Investor Lawyers Blog

Hilliard Lyons Ordered to Pay $569K For Allegedly Overconcentrating Accounts in Breitburn Energy Partners

Published on: September 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A Financial Industry Regulatory Authority arbitration panel has ruled that Hilliard Lyons LLC must pay claimants Troy and Elizabeth Benitone $569K. Hilliard Lyons, the wealth investment firm is accused of overconcentrating the Benitones’ accounts in Breitburn Energy Partners stock.

The claimants, in their oil and gas fraud case, alleged breach of fiduciary duty, negligent misrepresentation and omission, common law fraud, breach of contract, and negligence supervision. The Benitones contend that Hilliard Lyons and its registered representative sold all of the claimants’ blue chip stocks, investing the money that was in their joint account and in Troy’s IRA in Breitburn. They lost $350K, with statutory damages at 10% on the purchase cost at $441K, from being over-concentrated in Breitburn.

The Benitones believe that it was the lack of diversification in their investments that put them at high risk of loss, especially as they had conservative investment goals and could not handle much risk at all. Also, Hilliard Lyons was the underwriter for the Breitburn Energy Partners stock.

SEC Hacking Raises Concerns That Rogue Traders Might Access Filings in EDGAR Before They Are Public

Published on: September 22, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to The Wall Street Journal, news that the US Securities and Exchange Commission’s electronic filing system was hacked is raising concerns of what rogue traders may do if they gained market-moving information before the news went public. This week, the SEC disclosed that that its Electronic Data Gathering, Analysis, and Retrieval System (EDGAR), which stores public company filings, was hacked last year.

While the breach was noticed in 2016, regulators were not made aware that illicit trading could become a repercussion until last month. The majority of the commissioners reportedly didn’t know the hack had occurred until “recent days.” It wasn’t until SEC Chairman Jay Clayton launched a review of the agency’s “cybersecurity vulnerabilities” this Spring that the extent of the hack became clear.

The WSJ reports that according to market veterans, there are several ways in which intruders could trade using the nonpublic information available through Edgar. Companies usually submit earnings filings in advance of them become public knowledge and it is during this time, before market release, when a rogue trader could strike. Another potential target for hackers might be the 8-K form, used by companies to disclose big events, including acquisitions, not yet disclosed medical trials, and other potentially market moving information. 13-D filings submitted by investors with a greater than 5% position in a company—this is information that could generate investor interest—could also be a target.

Former UBS Precious Metals Trader is Accused of Market Rigging

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

In the US, federal prosecutors have filed a complaint against ex-UBS (UBS) trader Andre Flotron, charging him with commodities fraud, wire fraud, conspiracy, and spoofing. The latter is what they claim that he engaged in to rig the precious metal futures market. Spoofing involves issuing bids or offers that are deceptive to manipulate a market.

According to the criminal complaint, Flotron and co-conspirators engaged in the alleged spoofing scam from at least 7/2008 through at least 11/2013. He would submit a small sell order or buy order for a certain futures contract, which would be close in price to the current market price. Flotron would then put in an order at least 10 times bigger on the market’s opposite side before cancelling the bigger order seconds after at least part of the order he made originally was put through.

Flotron also is accused of teaching a young trader how to spoof. The trader, who spoofed on numerous occasions, struck a nonprosecution deal in which he agreed to share information about the alleged spoofing.

Securities Fraud Cases: State Street to Pay Over $35M Over Alleged Secret Markup Charges and Material Omissions, Braskem to pay Investors $10M To Settle Lawsuit in Petrobas Scandal, & Three Ex-Registered Reps Resolve Market Rigging Case over Attempted Nasdaq Listing

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

State Street Resolves SEC Fraud Charges for $35M
To settle charges brought by the US Securities and Exchange Commission, State Street (STT) will pay over $35M to resolve charges accusing the financial firm of overcharging transition management customers in secret, purportedly making $20M in improper revenue in the process, and leaving out material information related to GovEx, the trading platform it uses for US Treasury securities. The charges against State Street were brought in two separate orders.

