interest existed.

Texas Securities Cases: Austin Investment Adviser to Pay Over $715K to Settle Cherry Picking Allegations and Dallas-Based Oil and Gas Company is Accused of $95OK Investor Fraud

Published on: March 9, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Valor Capital Asset Management LLC and its owner, Texas-based investment adviser Robert Mark Magee, have settled US Securities and Exchange Commission charges accusing them of defrauding investors by engaging in cherry picking. As part of the settlement, Magee is banned from the securities industry and will pay over $715K.

The SEC contends that while trading securities in the firm’s omnibus account, Magee would wait to allocate the trades until after watching their performances throughout the day. He would then allocate a disproportionate amount of the more profitable trades to his accounts while sending the trades that were not profitable to his clients. This allowed him to profit at cost to clients. The SEC believes that his ill-gotten gains from cherry picking was over $505K.

For example, notes the SEC, the way in which Magee traded and allocated El Pollo Loco Holdings is “representative” of how he allegedly engaged in cherry picking. For five trading days in a row, trades in LOCO that were profitable went to his own account. When the price went down on the sixth day, he allocated the shares to six Valor client accounts instead of selling the shares at a loss.

Royal Bank of Scotland Settles NY’s RMBS Fraud Case for $500M

Published on: March 9, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In yet another mortgaged securities-related resettlement, Royal Bank of Scotland (RBS) has agreed to pay $500M to settle New York Attorney General Eric Schneiderman’s case accusing the bank of misrepresentations and deceptive practices related to it sale residential mortgage-backed securities (RMBS). $400M of the payment is consumer relief, while $100M is a fine that will go to the state.

NY’s probe concentrated on 44 mortgage securitizations that RBS issued leading up to the 2008 financial crisis. The NY AG said that during that time, due diligence vendors cautioned the bank that a lot of the loans it was buying were not in compliance with underwriting guidelines. Still, the bank bundled the loans and touted them as secure to investors, many of whom bought the RMBSs.

Schneiderman’s probe found that some of the mortgages backing the bonds at issue had over 100% loan to value ratios, meaning that “they were ‘underwater’.” Now, RBS is admitting that it sold mortgage bonds backed by loans that failed to abide by underwriting guidelines even as the bank maintained that they were, in fact, in compliance.

The bank also acknowledged that it had limited how much diligence it performed on mortgages, resulting in a lot of the loans being securitized even though no due diligence was conducted at all.

Securities News: Wells Fargo’s Wealth Management Division is Reportedly Under Investigation, Merrill Lynch is Accused of Gatekeeping Failures Involving Unregistered Securities Sales, and NYSE Must Pay $14M Over Regulatory Failures

Published on: March 7, 2018 | by Shepherd Smith Edwards & Kantas, LLP

SEC Reportedly Investigating Wells Fargo Over Possible Inappropriate Investment Sales to Wealth Management Clients

According to news reports, the US Securities and Exchange Commission is investigating Wells Fargo’s (WFC) Wealth Management unit to see whether its clients were inappropriately sold certain in-house investment services even though these were not in their best interests. A source told Bloomberg that the regulator’s role in the probe has not been publicly disclosed.

However, in a regulatory filing, Wells Fargo revealed that it is looking into whether inappropriate recommendations were made related to 401(k) plan rollovers, alternative investments, and brokerage customer referrals to the firm’s “investment and fiduciary-services business.” The bank noted that it was assessing these matters in its wealth management business in the wake of inquiries made by federal agencies.

Bloomberg notes that it was in 2015 that JPMorgan Chase & Co. (JPM) consented to pay $267M over allegations that its customers were not told that it had profited by placing their funds in certain hedge funds and mutual funds that charged particular fees.

FINRA Cases: Allegis Investment Adviser and Ex-Broker Ordered to Pay Nearly $405K, Former Madison Avenues Securities Broker Accused in $1.67M Unauthorized Trading Case is Barred by FINRA, and US Senator Elizabeth Warren Introduces Bill To Address Unpaid Arbitration Awards

Published on: March 7, 2018 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Arbitration Panel Awards Allegis Investment Advisors Client $404,482

A Financial Industry Regulatory Authority arbitration panel has awarded Mark Watson $404,482 in his unauthorized trading case against Allegis Investment Services, Allegis Investment Advisors, and ex-broker Brandon Curt Stimpson. Watson is accusing Stimpson of placing his life savings in investments that were too risky and complex and of making unauthorized trades involving index put options connected to the Russell 2000 Index even though he had told the broker that he only wanted up to 25% of his portfolio involved in these. Instead, Watson alleges, Stimpson invested way more of his money in the index put options.

