Investor Lawyers Blog

After Hurricane Maria, Mutual Fund Company Franklin Resources Sells Hundreds of Millions of Dollars of Puerto Rico Bonds

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

According to The Wall Street Journal, Franklin Resources Inc. (BEN), has sold hundreds of millions of dollars of Puerto Rico bonds in the wake of the devastation of Hurricane Maria. This includes Franklin Mutual Advisers LLC’s decision to sell its $294 million stake in the U.S. territory’s general obligation bonds.

Franklin, also known as Franklin Templeton, is the second largest holder of Puerto Rico bonds among mutual funds. OppenheimerFunds (OPY) is the largest.

The Wall Street Journal said that Franklin is not the only one trying to get rid of its Puerto Rico bonds. According to sources, a “swath of mutual funds and hedge funds” have finally given up on the island’s securities, too. For example, Merced Capital and Varde Funds sold their $172 million in Puerto Rico municipal bonds to other bondholders.

Deutsche Bank Agrees to Pay $220M to Resolve Libor Rigging Probe

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

Deutsche Bank AG (DB) has settled with 45 US states and will now pay $220M to resolve allegations that it engaged in rigging the London Interbank Offered (LIBOR) rate and other benchmark interest rates. According to the settlement, the bank admitted that its managers and traders took part in benchmark rigging from ’05 to ’09.

A press release issued by New York Attorney General Eric Schneiderman states that Deutsche Bank “acted unlawfully,” including that:

· The bank defrauded counterparties when it didn’t disclose that it was making LIBOR submissions that were “false or misleading.”

· Its traders tried to influence the LIBOR submissions of other banks so that Deutsche Bank would benefit.

· The bank knew that other banks were rigging LIBOR, too.

· Deutsche Bank didn’t disclose that the other banks’ LIBOR submissions were not accurate reflections of their borrowing rates or that the published rates were not accurate to the submitting banks’ real borrowing costs.

Two Ex-Ameriprise Financial Services Brokers Settle With FINRA Over Margin Trades

Published on: October 24, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Former Ameriprise (AMP) Jack McBride has been ordered by the Financial Industry Regulatory Authority to pay a $12,500 fine and serve a 40-day suspension over alleged violations involving margin trades. He was registered with Ameriprise from 1994 to 2014.

FINRA contends that it was during this period that he committed a number of violations, including settling a customer complaint without telling Ameriprise, sending emails that had inflated account values to two clients, and mismarking order tickets as unsolicited when they had been solicited.

Regarding the margin trade violations, the regulator notes in the Letter of Acceptance, Waiver, and Consent that McBride settled with one couple by sending them almost $12,845 from his personal account rather than reporting their complaint to Ameriprise. The couple was charged margin interest after incurring a margin balance because McBride mistakenly bought $320K in securities for them using their Ameriprise account that did not have the balance to cover the cost. They had multiple accounts with the brokerage firm.

Securities News: Ex- HSBC Executive Found Guilty of Fraud Involving $3.5B Currency Trading & Hedge Fund Sues Barclays For Copper Market Rigging

Published on: October 24, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury in New York has found Mark Johnson guilty on criminal charges accusing him of front-running involving a $3.5B currency trade. HSBC’s ex-foreign-exchange cash trading global head is the first banker that the US Justice Department charged over forex rate rigging.

Johnson was convicted on eight counts of wire fraud and one count of wire fraud conspiracy, and he reportedly will appeal the verdict. Johnson maintains that he was acting in the best interest of the client involved and he did not do anything wrong or irregular.

According to acting US Attorney in Brooklyn Bridget M. Rohde, Johnson used confidential information given to him by an HSBC client to make trades in an attempt to earn millions of dollars for the bank and himself while costing the client money. He and ex-HSBC European currency trading head Stuart Scott allegedly engaged in front running, which involves making trades based on advanced information about a big market order, with the advanced trades rendering huge profits once the bigger transaction has upped the price. Scott is currently in the UK battling extradition efforts to bring him back to the US.

California Extends Sanctions Imposed Against Wells Fargo Following More Bad Practice Disclosures

Published on: October 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

California Treasurer John Chiang announced this week that the state has decided to extend the sanctions it imposed against Wells Fargo & Co. (WFC) for one more year. The bank is barred from doing business with California in the wake of the sales practice scandal involving the set up of at least two million unauthorized credit card and bank accounts. Wells Fargo agreed to pay $185M to regulators to resolve related charges.

As the country’s largest municipal debt issuer, California oversees a $75B investment portfolio. Its sanctions include suspending the state’s investments in Wells Fargo Securities, barring the bank from being used as a brokerage firm to buy investments, and prohibiting it from serving as bond underwriter whenever Chiang is authorized to appoint said underwriter.

When explaining why he sought to extend the state’s sanctions, Chiang pointed to recent disclosures, including that Wells Fargo overcharged veterans in a federal mortgage-refinancing program and, in another program, made loan borrowers pay for unnecessary insurance. The state treasurer sent a letter to Wells Fargo’s board and its Chief Executive Tim Sloan noting that a number of demands have to be fulfilled before he will lift the sanctions.