In the first SEC order, the firm is accused of using false trading statements, post-trade reports, and pre-trade estimates so it could misrepresent the compensation it received on different transactions. After one customer noticed certain concealed markups, State Street’s employees claimed that these were “inadvertent commissions.”

In the second order, the SEC said that the firm did not notify GovEx subscribers that although the trading platform had been touted as “fair and transparent,” one subscriber was given a “Last Look” option that briefly allowed for the opportunity to turn down matches to quotes that were submitted. The Last Look trading functionality was used by that subscriber to turn down 57 matches, each face valued at $1M. Counterparties were not notified by State Street that Last Look had rejected their orders.

Brothers Plead Guilty in $40M Oregon Ponzi Scam That Bilked 400 Investors

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

In US district court in Oregon, siblings Gary Holcomb and Michael Holcomb pleaded guilty to money laundering and felony conspiracy in a $40M Ponzi fraud that bilked approximately 40 investors. The brothers were formerly executives at financing company Berjac. The insurance business went bankrupt in 2012.

Berjac was supposed to issue loans to small businesses so they could pay their insurance premiums. The loans were considered low risk, with Berjac getting to keep an interest in the part of the insurance premium that went unused should a business default on a loan.

Investors were told they’d get quick returns by investing in Berjac, and as borrowers repaid the loans with interest. The financing company made it appear as if that were the case by instead paying investors with funds given to them by other investors in Ponzi-like fashion. Meantime, the Holcombs would issue quarterly statements that contained false information to investors, even as the brothers used the money to pay down their debt, purchase a vacation home, and get involved in speculative real estate projects. When Berjac failed, investors lost their principal investments.

Alleged $283M Institutional Investor Fraud Involving Biotech Companies Leads to Criminal Indictments

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

A federal grand jury has indicted two men for their alleged involvement in a nearly $230M institutional investor fraud scam involving biotech companies. G. Steven Burrill, the owner and CEO of Burrill & Company, and Marc Howard Berger are the two defendants named in the criminal indictment. Burrill is charged with 26 counts of wire fraud, one count of investment adviser fraud, and one count of tax evasion. Berger is charged with multiple accounts of aiding in preparing fraudulent tax returns.

According to the criminal indictment, Burrill sent letters that were false and misleading to persuade limited partners to give capital to the fund. He also allegedly moved millions of dollars in unnecessary management fees to companies under his control, as well as submitted the allegedly fraudulent tax returns.

It was in March of last year that Burrill settled civil charges brought by the US Securities and Exchange Commission accusing him of taking funds from the Burrill Life Sciences Capital Fund III in order to maintain his expensive lifestyle and keep some of his other businesses in operation. The regulator claimed that Burrill took from the Fund III and pretended that these were management fees he was issuing to himself in advance. He then allegedly went on to spend the money on vacations, jewelry, private planes, and other expenses.

Insider Trading: Ex-Amazon Financial Analyst Allegedly Tipped Former Fraternity Brother, Man Accused of Giving Merger Info to Brother, Ex-Pricewaterhouse Coopers Auditor is Subject of Securities Case, and Deutsche Börse to Pay $12.5M in Fines

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

Ex-Amazon Employee and Former College Schoolmate Accused of Insider Trading
The US Securities and Exchange Commission has brought civil insider trading charges against Brett Kennedy and Maziar Rezakhani. Kennedy, an ex- Amazon financial analyst, is accused of leaking confidential information to Rezakhani, who was a former fraternity brother, prior to a company earnings announcement for Amazon being disclosed to the public. Kennedy is also facing criminal charges.

According to the regulator, Kennedy shared the 2015 first quarter earnings information without authorization while employed at Amazon. Rezakhani then allegedly illegally traded on the information in advance of the information’s release to the public and he made over $116K in illicit profits.

