Investor Lawyers Blog

UBS to Pay $3.5M Penalty To Settle Allegations that It Disadvantaged Retirement and Charity Accounts During Mutual Fund Transactions

Published on: November 6, 2017 | by Shepherd Smith Edwards & Kantas, LLP

UBS Financial Services Inc. (UBS) has agreed to settle US Securities and Exchange Commission charges accusing the brokerage firm of not ensuring that certain charitable brokerage accounts and retail retirement accounts received the sales charge waivers or reduced fee share classes to which they were entitled when they purchased certain mutual funds. However, despite settling, including agreeing to pay a $3.5M penalty, the firm did not admit to or deny the SEC’s findings.

The regulator’s order states that from at least 1/2010 through 6/2015, UBS did not confirm certain customers’ eligibility to purchase from a less costly mutual fund share class and instead recommended that they buy more expensive ones. The customers that were affected purportedly did not have enough information at their disposal to understand that UBS had a conflict of interest when recommending the costlier share classes, such as Class A shares that came with an upfront sales fee and Class B/C shares that charged contingent deferred sales fees at the back-end plus came with costlier ongoing expenses and fees. All of the customers affected had been eligible to buy either no-load Class R shares or load-waved Class A shares.

As a result, claims the Commission, 15,250 customer accounts paid more than $18.5M in excess fees and expenses, upfront sales fees, and “contingent deferred sales charges.” Also, by selling investors the more expensive share classes, UBS earned higher compensations. The brokerage firm is accused of not disclosing to these customers that buying the costlier share classes would hurt their investments’ returns.

SEC Orders 235 LLCs to Produce Documents Related to Its Woodbridge Fraud Probe

Published on: November 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In a subpoena enforcement action, the US Securities and Exchange Commission is ordering 235 LLCs in Colorado and Delaware to provide documents related to its probe into whether Woodbridge Group of Companies, LLC, a California-based real estate and investment company owned and run by its president Robert Shapiro, engaged in a $1B financial fraud. All of the entities, plus another LLC, are affiliated with Woodbridge. The regulator had subpoenaed the 236 of them for the documents in August. Only one LLC responded by the deadline.

Now, the Commission wants a federal district court to make the rest of the LLCs comply with the subpoenas. Meantime, Shapiro has invoked his Fifth Amendment right. However, he maintains that his company did not commit fraud.

SEC Has Been Probing Woodbridge Since 2016
For the past year, the regulator has been looking into looking into possible securities fraud by Woodbridge and others involving more than $1B that was provided by thousands of investors throughout the US. The alleged fraud may include unregistered securities sales, including securities sales by brokers who were not registered, and other fraud.

FINRA Cases: Ameritas to Pay $180K Fine Over Variable Annuity Sales, UBS Ordered to Pay Former Broker $3M for Defamation, and 13 Investors Awarded $5M After Losses Allegedly Caused by Ex-LPL Financial/Edward Jones Broker

Published on: November 4, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Ameritas Investment Corp. Must Pay $180K for Inadequate Supervision Involving VA Sales
The Financial Industry Regulatory Authority is ordering Ameritas to pay $180K for an inadequate supervisory system that oversaw its multi-share class variable annuity sales. The self-regulatory organization claims that between 9/2013 and 7/2015, the brokerage firm failed in its supervision of the VA sales and did not have adequate written supervisory procedures in place.

It was during this period that the firm sold almost 4,100 variable annuity contracts, making more than $58M in the process. 697 of the sales were L-share contracts, rendering approximately $11M. These types of contracts usually come with a shorter surrender period than the more common B-share contracts. FINRA believes that the broker-dealer failed to provide its registered representatives proper guidance on the different share classes that were for sale or on how to discern which ones would be best for each customer.

Fired Broker Will be Paid $3M by UBS
A FINRA arbitration panel is ordering UBS Financial Services (UBS) to pay $3M in compensatory damages to a broker that it fired. The Claimant, James L. Springer, had made numerous claims, including wrongful termination, emotional distress, negligence, unfair competition, breach of fiduciary duty, unpaid wages, and others.

