Investor Lawyers Blog

Aurelius Capital Files Lawsuit Seeking To Have Puerto Rico Bankruptcy Case Dismissed

Published on: August 7, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In the United States District Court in San Juan, the hedge fund Aurelius Capital has filed a lawsuit seeking to have Puerto Rico’s bankruptcy case dismissed. Aurelius Capital is the holder of more than $470 million of Puerto Rico General Obligation bonds (“GO Bonds”). All Puerto Rico GO bonds were supposed to have been guaranteed under the Commonwealth’s constitution. Now, however, GO bonds are subject to a five-year plan that could force bondholders to take substantial reductions on what they are owed upon repayment.

Puerto Rico filed for Title III bankruptcy protection in May. Although bankruptcy protection was not originally available to Puerto Rico, under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), the law was changed to allow for Puerto Rico to file a bankrupt-like procedure if it could not resolve all of its debt with bondholders.

As with other bankruptcies, the island has been granted a “stay” from creditors. Now, Aurelius wants the federal court to lift the stay, which has prevented it and other creditors from suing the Puerto Rican government.

Texas-Based Oil and Gas Company CEO Accused of Misappropriating Investor Funds

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

William Alexander Swell and his 7S Oil & Gas, which is a Texas-based oil and gas company, will pay $750K for allegedly misleading investors about commissions and administrative costs and for misappropriating a significant amount of their money. According to the US Securities and Exchange Commission, the oil and gas company and its CEO raised nearly $7M from at least 70 investors in the US via unregistered offerings in oil and gas projects. Securities were sold to investors as units in eight of these joint venture projects. All of the projects were based in Texas.

In its complaint, the regulator accused Sewell and 7S of bringing in investors through sales agents and YouTube videos, one of which guaranteed “some type of return.” Meantime, offering documents in the alleged Texas securities fraud purportedly stated that no more than 10% of investor funds would go toward marketing costs, commissions, and salaries, while 85% would be used on oil and gas operations.

Instead, the SEC is claiming, sales agents received up to 35% in commissions from investor proceeds while only 57% maximum of investor money went to the wells. Sewell and 7S are accused of using over $90K of investor funds on entertainment bills, his children’s school tuition, and other personal expenditures. “Sham ‘royalty payments’” were allegedly issued to some investors to make it appear as if they were getting a return on their investments.

Securities Fraud: Ex-Gerova Financial Head is Sentenced to Six Years, Black Elk Claims Reinsurer Aided Platinum Fund Scam, and Bank of Tokyo-Mitsubishi Is Accused of Spoofing

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

Ex-Gerova Financial Group Head is Sentenced in $72M Fraud

Gary Hirst, the former president of Gerova Financial Group who was convicted of securities fraud and wire fraud last year, has been sentenced to six years behind bars. Hirst defrauded Gerova shareholders when he secretly gave away almost $72M of company stock to co-conspirators and himself.

He and his co-conspirators are accused of issuing huge quantities of stock and bilking stockholders and the investing public in order to earn millions of dollars in ill-gotten gains. Hirst and one of the co-conspirators, Jason Galanis, had gained enough control of Gerova that they could engage in transactions to enrich themselves and others even as they worked to conceal the scam.

Massachusetts Files Criminal Charges Against Charges Hedge Fund Manager Over Multi-Million Dollar Ponzi-Like Scam

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

Prosecutors in Massachusetts have filed charges against hedge fund manager Raymond Montoya for allegedly bilking investors of millions of dollars in a Ponzi-like scam. The criminal charges against him include wire fraud and mail fraud, and they come two months after state regulators brought their own charges against him.

Montoya ran the hedge fund RMA Strategic Opportunity Fund LLC. He is accused of misusing millions of dollars of investors’ funds to pay back earlier investors, as well as to pay for his son’s mortgage along with luxury items and expenses. The criminal complaint stated that Montoya told investors that RMA held about $4B in assets under management and employed proprietary software to predict stock price changes.

In reality, contend prosecutors, the hedge fund manager oversaw less than $100M and invested just part of victim’s funds.

Four Ex-Brokers Accused of Fraud that Allegedly Targeted Federal Retirees

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

The US Securities and Exchange Commission has filed charges against four former brokers for allegedly persuading federal employees to roll over holdings from federal retirement accounts into variable annuity products that charged higher fees. Their targets were Thrift Savings Plan (TSP) participants. The plan is administered by the Federal Retirement Thrift Investment Board, which is an independent government agency.

According to the regulator’s broker fraud case, then-brokers Jonathan Cooke, Christopher Laws, Brandon Long, and Danny Hoode promoted the VA products under the Federal Employee Benefits Counselors because they wanted the high commissions. Their alleged victims were federal employees who were 59 ½ years of age and older and with TSP account holdings that could be moved over into variable annuities, tax-free, in certain plans at annuity carriers.