Also, on two online communications platforms involving trading, Rezakhani accurately predicted Amazon’s first quarter performance. He is accused of paying Kennedy $10K for the tip and sharing the money with Sam Sadeghi, who gave him trading advice. Sadeghi also faces civil charges.

After Hurricane Maria and Loss of Power in Puerto Rico, PREPA Bondholders Could Lose Investments For Good

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

MarketWatch reports that with the power out for what could be months in Puerto Rico in the wake of Hurricane Maria, this could mean that investors holding $9 billion of Puerto Rico Electrical Authority (PREPA) bonds may end up never seeing the money they invested in the US territory’s electrical authority. Meantime, Puerto Rico’s residents must now also grapple with recovering from the physical devastation caused by the heavy rains, winds and flooding from Hurricane Maria.

The power outage comes just three months after PREPA filed for bankruptcy protection and the financial oversight board appointed to deal with the territory’s $74 billion of debt turned down a restructuring deal between the electrical authority and a group of insurers and bondholders. For many Puerto Rico investors, Hurricane Maria comes just four years after they sustained major losses from investing in Puerto Rico bonds and closed-end bond funds—securities that brokerage firms such as Santander Securities (SAN), Banco Popular, UBS Puerto Rico (UBS-PR), Oriental Financial Services and others touted as low risk, safe investments, even to customers who did not have the portfolio to handle the actual, higher risks involved.

Currently, there are thousands of Puerto Rico bond fraud and closed-end bond fraud cases awaiting arbitration hearings before the Financial Industry Regulatory Authority (FINRA). Our Puerto Rico bond fraud attorneys at Shepherd Smith Edwards and Kantas have been representing investors on the island and the US mainland in helping them try to recover these investment losses.

Securities Cases: SunTrust Settles Improper Mutual Fund Fee Charges for $1.1M, Ex-Morgan Stanley Barred Over Client He Later Married, and Two RIAs Are Barred for Cherry Picking

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

SEC Charges SunTrust With Collecting Over $1.1M in Excess Mutual Fund Fees

The US Securities and Exchange Commission has filed charges accusing SunTrust Investment Services of collecting over $1.1M in unwarranted fees from mutual fund clients. The SunTrust Banks subsidiary will pay an over $1.1M penalty to resolve the regulator’s civil charges.

According to the regulator’s order, SunTrust Investment Services improperly recommended costlier mutual fund share classes to clients when less expensive shares of these funds were available. The SEC says this was a breach of the investment services firm’s fiduciary duty to take actions in the client’s best interests.

FINRA Hearing Panel Orders C.L. King & Associates to Pay $750K Over Inadequate AML Program

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

A Financial Industry Regulatory Authority extended hearing panel has ordered brokerage firm C.L. King & Associates, Inc. to pay a $750,000 for purportedly acting negligently by making material representations and omissions to issuers in connections with debt securities redemptions for a hedge fund customer. The panel said that the broker-dealer and Gregg Alan Miller, its Anti-Money Laundering Compliance Officer, did not put into place a reasonable AML program and failed to adequately react to red flags indicating that the liquidation of billions of penny stock shares involving two customers might be signs of suspect activity. Miller has been suspended from fulfilling a principal role for half a year and he must pay a $20K fine.

Per the hearing panel’s ruling, the hedge fund’s manager set up joint accounts at the firm. A number of terminally ill people were given joint tenancy with survivorship rights to the accounts and they were paid $10K, after which they gave up their ownership rights to the assets in the accounts.

The accounts were used to buy corporate bonds at reduced rates that came with a survivor option. This feature made it possible for the manager, as the survivor of the joint account, to redeem investments from issuers through the brokerage firm for the full principal figure prior to maturity once the joint tenant had died. The FINRA panel said that CL King had a duty to let issuers know when the redemption process was taking place that the joint tenants that were terminally ill and not beneficiaries of the investments.