Investor Lawyers Blog

Securities Cases: Petrobras Will Pay $2.95B in Class Action Case, Ex-Och Ziff Hedge Fund Executive is Indicted Over Investment Scam, and Former Banker is Accused of Defrauding Excel Bank of Millions of Dollars

Published on: January 6, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Och Ziff Hedge Fund Executive Indicted in NY Over Alleged Africa Investment Fraud
A grand jury in Brooklyn, NY has indicted Michael Cohen, the ex-head of Och Ziff Capital Management’s European operations on fraud, conspiracy, and other criminal charges. According to prosecutors, Cohen hid a conflict of interest involving a mining company investment and defrauded an institutional client.

The ex-Och Ziff hedge fund executive and his former company are accused of making representations to a UK foundation that then agreed to invest up to $200M in a joint African venture in 2008. Cohen, who allegedly used the joint venture fund to purchase stock from someone who had borrowed money from him for a yacht, is accused of failing to disclose his own stake in the investment. Meantime, the person whom, CNBC reports, owed Cohen money, allegedly used funds from the stock purchase to pay him back $4M.

Cohen is accused of trying to conceal the investment scam by generating a bogus letter and making statements to the SEC, IRS, and FBI that were “materially false.”

Criminal Securities Fraud: Former ArthroCare CFO is Sentenced in $750M Scam, Ex-Lawyer of Marti Shkreli is Convicted for Concealing Financial Scheme, and former Bankrate CFO is Accused of Rigging The Firm’s Books

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

Ex-CFO of ArthroCare Gets Prison Term for $750M Securities Fraud
Michael Gluck, the ex-CFO of ArthroCare Corp., is sentenced to over four years in prison for his role in a $750M financial fraud. Gluk pleaded guilty to securities fraud and conspiracy to commit wire fraud last year.

Gluk, ex-ArthroCare CEO Michael Baker, and others are accused of artificially inflating revenue and sales in an effort to keep the medical device company’s stock price up. As a result, shareholders sustained more than $750M in losses.

Baker was sentenced to 20 years behind bars. Gluk had previously been sentenced to 10 years in prison after he was convicted in 2014 for his role in the scam. However, a federal appeals court overturned the conviction, hence his new plea agreement and sentence. He also must forfeit nearly $678K and pay a $50K fine.

Texas Securities Regulator Orders BitConnect To Stop Allegedly Fraudulent Sales of Unregistered Bitcoin Investments

Published on: January 4, 2018 | by Shepherd Smith Edwards & Kantas, LLP

In an Emergency Cease and Desist Order, the Texas State Securities Commissioner is demanding that BitConnect, which is based in the UK, stop a number of its investment programs, as well as its allegedly fraudulent sales of Bitcoin investments. According to the regulator, BitConnect sales agents are targeting prospective Texan investors, as well as investors in other parts of the US.

BitConnect issues its own currency, known as BitConnect Coins. As of earlier this month, the company was claiming that its market share for its cryptocurrency coins was $4.1B. It announced plans to issue up to 28 million coins.

According to the regulator’s order, BitConnect’s website BitConnect is an “open sourced, all-in-one Bitcoin and crypto-currency platform” that offers different investment opportunities. The site depicts BitConnect Coins as an “open source, peer-to-peer community-driven decentralized cryptocurrency” with which owners can “store and invest their wealth.”

Ex-ConvergEx Group Executive Accused of Defrauding Charities and Retirement Funds Settles Fraud Charges for $975K

Published on: January 3, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Group announced that Khaled Bassily, the ex-head of ConvergEx Groups’ transition management business, has settled institutional investor fraud charges accusing him of taking part in a scam to hide from certain clients, which included religious organizations, retirement funds, and charities, that they were paying substantially more than they thought for trading orders. Bassily, who agreed to pay more than $988K in disgorgement, prejudgment interest, plus a civil penalty, settled the case without denying or admitting to the charges.

The regulator brought the case against him in 2016. According to its complaint, over five years, Basily hid from transition management customers that their brokerage orders were being directed to an offshore affiliate where concealed charges were put into the price that they paid for selling and purchasing securities. These secret charges were an add on and frequently much higher than the commissions that customers paid for their orders. For example, stated the SEC’s complaint, one customer who paid $699K in commissions also paid $9.6M in these hidden fees.

Meantime, Bassily allegedly engaged in deceptive practices, including “false and misleading statements” to customers, working with traders to maximize theses hidden charges, and taking steps to hide these unauthorized charges from customers.

SEC Accuses Broker of Giving Some Customers Preferential IPO Access in Exchange for Over $1M in Kickbacks

Published on: January 2, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed a case accusing broker Brian Hirsch of illegally receiving over $1M in secret kickbacks in return for giving some customers favored access to “lucrative” initial public offerings. The regulators said that these customers made money because of the special treatment. Meantime, prosecutors in New Jersey have filed a parallel criminal case against Hirsch.

According to the SEC, Hirsch, who worked at two broker-dealers, disregarded policies and procedures and made “long-running” deals with specific customers, granted them bigger allocations of some of the public offerings that the firms were marketing. Advisor Hub reports that these two brokerage firms were Barclays Capital (BARC) and Stifel (SF).

As part of the deal, contends the regulator, a customer named Joseph Spera and another customer paid Hirsch cash kickbacks that were equivalent to a percentage of the trading profits they made for the offering stock allocated to them. Hirsch is accused of giving the two customers “preferential access to hundreds of IPOS and secondary public offerings.” These customers purportedly would usually sell their stock quickly so that they could make a “substantial profit.” This was at the expense of the firms’ other customers and the interests of issuers in raising funds from long-term investors.

