Investor Lawyers Blog

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.

FINRA Claims That It Can’t Stop Firms From Hiring High-Risk Brokers

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

In interviews with Reuters, the Financial Industry Regulatory Authority admitted that even though investors are harmed when broker-dealers hire brokers with checkered histories, there is not much that the regulator can do to stop this practice because it is not illegal. This is undoubtedly causing even more investors to suffer losses as some of these high-risk brokers continue to engage in more misconduct or other violations at their new places of work.

For example, reports the news agency, since 2007 broker Mike McMahon and brokerage firms where he has worked, including National Securities Corporation, have shelled out $1.35M to resolve 10 client cases in which he was purportedly involved. McMahon is currently contending with another four broker fraud cases that were brought by other ex-clients.

One of the reasons the complaints keep coming is because he has been able to move from one firm to another even with the cases that have already been brought against him. Unfortunately, McMahon is not the only one.

US Supreme Court Restricts SEC’s Ability to Recover Monies Made from Illegal Conduct

Published on: June 10, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In Kokesh v. SEC, the US Supreme Court has restricted the US Securities and Exchange Commission’s ability to pursue disgorgement after five years have passed since the fraud alleged led to illegal profits. In a unanimous decision, the nation’s highest court said that that the five-year statute of limitations must be followed.

The securities fraud lawsuit was brought by Charles Kokesh, who was convicted for misappropriating funds from four investment companies that he controlled and using the money to support his expensive lifestyle. In 2015, a judge ordered Kokesh to pay a $2.4M civil penalty.

Additionally, because the SEC considered disgorgement to have no statute of limitations, the judge also ordered the businessman to pay $35M. This is how much he was calculated to have illegally made starting from when he began engaging in his illegal conduct, from 1995 to 2009.
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Bank of America Unit Settles Auction-Rate Securities Fraud Lawsuit by Tutor Perini for $37M

Published on: June 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch Pierce Fenner & Smith, a Bank of America (BAC) unit will pay Tutor Perini Corp. $37M to settle a securities case accusing the broker-dealer of selling the construction company millions of dollars of auction-rate securities (ARS) without giving it the heads up that the market was likely to experience a “spectacular crash.” Despite settling, neither party is admitting to wrongdoing.

Tutor Perini, which brought its ARS fraud case in 2011, claims that the brokerage firm, then called Banc of America Securities LLC, purposely directed it to buy ARS in 2008 even while knowing that the investments were problematic. By December 2007, the construction company had invested about $196M in ARSs. After the market failed Tutor Perini said that it had no choice but to sell the securities at a huge discount in a secondary market.

A district judge initially granted the broker-dealer summary judgment based on the determination that the construction company did not demonstrate misconduct by the Bank of America unit when the latter sold student loan-backed ARSs. Last year, however, the First Circuit partially reversed that ruling after finding that a jury could potentially determine that at least some of the ARSs bought by the construction company were a result of assessments that proved inaccurate because the broker-dealer did not examine certain key developments. Reviving the lawsuit, the federal appeals court said that dismissing certain Massachusetts state securities fraud claims and federal claims was a mistake.

Despite Bankruptcy and Massive Losses, Traders Are Still Selling Puerto Rico Bonds

Published on: June 9, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to Bloomberg, trading in Puerto Rico securities has gone up even after the U.S. territory filed for Title III bankruptcy protection last month. Over the last 50 days, $267.4 million of Commonwealth debt was the daily average that traded, which is more than the $195.9 million daily average from the last 200 days. Analyzing the increase, Matt Fabian of Municipal Market Analytics speculated to Bloomberg that investors who purchased the bonds might have assumed that the federally appointed financial control board tasked with fixing the island’s financial problems would succeed.

Puerto Rico owes more than $70 billion of bond debt and, additionally, has over $40 billion in unfunded pension liabilities. After talks with creditors went nowhere, Puerto Rico sought bankruptcy protection. Now, creditors will have to go to court to try to get back their losses.