NY Investment Adviser Accused of Bilking Non-Profit of $9M

Published on: October 23, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed fraud charges against John Rogicki. The New York-based financial adviser, who is the chief compliance officer and managing director of Train, Babcock Advisors, LLC, is accused of defrauding a non-profit charitable foundation of $9M. The founder of the Foundation had named Rogicki, who had been her husband’s financial adviser, as the trustee and trust president in her will.

She and Rogicki became friends in the 1990’s when she was already an elderly woman. She died at 97 in 2001. Just a few years before that, it was Rogicki who introduced her to a trusts and estate attorney. This lawyer executed a trust and will that made all the designations to Rogicki.

Rogicki was also the non-profit’s investment adviser and he was tasked with making all investment decisions for the Foundation, including directing all securities transactions in the latter’s advisory account. The Commission believes that Rogicki committed the alleged fraud between 2004 and 2016.

Massachusetts Accuses Investment Adviser of Venture Capital Fraud

Published on: October 20, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Secretary of the Commonwealth of Massachusetts William Galvin has filed civil fraud charges against Moser Capital Management and investment adviser Nicklaus J. Moser. Galvin’s office is accusing Moser and his firm of fraud involving two venture capital funds: the Moser Capital Fund, LLC and the Moser Capital Fund II, LLC.

The state regulator claims that the respondents engaged in fraudulent conduct and breached their fiduciary duties. The breaches alleged include making misrepresentations and omissions to investors and prospective investors by providing misleading information, not getting “valid investor signatures” when receiving more capital contributions, and charging a performance fee to the non-qualified account of an advisory client.

According to Galvin’s office, Moser set up the funds to raise cash for start-up companies. The investment adviser was allegedly a sales representative at a company that sold products to startup ventures, but he did not tell investors that he had financial reasons for making sure that the start-ups in operation.

Mining Company Rio Tinto Accused of Fraud, Settles with FCA for $36M

Published on: October 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed fraud charges against Rio Tinto and its ex-CFO Guy Robert Elliot and former CEO Thomas Albanese. The defendants are accused of hiding the Mozambique coal business’ swift and steep drop in value soon after they acquired it for $3.7B. The mining company later would go on to sell Rio Tinto Coal Mozambique for $50M—a much lower figure than the buying price.

The SEC contends that following the acquisition of the coal assets in 2011, the project experienced problems right away because there was “less coal and of lower quality” than what Rio Tinto, Elliot, and Albanese had anticipated. Also, the country of Mozambique, which is where the acquisition occurred, had turned down the barge application. This means that there was no infrastructure to transport the assets. All of this “significantly eroded” the acquisition’s value.

Rio Tinto and the two ex-executives purportedly knew that publicly disclosing the acquisition as a failure, after a previous acquisition of Canadian company Alcan had rendered big losses, would create doubts over their ability to identify and develop mining assets that were “long-term, low cost, and highly profitable.” This purportedly compelled them to hide the problems that arose with the Mozambique acquisition and issue misleading financial statements prior to a number of US debt offerings.

FINRA Goes After Two Brokers for Variable Annuity Replacement Fraud

Published on: October 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority has suspended broker Cecil Ernest Nivens for two years for allegedly causing harm variable annuity (VA) investors who were his customers. According to the self-regulatory organization’s filing, Nivens failed to abide by his firm’s written supervisory procedures when he didn’t properly process certain variable universal life purchase transactions as replacement trades even though he was the one who recommended that each purchase be paid for from an existing variable annuity fund.

Nivens earned over $185K in commissions for the variable annuity life purchase transactions, in addition to commissions he was already paid for the variable annuities when they were sold to the same customers. Now, Nivens must disgorge those commissions.

FINRA accused Nivens of causing “considerable” harm to customers. In addition to the excessive commissions, eight of his customers paid over $4K in unnecessary surrender charges. His former firm has paid over $55K to settle VUL fraud customer complaints involving him.

Jury Rules Against Former F-Squared CEO in SEC’s ETF Fraud Case

Published on: October 16, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A federal jury in Boston has found Howard Present, the ex-CEO of F-Squared Investments Inc., liable in the US Securities and Exchange Commission’s civil lawsuit alleging exchange-traded fund fraud. The ruling determined that Present was in violation of the Investment Advisers Act.

According to the regulator, Present sought to defraud investors and acted recklessly in the way he marketed the history of the AlphaSector, which was F-Squared’s flagship product.

The SEC filed its securities fraud lawsuit against Present in 2014. That was when the regulator announced a $35M settlement reached with F-Squared, in which the firm admitted wrongdoing over claims that it misled investors in the way that it falsely marketed AlphaSector as having a lengthy and successful track record that utilized a strategy that a multibillion-dollar wealth manager had developed.