Royal Bank of Scotland Settles Mortgage-Backed Securities Fraud Case Brought by Pension Funds for $125M

Published on: December 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to Reuters, Royal Bank of Scotland Group plc (RBS) has settled a mortgage-backed securities fraud case brought by the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) for $125M. The settlement resolves claims alleging that the bank made misrepresentations when selling MBSs to the pension funds, which contend that they sustained millions of dollars in losses as a result.

According to California Attorney General Xavier Becerra, a probe by his office determined that the descriptions the firm provided to investors “failed to accurately disclose the true characteristics” of many of the mortgages backing the securities, but that RBS, which knew about the alleged misrepresentations, did nothing to remedy them. The state AG’s investigation also found that RBS did not conduct the necessary due diligence to eliminate the loans that were of “poor quality.” Becerra contends that RBS purposely misled CalPERS and CalSTRS to enrich itself. He noted that the MBS fraud settlement gives back the money to the pension funds that the bank “wrongfully took” from them.

Already, The California AG’s office has gotten back more than $1B over securities that were sold to the state’s public pension funds, which sustained losses during the economic crisis of 2008. Last year, $150M was recovered from Moody’s, the credit rating agency. In 2015, $210M was recovered from another credit rating agency, Standard & Poor’s. Other banks to have settled include Citigroup (C) for $102M, Bank of America for $300M and J.P. Morgan Chase (JPM) for $300M.

FINRA Orders Citigroup to Pay $11.5M, Including at Least $6M to Investors, Over Inaccurate Stock Research Ratings

Published on: December 29, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is ordering Citigroup Global Markets Inc. (CGMI) to pay $11.5M in restitution and fines to resolve charges accusing the firm of displaying “inaccurate research ratings” on over 1800 stocks—that’s more than 38% of the stock that CGMI covers. According to the self-regulatory organization, the result of the inaccurate ratings was that a lot of customers ended up buying shares they wouldn’t have purchased otherwise if the right information had been provided.

Citigroup settled the case without denying or admitting to wrongdoing. The alleged inaccurate ratings would have been issued between 2011 and 2015.

According to the self-regulatory organization, CGMI showed the inaccurate ratings not just to retail customers, but also to its brokers and supervisors. These inaccuracies were caused by errors in the firm’s electronic ratings data feed that it provides to its clearing firm. As a result: the wrong rating was displayed for certain securities, ratings for securities that CGMI did not cover were provided, and/or the ratings for securities that the firm did rate were not displayed at all. The research ratings on CGMI’s actual research reports, to which brokers had access, were not impacted by these mistakes.

Multimillion-Dollar Investment Adviser Fraud Cases Target Widows, Older Investors, and Other Retail Investors

Published on: December 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Two Investment Advisers Accused of $20M Investor Scam
The US Securities and Exchange Commission has filed civil charges against investment advisors Ronald A. Fossum and Alonzo Cahoon. They are accused defrauding retail investors in an unregistered securities scam. According to the regulator, from about 3/2011 to 6/2016, Fossum raised over $20M from more than 100 investors via securities offerings in investment funds under his control or ownership, including the:

Accelerated Asset Group, LLC
Turnkey Investment Fund, LLC
Smart Money Secured Income Fund, LLC

Fossum is accused of misappropriated hundreds of thousands of dollars of investors’ money to pay his own expenses, including living in a home owned by one of the fund’s free of rent. He also allegedly used investor funds to pay for international travel and federal taxes.

Train Babcock Advisors Charged With $9M Fraud Against Charity Client

Published on: December 27, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed civil charges against Train Babcock Advisors LLC, lawyer Robert Gaughran, and accountant Kevin Clune related to an over $9M institutional fraud targeting a charitable foundation set up by an elderly widow in 1991. The organization, which focuses on improving healthcare and education, was set up using assets from her estate after she died in 2001.

To resolve the civil charges, Train Babcock Advisors will pay over $1.7M in disgorgement plus interest and penalties. It also has consented to withdrawing its SEC registration as an investment adviser. The firm is in the process of shutting down operations.

The $9M fraud was masterminded by former Train Babcock Advisors John Rogicki, who pleaded guilty to criminal charges in October. Earlier this month, he was sentenced to 30 to 90 months behind bars. Rogicki was also ordered to pay the foundation over $6.7M.

Houston Technology Company is Accused of $28M Texas Securities Fraud

Published on: December 26, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed fraud charge against Behavioral Recognition Systems, Inc. and its former CEO Ray C. Davis. According to the Commission, the Houston-based technology company, and Davis solicited over $28M from hundreds of investors, diverting over $7.8M to the latter’s personal use.

Between 1/2013 and 7/2015, investors targeted in the alleged Texas securities scam were solicited for funds and their involvement in seven equity securities offerings. “Material misrepresentations and misleading statements” were allegedly made to them about: how investor proceeds would be used, executive compensation, operating costs, and related party transactions.

The regulator’s complaint, claims that Behavioral Recognition Systems and Davis lied more than once in order to get investors to give them their money. Offering documents claimed that investor money would go toward “working capital,” “growth, “mezzanine funding,” and “general corporate purposes” for Behavioral Recognition Systems. Instead, contends the SEC, Davis used shell companies under his control to divert about $11M of investor money for his own use–$7.8M of that money was allegedly diverted during the period at issue. Bogus invoices from the shell companies for services purportedly rendered were then generated to conceal the fraud.
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