Investor Lawyers Blog

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.

Wells Fargo Brokerage Firms Ordered to Pay $3.4M Over Unsuitable Exchange-Traded Product Recommendations

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

The Financial Industry Regulatory Authority said that Wells Fargo Advisors Financial Network and Wells Fargo Clearing Services LLC must pay over $3.4M in restitution to customers who were impacted by unsuitable recommendations involving exchange-traded products and the supervisory failures involved. By settling, Wells Fargo (WFC) is not denying or admitting to the regulator’s charges.

According to FINRA, between 7/1/200 and 5/1/2012, there were registered representatives at Wells Fargo (WFC) who recommended these volatility-linked ETPs without fully comprehending the investments’ features and risks. The self-regulatory organization also found that the broker-dealer did not put into place a supervisory system that was reasonable enough to properly supervise the ETP sales during the period at issue.

The regulator said that the brokers did not have reasonable grounds for recommending these ETPs to customers whose risk profiles and investment goals were considered moderate or conservative. The representatives are accused of making inappropriate recommendations about when to leave these positions in a “timely manner.”

Oppenheimer Funds and Other Mainland Funds Take Financial Hit in the Wake Up of Hurricanes

Published on: October 14, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The financial fallout caused by Hurricanes Irma and Maria is being felt not just on the island of Puerto Rico, but in the U.S. mainland as well. Puerto Rico bonds, which were already in trouble prior to the storms because of the island’s faltering economy and bankruptcy, are expected to take even more of a hit. Moody’s Investors Service assesses the future of the bonds, which were already at a Caa3 rating, as negative. The ratings agency said that the “disruption of commerce” caused by hurricanes will drain Puerto Rico’s “already weak economy” further. All of this is expected to impact not just the Puerto Rico bonds but also the mutual funds based on the U.S. mainland that hold them, which means that investors will be impacted.

According to InvestmentNews, Morningstar stated that 15 municipal bond funds, “14 of them from Oppenheimer Funds (OPY),” have at least 10 % of their portfolios in the island’s bonds. The 15th fund is from Mainstay. Morningstar reported that through September 28, the funds lost a 1.57% average for the month. The Oppenheimer Rochester Maryland Municipal Bond (ORMDX), which has 26% of its portfolio in Puerto Rico bonds, was considered the worst performer. In addition to Oppenheimer and Mainstay, other U.S.-based funds that are losing money from Puerto Rico bonds, include, as reported by The New York Times:

· Paulson & Co., which has invested billions of dollars in Puerto Rico securities. The Wall Street firm is run by hedge fund manager John A. Paulson.

SEC Cases: Whistleblower Awarded Over $1M, Lawyers Accused in Microcap Fraud, and Former Executives Are Charged in $3.3B Accounting Fraud Involving Homex

Published on: October 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Latest Whistleblower Award Raises Total Granted to $162M
The US Securities and Exchange Commission has awarded a whistleblower over $1M for providing “new information and substantial corroborating documentation” that allowed the regulator to bring a successful enforcement action. The securities violation involved a registered entity and had affected retail investors.

This latest award means that the SEC has now awarded over $162M to 47 whistleblowers since the awards program went into effect in 2013. Whistleblowers who give the Commission unique and “credible” information resulting in a successful enforcement case are eligible to receive 10-30% of the funds collected when the monetary sanction imposed is over $1M.

Attorneys Accused of Involvement in Microcap Fraud Scam
The SEC is accusing James M. Schneider and Andrew H. Wilson of involvement in a microcap fraud that involved more than 20 blank check companies that were sold in reverse mergers. Now, the regulator wants ill-gotten gains, civil penalties from the two lawyers, and other relief. A related criminal fraud case has also been brought against Schneider.

SEC Charges Investment Adviser With Defrauding Seniors Who Were His Friends

Published on: October 13, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed charges against investment adviser Tarek D. Bahgat for allegedly stealing $378K from clients. Bahgat is accused of misappropriating funds from seven investment advisory clients, most of whom were elderly investors.

According to the regulator, from December 2014 through September 2016, Bahgat, using the alias Terry Dean Bahgat, misappropriated the clients’ funds online and transferred the money to his own account and that of WealthCFO, which was the payroll and accounting company that he controlled. FINRA’s BrokerCheck database shows that Bahgat was working for two brokerage firms: Cambridge Investment Research and Gradient Securities. After exiting Gradient, he was a state-registered advisor and used the name WealthCFO Partners.

The SEC’s complaint claims that Bahgat would sometimes obtain the internet bill-paying privileges in some client accounts by pretending to be the client or having his assistant, Lauramarie Colangelo, pose as the client during phone calls with the brokerage firms that held the accounts. Colangelo was the operations manager of WealthCFO.