Investor Lawyers Blog

Investor Fraud: Massachusetts Adviser Sentenced in Cherry Picking Scam, Jury Convicts Indiana Man Accused of Bilking 22 Clients, Lawyer Accused of Bilking EB-5 Immigrant Program Investors, and Fake Fund Manager Will Go to Prison

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

Investment Advisory Firm Founder Gets 2-Year Prison Term, Will Pay $1.3M for Fraud
Michael J. Breton, a Massachusetts investment adviser, has been sentenced to two years behind bars for running a cherry picking scam that allowed him to bilk clients. Breton, the founder of Strategic Capital Management, admitted to keeping profitable trades for himself while making unprofitable ones for customers. Breton has been ordered to pay them $1.3M in restitution.

The cherry picking scheme went on for six years, bilking 30 investors. According to regulators and prosecutors, when certain companies were slated to announce earnings announcements, Breton would purchase securities through a master account or via block trading. When the earnings news would raise a stock’s price, Breton would keep the trades. When an earnings announcement would cause a stock’s price to go down,
he would disburse these trades to clients.

Jury Convicts Indiana Investment Advisor of Securities Fraud
This week in Pittsburgh, a jury convicted Bernard Parker of mail fraud, securities fraud, and of filing false tax returns. Parker, who was the principal of Parker Financial Services, is accused of bilking 22 clients of over $1.2M and falsifying his US tax returns by not including over $790K in income.

FINRA Fines Wells Fargo $3.25M Over OTC Options Trading Reporting

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

The Financial Industry Regulatory Authority is ordering Wells Fargo Securities (WFC) to pay a $3.25M fine for inaccuracies and mistakes in its reporting for over-the-counter trades that took place between January 2008 and March 2017. The self-regulatory organization also has censured the firm.

According to FINRA, in 2008, Wells Fargo (WFC) reviewed its OTC options trading reporting procedures. It went on to set up systems for reporting these types of trades. However, the firm’s reporting system was never fully established.

Wells Fargo Securities did not actually start reporting OTC options trades until after the firm achieved self-clearing status in 2014. Even then, claims the SRO, Wells Fargo either did not report or was inaccurate when reporting quite a number of these trades.

UK Files Criminal Charges Against Barclays With Fraud Involving Qatari Investors

Published on: June 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The United Kingdom’s Serious Fraud Office has charged Barclays (BARC) and four of its ex-executives with criminal fraud involving money used to rescue the bank during the height of the 2008 financial crisis. The government has been investigating the ways in which Barclays sought out Qatari investors to help it stay afloat during that time so that the bank wouldn’t need a bailout. Barclays is also under investigation in the US by the Securities and Exchange Commission and the Department of Justice over payments that Barclays made to Middle Eastern officials.

During two emergency cash calls in 2008, investors put in $15B total, with Barclays stating in filings that it paid £322 million in “advisory services” to them. Shareholders were at first not apprised of this agreement between the bank and Qatari investors. Also, in 2008, Barclays issued a $3B loan facility to Qatar.

In the UK, it is against the law for a company to give money to a party in exchange for the latter’s purchase of company shares. Barclays has denied that the $3B loan was for the purchase of shares by investors. It also has argued that payments it received for advisory services were for actual business purposes. However, the Serious Fraud Office is alleging that the $3B loan to Qatar just weeks after getting funding from investors could be considered a fraudulent capital increase in a scam by Barclays to lend itself funds.

Market Rigging: NJ Stock Promoters Face SEC Charges, Another Pleads Guilty to Criminal Charges, and Engineer is Accused of Manipulating Fitbit’s Stock

Published on: June 21, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Stock Promoters Accused in Pump-and-Dump Scam
The US Securities and Exchange Commission has filed fraud charges against James M. Farinella, his Integrated Capital Partners Inc., Anthony Amado, and his Equity Awareness Group with fraud over the alleged inflation and manipulation of a microcap company’s share price. As a result of the alleged pump-and-dump scam, the fraud made over $1M.

According to the regulator, Farinella and his consulting firm controlled almost the whole public float of stock in Pazoo Inc. Farinella paid Amado’s company to promote the microcap issuer and take part in matched trading to make it appear as if there was market activity for the stock. Amado and one of his employees, Carlo Palomino, are accused of enacting the scam, which allowed Farinella to make over $1M when dumping the Pazoo shares.

New Jersey prosecutors have filed criminal charges against Farinella over the microcap fraud allegations.

Securities Fraud: Ex-American Reality Capital Properties CFO is On Trial, Abu Dhabi Investor’s Lawsuit Against Citibank is Revived, and Drivers File Class Action Case Against Juno

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

Former REIT CFO’s Criminal Trial is Under Way
Brian Block, the ex-American Realty Capital Properties CFO, is on trial over his alleged involvement in accounting errors that led to the former Nicholas Schorsch-controlled real estate investment trust’s release of inaccurate financial statements during the first two quarters of 2014. As a result of the inaccuracies, ARCP overstated its adjusted funds from operations (AFFO) by about $12M for the end of that first quarter and by about $10.9M for the second quarter while understating its net losses.