Credit Suisse and MBIA Insurance Continue to Fight Over Mortgage-Backed Securities Fraud Claims in Court

Published on: November 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In New York Court of Appeals, MBIA Insurance Corp. and Credit Suisse Securities USA LLC (CS) presented arguments over whether to resuscitate part of the $235M mortgage-backed securities case brought by the insurer against the financial firm. NY Supreme Court Judge Shirley Werner Kornreich previously took out the fraud claim in MBIA’s case after finding that bond insurer wanted the same damages from both that claim and its contract claim. MBIA has since appealed, arguing that Kornreich misread the facts presented, as well as the applicable case law.

The bond insurer contends that both the contract and fraud claims are separate and valid. Credit Suisse, meantime, maintains that contract and fraud claims are “duplicative.”

In addition to cutting the insurer’s fraud claim from the lawsuit, Kornreich rejected MBIA’s request that she find that Credit Suisse breached its warranties regarding the mortgages’ quality in about 29% of instances. The judge also called MBIA to task for not doing its own due diligence regarding the loans’ quality.

Securities Fraud Settlements: HSBC, Deutsche Bank, and Citi Settle Libor Class Action for $132M & RBS Settles Mortgage Bond Trading Case for $44M

Published on: October 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Royal Bank of Scotland Settles DOJ RMBS Fraud Probe for $44M
Royal Bank of Scotland Group Plc (RBS) has agreed to a non-prosecution deal with the US Justice Department to resolve a criminal probe accusing traders of defrauding residential mortgage-backed securities (RMBS) and collateralized loan obligation (CLO) customers. As part of the settlement, RBS will pay a $35M fine. It will also pay at least $9M to over 30 customers, including affiliates of Barclays (BARC), Goldman Sachs (GS), Bank of America (BAC), Citigroup (C) and Morgan Stanley (MS), as well as to the Soros Fund Management and Pacific Investment Management Co. RBS admitted to the misconduct.

The bank’s fraud involved mortgage-backed securities, asset-backed securities, and commercial mortgage-backed securities. The group that handled these securities for the bank is no longer in operation.

According to prosecutors, from ’08 to ’13, RBS lied about bond prices, charged unwarranted commissions, and hid the fraud, all the while enhancing its own profits and costing customers money. In a joint press release, the DOJ and the Special Inspector General for the Troubled Asset Relief Program said that the bank’s employees were encouraged to engage in the wrongful behavior, including misrepresenting material facts to customers, lying about the seller’s asking price to the buyer and lying about the buyer’s asking price to the seller, pocketing the difference between what the buyer paid and what the seller received, and misrepresenting that a non-existent third party was involved in the bond sales so that the bank could charge the extra, unwarranted commission. RBS is also accused of training its CLO and RMBS traders to engage in the fraudulent practices, lying to customers that suspected the fraud, and disregarding its employees who complained about the fraud.

Securities Cases: NYSE Regulation Files Complaint Against Wedbush Securities, Ex-Apollo Management Sr. Partner is Accused of Billing Investors for Salon Visits & Vacations, and NY Money Manager & Ex-Investment Adviser Get Prison Sentences for Fraud

Published on: October 31, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Wedbush Securities Accused of Failing to Oversee Owner, Who May Have Cherry Picked Investments
The NYSE Regulation has filed a disciplinary case against Wedbush Securities Inc. accusing the firm of not properly overseeing the trading activities of firm owner and principal Edward Wedbush. According to the complaint, Mr. Wedbush, “actively” managed and traded in over 70 accounts and he had limited power over attorney over the accounts of relatives, friends, and some staff members. NYSE contends that he was never properly overseen, which increased the possibility of conflicts and manipulation, including cherry picking. For example, the regulator believes that the inadequate supervision of Mr. Wedbush gave him the “unchecked ability” to give the best trades to family members and himself because there was no system in place to make sure trades were fairly allocated.

Wedbush Securities has previously been subject to at least $4.1M over supervisory deficiencies. Last year, the Financial Industry Regulatory Authority ordered Mr. Wedbush to pay $50K for supervisory deficiencies involving regulatory filings. He also was suspended for 31 days from serving as a principal.

Wedbush Securities has been named in investor fraud complaints over the handling of their money.

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.