Ex-Brokers Made High Commissions From the Alleged Elder Investor Fraud

SEC Cases: Charges Filed Against Massachusetts Man Accused of Misappropriating Investor Funds to Pay Rent of Fiancée’s Restaurants & $2M Offering Fraud Allegedly Targeted 70 Non-Accredited Investors

Published on: July 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Businessman Accused of Taking Investors’ Money That Was Supposed to Go Toward Fighting Cancer
In a complaint brought by the SEC, the regulator has filed securities fraud charges against Patrick Muraca, a Massachusetts businessmen, accusing him of misappropriating investments that were supposed to go toward helping to develop cancer diagnostic tests. Instead, Muraca, who raised almost $1.2M through MetaboRX LLC and NanoMolecularDX LLC, allegedly transferred $400K of these funds to pay the rent of his fiancées restaurant businesses as well as for other purchases.

Now, the regulator is charging Muraca and his companies with Securities Act of 1933, Section 17(a) violations and Securities Exchange Act of 1934 Section 10(b) and Rule 10b-5 violations. The SEC wants disgorgement of ill-gotten gains, interest, and penalties.

Meantime, prosecutors have brought related criminal charges against Muraca.

Securities News: Deutsche Bank, Citigroup, JPMorgan, and Interactive Brokers Are Fined for Market Access Violations & Halliburton Settles FCPA Charges for $29.2M

Published on: July 28, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Four Firms Are Ordered to Pay $4.75M for Market Access Rule Violations

The Financial Industry Regulatory Authority, CBOE Holdings company Bats, the New York Stock Exchange, NASDAQ, and their affiliated Exchanges have fined four financial firms $4.75M collectively for violating the Securities Exchange Act of 1934’s Rule 15c3-5, which is also known as the Market Access Rule. The fines are: $2.5M for Deutsche Bank (DB), $800K for J.P. Morgan (JPM), $1M for Citigroup (C), and $450K for Interactive Brokers (IBKR).

The firms have given market access to quite a number clients that engage in millions of trades daily. However, according to FINRA, Bats, NASDAQ, and NYSE, when doing so, they purportedly did not comply with at least one of the Market Access Rule’s provisions when they did not put in place certain risk management controls and procedures so that orders that were “erroneous or duplicative,” or went beyond certain kinds of thresholds, could be detected or prevented. The firms are also accused of not having systems in place for properly supervising customer trading so that “potentially volatile and manipulative activity” could be avoided.

Libor to Be Phased Out in 2021

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

According to Andrew Bailey, the head of the UK Financial Conduct Authority, the London interbank offered rate (Libor) will be scrapped by the end of 2021. The British regulator intends to phase out the key interest benchmark, which is the underlying rate for over $350 trillion dollars of financial products, and bring in new measures that are more connected with the lending market.

One potential replacement reportedly under consideration is contracts with the Sterling Overnight Index Average, also known as Sonio. This alternative derivatives reference rate is almost free of risks and deals with overnight funding rates in the unsecured sterling market. Another option being explored is the Treasuries repo rate, which is tied to the cost of borrowing money that has been secured against US government debt.

Libor is set by 20 banks that every day turn in the rates at which they are ready to lend to other banks at different maturities and in five currencies over certain time periods. It has a global impact. Libor is used for setting the price that businesses should pay for loans and people should pay for mortgages. It also is a factor in derivative pricing.

SEC Announces Two Whistleblower Awards of $2.5M and $1.7M, Respectively

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

The US Securities and Exchange Commission has announced two whistleblower awards this week. The first is almost $2.5M to an employee of a US government agency whose tip helped instigate the regulator’s probe into the alleged misconduct. This individual provided additional help that allowed the SEC to “address” the issue and accelerate the speed of the enforcement investigation.

Two days later, the SEC announced another award, this one for over $1.7M to a company insider who handed over key information to stop a fraud that might have been hard to detect without this person’s help. As a result, investors that were harmed were able to recover millions of dollars.

To date, since the SEC instituted its whistleblower award program, 46 individuals who voluntarily gave original and helpful information leading to a successful enforcement probe have been awarded $158M. To qualify for an award, money collected from the enforcement sanctions must be more than $1M, at which point the whistleblower may be entitled to 10-30% of these funds.

Texas Company Settles SEC Charges Alleging Oil and Gas Offering Fraud

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

In the U.S. District Court for the Western District of Texas, Petroforce Energy LLC and its founder William Veasey have consented to pay almost $300K to resolve charges brought by the Securities and Exchange Commission in an oil-and-gas offering fraud. The Austin-based company and Veasy raised close to $3.9M from about 80 investors in four allegedly fraudulent offerings. Some investors backed more than one offer.

According to the regulator’s complaint, Veasey and Petroforce gave materials to investors that included misleading and false statements regarding the investments. These inaccurate statements allegedly misrepresented certain operational issues that impacted an earlier offering, overstated the wells’ profitability, and understated certain expenses. Other key information, including tax benefits involving the offerings, were also allegedly misrepresented.

The SEC Commission is accusing two Petroforce sales agents of acting as unregistered brokers in the oil and gas offering fraud. Javier Avarado and Ivan Turrentine, along with Veasey, offered and sold limited partnership and joint venture interests to investors in Petroforce securities. All of them made money from the sales.