This week, Lisa McAlister, a key witness and ARCP’s ex-chief accounting officer gave testimony. She suggested that Schorsch, the REIT’s CEO and chairman at the time, instructed Block on how to distort the number in the books. Block was McAlister’s boss at ARCP.

McAlister said that she was in the room when Schorsch advised Block on how to hide the fraudulent accounting. McAlister said that Schorsch, who has not been charged with wrongdoing in the accounting mistakes, was instructing Block on how to compensate for a 3-cent shortfall in ARCP’s targeted AFFO/share by fudging a certain line item.

McAlister has already pleaded guilty to fraud charges over ARCP’s accounting irregularities.

$70M Ponzi Scam Leads to 5-Year Prison Term for Texas Man Who Bilked Christian Investors in Affinity Fraud

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

Stephen J. Hatch, the mastermind of a $70M Arizona Ponzi scam, has been sentenced to five years in prison. Hatch, who pleaded guilty to fraud, targeted Christian investors, causing many of them to lose their life savings.

As part of his plea deal, the Texas man agreed to pay back $1M to investors. Meantime, prosecutors agreed to not file criminal charges against Hatch’s children.

Many of his victims were family members and friends. Hatch persuaded 110 investors to back various real estate properties by promising double digit returns on land deals.

Benchmark Rigging: Deutsche Bank to Pay $170M Over Euribor Fixing Allegations, UK Court Agrees to Hear Libor Swaps Case Against RBS, and Ex-Barclays, Citigroup, and JPMorgan Traders to Face Currency Manipulation Charges in the US

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

Deutsche Bank Settle Investor Lawsuit Over Euribor Rigging
Deutsche Bank AG (DB) has agreed to pay $170M to resolve an investor fraud lawsuit accusing the German lender of conspiring with other banks to rig Euribor and other derivatives. Euribor is the European Interbank Offered Rate benchmark and the euro-denomination equivalent of Libor, which is the London Interbank Offered Rate.

FrontPoint Australian Opportunities Trust and the California State Teachers Retirement System (CalSTRS) are two of the plaintiffs in the Euribor rigging case against Deutsche Bank. However, the bank, despite settling, is not denying or admitting to wrongdoing. It claims to have decided to resolve the case to avoid more lawsuits and further costs.

A preliminary settlement has been submitted in the U.S. District Court in Manhattan. Now, a judge must approve the deal.

Jury Finds One Former Nomura Trader Guilty, Acquits Another in RMBS Fraud Case

Published on: June 15, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A jury has found Michael Gramins guilty of conspiracy to lie about mortgage bond prices. Gramins was one of three ex-Nomura (NMR) residential mortgage-backed securities traders charged with fraud and accused of defrauding clients of millions of dollars.

Aside from the guilty RMBS fraud verdict for conspiracy, Gramins was found not guilty of six fraud counts. The jury did not arrive at a verdict on two other charges against him.

Meantime, ex-Nomura trader Tyler Peters was acquitted on all of the criminal fraud charges against him. Although jurors cleared former Nomura trader Ross Shapiro of eight fraud counts, they were unable to arrive at a verdict regarding one conspiracy count against him. It wll be up to prosecutors to decide whether they want to retry Gramins and Shapiro on the counts that were not resolved.

FINRA Promises To Take Tougher Stance With Rogue Brokers

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

The Financial Industry Regulatory has barred Lawrence M. Thomas, an ex-Woodbury Financial Services Inc. broker who was under investigation for unauthorized product sales. Thomas was previously registered with Essex Securities.

Last year, Thomas was fined $5K and suspended for three months after he consented to findings that he told an assistant to forge three customers’ signatures on about 10 documents. FINRA had been looking into whether Thomas recommended to Woodbury clients that they purchase an unauthorized product. The self-regulatory organization barred him after he failed to testify in FINRA’s investigation into the claims.

In an unrelated FINRA case, the SRO has filed charges against Kim Dee Isaacson, an ex-Morgan Stanley (MS) broker, for allegedly misleading a client about the size of his account, engaging in unauthorized trading, and attempting to resolve these issues directly with the client instead of along with the firm. According to FINRA, Isaacson told the client that the account was valued at $3.1M even though that was false.

Institutional Investor is Lead Plaintiff In Securities Case Claiming $300M in Shareholder Losses

Published on: June 12, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The Arkansas Teacher Retirement System is now the lead plaintiff in the class action securities fraud case against Babcock & Wilcox Enterprises. The energy company is accused of hiding significant losses. When Babcock & Wilcox finally disclosed that it was having problems, shareholders lost $300M after the stock price fell.

Prior to that disclosure, the company had admitted to losses involving just one plant that it was constructing in Europe. However, last February 28, the company disclosed that the losses had impacted other projects.

The class action securities case alleges misrepresentation and fraud. It names Babcock & Wilcox, CFO Jenny Apker, and CEO Jim Ferland as defendants. The plaintiffs are accusing them of involvement in a scam to fool the market while engaging in conduct to artificially raise the company’s share price through the concealment of issues in its waste-to-energy business. Business Journal reports that investors are referring to B & W’s eventual admission that up to seven of its projects in Europe had collectively suffered $140M in losses last year.