In his securities arbitration case, Watson also alleged breach of fiduciary duty. Now, a FINRA panel has awarded him nearly $275K in compensatory damages, nearly $54K in interest, and other costs.

Stimpson was fired by Allegis last year for not abiding by the firm’s ethics code and policies. According to his BrokerCheck records, he has been named in eight other customer disputes.

Retirement Accounts : Ameriprise Settles SEC Allegations That It Overcharged for Mutual Funds & Fidelity Undergoes Customer Exodus from Flagship Funds

Published on: March 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against Ameriprise Financial Services (AMP). The regulator is accusing the brokerage firm and investment adviser of recommending to retail retirement account customers that they purchase mutual fund shares that charged higher fees. Ameriprise purportedly failed to employ sales charge waivers when applicable.

The Commission’s order contends that the broker-dealer neglected to determine when certain retirement account customers qualified for mutual fund share classes that were not as costly.

Instead, the firm would recommend and sell the more costly mutual fund shares even when the less pricey options were available. Ameriprise is accused of not letting these customers know that the firm would make more from the costly mutual fund shares even as their overall investment returns were harmed.

The SEC said that about 1,971 customer accounts paid nearly $1.8M in up-front sales fees that were not warranted, costlier ongoing fees, “contingent deferred sales charges,” and other expenses because of the way that Ameriprise handled the recommendation and sale of mutual funds to retirement account clients.

The firm is cooperating with the regulator and has paid back customers that were affected with interest. Retirement account customers eligible for the less expensive mutual fund share classes have been moved to those classes free of charge.

UK Brokerage Firm is Accused of $50M Stock Fraud as SEC Files Manipulative Trading Charges

Published on: March 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The SEC’s complaint contends that Beaufort and Kyriacou became involved in a pump-and-dump scam with a man that they didn’t know was working for the FBI. With him, they purportedly spoke about using promotions to raise stock prices, engaging in matched trades to affect the stock price, and selling the shares to make a profit.

The SEC filed another complaint contending that in recorded phone calls, HD View CEO Dennis Mancino and CEO of WT Consulting Group LLC William T. Hirschy consented to manipulate the company’s stock by utilizing the undercover agent’s broker network to create a “fraudulent” demand. The two of them were supposed to “manipulate HD View stock” so that its price would go up prior to having the brokers in the agent’s network liquidate their positions. In return, there would be a kickback paid from the money made from trading. The regulator has also filed civil charges against Mancino, Hirschy, and the entities TJM Investments Inc., WT Consulting Group, and DJK Investments 10 Inc.

As LJM Preservation and Growth Fund Declines in Value and Announces Shut Down, Investors Suffer Losses

Published on: March 1, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The LJM Preservation and Growth Fund (LJMIX, LJMAX, LJMCX) is facing allegations that it made false and misleading statements to investors. In particular, the fund represented that it was appropriate for capital preservation investors who wanted conservative growth of their account. In reality, the mutual fund exposed investors to high risks that made them vulnerable to massive losses when it lost nearly all of its value within two days, dropping more than 80% earlier this month. In a filing with securities regulators, The LJM Partners, LTD., which is based in Chicago, announced that it was shuttering operations by March 29 and is going into liquidation.

The latest earnings report for the fund, filed at the end of October, noted $768 million of net assets. Reuters reports that the fund’s net assets were $812 million at the start of month but that is now reduced to $14 million. After this massive drop, the fund announced that it would no longer be open to new investments. Soon after, investors brought a class action securities lawsuit against the mutual fund. The plaintiffs are alleging that the LJM Preservation and Growth Fund violated the Securities Act and misled them by claiming it was committed to “preserve capital, particularly in down market.”

LJM, operated by Anthony Caine and Anish Parvatanen, was among a number of companies involved in selling liquid alternative funds that were complex and came with high fees. Investors that sought these funds out were generally hoping to enhance their returns even while reducing the risks. However, the fund did not accomplish that goal. It instead embarked on a risky strategy involving complex options trading and other investments that are not appropriate for any investor seeking capital preservation.