However, those legal cases are being led by institutional investors, such as hedge funds and mutual funds. Nevertheless, retail investors and others continue to try to get back their investment losses starting from when Puerto Rico bonds and closed-end bond funds began plummeting almost four years ago. What seemed like a good investment—tax-exempt and allegedly low-risk—ended up proving catastrophic for many who were told, falsely, that investments were safe and appropriate for their portfolios. Hundreds were encouraged by brokers to borrow so they could invest even more money in these securities.

Two Former State Street Executives to Plead Guilty in Institutional Investor Fraud Involving Billions of Dollars of Trades

Published on: June 8, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Two of the three ex-State Street Corp.(STT) executives whom US prosecutors have charged with bilking six clients via secret commissions on billions of dollars of trades have agreed to plead guilty. Edward Penning, a former State Street Sr. managing director, and Richard Boomgaardt, the former head of the transition management desk for Africa, Europe, and the Middle East, will plead guilty to securities fraud and conspiring to commit wire fraud. Ex-State Street EVP Ross McLellan, who has pleaded not guilty to the criminal charges against him, is scheduled to go on trial later this year.

State Street is a custody bank based in Boston. Its unit that was involved in the securities fraud assists institutional clients in moving investments and liquidating big portfolios.

Penning, Boomgaardt, and McLellan were charged last year in a US probe. Earlier this year, State Street agreed to settle related criminal and civil probes over the men’s alleged misconduct for $64.6M. That’s a $32.3M criminal penalty to the US Justice Department and a $32.3M civil settlement to resolve the US Securities and Exchange Commission’s case. As part of the settlement, the firm admitted that it overcharged six clients of State Street’s transition management business by secretly billing them commissions on billions of dollars in securities trades, including equity trades and fixed-income trades. In 2014, State Street also paid a $38M fine to the UK Financial Conduct Authority for charging the same clients mark-ups for certain transactions.

Financial Representative Misconduct: Rep. Who Didn’t Disclose $100M in EB-5 Investment Sales is Barred From Securities Industry, Ex-Stifel, Nicolaus Broker is Suspended & Fined For Variable Annuity Violations, and Former Advisor is In Trouble Over Alleged Breaches Involving Senior Investors Accounts

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

Former Stifel, Nicolaus Broker is Accused of Variable Annuity Violations
The Financial Industry Regulatory Authority has suspended an ex-Stifel, Nicolaus (SF) broker for four months over variable annuity transactions that he purportedly inappropriately recommended to certain investors. At the time of the alleged variable annuity fraud, James Keith Cox worked with Sterne, Agee & Leach. Stifel Financial later acquired that firm.

According to the regulator, Cox recommended a number of VA transactions even though there was no reasonable grounds for thinking they were appropriate for the investors. In addition to the suspension, Cox will disgorge the $25,460 he was paid in commissions.

FINRA Bars California Man From Industry Over $100M in Undisclosed EB-5 Investment Sales
A FINRA hearing panels has barred a California-based registered representative for taking part in private securities transactions involving $100M in EB-5 Investments that he failed to disclose to his employer financial firm. Jim Seol sold the EB-5 investments through his business Western Regional Center Incorporated.

Former Sterne Agee Broker Pleads Guilty to Securities Fraud Involving NY Pension Fund

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

Deborah Kelley, an ex-Sterne Agee managing director and broker, has pleaded guilty to honest-services wire fraud and securities fraud. Kelley, admitted that she gave perks to former NY state pension fund manager Navnoor Kang in return for him directing trading business toward her firm. She could be sentenced to up to five years in prison. A second broker, Gregg Schonhorn, has already pleaded guilty to related criminal charges against him.

Kang, who was the portfolio manager of the New York State Common Retirement Fund, is accused of awarding the two brokers’ firms over $2B of business in return for drugs, strippers, vacations, and lavish jewelry.

As a result, contend prosecutors, the retirement fund’s domestic bond transactions to her firm went from $0 at the end of March 2014 to $179M in 2016. FTN Financial, which is where Schonhorn worked, ended up garnering $2.3B of business from working with the NY pension fund. The two brokers were paid 35-40% of the millions of dollars of commissions made by their brokerage firms.